There isn’t a similar T‑shirt for Sir John Cowperthwaite and I doubt there ever will be one. Relatively few people have even heard of him, although he was the key figure in establishing the governance of Hong Kong after World War II. His battle to preserve laissez-faire capitalism in the colony helped make Hong Kong what it is today.
Guevara and Cowperthwaite are at the center of British businessman Neil Monnery’s book A Tale of Two Economies. It offers a superb comparison of the two men’s radically different philosophies, which set the economic destinies of two societies. Monnery writes:
Both were questioning how to create a better civilization on Earth, using the tools that they had. Since they were united in their question but so divergent in their answer, they are arguably the originators of the most significant natural economic experiment of the last century.
We can learn much from that experiment.
Dynamism and stasis / In the late 1950s, the per-capita incomes in Cuba and Hong Kong were roughly equal. The former had long been under the rule of corrupt oligarchs and military men who were willing to let capitalism operate so long as they got a cut of the profits. The latter was a minor outpost of the British Empire that was recovering from Japanese control during World War II. A speck of land with little more than a good natural harbor, Hong Kong seemed to have scant opportunity for an economic takeoff.
Over the next 60 years, the economic fortunes of Cuba and Hong Kong diverged dramatically. Today, the people of Cuba are about twice as prosperous as they were then, whereas the people of Hong Kong are 14 times richer. The reason for this divergence is that under Cowperthwaite’s direction the Hong Kong government practiced a hands-off approach to the economy that was as close to pure laissez-faire as you’ll find anywhere. At the same time, Cuba adopted an extremely tight communist system that Guevara, in his reading and travels, had become convinced was the best way for a nation to progress equitably.
In short, it was a contest between the ideas of Adam Smith and Karl Marx. Cowperthwaite had studied Smith and other economists who argued for free trade, limited government, and the rule of law. He believed that people would naturally find the best ways of acquiring and using capital; government could only get in the way and impede progress with policies to guide the economy. During this time, however, official British policy was much to the contrary, with Keynesian theory dominant in London. Cowperthwaite often had to fend off attempts by his superiors back home to bring Hong Kong in line with their interventionist thinking about economic planning, minimum wages, progressive taxation, government debt, and so on. He even brushed off British officials who told him that Hong Kong needed to collect economic data, saying, “We have virtually no use for national accounts, partly because we cannot be in control of our economy and partly because our economy has a dynamism that outpaces such accounts.”
That dynamism was first evident in the textile industry. Businessmen invested in the rapidly growing industry and the Hong Kong government had nothing to do with it—or any of the subsequent business successes—except to leave the owners free to manage their operations. Those who competed against Hong Kong firms in international markets often complained about their extraordinary efficiency. As companies prospered, so did their workers. Marx’s “Iron Law of Wages”—that worker compensation must fall to the level of bare subsistence under capitalism—was disproven.
At the same time Cowperthwaite was holding Hong Kong on a free market course, Guevara (whom Fidel Castro so trusted that he appointed Guevara president of the National Bank of Cuba and Minister of Industry) prevailed on Castro to implement a resolutely Marxist system of strict government-directed production as opposed to Soviet-style communism that gave some autonomy to local managers and market dynamics. Guevara believed that the Soviet system was too reliant on money and individualism. Prosperity was his goal, but that wasn’t enough: the people had to adopt a new frame of mind. Monnery quotes him:
We cannot arrive at communism through the simple mechanical accumulation of quantities of goods made available to the people. By doing so we would get somewhere, to be sure, to some particular form of socialism. But what Marx defined as communism, what is aspired to in general as communism, cannot be attained if man is not conscious. That is, if he does not have a new consciousness towards society.
To achieve that new consciousness, Guevara persuaded Castro to eliminate monetary incentives and rely instead on medals and other government rewards to incentive people. To destroy vestiges of the old, exploitative system, private businesses were nationalized and individual labor contracts outlawed. Moreover, Guevara was opposed to international trade. In his view, that was the means by which the United States asserted dominance over Cuba. He therefore wanted Cuba to become as self-sufficient as possible.
Governmental economic control had predictably poor consequences. Among the examples Monnery cites is the state’s purchase of 1,000 sugar cane harvesting machines manufactured in the Soviet Union. Cuban officials, having no business experience, bought machines that were too heavy and ill-suited to irregular terrain. They frequently broke down and were junked after just a few years.
Rather than enjoying increasing prosperity, the Cuban people found their standard of living stagnant or even falling. Food is rationed and the amounts are small. Monnery writes, “Over the last fifty plus years, the monthly quota per person has typically been set at around 3 pounds of meat, 6 pounds of rice (although the ration was a low as 2.5 pounds per month in the late 1970s), 1.5 pounds of beans, 1–2 pounds of fat, 5–15 eggs, a small amount of butter, 3 pounds of condensed milk, 1 pack of detergent, 1 small tube of toothpaste, and 2 bars of soap.” Cubans not content with the state’s meager allotments can spend their pesos in government stores, the black market, or engage in barter. Despite its abundant arable land and mild climate, Cuba is a poorly fed nation.
Legacies / The lack of immediate success for Guevara’s hardline Marxism led to a “Great Debate” among Cuban leaders in the mid-1960s. One faction favored adopting a more Soviet “state capitalism” approach that made use of markets. Guevara countered that the people had not yet achieved his higher state of consciousness. As Monnery explains:
Guevara argued that the solution lay in developing the New Man, who would act for the benefit of society rather than respond to personal incentives. What was needed was better communication, leadership and vision and moral incentives.
At the time, Castro was persuaded to stick with his vision, but in 1970 he announced a policy change to a “more serious, mature, profound phase.”
Guevara was not around to feel the sting of that rejection. Tired of administrative work, in 1965 he left Cuba for Africa, to promote the spread of Marxist revolution. He joined communist forces fighting to bring down the U.S.-backed government in Congo. That effort failed and Guevara’s health was badly damaged.
The next year, he went to Bolivia where he joined up with a revolutionary group. He expected peasants to rise up to aid his forces, but instead they kept the government informed of his movements. In October 1967, government troops trapped him at Yuro ravine. Twice wounded and with his gun jammed, he surrendered, telling his captors, “I am Che Guevara and I am worth more to you alive than dead.” Fearful that he would escape, the Bolivian president ordered that he be killed. The execution was botched and Guevara was shot nine time before dying miserably at age 39.
Cowperthwaite, on the other hand, lived to 90, enjoying grandchildren and golf to the end.
Recent decades have seen some liberalization in Cuba. Guevara’s fantasy of a nation filled with pure-at-heart Marxists never came to pass despite the regime’s complete control over education and communication. Since coming to power in 2006, Raul Castro (Fidel’s younger brother) has allowed changes that would have appalled Guevara, especially the 2011 reform allowing Cubans to be self-employed. Some 600,000 people now work for themselves rather than the state, and enjoy far higher earnings. It’s evident that Cuba will continue to move away from Guevara’s dream of a nation where the people are suffused with the spirit of collectivism.
Monnery writes:
For any government interested in increasing the prosperity of its people, if given the choice between copying the economic policies of Hong Kong or Cuba, there could be only one rational choice. In two generations, Hong Kong has moved from relative poverty to become one of the richest nations on Earth. Cuba has moved from being one of the richest countries in Latin America to become one of the poorest.
He is optimistic that the lessons of Hong Kong and Cuba are slowly being learned, noting that in the 1960s, 40 nations operated under the Marxist model of central economic planning and totalitarian control, while today only two do.
The cover of A Tale of Two Economies contrasts the glittering modern skyline of Hong Kong with the crumbling old buildings of Havana. The laissez-faire approach taken by Cowperthwaite enabled the people of Hong Kong to modernize and prosper, while the omnipotent government approach of Guevara has kept Cuba mired in the past. The choice, Monnery correctly says, is between market dynamism and state stasis. People who still think that economic freedom is to be feared while a government-controlled economy is the path forward ought to read this book.
