In Cuba Policy Debate, Theories Don't Cut It

It's time for those who theorize that closer business ties to Cuba will trigger economic and political reform, and want to scuttle U.S. sanctions, to face some inconvenient truths.
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It's time for those who theorize that closer business ties to Cuba will trigger economic and political reform, and want to scuttle U.S. sanctions, to face some inconvenient truths.

First and foremost, from an economic perspective, the very concept of trade and investment in Cuba is grounded in a misconception about how "business" takes place on the island. In most of the world, trade and investment means dealing with privately-owned or operated corporations. That's not the case in Cuba. In Cuba, foreign trade and investment is the exclusive domain of the state, i.e. Fidel and Raul Castro. There are no "exceptions."

Here's a fact: In the last five decades, every single "foreign trade" transaction with Cuba has been with a state entity, or individual acting on behalf of the state. The state's exclusivity regarding trade and investment was enshrined in Article 18 of Castro's 1976 Constitution.

The state's exclusivity extends also to what the rest of the world considers to be "humanitarian" transactions. The U.S. government frequently cites the cash sales of U.S. foodstuffs and medicine to Cuba to refute those who exaggerate the "totality" of the U.S. embargo. Indeed, since passage of the 2000 Trade Sanctions Reform and Export Enhancement Act ("TSREEA"), more than $4 billion in U.S. agricultural and medical products have been sold to Cuba. It is an unpleasant fact, however, that all those sales by more than 250 privately-owned U.S. companies were made to only one Cuban buyer, the Castro government.

It should be no surprise then that these U.S. products end up with huge, price mark-ups, on the shelves of the stores set up by the Castro regime that only accept "hard currencies," such as the U.S. dollar or Euro. These are stores where mostly tourists shop. Little of the food or medicine is made available to Cuba's general population. Neither does it end up on the ration cards Cubans are condemned to using.

It requires a tremendous leap of faith or belief in some extreme and unprecedented model of trickle-down economics, to argue or theorize that current or more U.S. sales to Castro's monopolies have or can ever benefit the Cuban "people."

This being the case with limited, cash-only sales of U.S. food and medicine, try imagining the disproportionate benefit the state has derived from three decades of trade with the Soviet bloc, or the billions in European and Canadian trade and investment in the Cuban state since the collapse of the Soviet Union in 1991. There is not a shred of evidence to suggest any of the benefits got beyond the Castro regime.

Because trade and investment entails dealing only with the Castro's monopolies -- a reality people would (or should) find unpalatable -- it begets the question: How can these monopolies be weakened and dismantled?

Various approaches can reasonably be debated, but it is undeniable that "doing business" with state monopolies strengthens and enriches them. If that were not the case, then democratic nations wouldn't need antitrust laws. Democracies would simply feed their monopolies more business and allow them to magically weaken and fall apart. Imagine what "might have been" if in the early 20th Century, the United States' approach to Big Oil was to strengthen its then monopoly. Today many Americans think the oil industry exerts a disproportionate influence, but if it hadn't been for the "trust-busting" efforts of the last century, we might well have become the United States of Rockefeller, working at the behest of monopolists.

Cubans have no choice; they work for the monopolies of Cuban government under the Castro brothers. Increasing U.S. trade and investment in those monopolies is nonsensical. It defies logic to believe that doing more business with monopolies weakens them.

Even so, in the latest round of the continuing debate on U.S. sanctions, it is asked: Can lifting U.S. trade and investment sanctions benefit Cuba's "self-employment" (cuentapropistas) sector?

The short answer is: Not really.

Cuba's military and intelligence services control and run the conglomerates of Cuba. The "self-employment" sector represents a very small part of the island's economy and it is important, in the debate over sanctions, to understand its nature and limits. During economic crises, the Castro regime typically authorizes a host of services that Cubans can be licensed to provide, keeping at least a portion of what they may be paid. The world's news media refers to these jobs as "private enterprise," which implies "private ownership." Yet Cuba's "self-employed" licensees have no ownership rights whatsoever - be it to their artistic or "intellectual" outputs, commodity they produce, or personal service they offer. Licensees have no legal entity (hence business) to transfer, sell or leverage. They don't even own the equipment essential to their self-employment. More to the point, licensees have no right to engage in foreign trade, seek or receive foreign investments. Effectually licensees continue to work for the state -- and when the state decides such jobs are no longer needed, licensees are shut down without recourse.

A central tenet of capitalism is recognition of property rights and it's precisely such rights that the Castro regime avoids through its distorted, licensing model. It's also why, despite these "self-employment" licenses, Cuba remains ranked 177 out of 178 nations in the world in the Index of Economic Freedom, a yearly joint compilation of The Wall Street Journal and The Heritage Foundation. Only North Korea is considered less economically free.

Based on the lessons of history, those who still believe "self-employment" licenses are "a step in the right direction" toward capitalism, actually have all the more reason to support U.S. sanctions. Self-employment was a temporary reaction to loss of Soviet subsidies, and with the remnants of the Chavez regime in Venezuela now imploding, Cuba will likely continue allowing it. Yet the historic lesson is clear: The Castro regime only responds when it is economically pressed. Once the Cuban economy stabilizes or begins to "bounce back," the Castro government reverses itself to freeze or revoke self-employment licenses. Lift U.S. sanctions and Cuba's government will solely focus on strengthening its state conglomerates and the repression required to suppress change. Thus, U.S. sanctions are the best friends that "cuentapropistas" now have.

These are the economic facts in Cuba under the Castro brothers' unyielding brand of totalitarianism. Economics aren't, however, the only consideration for U.S. policymakers. They must also take cognizance of the Castro regime's grave violations of human rights; its harboring of U.S.-designated terrorists; subversion of democracy in Venezuela; support of rogue regimes in Syria and Iran; and illegal trafficking of weapons to North Korea. Evaluated in context and entirely, the facts about Cuba under the Castro regime inevitably trump theories that lifting U.S. sanctions would stimulate economic and political change in Cuba.

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