Tag: Cuba

A Troubling Sign that Economic ‘Reform’ in Cuba Isn’t Working

The number of Cubans intercepted at sea trying to reach the coast of Florida more than doubled in the last fiscal year according to figures released by the Department of Homeland Security. In the previous fiscal year, 422 Cubans were intercepted at sea by the Coast Guard, while in the fiscal year 2011 (which just ended on September 30th), 1,000 Cubans were caught. Moreover, the number of Cubans who actually reached the U.S. shore increased by 70%, from 409 in fiscal year 2010 to 696 in fiscal year 2011. This is the first rise in illegal Cuban immigration by sea in 3 years according to authorities.

This is yet another sign that the much heralded economic “reforms” announced by Havana aren’t working. The massive layoffs of hundreds of thousands of public employees undertaken by the government of Raúl Castro were meant to be absorbed by Cuba’s almost non-existent private sector. The Communist regime tried to ease the pressure by allowing private employment in 178 economic activities, such as masseurs, clowns, shoemakers, locksmiths, and gardeners. However, as I warned over a year ago, it capped the number of permits for these private activities at 250,000 while also penalizing the new entrepreneurs with stiff tax rates. It doesn’t take a Nobel Prize winner in economics to realize that Cuba’s nascent private sector wouldn’t be able to make room for all of the newly unemployed. What then for these people?

Earlier this year I talked to an official from the U.S. Interest Section in Havana who told me that we shouldn’t be surprised if we see a steady increase of Cubans trying to escape the island towards the United States. Faced with a dilapidated economy, hundreds of thousands of unemployed, and growing social unrest, the Castro regime wouldn’t hesitate in letting more Cubans use the “escape valve” of emigration. We might be seeing the first signs of this.

Ron Paul Talks Sense on Trade

Presidential Candidate Ron Paul has a decidedly mixed record on trade policy. He often votes against trade agreements because he sees them as “managed trade” and  an interference with true free trade. Well, ok, but that’ s like voting against income tax cuts because you think the IRS shouldn’t exist. I get the point, but c’mon…

In any event, he was the only participant in Thursday night’s debate between the Republican presidential candidates who spoke about trade with any sense at all. As Inside US Trade [subscription required] points out, trade policy was not a prominent theme of the debate, but that didn’t stop Mitt Romney from (again) spouting nonsense about balanced trade:

Former Massachusetts governor Mitt Romney late last week took a swipe at the trade policies of the Obama administration in a debate of the Republican presidential candidates by implying they are unbalanced in favor of other nations.

As part of a seven-point list of actions to turn around the economy, Romney said the U.S. should “have trade policies that work for us, not just for our opponents,” as the third point…

(I’ll just interject here to say that by “opponents” I believe Mr Romney is referring to our trade partners. You know, the folks who sell us stuff and buy stuff from us. But I digress…)

Trade was only raised one other time during the debate. Prompted by a moderator, Rep. Ron Paul (R-TX) defended his earlier criticism of Obama’s sanctions against Iran for its nuclear program.

Saying it was “natural” that Iran would pursue nuclear weapons—given that India, Pakistan, China, and Israel also possess them—Paul attacked the sanctions policy as steering the U.S. toward conflict.

Countries that you put sanctions on, you are more likely to fight them,” he said. “I say a policy of peace is free trade. Stay out of their internal business.”

Paul also suggested it was time for the U.S. to engage in a trading relationship with Cuba and “stop fighting these wars that are about 30 or 40 years old,” an apparent reference to the Cold War. [emphasis added]

(My friend Scott Lincicome has more on the economic illiteracy flowing from the debate here)

Mr Paul is right on this one. He and I no doubt disagree on a few issues, and on trade I have more tolerance than he does for multilateral (and, albeit to a lesser extent, bilateral and regional) trade agreements as the only likely avenues for trade liberalization in the foreseeable future. But the link between trade and peace is an important one, and often overlooked.

Speaking of Ron Paul, the following clip shows Jon Stewart at his devastating best, calling out the mainstream media—and particularly Fox News—for ignoring and/or outright mocking Ron Paul’s candidacy. Watch to the very end, you won’t regret it. (HT: RadleyBalko)

The Daily Show With Jon Stewart Mon - Thurs 11p / 10c
Indecision 2012 - Corn Polled Edition - Ron Paul & the Top Tier
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

Cuban Government Will Choke the Nascent Private Sector

Following the announcement of massive layoffs in the public sector, the Cuban government published today new guidelines that will allow private employment in 178 economic activities. Among the newly authorized private occupations are masseurs, clowns, shoemakers, locksmiths, and gardeners.

However, these new entrepreneurs will face a few hurdles before enjoying the benefits of their own work. Not only must they get a government license in order to operate (according to official sources the number of permits will be capped at 250,000), but they will also have to pay high taxes. A leaked document from the Communist Party says that small businesses will pay between 10 to 40 percent of their gross income in taxes. On top of that, they will have to contribute 25 percent of their incomes to social security.

Don’t expect a thriving private sector in Cuba any time soon.

Russian Government Announces 20 Percent Reduction in Number of Bureaucrats

I’ve already commented on Cuba’s surprising announcement to slash the number of government workers. And I’ve complained about the federal workforce expanding in the United States. This is not what one would expect when comparing policy developments in a communist nation and a (supposedly) capitalist nation. Well, Russia wisely is following the Cuban approach on this issue (I never thought I would type those words!) and plans to get rid of 100,000 bureaucrats over the next three years.
Russia will cut its army of bureaucrats by more than 100,000 within the next three years, saving 43 billion rubles ($1.5 billion), Finance Minister Alexei Kudrin said on Monday. “We assume more than 100,000 federal state civil jobs will be cut within three years. The government has already included a schedule for cutting the number of federal civil servants in the draft budget for the next three years and coordinated it with ministries and agencies,” Kudrin told President Dmitry Medvedev, who in June ordered a 20 percent cut in the number of bureaucrats. Under the government plan, ministries and agencies will have to sack five percent of their staff in 2011 and 2012, and 10 percent in 2013. …In the last three years, the number of bureaucrats in the federal government had increased by nearly 20,000, in regional governments by 60,000 and at municipalities by 50,000, he said.

Cuba Needs A Swift Transition Towards Capitalism

Confirming Fidel Castro’s recent confession that “the Cuban model doesn’t even works for us anymore” (did it ever work?), Havana has announced the massive layoff of 500,000 state workers in the upcoming months. This is approximately 12 percent of the government workforce (and 10 percent of the total labor force).

The big question is whether the meager non-state sector can absorb such an influx of workers in such a short period of time. My take is that the only way Cuba can accomplish this is by aggressively liberalizing its economy: privatizing most industries and farmland, cutting red tape, freeing prices, lowering taxes (which fall heavily on the tiny private sector), and getting rid of thousands of restrictions on private businesses that currently thwart entrepreneurship. This, of course, means abandoning altogether the current communist model and moving towards a capitalist system. So far, the reforms introduced by Raúl Castro since becoming president three years ago have been far too timid and in some instances even counterproductive.

As Oleh Havrylyshyn, former Ukrainian deputy minister of finance, wrote in a paper published by Cato three years ago on the transformation of post-communist economies, rapid reforms (as opposed to gradual ones) bring about better results in terms of higher growth rates, lower unemployment, higher investment, etc. Interestingly, Havrylyshyn also found that “all of the rapid reformers developed into liberal democracies, whereas in many of the gradual reformers… small groups of super-wealthy oligarchs captured the state and dominated its economic decisionmaking.”

The Cuban ruling elite cannot afford to waste time. Very soon, hundreds of thousands of Cubans will be looking for a job in the dilapidated private sector. Social unrest could easily erupt if their search for a job or occupation goes unfulfilled. In the end, only a swift transition towards capitalism can rescue the Cuban people.

Why Are Statists so Sensitive About Cuba?

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong’s post was nothing more than a link to the Yglesias post with a snarky comment about “why can’t we have better think tanks?” Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”…this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I’m actually not sure what argument Yglesias is making, but I think he assumed I was focusing only on fiscal policy when I commented about Cuba’s failure being “a good illustration of the human cost of excessive government.” At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he’s really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I’m not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation’s grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights. This video has more details.

So, yes, Cuba is an example of “the human cost of excessive government.” And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He’s finding out, though, that it’s not easy putting toothpaste back in the tube.

Now He Tells Us…

Here’s a story for the better-late-than-never file. Former Cuban dictator Fidel Castro confessed that communism doesn’t work and that his nation’s economic system should not be emulated.

Fidel Castro told a visiting American journalist that Cuba’s communist economic model doesn’t work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago. The fact that things are not working efficiently on this cash-strapped Caribbean island is hardly news. Fidel’s brother Raul, the country’s president, has said the same thing repeatedly. But the blunt assessment by the father of Cuba’s 1959 revolution is sure to raise eyebrows. Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba’s economic system was still worth exporting to other countries, and Castro replied: “The Cuban model doesn’t even work for us anymore” Goldberg wrote Wednesday in a post on his Atlantic blog.

Too bad Castro didn’t have this epiphany 50 years ago. The Cuban people languish in abject poverty as a result of Castro’s oppressive policies. Food is harshly rationed and other basic amenities are largely unavailable (except, of course, to the party elite). This chart, comparing inflation-adjusted per-capita GDP in Chile and Cuba, is a good illustration of the human cost of excessive government. Living standards in Cuba have languished. In Chile, by contrast, the embrace of market-friendly policies has resulted in a huge increase in prosperity. Chileans were twice as rich as Cubans when Castro seized control of the island. After 50 years of communism in Cuba and 30 years of liberalization in Chile, the gap is now much larger.