“The Cuban model doesn’t even work for us anymore.” - Fidel Castro, 2010
The word on the street is that the Cuban government will soon begin deregulating state-run companies in 2014. In a recent report from the Financial Post, an adviser with the Communist Party quietly eluded to a new economic reform plan for the upcoming year. More details emerged in the Party newspaper, which claimed that larger firms will soon be allowed to keep at least half of their profits. Managers of state companies will be granted more autonomy to conduct business more efficiently.
This new reform measure – which is not guaranteed to be fully implemented – is not perfect but it’s a start. It follows on the heels of other market based reforms that have been implemented such as the ability to buy and sell property and the laying off of thousands of government workers. Rather than true liberalization, this will be state capitalism of the Chinese variety. The Communist Party will still be in charge but a little private human volition will finally be permitted to flourish. In the fight for liberty, small steps are still steps forward.
The question is why is this transition, small as it is, allowed to occur now? Since the collapse of the Soviet Union, one would think the income egalitarian notions of Karl Marx would be discredited. But still, a handful of countries cling to the fallacious notions of “each according to need” and that the state is a better distributor of goods than the marketplace. Both Russia and China, along with the welfare nanny states of Europe, are proving the political system of mass socialism is unworkable and unsustainable.
But here’s why Cuba is coming to senses: the state must first take to distribute later. The political class does not own anything of value by itself. There is a limited pool of resources in any given society which can be transformed into wealth. The goods available for consumption are what economist Frank Shostak calls the “subsistence fund.” The only thing that can add to this fund is real, private investment in the form of capital. When this pool of funding dries up – as it inevitably does under a thieving state regime – that is when significant governmental change happens.
For the entirety of it’s existence, Communist Cuba, wholly supported by the USSR, was a giant Potemkin Village for politicians such as Pierre Trudeau and demagogues such as Micheal Moore. 20 years after the abandonment of Socialism by their Siberian Sugar Daddy, the regimists in Cuba’s government have finally been forced to come to terms with the destruction of wealth that their policies have wrought over the past 60 years. That’s why the government is relaxing its stranglehold on the economy. The pool of real funding is running lean, and the high-on-the-hog communist leaders want to keep their jobs. They may relax their grip for now to ensure more goods are produced, but the country has a long way to go before liberty is restored. For now, we should celebrate another lesson in failed collectivism.