Castro-nomics

Castro-nomics

Fidel Castro’s Economic Legacy

Many here at Stanford plan to spend approximately eight more years after graduation studying at medical school. They wave a half-joking farewell to their twenties, instead dedicating that time to becoming some of the most skilled and educated individuals on the planet. After that training, they’ll be general practitioners, cardiologists, neurosurgeons, people who devote their entire lives to saving others. For that incredible service, they’re rightfully rewarded not just with prestige and respect, but also with high salaries.

But imagine, for a moment, that we instead live in a world where that is not the case. Doctors may toil long hours in the hospital, spend years in medical school, and will make less in a month than a bellhop could earn in a single shift.

In Cuba, that would just be another typical day.

The world has responded with a variety of reactions to the death of Cuban leader Fidel Castro. From laments over the loss of a fearless leader to denunciations of the brutality of a bloodthirsty dictator, the conversation about Castro’s legacy has been fiercely polarized. Yet this conversation has mostly focused on the political actions of his administration, largely neglecting the effects of decades of state control on the economy.

In 1959, after tyrant Fulgencio Batista was ousted from power, the newly enthroned Cuban revolutionaries faced the task of establishing the socialist system they had spent years fighting for. One of the most significant economic changes was the replacement of the pre-revolutionary peso with the Cuban peso (CUP) by revolutionary Che Guevara, whose legacy as Castro’s second in command is itself hotly contested. This move allowed the government complete control over the Cuban market. Two years later, Castro nationalized foreign investments in his country, announcing that Cuba was now and forever a communist nation.

These actions prompted the United States to sever ties and initiate an embargo. It also caused the mass exodus of the Cuban middle class, professionals and entrepreneurs vital to the economy. These sudden shifts almost caused Cuba’s economy to collapse, forcing the government to rely on subsidies from the Soviet Union until 1989, the year the Iron Curtain fell. Soviet subsidies constituted 80% of Cuba’s international trade at that time.

The aftershocks of such a huge market loss were devastating, as legions of central planners had to figure out how to run a self-sufficient nation. Before and during the communist regime, Cuba had never developed any strong domestic industries besides producing sugar. In fact, while GDP per capita increased to $3500 dollars in the mid-eighties, comparable to other struggling Latin American nations, it plummeted to $2500 for almost ten years following the crash. Indeed, without Russian subsidies to pad government spending figures (a component of GDP), the stark deficits within the Cuban system were revealed. Castro’s policies led his nation halfway to ruin.

He would spend the final third of his regime trying to reverse the damage, making tentative efforts at free market reform, such as Free-Trade Zones where regulations were more lax for foreign businesses, and private farmers’ markets that attempted to encourage self-sustaining domestic food production by allowing farmers to set their own prices. However, the policy that most significantly impacted Cuba’s economy was the creation of a second currency alongside the existing peso, the Cuban Convertible Peso(CUC). Initially, the CUC was pegged to the same value as the US dollar to encourage tourism and allow the government to skim a substantial cut on every exchange.

Yet adding a new currency worth about 25 times as much as the old one was only a temporary solution that would destabilize Cuba’s economy in the long run. Today, a severe gap in wealth exists between those paid in CUPs by the government and CUCs by those in private markets. A doctor, nurse, or engineer earns a monthly salary in the relatively worthless CUPs. But because cab drivers can receive CUCs from tourists, it is now more profitable to freelance as a waiter or cab driver than work in a state hospital. In fact, a cab driver can make more in a day than a doctor makes in a month! Most essential goods can only be purchased in CUCs, which makes government-issued CUPs even less desirable. As a result, massive currency black markets have sprung up across the country, as citizens are forced to work in secret just to get by.

Unifying the two currencies seems the best solution. But on paper, the CUC and CUP are considered equal in value. This government action has prevented massive inflation of the CUC, but also means that any attempt to create a single currency system would require significant devaluation of the CUP. On the other hand, ending the dual currency system would make struggling Cuban exports appear much more viable, since in a unified system, their costs would not be measured in artificially inflated CUP’s.

Cuba is rich in natural resources and has a skilled, largely educated population (despite some emerging flaws in its schooling system). Under any other circumstances, it should be one of the most successful nations in this hemisphere. Yet per-capita GDP in Cuba remains about a tenth of that of the US, placing it behind even Turkmenistan and Colombia.

We pay attention to the politics of dictatorship in large part because it is easier to see evil while staring down the barrel of a gun than to see it after hours of staring at economic data. In fact, shocking numbers of millenials support socialism despite the abundance of suffering it has caused, largely because they don’t associate the good intentions of central control with its terrible effects. Even some news sources equate his persona with his politics, glorifying the revolutionary without examining the consequences of his revolution.

As a result, so many of us refuse to see that in the end, Castro failed Cuba. His fumbling experiment with central market control stunted the nation’s economic growth for decades. While it might be tempting to justify the brutalities of the Castro regime with talk of his advocacy for the poor, it is also important to consider the actual effects his policies had on the nation’s economy. Regardless of the progress made in recent years, Cuba still has a long way to go to reach full self-sustainability and recover from years of untenable socialism.

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