International Trade

Cuba: A New Revolution

President Obama’s visit to the communist island this March represents a turning point for both nations. To move forward, each side is swallowing its own bitter pill. Obama correctly conceded the failure of sanctions to force regime change. While dictator Raul Castro’s embrace of the opportunities presented by trade and private enterprise is making peace with a sworn enemy, even against his still surviving brother’s wishes. The new path forward will revolve around free market principles.

Under dictator Fidel Castro’s rule, private enterprise did not exist. Where Cubans worked, what they consumed and what they were able to produce were decided by the state. To ward off the impending doom promised by inefficiencies and debt, dictator Raul Castro implemented a series of “updates” which allowed more economic freedom and rights to property. Today, Cuban law allows the purchase and use of cell phones, buying and selling private property and even private enterprise is encouraged – albeit, caveats accompany each.

The president’s executive actions and the new investments they have enabled will generate wealth and brighter futures for millions of Cubans. Americans, aka customers, can now travel to Cuba, stay in privately owned lodges, eat in privately owned and managed restaurants, and use Internet services to set reservations, review establishments and ultimately drive competition. International travelers interested in conducting business with entrepreneurs can use the same disruptive technologies they use at home – Airbnb, TripAdvisor and soon many more. Once again, this is both legal and possible due to decisions made by Obama and Raul Castro.

To remove the embargo completely and allow U.S. businesses to compete against their international counterparts in Cuba requires an act of congress, an act conditioned on resolving property claims. This does not need to be made harder than it really is. Negotiations to resolve the property claims began December last year. Today their total value amounts to nearly $8 billion. Most claims are small and owned by individuals with 5,000 claims accounting for one quarter of the value.  The rest are owned by a few corporations. Analysts predict Cuba could settle the individual claims with cash and with a mix of counterclaims and tax breaks and can create a plan to resolve the rest. Cuba successfully settled property claims with Canada and Spain a long time ago.

Human rights and political freedom do not necessarily follow capitalist reforms. Democracy has not made its way to China or Vietnam, but prosperity has. The repressive Cuban regime will monitor the Internet provided by Google; listen in on the international telephone calls provided by Verizon; continue to skim off profits from the international trade in goods; try to steal intellectual property; beat and continue to torture and jail protestors; and use the heavy hand of the government to manipulate political and economic forces. These are not reasons to continue an all-or-nothing foreign policy.

Cuba is a small nation with few natural resources 90 miles off the coast of Florida in a region dominated by trade with the United States. It is hard to imagine a scenario where sanctions could have a stronger impact on a regime and its supporters. They prevented Cuba from entering the 21st century, but they did not imperil the communist regime. Today’s normalization should not merely serve as the final nail in the coffin of communism. It should serve as the case example of the limitations of sanctions to produce regime change. The future of Cuba rests in the hands of the Cuban people – people who now have access to smart phones, social media and encryption.

Havana is hosting the seventh Cuban Communist Party Congress. At the last congress, five years ago, the first market “updates” were announced, which included growing private-sector production, increasing employment in the non-state sector, and the ability to buy and sell private property. Expected reforms this year include eliminating the dual currency system, increasing the number of allowed professions in the private market, streamlining the process to create cooperatives (Cuban privatization), and implementing a system to elect the next president. Whichever reforms are ultimately implemented they will build on the current opportunities and will be limited to what the autocratic regime believes it can control. They will likely fall far short of protecting and celebrating democracy and human rights. However, regardless of how gradual, change should be welcomed – not demonized.

In Depth: International Trade

International trade creates and supports millions of American jobs that offer higher than average wages and drive economic growth. As a testament to the strength of American entrepreneurship, the vast majority of U.S. exporters are not large corporations but small to medium-sized enterprises. Those that doubt the power of global…

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