The elephant and the mouse

There was once an elephant and a mouse living next door to each other. Now although the elephant was the largest and strongest of creatures, it did not know much about the world and was actually scared of things that were different, even mice. Naturally, the mouse had to spend most of its time and energy avoiding being trampled by the elephant. As a result, it became quick-witted and adaptable, but had no energy left to grow strong and healthy.

One night, the elephant had a dream that it need not be scared of other things and woke up determined that change was possible. The mouse, whose name was Cuba, was very happy at the idea that they might actually be able to live peacefully together as neighbours.

Cubans are nothing if not realistic. Whilst they have hopes that Obama may relax the embargo which has crippled the Cuban economy for several decades, they realise that the older Cuban-Americans, who are vehemently opposed to any change, still exert influence in US politics, even though younger ones are so integrated into US society that they have no interest in returning to Cuba or opposing change.

The US imposed embargo has had a serious impact on the Cuban economy by reducing opportunities for international trade and forcing the country to live by its wits with minimal natural resources. Despite these constraints, Cuba has much of which to be proud. The civil defence system is arguably the best in the world in that although two of the worst hurricanes in recent memory, (Gustavo and Ike), destroyed over half a million houses and large areas of tobacco and other agricultural products, only about two people died as a direct result and these were reportedly due to people leaving shelters. Whilst the mayor of New Orleans was boasting on CNN that the city had successfully evacuated a few thousand people to areas of safety, no mention was made of the fact that Cuba successfully protected over 300,000 people. The country has a vibrant culture and its health and educational systems have enabled the country to equal the US in terms of Human Development Indicators (a more useful guide to social wellbeing than GDP, since they measure infant mortality, levels of literacy and life expectancy, etc).

However, it should also be acknowledged that domestic economic management in Cuba has been a failure. Vast tracts of fertile land remain uncultivated, since farmers understandably see no point in working hard if they are forced to sell most of their produce to the state for a pittance. Similarly, joint ventures with foreign investors often fail if the Cuban government suspects that they are making what are considered excessive profits, or if an investor falls out of favour.

During a recent visit to Cuba, nobody spoke about Fidel in other than positive terms. It was acknowledged that whilst he was authoritarian, he was also inspirational and idealistic. No such affection appeared to exist towards his brother Raül, who assumed the presidency in February this year and who, as head of the military, seems intent on maintaining tight political control. Whilst Cubans may now legally stay in hotels, the costs prevent this for all but a small minority. Similarly, it is now legal to own a cellphone, but getting a line costs far too expensive for the average worker.

Cubans, especially the young, are desperate for change and feel that whilst they are proud of their country and the achievements of the revolution, this very achievement makes it unnecessary for them to fight the same battle as their parents and grandparents fifty years ago.

This pressure for progress poses a genuine problem for the government. If it relaxes political control too far, or too quickly, the country may fall into the sort of chaos faced by Russia after the collapse of the Soviet Union. At the same time, Cuba is constrained from adopting the Chinese approach of liberalising the economy whilst maintaining strong state controls politically because they have a minute domestic market and no internal capital base.

Intriguingly, the presidents of both Russia and China have visited Cuba in the last month and as both these new political and economic giants are immune to US economic pressure, this may open options for domestic change. Certainly, one observer indicated that the party is planning a major review of economic policy in 2009 in order to provide incentives for farmers and workers in other sectors to increase production and to reduce dependency on tourism as a source of hard currency. Official concern that this may increase social and economic inequality has to be offset by the fact that there is already a massive disparity in incomes between a senior professional earning at most US$40 a month, a primary school teacher receiving US$8 a month and those working in tourism who can earn up to US$250 a month. Such disparities also force many trained professionals to abandon their vocations to take any work where they can earn foreign currency. This is not only a waste of their education, but a source of great personal frustration. One taxi driver told me he was a qualified engineer who could earn far more in a week as a driver than he could as an engineer. He consoled himself that he “was still an engineer in his heart”.

Anyone planning a book on economics in Cuba would do well to use the title “It all depends”, since this is the answer given if you ask the price of anything. It alls depends on whether you work in, or know somebody working in the sector, you have something to swap, or are paying in local, or foreign currency. The failure of the formal economy has forced large sections of the population into an illegal black or informal economy which in turn enables the authorities to selectively punish those it deems a threat.

A pessimistic assessment of the future would be for the military, which already enjoys considerable influence and economic benefits, to increase its hold over both political and economic spheres to the detriment of both economic and social progress. An optimistic assessment for the country’s talented and creative population would involve a relaxation of the US embargo once Obama is in power, followed by a steady increase in external investment managed by an increasingly pragmatic and self-confident government. This would facilitate a range of joint ventures with foreign investors and donors in ways which can build the economy and maintain high standards of public services and welfare, whist accepting a degree of difference in the allocation of benefits (as exists already).

The global economic crisis has destroyed faith in unregulated markets even in the bastions of neo-liberalism. In doing so, it has opened the door to approaches which seek to achieve a balance between social justice and environmentally sustainable economic development. Obama’s election provides hope that the US may place a higher priority on meeting social policy objectives which can reduce inequality. Similarly, there are signs in Cuba that Raül Castro will relax central government controls and promote economic growth and investment, possibly with Russian or Chinese help.

As Cuba prepares to celebrate the fiftieth anniversary of the revolution in the beginning of 2009, a gesture from the US to progressively relax the embargo could help build confidence that change is possible for both countries.

All friends together!

With the giveaway name of Bernard Madoff relieving investors of US$50 billion (not a typing error) of their money, the US regulators responsible for overseeing such the financial sector (the Securities and Exchange Commission) have been coming in for some well justified criticism. The SEC Chairman Christopher Cox has even grovelled in public, though only to pass the buck down the ladder to paid employees so that the commissioners, who are politically appointed and therefore ultimately responsible, can try to wash their hands of blame.

Of course, we do things differently in the UK. Don't we? Well, actually, no. It's not only quagmires like Iraq that New Labour has followed the US into. We have also followed their approach of 'light-touch' regulation of the financial sector. A key reason why UK banks got so heavily into trouble following the US sub-prime housing scandal was because the UK regulatory authority, the Financial Services Authority, was funded by - guess who? - the very banks it was mandated to regulate! Its like authorising prisoners to run the prison to ensure nobody escapes. With such a cosy relationship, no wonder things went wrong.

Another fine mess you've landed us in Gordon!