Cuba, a failed experiment

Cuba, a failed experiment
Terry SavageContact Reporter

If you ever wondered what a country would look like after 50 years of
total government economic controls, you need only to make a trip to
Cuba, which I did last week. The history of that nation is a story with
endless political ramifications, both for those who stayed and those who
left.

History is not my area of expertise. But the economic consequences of a
50-year totalitarian, socialistic experiment in government are obvious
today. Cuba is a beautiful country filled with many friendly people, who
have lived in poverty and deprivation for decades. Socialism in its
purest form simply didn't work there.

I was immediately reminded of that old saying: "Capitalism is the
unequal distribution of wealth -- but socialism is the equal
distribution of poverty."

Once-magnificent buildings are literally crumbling, plaster falling and
walls and stairways falling apart, as there are no ownership incentives
to maintain them -- or profit potential to incent their preservation.
The populace depends on government for everything: education, health,
food and employment. But the economy is a mass of bureaucratic controls
and permissions, stifling most economic growth in Cuba.

Tourism from Europeans and Canadians (who must use government supplied
services) brings in some revenue, but not enough to run the country or
maintain its historic beauty. Yet the will of the people is evident as
many do their best to grow small businesses and better their circumstances.

What Works, What Doesn't

The few things that shine in Havana are the many pre-1959 Chevrolets and
Fords, lovingly maintained and used as money-making taxis by those
"mini-capitalists" who own them. They are kept running by ingenuity,
engine parts from other brands and the pride of ownership. Plus they
bring in income: as much as 30 CuCs per hour for a tourist ride. (CuCs
are the Cuban currency used by tourists which trade at a fixed exchange
rate of 87 CuCs to 100 U.S. dollars, with the 13 percent discount
collected by the government as a tax at government approved currency
exchanges.)

Most people -- 70 percent of the population, including doctors and
lawyers -- work for the government, in guaranteed jobs. Cuba is
well-known for its medical training system, and it actually "exports"
physicians to countries like Venezuela. Those jobs come after two years
of compulsory national service (three for women) and, for men, two years
of military service.

One of the best jobs is in a cigar factory. Those workers earn more than
most doctors and lawyers, who may earn about 60 CuCs per month. The
cigar makers earn about the same, but they also get to take home five
cigars per day - and they work shorter hours and get two months of
vacation instead of the standard one month.

The "Revolucion" brought free education, free medical care and jobs for
all. But at what cost to the country?

Every Cuban gets a ration book and an assigned "bodega" in which to
purchase the low-cost, subsidized food. The one I visited looked like an
empty warehouse, with little on the shelves. If the rice, beans, eggs
and cooking oil are not in stock, the shopper must return the following
week. Allowed five eggs per month, the basics barely cover a starvation
existence. Their remaining small incomes are spent at produce markets
where they buy additional meat and vegetables when available.

Hope for the Future

Yet the spirit of entrepreneurship survives. The best places to eat are
the restaurants in private homes, known as "paladars." There, in
buildings that also house three generations of family (no one can afford
to move out), the parlors and dining rooms have been turned into
creative dining experiences. The proprietors source their food from the
same local markets, so menus change daily depending on what is
available. But the three-course meals are delicious.

You are welcomed with a daiquiri or a mojito made with Cuban rum -- and
you leave with your hosts' wishes that you will post a good rating on
TripAdvisor! Though cellular access is expensive, you see a lot of smart
phones -- a strange contrast in cultures.

(Full disclosure: I traveled to Cuba with a gastronomic group led by the
"Hungry Hound" -- restaurant critic Steve Dolinsky, who arranged the
restaurant visits. And since I have spoken Spanish since childhood, I
was able to communicate with business owners and cab drivers -- all who
fear government repercussions.)

La Revolucion

The bloody 1959 "Revolucion" expropriated the assets of American
companies and wealthy Cuban citizens. It threw out the Mafia-connected
leader, Fulgencio Batista, who presided over corruption and gaming,
allowing the wealthy to live privileged lives. American foreign and
economic policy has never forgiven the brutal actions of Fidel Castro,
his brother Raul and Che Guevara -- heroes of the Revolution.

Leave it to history to decide whether their intentions were the best for
their people, but the economic results of their 50-year rule have been
abysmal. Cuba became a protectorate of the old Soviet Union (remember
the Cuban missile crisis?), and that worked until the early 1990s, when
the USSR fell apart.

No longer receiving aid from its protector, Cuba entered a long period
now remembered as "the special times" -- when Cubans were literally
starving, when there was electricity only two hours per day and people
turned any patch of dirt into a garden to survive. Cubans bear the scars
of that terrible time, and for many the current situation is still not
that much better.

Only recently, under President Raul Castro (who will supposedly retire
in 2018), have Cubans been allowed to own their apartments (at a price
set and taxed by government). But although the residents may own the
apartments, the government is responsible for the structure, plumbing
and electrical systems. There is little money and less incentive for
repairs to these systems.

So that's what Cuba looks like today. Many are hoping that better
relations with the U.S. will help their economy. They cheer news that
U.S. cruise ships are making application to stop in the port of Havana.

But there is still the American blockade. It means Cuba must import its
main staple, rice, from Vietnam. The irony is rich. The United States
fought a war in Vietnam that cost the lives of so many young men in my
generation. Today Vietnam is a thriving economy, an exporter to the U.S.
of clothing and other goods, and a tourist destination. But Cuba is
still paying for the sins of its revolution.

My economic belief has long been that America's best economic (and
foreign) policy is trade, fair trade, which not only enriches both sides
of the transaction but creates economic growth and a growing middle
class in the countries with which we trade. We've managed to do that
with previous enemies, ranging from Japan to Vietnam and even Russia and
Iran. It's about time to end the embargo on Cuba. That's the Savage Truth.

(Terry Savage is a registered investment adviser and the author of four
best-selling books, including "The Savage Truth on Money." Terry
responds to questions on her blog at TerrySavage.com.)

Source: Cuba, a failed experiment - Chicago Tribune -
http://www.chicagotribune.com/business/sns-201511121300--tms--savagectnts-a20151112-20151112-column.html