"Rent-seeking, working outside the rules to profit from the arbitrage or theft opportunities created by the rules themselves… now, that is Cuba's national occupation."
On September 30th, the University of Miami in Coral Gables, Florida will host the first of the Presidential debates, focusing on domestic policy. What's odd is that “domestic” policy has a little different meaning down there. Lots of Miamians are second or third generation Cubanos, and they have some questions for the candidates. Like, “when do we get our property back?” and “what are you going to do about Castro?” While the moderator will steer talk toward conventional domestic topics, such as the economy, health care, and taxes, the audience will want the debate to look southwest, to Cuba, so close and yet so far.
Coral Gables is just over 220 miles from the Malecon, Havana's breathtaking front porch on the ocean. That's closer than Tallahassee, the Florida capital, and for Miamians that proximity means something real. For the rest of us, it seems strange that the politics of another country should have such an impact on our Presidential election. But there's no question that tens of thousands of Cuban-Americans in Florida, by supporting Bush, changed the outcome of the election in 2000. They may do it again in 2004. Is this domestic policy, or foreign policy, or some unique mix, a spicy guiso that can't be unmade?
I traveled to Cuba recently, and got to form my own impressions. I went on an educational exchange program, exempting me from U.S. travel restrictions. With some other American academics, I gave a series of lectures at the Center for the Study of the United States, at the University of Havana. Our hosts were particularly impressed with my color overheads. Being well paid to make the trip, I paid for the overheads myself rather than bill them to Duke—they had cost me about $1.50 per page to produce. Our hosts were professors and were also well paid, earning in some cases more than $20 per month. The idea that someone would pay nearly $30 to make 18 overheads, on his own, amazed them. I later found out that many of the professors also drove taxis on nights and weekends, since they could make a month's salary in tips in a couple of days.
While you need a visa to get into Cuba, you may as well leave your Mastercard on your dresser at home. Cubans take plastic, but they cannot accept cards issued by U.S. banks (because of the U.S. law). So Americans have to use currency. This is less of a problem than you'd think, because the currency everyone uses is American dollars. In fact, Cuba is one of the most dollarized economies in the world, and has been for more than a decade. If you try to change dollars for pesos, people look at you like you're crazy, or American. About the only thing pesos will buy, from the “state” stores, is dead flies and old soap powder solidified into bricks.
One thing you can do with your dollars is go out touring. We had a semi-private, but government approved, tour guide who went with us by taxi to several places around Havana. He was friendly, bright, and very energetic. I'll call him “Trino.”
At lunch, I asked Trino about himself. It turns out he had an advanced degree, the closest equivalent one could find to an MBA in Cuba. He wanted to start his own business, and had several plans about how to make it happen. We talked in general terms about what would happen when Castro finally passed on, the inevitable chaos of transition and the uncertainties afterward. I slowly realized that Trino was boiling mad, furious at the system he had to live in. More than anyone else I met, this tour guide made me feel the tragedy of “modern” Cuba.
He had big plans, huge ambitions. But he had to go to Morro Castle, or Hemingway's house, or some other attraction, every day and listen to idiot tourists (like me) ask the same questions. “Do they have those six-toed cats here?” “No, no, that was Hemingway's other house, the one in Key West.” (KILLMEGOD- KILLMEGOD- KILLME!). Trino's life was ticking by, and he couldn't make any money, in spite of living in the greatest potential tourist/development profit spot in the world. He knew just what to do, and how to do it. But Castro's secular religion of sacrifice and fake altruism kept Trino in chains.
There is prime real estate, right on the Malecon, where the ocean vistas are unsurpassed and the buildings are uninhabitable. Some visitors ask if these buildings were damaged in the revolution. No; they have been damaged by the Revolution, a little at a time, for nearly four decades. Whole blocks are crying concrete tears, which lay in the streets, exuding defective rebar. These crumbling monuments to human stupidity crowded right up to the waterfront, just where the grand mansions full of light and joy and employed people should have been.
I asked our hosts back at the University why these properties weren't being renovated, or just torn down for new development. They earnestly explained that investment in real estate was complicated by the facts that (1) one couldn't obtain loans, because capital is barren and interest is theft, and (2) one can't own property anyway, because it is owned by the state.
I tried to argue that there was a big difference between a complicated situation and a set of rules that elevated control over liberty, privileging conformity over achievement. I didn't get very far, though, so I went back to eating camarones and drinking rum, without getting angry, and knowing I would leave soon. Trino, on the other hand, had to ride by these great gold mines every day. No wonder he was angry—it was tragic. Literally no one is served by the existing system, because in the Cuban system self-interest doesn't count. All you would have to do is take ten 26 year-old entrepreneurs like Trino, open up a financial system for direct foreign investment, and endorse private property. Within three years, each Trino would be making $25,000 a month. Hundreds of people would be employed, each of them also making good money, on the projects that Trino would create out of the ragged nothing that is there now. The world would see a net increase in value, because of focused and directed economic activity, if the damned state would just stop trying to focus and direct all economic activity. The Malecon would be beautiful, even if you turn away from the ocean and look across the street.
One other guy I met is worth mentioning. He is not unique to Cuba; his ilk is found in any police state. He was charming, amusing, and completely untrustworthy, so we liked him immediately. “Evaristo” was selling contraband cigars. The cool part is that he was doing it openly, in (I'm not kidding) the government cigar shop. To be fair, he wasn't actually selling cigars there. He was trying to hook people into walking across the street with him and buying the same cigars at less than half price, avoiding all those nasty taxes and laws and things.
I fear tax dodges and black market transactions, since governments have men with guns. So, I paid $80 for ten cigars in the government shop, and got my receipt for U.S. Customs. Then I followed Evaristo and the other profs half a block (good hiding spot!) to the “private” cigar shop.
There was nothing on the first floor, including light or air (I may have been hyperventilating by this time). Being a coward, I hung back while they went upstairs. After two days, or maybe 20 minutes, my colleagues came down beaming. They had gotten twice as many cigars, at less than half the price.
My tour guide Trino was, in his own mind at least, a failure. But Evaristo the cigar man had found a niche, a way to be successful. These archetypes embody Cuba's tragedy and her hope. On the plus side, the population is smart, reasonably well-educated, and hungry for a better life. They respond to incentives, just like economics predicts.
On the negative side, the incentives of the Cuban system are necrotic. Entreprenuership (making money by creating value) is sharply discouraged. Police, financial restrictions, explicit laws and informal norms of “equality” all combine to suppress investment.
But rent-seeking, working outside the rules to profit from the arbitrage or theft opportunities created by the rules themselves… now, that is Cuba's national occupation. Evaristo wasn't producing anything. He was just moving goods around and reselling them, his profit margins created not by resource scarcities but by tax differentials. He was making money hand over fist, but creating no value whatsoever.
The thing that you have to understand about Cuba, the thing that I myself can't really grasp and have so much trouble communicating, is that this mess is not an accident. Neither is it the product of Yankee oppression. Cuba is this way because that's how thinkers of the Revolution designed it. To get some hint of what they were trying to achieve, consider this passage from Che Guevara's “Man and Socialism in Cuba” (1965).
Society as a whole must become a huge school.... We can see the new man who begins to emerge in this period of the building of socialism. His image is as yet unfinished; in fact it will never be finished, since the process advances parallel the development of new economic forms. Discounting those whose lack of education makes them tend toward the solitary road, towards the satisfaction of their ambitions, there are others who, even within this new picture of over-all advances, tend to march in isolation from the accompanying mass. What is more important is that people become more aware every day of the need to incorporate themselves into society and of their own importance as motors of that society.
Che Guevera was what Adam Smith called a man of system: "The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." The rest of the quote is in The Theory of Moral Sentiments, Part VI, par. VI.II.42.
Honestly, I admire Guevara. He was an impossibly attractive combination of intellect, physical vigor, and sensitivity to suffering, and looked hot in the beret. But he was dead wrong about the good society. For one thing, there are no “new economic forms.” There are command economies, where people are told to do things they don't want to do. The alternative is market economies, where people do what they want to do. It is actually people pursuing “the satisfaction of their ambitions” who are the real motors, the only motors, of a healthy society. Forcing citizens to “incorporate themselves into society” creates tragic figures like Trino, bright ambitious people descending into a living grave.
On August 13, Fidel Castro will be 78. The next President of the United States, whether Bush or Kerry, almost certainly will have an historic opportunity, because with Castro's end will end the “Revolution.” We will need a policy to respond to that end, because it is also a beginning.
Cuba is no longer our enemy. Its armed forces are toothless, and its anti-US rhetoric is tired, repeated out of habit rather than conviction. The current sanctions, imposed unilaterally by the U.S. and widely flouted by other nations, should be ended as soon as possible. The economic benefits to the U.S., and a decent concern for ending the suffering of the Cuban population, demands that travel restrictions, trade restrictions, and limits on foreign investment should all be relaxed.
But what of the political problem? That's where I came in: the Miami debate matters for Cuban expatriates, living in Florida and yearning to return. Their claims are real, their losses enormous. Until I traveled to Cuba, I thought that the problem was insoluble. How could the Cuban exiles be compensated, or have their property restored?
But my visit changed my mind. Economies are not static, and the amount of value in the world is limited only by human ingenuity. I saw that Cuba's flaw is also its virtue. This beautiful nation is so economically depressed that gains from exchange and growth will dwarf any claims that the returning exiles will make on its resources. The free market, if it is allowed to flourish there, will attract all the brains and talent that flowed out in the decades following the Revolution.
I hope Bush and Kerry get asked about Cuba. And I hope that both of them are brave enough to make a bet on the market system, creating a context for growth rather than a plan for development. In their answer, we will learn whether they can pass up short term political gains for a real future, one where Cuba is restored to its rightful place in the community of nations.