Few scenes of jubilation in 20th century history rival the celebration that took place at the Berlin Wall in 1989 after the collapse of Communism. Cubans in Miami were set to replicate that scene last week upon hearing about Fidel Castro’s serious illness. Whether he goes today or tomorrow, the 79 year old Castro’s ailment reminded the world that the old dictator’s — and Communism’s days in Cuba — are numbered.
With Cuba 90 miles off the shore of Florida, Cuba’s collapse will have a more immediate impact on American lives than the fall of the Berlin Wall. U.S. government involvement will be much greater, as well. The Bush administration’s 450-page plan for the ‘Transition and Reconstruction of Cuba’ lays out detailed policies regarding restitution of property, privatization, as well as education and health service reforms. These changes would be administered under a bureaucrat appointed by the U.S. government, as General Leonard Wood did in the newly independent Cuba in 1901. Recent stirrings of uniting Cuba with Hugo Chavez’s radical Venezuela after Castro’s death — serious or not — will only stiffen the resolve of the U.S. to ensure the emergence of a market economy in Cuba.
Economic statistics tell a depressing story about Cuba, a Pennsylvania-sized country of 11 million. In 1958, Cuba ranked near the top of Latin American countries in per-capita income, life expectancy, consumption of oil and electricity, per-capita auto ownership, literacy and medical services. Today, it is near the bottom in nearly every category.
Cuba has emerged only recently from what euphemistically can be called a “special period,” following the collapse of Communism in the early 1990s that meant the disappearance of the country’s Soviet Union Sugar Daddy. For decades, the Soviets had been paying above-market prices for Cuban sugar, while providing Cuba with petroleum at below-market prices. The removal of these subsidies sent the Cuban economy spiraling into depression, with GDP falling 40%.
Limited free market reforms helped to alleviate the worst shortages of food, goods and services. The manna from heaven? Tourism, which by 1996, surpassed the sugar industry as the largest source of hard currency for Cuba, generating $2.1 billion in annual revenue during the last decade. Add to that the US$600 million and US$1 billion annually received from family members in the United States and a cozy relationship with oil-rich Venezuela, respectively, and the result is that Cuba’s economic situation had improved markedly in the past few years.
Handouts from new benefactors have done nothing to change the fact that the Cuban economy is a mess. Any future government will have to take on the challenge of a crumbling infrastructure, chronic shortage of housing, and the culture of petty corruption that oils the wheels of Cuban commerce.
Lessons from Central Europe
Cuban expatriates — like expatriates of all Communist countries — have a fantasy about the reconstruction of Cuba. The idea is that they — especially those with financial and business experience and connections — would be welcomed back with open arms. They would then set about reviving the sugar, cigar and tourism industries, building new industries, and encouraging Cubans who never left the island to emulate their capitalist ways and creating widespread prosperity. This, notes Mark Falcoff, author of Cuba: The Morning After in 2003,”is a fantasy that the United States (and Cubans) would be best advised to abandon.”
Here are some lessons about post Communist transitions that I have garnered from my experience working in post-Communist Eastern Europe.
First, don’t throw money at the problem. The German government has been subsidizing Eastern Germany at the rate of $100 billion a year for over 15 years. The result? Today, East Germany’s unemployment is higher, economic growth lower, and prospects for the future worse than for countries that were forced to bootstrap their way through tough economic reforms.
Second, focus on policy, not politics. Former Communist countries have achieved Asia-like growth rates — thanks to sound economic policies, foreign-investment friendly regimes, low taxes, and low wages. Cuba will be distracted by a spate of property claims, lawsuits, split families, and widely varying views on the role of exiles in Cuban politics. This political focus will distract from applying the salve that cures all political strains — economic growth and prosperity.
Third, a lot of Cuban exiles will be disappointed in their Cuban cousins. Communist systems breed a “beat the system” mentality and cynicism alien to Cuban expatriates in South Florida. Transition periods always reward the criminal behavior of asset strippers. And those who remained in Cuba have learned to expect that the government will take care of their needs, however inefficiently. This attitude will take a generation to change.
Predictions About Cuba for 2020
Here’s what Cuba may look like during 2020 if it takes the path of other former Communist economies. Havana could become the Las Vegas of the Caribbean — thanks largely to the influx of U.S. Casino operators. My predications for Cuba in 2020 are the following. After years of wrangling with Cuban officials, the Trump Havana Casino has opened. Major U.S. accounting firms and Miami law firms dominate the business scene. Indeed, the price of a new penthouse apartment in Havana will rival the price of one in Miami.
The Havana Stock Exchange is in the midst of its second boom, after collapsing in 2011, and wiping out the bulk of Cuba’s newly minted brokers. All the former state owned companies — “Cuba National Savings,” “Cuba Nickel,” and “The Castro Cigar Company” — are listed on the Havana Stock Exchange. Foreign investors are everywhere. Even “Cuba Telecom” is now a subsidiary of Latin American cell phone giant America Movil. “Cuba Land” is the biggest corporation in Cuba. Its owner? A former Castro protégé and a distant cousin of revolutionary icon Che Guevara who now enjoys a personal fortune of $4.6 billion. Even Che would be proud.
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