When the Soviet Union dissolved the day after Christmas 1991, it inaugurated a season of celebration in Miami’s many Cuban neighborhoods. Long-time exiles pulled yellowing deeds and other legal documents out of bank safety deposit boxes, preparing to return to Cuba and reclaim land, homes and businesses confiscated by Castro’s socialist experiment.
There was no such joy in Havana. The Soviet Union’s political and economic support underlaid all of Cuban life. A time of hunger and doubt that Cubans call the “Special Period” began. In a masterpiece of political manipulation, the Castro government turned the uncertainty to its advantage and held on to power.
The exiles’ deeds and documents went back to the bank.
Today, Cuba is once again an economic basket case. A presentation by Professor Carmelo Mesa Lago of the University of Pittsburgh makes the disasters’ extent plain. He made the presentation to the Association for the Study of the Cuban Economy at Florida International University (FIU) in Miami.
“Six decades after the Cuban Revolution,” the Professor began, “the country is again undergoing a severe economic crisis, this time worse than the infamous ‘Special Period’ in the 1990s.”
A Bitter Tale About Sugar
The most obvious example of Cuba’s woes is the sugar crop.
When Cuba was a Spanish colony, sugar plantations formed the centerpiece of the economy. The Industrial Revolution radically altered sugar harvesting and processing. The Cuban economy swelled.
According to Encyclopedia Britannica, “By 1850, the sugar industry accounted for four-fifths of all exports, and in 1860 Cuba produced nearly one-third of the world’s sugar.”
Such expansion is a source of nostalgia today. The sugar crop, 8.5 million tons in 1970, was about one-nineteenth that large (473,000 tons) in 2021. The Cuban official estimate for 2023 is 350,000 tons. Complicating the issue, Cuba has a commitment to sell China 400,000 tons. So, they plan to purchase sugar from Brazil to close the gap.
Professor Mesa Lago’s presentation at FIU gave much more detail about the Cuban economy, which he divided into seven categories.
- The Inefficient Economic System
One of the chief flaws of communism is that central planning creates unworkable economic systems. No small group of leaders is wise enough to make sound economic decisions for whole societies. Inevitably, that group crafts policies that fit their prevailing notions, benefit them personally or both. The decision-making apparatus further deteriorates as the leaders increasingly insulate themselves against the woes they inflict on their people. No effective change is possible because the decision-makers are the broken system’s chief beneficiaries.
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This has been Cuba’s story throughout the Castro regime, which continues under Raoul Castro’s hand-picked successor, Miguel Díaz-Canel.
Dr. Mesa-Lago makes an exception for “market socialism,” but he is unduly optimistic. No socialist government can allow vibrant and free markets to exist. They always end up working against the regime’s control. That is the great lesson of the former British colony, Hong Kong.
- The Serious Economic-Humanitarian Crisis in Venezuela
The current state of Venezuela’s economy is far too complex to go into here. The subtitle of a recent article from the oh-so-liberal New York Times sums it up beautifully.
“After years of extreme scarcity, some Venezuelans lead lives of luxury as others scrape by. The nation of grinding hardship has increasingly become one of haves and have-nots.”
When the “Gray Lady on Times Square” criticizes socialists, the situation must be disastrous.
The effect of Venezuela’s deterioration on Cuba is simple to explain. When Hugo Chávez took over the oil-rich nation in 1999, he revered his mentor, Fidel Castro. The above-mentioned “special period” ended when Chávez sent cash and oil to Cuba. That policy continued under Nicolás Maduro after Chávez’s death. However, Maduro’s government is now broke. Once again, Cuba lost its primary financial support.
- The Inability of Cuba to Finance its Own Imports with its Own Exports
The sugar production problem is one component of this problem. The overall picture is far worse. From 1989 to 2021, the overall value of Cuban exports went down by 67 percent, while imports increased by five percent. The cumulative effect over time is an enormous trade deficit.
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Even exports of the famous Cuban cigars are off by over one-fifth. If Cuba were a corporation, it would be time to hang up the “Going Out of Business” sign.
- The Strong Sanctions Imposed by Trump
Less than two weeks before leaving the Oval Office, the Trump administration designated Cuba a “state sponsor of terrorism.” Secretary of State Mike Pompeo tied the designation to three long-standing grievances.
“For decades, the Cuban government has fed, housed, and provided medical care for murderers, bombmakers, and hijackers, while many Cubans go hungry, homeless, and without basic medicine…. Cuba also harbors several U.S. fugitives from justice wanted on or convicted of charges of political violence, many of whom have resided in Cuba for decades…. The Cuban intelligence and security apparatus has infiltrated Venezuela’s security and military forces, assisting Nicholas Maduro to maintain his stranglehold over his people while allowing terrorist organizations to operate.”
The sanctions included restrictions on flights, trade and various financial transactions between U.S. companies and the island nation. Of these, the most damaging may be a severe limitation on the amounts of U.S. dollars that American citizens can send to Cuba, in many cases to family members. According to Professor Mesa-Lago, these remittances dropped from $3.7 billion in 2019 to $1.0 billion in 2021.
Despite promises by the Biden Administration to roll back the Trump sanctions against Cuba, they largely remain in effect, due partly to the objections of New Jersey Democrat Senator Bob Menendez, whose parents emigrated from Cuba shortly before his birth. According to the Pew Research Center, in 2006, New Jersey had the second-highest concentration of Cubans in the nation, trailing only Florida.
- Covid-19
For a time, it looked like tourism might be Cuba’s economic salvation. The one-time “Pearl of the Antilles” has always been a celebrated tourist destination. The government invested heavily in refurbishing hotels and promoting the raucous nightlife that predated Fidel Castro. When President Obama eased travel restrictions, a vast number of American leftists burnished their liberal credentials by taking vacations in Havana.
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Those tourists, 4.7 million In 2018, brought in millions of dollars and euros that the regime needed.
Then came Covid. The number of visitors in 2020 was about one-quarter of 2018’s record. The figure would have been worse, except that the Covid crisis broke in March—the close of the winter travel season. When the problem continued into 2021, combined with the new Trump sanctions, caused the figure to decline even further.
There was a bounce-back in 2022, but it was small, with 1.6 million visitors. Apparently, the liberals found other beaches.
- Tarea Ordenamiento
Translated from Spanish, the phrase means “Task Ordering.” One of the tasks was to unify the currency.
For decades, Cuba had two monetary systems. The island’s people used normal—meaning all but valueless—“national” Cuban pesos. A “convertible” peso was available for those who could purchase them with internationally recognized currencies. The effect was a ridiculously complicated system that reduced productivity.
The plan backfired miserably. According to the Columbia University Law School, the official exchange rate against the U.S. dollar dropped by a catastrophic 2,300 percent. The result has been massive inflation. Higher prices, in turn, significantly diminished the already marginal standard of living.
- The Russian Invasion of Ukraine
Russia inherited a trading relationship with Cuba from the old Soviet Union. This never constituted a major factor for Russia, but it was vital for Cuba.
The international reaction to Russia’s invasion of Ukraine complicated that situation. As sanctions curtailed Russian energy exports, Cuba’s oil supply—never abundant—plummeted. This condition further fueled the runaway inflation rate.
Can Cuba Recover?
It isn’t easy to see any path that Cuba can take to reverse its fortunes short of repudiating the Castro revolution. Even then, Cuba would still need to rely on foreign capital to revive its withered economy. That process would consume decades.
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Perhaps the greatest lesson Cuba can teach the world is that communism destroys everything. Even when a nation has excellent natural resources, solid allies and high-spending Western tourists, Karl Marx’s “workers’ paradise” manages to reduce everything to poverty. It is best thrown into the dustbin of history.
Photo Credit: © Paulo Nabas – stock.adobe.com