Arnold Kling  

Cuba's Economy

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Michael Munger, who will be guest-blogging here next week, has recently visited Cuba.


Our hosts were professors and were also well paid, earning in some cases more than $20 per month. The idea that someone would pay nearly $30 to make 18 overheads, on his own, amazed them. I later found out that many of the professors also drove taxis on nights and weekends, since they could make a month’s salary in tips in a couple of days.

For Discussion. If Cuba decides to end its socialist experiment, how might it make a better transition to capitalism than have the former Soviet Republics? [note: I mistakenly wrote "transition to Communism" before]


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COMMENTS (9 to date)
Brad Hutchings writes:

Arnold, you meant transition to capitalism, right? Assuming that, the best thing they could do is open the country to tourism, welcome Americans and expatriot Cuban-Americans to visit, ask America for help with establishing rule of law and property. Heck, they could ask to be our 51st state. I'd be all for it, including pulling the entire population out of poverty with business development and relocation tax credits and a special welfare program. We should offer a post-Castro Cuba an opportunity to be a model of what Mexico ought to do (i.e. become a part of the United States).

Patri Friedman writes:

The plan should start with a careful reading of _The Mystery of Capital_.

Boonton writes:

1. The plan should start with the establishment of the rule of law. Impartial legal system, a clear property rights system. Contract law etc.

2. Large state industries *should not* be privatized at first. The rule of law should come first and the state industries should gradually be auctioned off.


3. Each citizen should get a voucher representing a share of ownership in the nationalized industries, that voucher should represent something like an index fund of the nations industries. As they are auctioned off, the funds should be deposited into an account that will be cashed against the vouchers. The profits from privitization should not be allowed to go to the leaders of the communist party.

4. With no windfall funds for the gov't from privatization, there will be less available for insiders to lobby for subsidies and supports. To reinforce this, the gov't should not accept international loans unless they are tied to specific non-corporate projects (such as road or school construction).

Waechter writes:

I think that there is two important tasks ahead.
The first and probably the most important is to establish real strong political institutions. The problem with Cuba is that noone wants a solution that looks like the 50's with corruption etc..and nobody have a clear story in mind of what would happened after Castro. So before opening the economy to the market, it is important to clearly define the rules of the game.
The second important task is property law as it is said in another comment.

DSpears writes:

"The profits from privitization should not be allowed to go to the leaders of the communist party."

That won't happen in my plan, they will all be in jail.

After establishing rule of law, the next thing will be allow virtually unlimited access by all foreign corporations to invest and produce in the country. Many of them will make a bundle, and they should. Capitalists and Corporations will quickly bring the country up to speed if the new government doesn't get in their way by worrying about whether they make too much profit. They will be providing an invaluable service to the people of Cuba, they should be compensated without concern for "fairness" and "equality", the ideas that got them in the mess (Castro) in the first place. Many of these companies will take losses for years in order for the chance to get into a potential growing market (which has nowhere to go but up).

The Michael Moore wing of the world will be screaming at the tops of their lungs about this. Don't listen to them. These are the same people going around today telling everybody how great it is to live in Cuba.

Cuba has little or no industrial infrastructure and may not have the enormous entrenched interests that the former Soviets had to deal with. This is a major advantage. They also don't have hundreds of millions of people stretch over a 1/3 of the Earth. Cuba would be almost starting from scratch.

jaime writes:

Start by returning nationalized property to their former owners.

DSpears writes:

Also from the article:

"Honestly, I admire Guevara. He was an impossibly attractive combination of intellect, physical vigor, and sensitivity to suffering, and looked hot in the beret."

You forgot to add mass-murderer to his list of admirable traits. His "sensitivity to suffering" was at best selective.

Carlos Ortega writes:

About the 51st state: Let Puerto Rico be 51st, Then VENEZUELA, once we get rid of Chávez.
Then, Cuba. I think the Americans will want a referendum for that one. Florida is full of red necks, but it looks differente because of Miami and Orlando.

Lynn Black writes:

I read these comments and I find them quite humourous, hilarious even. Do we think that we know what is best for the rest of the world. We talk about the rule of law: but law does not rule in our own country. When murders and rapists get 5-7 years max(with exception to states like Texas), pedophiles are slapped on the wrist and told that they are sick and need medical care and are released back to the streets. Or in relation to the Cuban economy, whose going to monitor progress after Castro's demise? Will we send in a military force to quell any unrest of which there will be much. The ordering of society is a long arduous, and very tumultous process. Are you sure that capitalism is the answer. Why could they not begin with some form of European socialism. It is going to be very difficult on the masses to go straight to a market economy because success in a market economy favors the rich and powerful. What will the people do who don't have means or are unable to maneuver through the challenges that capitalism will bring. We only need to look at Russia to see the problems that a market economy can produce if a proper transition is not made. What do you think that the Cubans will think when they realize that we have come in and taken over their country. I don't know any of the answers, I just have a lot of questions about our so-called democracy and free market economy. We are concerned about Cuba but Haiti is an adjacent country and free-market economy only keeps Haiti impoverished.

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