To view a slide show of pictures from my trip, go here.
My recent one-week visit to Cuba revealed why our relationship with this island country – less than 100 miles off the coast of Florida – has been problematic for the U.S. for the last half-century. Once the Castro brothers are gone, the government of Cuba may change in dramatic ways. The once-thriving Cuban tourism industry could prove to be the catalyst for economic growth. But such a transition would have to be accompanied by a change in U.S. policy to Cuba.
Every U.S. administration in the last 53 years has supported the embargo on all Cuban goods, although the U.S. is the only major developed nation to have such a policy against Cuba. While I was there as part of an educational tour, the U.N. voted 188-2 to ask the U.S. to end its embargo. Only the U.S. and Israel voted against the non-binding resolution.
The U.S. justifies its embargo based on Cuba’s human and civil-rights violations. But the U.S. imposes no trade restrictions on other countries with similar, if not worse, violations – Saudi Arabia and China, for example, are major trading partners.
The embargo persists because of the will of nearly two million Cuban expatriates, most of whom live in Florida. Many Cuban-Americans had their property and businesses taken by Castro’s government, and they support an embargo until Cuba returns to a market economy and the property is returned to its original owners.
Elections in Florida hinge on the Cuban expatriate vote. Florida is a “swing state” and has been decisive in presidential elections, notably in 2004. No U.S. president has been willing to challenge this community and run the risk of losing the Floridian electorate.
Returning to the pre-revolution position is no longer possible, but it is possible to open new economic opportunities for investment to rebuild Cuba’s tourist economy.
Today, Cuba is a failed state. It stands out as an example of the failure of communism as a system for running an economy. The standard of living for its citizens ranges from poor to desperate.
According to Cubans, however, communism is not the source of their trouble. They believe that the trade and travel restrictions imposed by the U.S. that inflict unnecessary suffering on Cubans.
I’ll look at how the Cuban economy operates and the choices the U.S. faces with its policies. First, let’s do a quick recap of Cuba’s history and look at life for the average Cuban citizen.
A half century of Cuban history
Prior to 1959, Cuba was an independent country and a highly popular tourist destination for Americans seeking its nightlife, music, gambling and glamour. It was run by the dictator Fulgencio Batista y Zaldívar (“Batista”), who partnered with American criminal groups to operate the country’s casinos. He embezzled vast sums before being driven from power in a revolution led by Fidel Castro.
Castro confiscated all private property, nationalizing over 5,000 privately owned businesses and transforming them to state-run enterprises. Many Cubans, stripped of their homes and possessions, fled – primarily to south Florida.
The U.S. imposed trade and travel embargos, which remain in place today. Prior to the revolution, the U.S. imported a substantial amount of Cuban-grown sugar, as well as sugar-related products (rum, molasses, etc.) and cigars.
Russia quickly stepped in to fill the void, brokering the sale of Cuban products all over the world. Cuba became highly dependent on this relationship. But when the Berlin Wall fell in 1989 and the Soviet empire collapsed, Cuba’s relationship with Russia was severed and its dependency exposed.
The first several years of the 1990s were what the Cubans euphemistically call the “special period.” Cuba has virtually no natural resources; it must import all its energy and food. Without support from the Russians, Cuba faced a severe shortage of goods to meet the basic needs of its citizens. It suffered a depression – GDP decreased by more than 35% over a three-year period. We heard stories of Cubans who bicycled 20 or 30 miles to get food for their one daily meal – until they became too weak to undertake that journey.
Cuba eventually rebalanced its economy, but it faced another crisis as the development of corn syrup decreased demand and the price it could obtain for its primary agricultural crop, sugar. Today, only a small fraction of the sugar mills that existed prior to the revolution still operate. GDP has barely grown over the last 20 years.
Cuba runs an enormous trade deficit, importing between 80% and 85% of its goods. It derives some income from its crops and from non-U.S. tourism. It has borrowed from the Russians, but its primary source of capital is approximately $2 billion a year that is repatriated to Cubans from relatives living abroad, primarily in the U.S.
Cuba has two currencies – the Cuban convertible peso (CUC) and the peso – for external and internal use, respectively. Foreigners must convert their hard currency to CUCs and, in the case of the U.S., the Cuban government imposes a tax of effectively 15% on the conversion. The official exchange rate between the CUC and the peso is 24-to-1, but the peso has far less purchasing power than the CUC (in part, because it cannot be used to buy goods in state-run stores).
Cubans are paid in pesos, so the Cuban government effectively profits from the differential in purchasing power between its two currencies.
Everyday life in Cuba
Every Cuban worker is paid the same salary, approximately $20 per month. In addition, Cubans receive a ration book, which entitles them to a free monthly supply of rice, beans, cooking oil, toothpaste and a few other very basic needs. Housing, education and healthcare are free.
A Cuban living on those handouts can barely survive. The difference between those who subsist at this level and those who are merely poor is whether they earn income in the grey market or have relatives who send money. We were told that it was easy to see the improved standard of living for those receiving as little as $50 or $100 a month.
Grey-market income can come from a second job. Someone might cut the lawn for the government for $20 a month, but also do the same for the residence of a foreign ambassador, for which the pay would be many times that amount.
More commonly, grey-market income comes from tips. Astonishingly, taxi driving is considered an ideal profession among Cubans, as is bartending, waitressing or serving as a bathroom attendant. It is common, we were told, for a Cuban doctor to give up his or her practice in order to drive a cab.
Skilled workers are leaving Cuba. The country has recently made it easier to travel overseas and therefore defect. Our group was scheduled to hear a lecture from someone who had developed an entrepreneurship program, but it was canceled at the last minute because the person had defected. The Cuban government has responded to this “brain drain” by restricting travel among certain professions, including those – like economists – with detailed knowledge of how the country operates.
Communication with the outside world is challenging. Mail to the U.S. can take over a month. Internet availability is scarce. Cubans wait an hour or more to pay high prices for an internet café – we were told that waiting in line is a national Cuban pastime. Three television stations are available: the state-run news, children’s programming and reruns of U.S. soap operas.
Cell phones are too expensive for all but a few Cubans, which presented a refreshing change. Unlike young adults in America, the Cubans we saw were conversing with one another, instead of typing messages on smartphones.
Aside from party officials, few Cubans live comfortably. We visited art galleries, which were spacious and well furnished. The Cuban government apparently has a policy to promote art. Artists and art dealers are permitted to have bank accounts and transact with foreigners, which provides an enormous economic advantage over the average Cuban.
The overall picture that emerged was colossal misapplication of resources and a country that operates far below its potential. The output of an economy reflects the decisions of its millions of citizens based on the incentives each has to earn and spend money. From taxi-driving doctors to waterfront mansions that have become tenement housing, Cuba’s valuable assets – its people, location, architecture and rich heritage – suffer from neglect and underutilization. Free-market capitalism isn’t perfect, but it offers a far higher standard of living than Cuban communism does.
The future of Cuban-U.S. relations
Ask Cubans the cause of their poverty, and the answer isn’t their economic system – it’s the trade and travel restrictions imposed by the U.S. The U.S. bans all Cuban imports, and allows exports of only some agricultural products.
Remove those restrictions, we were told, and life in Cuba would be far better.
It is unclear whether, at this point, the embargo can achieve anything. If the goal was to punish Cuba for its expropriation of U.S. businesses and private property, that has been achieved. If the goal is to change Cuban policies, there is little reason to expect that the lack of progress in the last 53 years will suddenly be reversed.
U.S. trade sanctions have had a dismal track record. Notable failures have included North Korea, Iraq and, most recently, Iran, which has continued its uranium enrichment despite the continued tightening of sanctions over the last decade. Only when the U.S. was willing to impose a total blockade, as it did during the Cuban missile crisis, was it able to achieve a foreign-policy goal.
Cuba has nothing to offer in return for the U.S. easing trade. It is impractical to return businesses and properties seized during the revolution. The Cuban position is that any such repatriation would need to be accompanied by compensation from the U.S. for the hardships imposed by 53 years of trade restrictions. Moreover, Cuba does nothing to ingratiate itself to American policymakers. It has aligned itself with North Korea, Iran, Venezuela and Palestinian terror organizations; Cuban policy is to label American ex-presidents as “cretins” and depict them with swastikas.
Meanwhile, Cubans wait for what they call the “biological solution” – once Fidel (87 and in poor health) and his brother, Raul (82), pass from the scene. The country could turn in one of three directions, we were told: a “North Korean” scenario, in which a Castro descendent takes power; a “Russian” scenario, in which a Putin-like strongman assumes control; or an “Afghanistan” scenario, in which the military runs the country.
But there is another possibility, regardless of who runs the country. Conditions in Cuba resemble those in many countries, like Egypt, prior to revolutions of the Arab Spring: high unemployment, massive trade deficits, excessive foreign debt, a lack of food and natural resources, pervasive poverty, repressive conditions and a brutal dictator. Indeed, the U.S. sanctions punish Cuban citizens with the implicit goal that they will revolt against the government.
Unless a U.S. president is ready to stand up to the expatriate community, it may take another revolution before life improves for Cubans.
Read more articles by Robert Huebscher