Michael Totten reporting…
Many tourists return home convinced that the Cuban model succeeds where the Soviet model failed. But that’s because they never left Cuba’s Elysium.
I had to lie to get into the country. Customs and immigration officials at Havana’s tiny, dreary José Martí International Airport would have evicted me had they known I was a journalist. But not even a total-surveillance police state can keep track of everything and everyone all the time, so I slipped through. It felt like a victory. Havana, the capital, is clean and safe, but there’s nothing to buy. It feels less natural and organic than any city I’ve ever visited. Initially, I found Havana pleasant, partly because I wasn’t supposed to be there and partly because I felt as though I had journeyed backward in time. But the city wasn’t pleasant for long, and it certainly isn’t pleasant for the people living there. It hasn’t been so for decades.
Outside its small tourist sector, the rest of the city looks as though it suffered a catastrophe on the scale of Hurricane Katrina or the Indonesian tsunami. Roofs have collapsed. Walls are splitting apart. Window glass is missing. Paint has long vanished. It’s eerily dark at night, almost entirely free of automobile traffic. I walked for miles through an enormous swath of destruction without seeing a single tourist. Most foreigners don’t know that this other Havana exists, though it makes up most of the city—tourist buses avoid it, as do taxis arriving from the airport. It is filled with people struggling to eke out a life in the ruins.
Marxists have ruled Cuba for more than a half-century now. Fidel Castro, Argentine guerrilla Che Guevara, and their 26th of July Movement forced Fulgencio Batista from power in 1959 and replaced his standard-issue authoritarian regime with a Communist one. The revolutionaries promised liberal democracy, but Castro secured absolute power and flattened the country with a Marxist-Leninist battering ram. The objectives were total equality and the abolition of money; the methods were total surveillance and political prisons. The state slogan, then and now, is “socialism or death.”
By the 1990s, Cuba needed economic reform as much as a gunshot victim needs an ambulance. Castro wasn’t about to reform himself and his ideology out of existence, but he had to open up at least a small piece of the country to the global economy. So the Soviet subsidy was replaced by vacationers, mostly from Europe and Latin America, who brought in much-needed hard currency. Arriving foreigners weren’t going to tolerate receiving ration cards for food—as the locals do—so the island also needed some restaurants. The regime thus allowed paladars—restaurants inside private homes—to open, though no one from outside the family could work in them. (That would be “exploitative.”) Around the same time, government-run “dollar stores” began selling imported and relatively luxurious goods to non-Cubans. Thus was Cuba’s quasi-capitalist bubble created.
When the ailing Fidel Castro ceded power to his less doctrinaire younger brother Raúl in 2008, the quasi-capitalist bubble expanded, but the economy remains heavily socialist. In the United States, we have a minimum wage; Cuba has a maximum wage—$20 a month for almost every job in the country. (Professionals such as doctors and lawyers can make a whopping $10 extra a month.) Sure, Cubans get “free” health care and education, but as Cuban exile and Yale historian Carlos Eire says, “All slave owners need to keep their slaves healthy and ensure that they have the skills to perform their tasks.”
Even employees inside the quasi-capitalist bubble don’t get paid more. The government contracts with Spanish companies such as Meliá International to manage Havana’s hotels. Before accepting its contract, Meliá said that it wanted to pay workers a decent wage. The Cuban government said fine, so the company pays $8–$10 an hour. But Meliá doesn’t pay its employees directly. Instead, the firm gives the compensation to the government, which then pays the workers—but only after pocketing most of the money. I asked several Cubans in my hotel if that arrangement is really true. All confirmed that it is. The workers don’t get $8–$10 an hour; they get 67 cents a day—a child’s allowance.
And, Sean Davis:
I want to believe the free trade rhetoric. I want to believe that any type of relaxation of the embargo would benefit the Cuban people. I really do. But I don’t, and here’s why.
Cuba’s economy is not normal by any stretch of the imagination. In fact, it actually has two economies: the dollar economy, and the peso economy. Americans who are allowed to visit get to participate in the dollar economy, and only the dollar economy. Cubans who live there are required to participate in the peso economy, and only the peso economy. The markets are completely segregated.
So, when an American goes down there, he buys things with either the dollar, or the Cuban version of the dollar (CUC), which generally has a 1:1 conversion ratio. Cubans are forced to use only the peso (CUP), which has roughly a 25:1 conversion ratio to the dollar (for every 25 CUP, you get one dollar; or for every 1 CUP, you get about $0.04). That rate is set by the Cuban government. That leaves Cuban vendors who accept dollars with only two ways of using those dollars to get the things they need to survive: 1) purchase them on the black market using dollars, a risky proposition for obvious reasons, or 2) exchange the dollars for CUP.
There’s no trading the CUP on the open currency market. Apart from sentimental souvenir value, it’s worthless everywhere else in the world. Whenever a Cuban gets his hand on a dollar, he either has to put himself at risk by using it on the black market, or he has to turn the dollar into the government in order to receive a pittance which he can use to buy food for his family.
The Cuban government, in turn, has two ways of screwing its people out of their hard-earned money: 1) it can either tax them to death, or 2) it can just manipulate its exchange rate, a way to effectively tax them to death. Different means, same ends. Cuba’s communist, after all, and communism is not a system that has ever put the welfare of its people ahead of the welfare of its rulers.
The result of the Cuban two-currency economy — one of which is forbidden to its people — is that every dollar will eventually find its way into the hands of the Cuban government. Since their internal currency, the CUP, is worthless, it’s not like they can just exchange it for dollars on the open market, like most other countries do. No, if the Cuban government wants dollars and the wealth that comes with them, it has to import them. And more dollars don’t mean more prosperity for the people of Cuba; more dollars means more wealth and power concentrated in the hands of Cuba’s communist regime.
I’m a big fan of free trade, in the real sense of the term. Free markets, free people, and free flow of capital benefit everyone. But you can’t have ‘free trade’ if you don’t have each of those components. Sure, more dollars may now flow into Cuba, but that won’t result in freer people, freer markets, or freer capital, because the current communist regime has no interest in allowing any of those to happen.
If Cuba truly wants free trade, then it needs to free its people, free its markets, and free its currency. Until then, any changes to the trade embargo are just going to be free money for corrupt Cuban communists.
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