People Don't Improve What They Don't Own

The New York Times worries about change in cuba

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A New York Times reporter with pre-Castro family ties to Cuba tells us that the country is facing change (big surprise) and that it's not necessarily a good thing.

I know what you're thinking: "Of course a Times reporter is afraid of what will come after Castro." Most of the story is a melange of boring personal reminiscences, thankfully free of paeans to what we're all supposed to think is the best healthcare and education on earth.

The message we're probably supposed to get is that ordinary Cubans like the life they have now, even as they express this sentiment in furtive tones accompanied by fearful looks over their shoulders. (As in any non-free society, Cubans will rat their friends, neighbors, even their parents and children out to the secret police. I'll never know why people engage in this disgusting behavior. Maybe they want to make sure the goons will go easier on them when their time comes.)

But one intrepid Cuban interviewee does spill a few beans at one point. The feared enemy bearing change is... America.

Read on...

Still, many people we met shared a fear expressed by Miguel, a 62-year-old retired army lieutenant colonel who lives in Altamar, just outside Havana. He drives a 1958 Dodge with bad brakes and a top speed of about 37, which is the number of years he has owned it. He said he worried about only one thing after Mr. Castro: what he called the Americanization of Cuba.

By that he meant a savage capitalism that might take away from Cubans the best houses, the best land, the best factories. In short, if a transition means that the little they have managed to acquire might be taken away, he’d rather not change.

I'm a savage capitalist myself. (I know because it says so on my business cards.) So what's my reaction to this sentiment?

I think that Lt. Col. "Miguel" is afraid of foreign investors. He's afraid that Cuba may attain a higher level of material prosperity as outside capital comes to an island that has had no significant direct investment at least since the Soviet Union fell.

And he's probably right to fear outside capital. Whenever a place where most of the cars are about 50 years old opens up, all the capitalists' ravenous stomachs start rumbling and their check-writing hands get itchy. That's because you can expect the highest investment returns in places that have the most improving to do.

What happens then? Well, the savage capitalists end up making money, which we all know is a bad thing. And it's bad, because the savages will harness the labor and the energies of the local population to make it. They'll put all the Cubans to work growing more food, and building new buildings, transport infrastructure, water and sewer systems, and everything else that we savages refer to as "capital stock."

And when you increase the amount of capital stock that is present in any given locality, you more-or-less permanently increase that locality's ability to generate what we call wealth.

Why does this inspire fear? Does Miguel expect that he, his children and his neighbors will be impressed into indentured servitude? Does he think that once someone is making money in Cuba, that everyone else will necessarily collapse into exploited destitution? (What does he think they have now? Unexploited destitution?)

That's the interpretation I'd have to put on the Times reporter's statement that capitalism might "take away from Cubans" the best houses and the best land.

Ok, this is an interesting point. The political leadership in almost every emerging economy, including none other than China, strives to maintain national control over productive assets. In most places, this means directly by the government, by people that the government can control, or both. It rarely means fully-free markets in which foreigners can acquire legally-defensible ownership of assets.

The only example that I can think of in all of world history of a state that fostered and legally protected the property rights of foreign investors was the United States in the decades following the Civil War. I don't need to tell you that, for that reason, this was one of the greatest periods of increased material wellbeing in history.

People don't improve what they don't own. Only the Chinese have managed to snooker foreign investors (who for twenty-five years have been transfixed by the "largest consumer market in the world") into giving their capital and their technology without getting full property rights in return. And the Chinese have been rewarded for this gargantuan swindle with the largest and fastest period of economic growth in world history.

That's not likely to work in Cuba, because Cuba doesn't have more than a billion potential new Coca-Cola drinkers. If whoever succeeds Castro decides to restrict the property rights of foreign capital, the result will be slow growth. The losers will be ordinary Cubans who are not part of the corrupt oligarchy that always seems to spring up in these cases.

So if "Miguel" fears that a handful of filthy-rich non-Cubans will end up owning everything worth owning, the alternative future is one in which everything will be owned by a handful of filthy-rich Cubans. He is deluded indeed if he actually believes the Marxist theology that socialism brings equal riches to everyone.

What "Miguel" ignores is that if people from other countries come to Cuba bearing capital and technology, the material circumstances of ordinary Cubans will improve. Investors don't generally go to places like Cuba intending to rape and pillage, for the extraordinarily simple reason that rape and pillage does not produce a long-term sustainable return-on-equity. Instead, you go to Cuba looking to build the place up with permanent infrastructure improvements and permanent new jobs. And a permanent new middle class of managers, engineers and technocrats. Given Cuba's high literacy rates, they are very well-positioned to pursue this vision.

Cuba does indeed stand at the edge of momentous change. We'll soon see what they make of the opportunity.

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Its loss of status they fear. Its also the same thing the times crew continually fear themselves. They look at what they have done and in their hearts know it is invalid and wrong. They pray every night that no one upsets the order that lets their bubble exist.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777

Its easy to poke fun at the NYT, but I'd be afraid of the transition period too. The big thing they have to worry about is how do they buy resources from the state once the fire sale arrives?

In Russia, the party bosses and the Russian mafia divided up all that the state had stolen, with regular people being even worse off. This is not to say that a market economy isnt better, but its hard to see that when you go from a steady bit of communism to a crooked capitalism. The trick will be how its managed.

“The difference between a Republican and a Democrat is the Democrat is a cannibal -- they have to live off each other--while the Republicans, why, they live off the Democrats.” --- Will Rogers

The reason the Soviet devolution was so badly mishandled was because Jeff Sachs, among others, were invited over there to help them do a "transition to private ownership." So they handed out equity shares in a wide range of state-owned enterprises to every Russian citizen. Most of them had no idea what they were holding (shares of Gazprom, Rosneft, a pile of large banks, etc, etc.), and they sold them for sandwiches or vodka. That's how the oligarchy got started. The actual theft by the state of private assets (like Yukos) came years later.

Cuba is different for at least two reasons. First, there's no true asset value to most of their economy (they don't have major oil and gas reserves like Russia did). And second, I seriously doubt they'll let an egghead from Harvard convince them to just distribute all the good sugar-cane producing land to the people.

...that while they may end up better off materially in absolute terms, that those with status will be worse off in relative terms. Our retired Comrade Colonel, for example. Party membership most likely mandatory for military officers, with better access to rationed items like food and medicine, or hard currency shops, maybe even travel privileges to Comrade Hugo's retreat centers and health spas.

Post-liberation, he'd have to queue up with the lumpen proletariat and get paid in worthless pesos. That and he'd have to give up his (relative to other Cubans) roomy subsidized flat to the Miami Cubans come back to claim their family property.

Plus, (there's more!) the whole "They Pretend to Pay Us and We Pretend to Work" Potemkin Village Social contract goes out the window. 40-plus years of Communism turned a nation full of Germans into welfare caseloads and a country full of Koreans into starveling scarecrows.


"I find your lack of faith disturbing." -- Darth Vader

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