Wednesday, June 29, 2016

Ending Cuban embargo could spur 'contagious capitalism'

Ending Cuban embargo could spur 'contagious capitalism'
Benjamin Powell
American tourists are helping fuel a pro-freedom spark in Cuba

While President Obama's visit to Cuba three months ago had little effect
on Cuba's geriatric leadership, his decision to make it easier for
Americans to travel to the island appears to have ignited a pro-freedom
spark among the Cuban people, especially the young.

That's my take-away from a recent visit to the "socialist paradise." I
found hope, if not optimism, that things will get better.

The United States could give that hope a boost by doing away with the
Cuban trade embargo, which has put the squeeze on the Cuban people for
more than five decades, but has done little to deter the communist
government's abuses. Obama's executive orders have made it easier for
Americans, particularly Cuban Americans, to travel to the island. But if
Americans want to see a freer Cuba, Congress should repeal the embargo.

Historically, the Castros have used the embargo — they call it a
"blockade" — to blame the United States for Cuba's poverty and other
problems. Like any trade restriction, the embargo has made Cuba poorer.
But it is not the underlying cause of Cuba's problems.

Cuba's poverty is a consequence of the country's economic system, which
is an appendage of its political system. Put simply, state ownership and
management of major industry, from tourism and cigar-making to sugar
milling and oil refining, has made a mess of the economy. The people pay
the price.

In the few areas where Raul Castro has allowed some modest
market-oriented economic reforms, things are somewhat better. In 2011,
for example, he relaxed restrictions on renting out private homes to
guests and operating private restaurants. Those sectors have seen some
improvements. Compared with the large and often-decaying state-run
hotels, private guest homes typically are cleaner, better maintained and
less expensive.

The private restaurants also are typically more appealing than their
government-run competitors. But as I noticed during my visit, their
menus are strikingly similar, with limited choices due to the
government's control of the supply chain, which invariably results in
overproduction of some products and shortages of others.

The United States cannot impose reforms from afar. Reform has to
originate in Cuba. But ending the embargo could help spur the process.

Economists have long appreciated that international trade, in addition
to its economic benefits, promotes peace and cultural understanding, and
helps undermine prejudices.

Increased commerce between the United States and Cuba would help more
Cubans learn how a market economy's "rules of the game" create
opportunity and promote prosperity; this would create a demand for more
of the same at home.

Economists Peter Leeson and Russel Sobel call this phenomenon
"contagious capitalism." Leeson and Sobel studied changes in economic
freedom among 100 countries during the period 1985 to 2000. They were
especially interested in seeing if economic policy changes in one
country would lead to similar changes among its geographically closest
trading partners. And, indeed, the answer was yes — economic reform is
often contagious.

A Cuban university student I met in Havana seemed to understand this. He
was pleased to learn I was from the United States and taught at a U.S.
university. "It is good when more Americans come to Cuba. It helps us
become a little freer," he confided.

He told me to ignore the anti-U.S. billboards and signs I would see in
my travels. "Know that 85 percent of Cubans will be happy you are here,"
he said. After a week in the country, I got the impression that his
estimate was on the low side.

Pro-U.S. sentiment is running high in Cuba since Obama's visit. If U.S.
politicians can find the will to repeal the embargo, it might just be
the nudge Cuba needs to make the market reforms that will loosen more of
the shackles that bind the Cuban economy and people.

Benjamin Powell is a senior fellow with the Independent Institute and a
professor of economics and director of the Free Market Institute at
Texas Tech University's Rawls College of Business.

Source: Ending Cuban embargo could spur 'contagious capitalism' - Sun
Sentinel -

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