Economics With A Face

This small business, along with many others just like it, has its roots in 1993, the year Fidel Castro faced a decision. The collapse of the Soviet Union a few years prior had brought an end to the $5 billion in annual subsidies that had helped to keep Cuba afloat. Without this money, an already fragile economy began to completely fall apart. Blackouts and food shortages were common. People were literally starving to death.

So in September of 1993 Castro decided that the revolution would have to be put on hold. For the first time since he took power, 135 private professions were legalized. In addition, the U.S. dollar was now allowed to circulate freely among Cubans. Quite a change from the previous decade when a Cuban found in possession of just $1 could end up in prison for a year. While publicly Fidel declared it was a small step during a special period, it was clearly an act of desperation on his behalf. Flirting with capitalism was a necessary evil he knew was his only path to retaining power.

These measures, along with allowing direct foreign investment into the country to build government-controlled tourist resorts, for the most part accomplished their goal. The country's economy, while still poor, recovered. Licensed rooms-for-rent out of homes, restaurants run out of living rooms, taxis, and shoe repair shops, still today allow some Cubans to live a better life. This happens despite the fact that what motivates these Cuban entrepreneurs to act is that nasty 'P' word: profits. In short, they are motivated by everything Communism and the revolution are supposed to stand against.

Yet despite profits, it goes without saying Cuba is no bastion of economic freedom with abundant opportunities for employment. People with technical university degrees are discouraged from applying for the licenses and those who do obtain them face background checks, heavy taxation, and the difficult task of obtaining the tools to run their business before they see any revenue. Given that tourist dollars are the most stable form of income, things are made even tougher for Cuban entrepreneurs as businesses that pose the threat of directly competing with government tourist resorts face even higher taxation.

In addition, as of last fall, dollars were once again banned from circulation and the government stopped issuing 40 of the original 135 licenses. Rampant prostitution is another depressing sign that the economy is hardly dynamic. What 16-year-old girl would choose prostitution over work as a restaurant hostess if such an opportunity were available?

But, it is true that many Cubans we met do sell their goods and services with the blessing of the state. While they represent a small percentage of the population, to me it seems that these people are carrying the bulk of economic activity upon their backs. It's quite ironic, but in truth not surprising, that what appears to be the only thing that keeps one of the last bastions of Communism running is a quasi-free market.

One also has to see the irony in the fact that many of these same private enterprises would be shut down before they even opened in the land of opportunity to the north. Lack of proper fire escapes, ventilation, you name it, would have U.S. regulators cracking down on these businesses in no time. I can only imagine what a FDA food inspector would have thought as we entered one small restaurant that had raw chicken laid across the only dining table in the place. Of course, U.S. style regulations would be suicide for the future of Cuba, and not only in an economic sense. Equally important, it was my experience that these businesses are providing a broad taste of liberty to Cubans, in speech and association, which would otherwise not be available.

It was no coincidence that the most intriguing conversations I had in Cuba took place in these private places of business. It wasn't only that hidden far off the street these businesses offered a place of privacy, but more importantly, when people are allowed to freely associate, they bring their ideas and opinions in tow.

Over pollo frito y congri, sitting in their living rooms, or in the back of their cabs, my relationship to them as a customer or a fellow patron transformed into one of a student and an equal. Different people from different places in Cuban society gave me their honest opinion of their nation. For the most part it was a sad story. I listened as I was told of how hard life was in Cuba, how food such as beef and milk was illegal to consume in most circumstances, how medicine was unavailable or too expensive to afford, and how if we were to have these conversations in the public they could be thrown in prison as contrarrevolucionarios. It was the first time in my life I had seen this kind of repression with my own eyes.

Overall, I could also see that these people were thirsty for ideas. They asked us many questions about life in the U.S., and with these conversations I could sense their discontent. Milton Friedman has made clear throughout his career that one cannot separate economic and political freedom. These discussions were living proof of that concept.

At the age of 78, and in visibly deteriorating health, it's a matter of time before Castro's rule over Cuba ends. The question is, what will be next? In all my conversations within the confines of these businesses this is the one question to which no one had an answer. But when Cuba does find itself confronted with this change, it won’t surprise me if many of the intellectual leaders in a new democracy emerge from the owners and patrons of this private sector of the Cuban economy. They've had a taste of economic freedom, giving them a first hand look at how such an economy can work. They've also had a taste of the other freedoms that follow when adults are allowed to associate freely.

These same entrepreneurs that ran businesses only listed in obscure guidebooks, will instead run businesses that are listed on a domestic stock exchange. And those who spoke to us in the confines of their homes about what was wrong with Cuba, instead will be able to broadcast their grievances over television, radio, newspapers and, of course, the internet.

Such a day of liberty is long overdue for the Cuban people. Twelve years of these licensed professions is a far cry from true economic liberty, and, as for political liberty, forty-six years of Castro speaks for itself.