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Cuba – The Economy
By: Chris Tell at http://capitalistexploits.at/
From Zimbabwe to Myanmar we’ve personally had the pleasure of witnessing totalitarian government at its finest. The results are stunning and we’ve spoken about them before in these pages. Cuba, however is arguably the epitome of a totalitarian state if ever there was one.
It’s important to understand Cuba for a number of reasons, not the least of which is that the Western world from the great US of A to the British Empire (yes many Brits still actually think they’re an empire) is now besieged by militarized police forces, body scanners, security cameras, drones, and the all seeing eye of the homeland “protectors” themselves. Pathetic!
It all starts with good intentions of course, like those of our deceased friend Fidel. Today Kuppy delves into the economy of Cuba. Enjoy!
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If the secret to economic prosperity was the erection of Che Guevara murals, Cuba would be the wealthiest nation on Earth. Unfortunately, revolutions are meant as transitions between an inferior form of government, and one that is supposed to be better. Revolution itself isn't a form of government and socialist sloganeering only takes you so far. In the end, you need to produce things that people need. As one Cuban pointed out, Cuba produces cigars, sugar and more Cubans. That isn’t exactly the making of an economy; ironically, since the advent of communism, all three have seen their production decline.
During my second day in Cuba, a very wise taxi driver tried to explain socialism to me as;
"A big puzzle where you spend years putting the pieces together, only to learn that the last few pieces won't fit how you want them to. Therefore, every decade, you need to disassemble puzzle and put it back together again so that you can get more of the pieces to fit this time."
A few devoted socialists humored me by explaining that Cuba had finally created a perfect socialist state without classes. It was working, except that the state didn’t earn any hard currency to pay for imports. Cuba had no choice, but to re-do the puzzle—the foreign currency piece would not fit, yet by redoing the puzzle, they unfortunately took a step away from socialism.
Cuba then opened up parts of the economy to tourists in an effort to attract foreign currency. At first, it was anticipated that tourists would choose to essentially seclude themselves in beach communities, surrounded by specially selected Cuban workers. The problem was that tourists had money to spend, and it didn't all go to the state. Suddenly an unregulated market sprung up, driven by tourists.
In the communist critique of capitalism, whoever has the highest income, is the most valued in society. Today, in the tourist driven economy, prostitutes make the most, followed by tour guides, taxi drivers, bar keepers, waiters and anyone else who is paid in cash, either for services rendered or in tips. Meanwhile, doctors earn roughly US $20 a month while working for the state. Multiple people pointed out that if doctors are now choosing to become prostitutes and taxi drivers, how will there continue to be free health-care? It sounds like socialism in Cuba is having an existential crisis—is it time to re-do the puzzle?
As one very devoted former communist youth leader pointed out, "Cuba now needs a handful of millionaire businessmen—otherwise prostitutes will dominate the social strata. Too many people have seen spendable money in their hands from tourists, for us to go back to the old system. The current system isn't tenable. Cuba will have to move forward and continue to liberalize the economy—there is no other choice."
As investors, that is all that you need to know—they’re about to re-do the puzzle again—now, none of the pieces fit. Once you start to liberalize an economy, the trajectory is set—it will only accelerate from there.
It has already begun to accelerate. Despite turning economic mismanagement into a science, we saw many Cubans buying flat screen TVs and designer clothing. Somewhere between a massive black market economy, tourism and overseas remittances, many Cubans are actually doing quite well—which I did not expect. That said, the majority are still mired in a form of socialist inspired poverty, where their needs are taken care of, but they cannot get much more than basic food.
The situation with the currency is emblematic of the problems created by Socialism. The National Peso (CUP) is used by the government to pay government employees or the majority of the people. Meanwhile, the Convertible Peso (CUC) is meant for the tourist economy and only supposed to be accepted by certain businesses catering to tourists. In theory, one US Dollar is worth one CUC which is worth 25 CUP. Of course, in Cuba, it doesn’t work that way. At the government run exchange booths, $100 US Dollars are worth 87 CUC—talk about a wide spread. Meanwhile, CUC cannot convert back to US Dollars and the government mandates that all transactions happen at a handful of government exchange booths. No one will take US Dollars in a transaction outside of the exchange counters and Cubans are not allowed to possess US Dollars. Finally, the vast majority of stores will only take CUC for transactions and will refuse to take CUP—which is what most Cubans actually have.
So you enter the country with US Dollars, convert them into CUC at a horrible spread, but get most of your change back in the CUP that no one will accept. It is like the county fair where you have to buy either food tickets or ride tickets and you always end up with too many of one and not enough of the other. They might cost the same per ticket, but you cannot exchange them for each other. Meanwhile, the kid running the tilt-a-whirl will let you pay a dollar to ride it instead of 8 tickets because he wants to pocket the money. On the way out, you give the food tickets to some cute kid in line because you can only eat so much fried dough before your stomach decides the matter for you. Cuba is that dysfunctional carnival.
After the first time that I exchanged for CUC, I wised up to the fact that all the hotel employees are tipped in CUC yet desperate for US Dollars. I have been to many black markets in my life, but exchanging currency in Cuba has the feel of a drug deal, because it is equally illegal. In the bowls of the luggage storage rooms of various hotels, I asked why the bellhops would give me parity or better for my US Dollars.
"Castro says I cannot have it, so I probably want it."
"When I escape this stupid island, my CUC won’t be worth much in Miami."
"I can only pay the bribe for my travel visa in US Dollars. Since I won’t return from my travel, I won't need CUC."
Like most things in Cuba, there is an element of the surreal in everyday life, but that is to be expected when a government tries to interfere in the economy.
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Fascinating to say the least... More to come.
- Chris
"I come from Cuba. Taxes for me are no big thing." – Tony Oliva
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Interesting observations on the currency. I found the same thing in China back in the 80's when, as tourists, my wife and I visited Guangdong and Shenzen. As required, we obtained Foreign Exchange Coupons (FEC) before our arrival. Techincally, this was the only form of money a tourist could spend in China, although we soon found otherwise.
Arriving in Guangzou on the train from Hong Kong (filled with chinese loaded down with every consumer good you could imagine - ostensibly family gifts, but in reality for sale on the black market) the first think that greeted us was "change money? - change money?" from a swarm of entrepeneurs clustered near the station exit.
The going rate for an FEC was about twice the official exchange rate, likewise for the USD. The FECs were sought after because that was the only money you could spend in the duty free shops. Those shops were for tourists only and you were supposed to show your passport, but no -one ever asked.
Technically, as a tourist I wasn't supposed to have Renminbi, but the practical reality was that you had to have some, as FECs weren't accepted outside of the big hotels and duty free shops.. As an experiment, I went to a bank and tried to change USD to RMB, something I wasn't supposed to do. I had no trouble at all - didn't even show my passport.
I could go on for pages about that trip - it was surreal on so many levels, but I'll leave it at that. Suffice to say, the currency situation in Cuba is no exception - more likely it's the rule in communist countries.
note: for you history buffs, this was during the period known as "The Four Modernizations" although it didn't look too modern to me. And why Four I'll never know. That number is considered unlucky to Chinese.
Informative and easy to read. Thanks for not putting in the usual pitch.
As long as the government there is so poor it would seem that they couldn't afford the high tech surviellance. Perhaps it would be a good place to take a vacation from electronic pollution, or go off the matrix. Perhaps a tourism service that specialized in "de programming" could offer mind cleansing vacations with rum and prostitutes and red beans and rice.
Cuba is doing quite better than the neighboring Haitis, Guatemalas. If the Castro aim was to avoid the worst pains of banana republics, I dare to say that he did not do too badly - despite economic isolation. Does Castro enjoy power abuses more than "free" Latin oligarchs? Russian Communist lords preferred wild "capitalism", after all.
I can't wait until we in the US of Socialist A wake up to find prostitutes our ruling class!
Hubba hubba!
The prostitutes are are the drooling class.
No, that describes their clientele.
Canadians get a far better exchange rate, but the author is wrong, you always get back CUC for your CUC purchases. Getting the local currency is not easy and is meant only for the locals.
I love the place, much safer than Mexico and I hear the east coast (Bay of Pigs) is so beautiful, it's on my list for trip no. 7
Well, it's an island.
But I suppose North, Central, and South America are islands as well, in the big picture.
All the Earth is an island in space...
"Just remember that you're standin' on a planet that's evolvin', and revolvin' at 900 mph..." -Eric Idle
See, that's why capitalism will never die. Whenever the totalitarian states try to control and manage everything, black markets spring up, and black markets are capitalism in its essence, cash-only and driven purely by market forces.
see Setarcos' comment immediately above (not that it will have any effect on that thick noggin of yours, you scwuffy wuffy puppy you)
My comment was about the capitalistic nature of black markets. It had nothing to do with why a particular black market appeared.
fair enough, but not far enough
Unless you were implying that capitalism wants mitigating?
Of course decades of sanctions have no effect, Right!
Apparently the author defines 'prosperity' as he who has the largest debt to GDP ratio.
These socialist states and their silly propensity for 'fiscal responsibility'; how quaint.
still----people have yet to figure out that despite how top heavy a society is in structure, the ultimate measure of how succesful it is at any given point in time is TRADE.
CUBA HAS NOT BEEN ABLE TO FREELY TRADE IN THE WEST WITH ANY COUNTRIES ALIGNED WITH THE U.S.
this is decades of trade war against cuba. trade war is the predominant type of war . it's not 'violent'. it's a slow nearly COSTLESS attack on the economy of a weaker trading partner.
AMERICA WANTS EUROPE TO TRADE WAR RUSSIA BUT EUROPE IS THE WEAKER TRADING PARTNER AND THUS CANNOT AFFORD TO DO IT.
CHINA WILL SOON BE THE STRONGER TRADING PARTNER IN THE SINO-US RELATIONSHIP. WHEN THIS HAPPENS, THEY HAVE ALREADY WON WW3 BEFORE IT EVEN STARTS.
Cuba = The futility of sanctions.
I think it is impossible to determine the success/failure of Cuba's economy because of US interference. Sanctions are only part of the impact, pretty sure I read about the US arranging for Anthrax outbreaks in Cuban livestock.
Capitalism may not be perfect but at least it works. The problem is who does it work for? In US for example, it sure as hell isn't the average person, or even the bottom 90%
The USA hasn't enjoyed capitalism since FDR.
The national line of credit we presently have was extended by the history of the 140years prior to FDR, supplemented by the rebuild of the world we were paid for after WW II
"Capitalism may not be perfect but at least it works. The problem is who does it work for? In US for example, it sure as hell isn't the average person, or even the bottom 90%."
Crony capitalism isn't really capitalism. Bailouts are not capitalism.
The government is suppressing job creation, keeping unemployment high, which keeps wages low. That isn't capitalism, either.
To paraphrase China's Deng: "What difference does it make if a cat is white of black?as long as it catches mice"
"Cuba needs to think of socialism as a goal and not as a strategy"
What's the difference between prostitutes and politicians?
You can buy a politician but only rent a prostitute.
"yeah but at least my neighbor, my enemies, and my friends don't have any more than I do. We are all equal except for those traitors trafficking 69, cunnilingus, fellatio, and anal bleaching with 12 yr old"s.
(cuban communist)
Communism is meant for the PEOPLE, not for the Communists. Castro and his pigs like like kings.
My kids wear Ché t-shits. But the caption,
"Ché: murdering communist bastard"
Inasmuch as there are more lawyers in Washington than any other profession, it is fair to say the US is indeed run by prostitutes.
Isn't fucking Guevara DEAD?
Jesus H....these el-stupidos need to get kicked from their 50 year siesta and throw Rauuuuuuuuuuuuuuul and his bed-ridden brother over a break wall....
...along with about 2,000 various other Sovietskis and tanned Marxists...
THEN.....bring back the mob.....in force....trade? SHITLOADS of everything that "fell off the freighter trunk"....Tourism would balloon to epic proportions....
Swanky Casinos/Hot Latina Mommies/ Cuba fuckin Libres/Daiquiris and beaches policed by the Gambino family....
~OLE
"Despite turning economic mismanagement into a science---"; I think it was already a science; it's called Socialist Economics.
If Cuba is so badly mismanaged, why does it have higher living standards, lower homicide rate, and compareable GDP per capita to Jamaica and Dominican Republic?
How about comparing compareable countries, with compareable resources?
Ironically, or expectedly, Cuba has lower equality than its peers.
All three you mention are corrupt so for one you can't believe the GDP per capita to begin with.
GDP is not exactly a good measure, and every country has its own distortions, but unfortunately it is one of the few metrics we have to use for comparison.
Banksters are the pimps.
Cuba would do well to dump all their abilities into growing the best selling marijuana to the worldwide market.
Too late. The legalization laws in WA and CO have cratered the wholesale price of marijuana.
As I am not a consumer - what was wholesale pre and post WA and CO?
I remember the LA Times had an article on how a couple were bummed about prices dropping. She said they could buy nice things and take nice vacations because they got top dollar for their organic weed (grown illegally). She listed all the love and care that went into growing their pot.
Some wag poster on LA Times said it is a god-damned weed so how is it so hard to grow.
Well THAT should take a bite out of crime then shouldn't it?
Cuba may be one of the only countries in the world to have adopted wholesale a self-sustaining system of agriculture. “They had no choice,” he said. “Their only choice was to look inwards, to the resources they had and say: ‘Can we make more of these resources?’”
“The thing is that it has also produced a lot of food ... People are also closer to their food production. [In the west] we are worried that we don’t know about where our food comes from. In Havana, people are closer to their food production and that may also have psychological benefits.”
http://havanajournal.com/business/entry/organoponicos-and-organic-produc...
Imagine Cuba, with a full-scale embargo, no banking infrastructure, and yet without the shackles of socialist dogma.
THAT would be what paradise free from parasites would look like.
the irony of all this is that the organicoponicos are the most "capitalist" of all the institutions (outside prostitution of course) on the island (including GITMO).
http://conspiracywiki.com/articles/peak-oil/how-cuba-survived-the-oil-crisis/
http://www.ipsnews.net/2013/03/several-countries-depend-on-venezuelas-oil-diplomacy/
lol "As one very devoted former communist youth leader pointed out, "Cuba now needs a handful of millionaire businessmen—otherwise prostitutes will dominate the social strata. Too many people have seen spendable money in their hands from tourists, for us to go back to the old system. The current system isn't tenable. Cuba will have to move forward and continue to liberalize the economy—there is no other choice."
LOL. can't have the prostitutes run the place, eh? I wonder if this quote is factual, it's a bit too "money runs everything" and "it's all about money", concepts that I don't associate with socialist Cuba
He forgot to mention the pimps. More money and power than the prostitutes. Every prostitute in Cuba works for a pimp.
OT: btw, long time ago firebrand preachers accusing the Vatican of being ruled by prostitutes, hence the "Rule by prostitutes" word Pornocracy
then 1987, a pornstar was elected in the Italian Parliament: Cicciolina, and the whole discussion on the above started again
in case you wonder: she campaigned on a platform against NATO membership, against nuclear power and for human rights, including those of prostitutes
If there are 10 doctors for every patient and one prostitute for every 10 Johns, of course prostitution will pay more. If more people become prostitutes, the value will drop. They better get their shit together and form a cartel, quick. Meanwhile, if there are fewer doctors, they should be able to earn more. Sounds like a problem that will fix itself, probably much faster and smoother than the America/China trade imbalances.
First of all it does not always start with the best intentions. Secondly, your good friend Fidel is still around, at least he was last time I checked.
Indeed, just for the record:
April 29, 2014: Daughter of former Venezuelan president Hugo Chavez visits Castro
April 25, 2014: Fidel Castro 'dismayed' by death of Gabriel García Márquez
April 24 2014: Cuban Revolutionary Leader Fidel Castro Meets with Wang Yi