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Sunday, October 12, 2008

The Grass is Always Greener: The Economic Edition

How do countries respond to economic crises? In the Western World, with a tradition of Democracy, they respond with quasi Socialist government intervention. First, we saw massive bailouts of financial institutions all over the world. Now, many in the Western world expect governments to take a stake in banks, and effectively they will nationalize banks.

Cuba has also been hit by an economic crisis. An already weak economy was ravaged by two successive hurricanes. The situation was so dire that the Cuban government was forced to take its own drastic action, privatization.

A recent spate of hurricanes and tropical storms has drenched Cuba's farmland and ruined many of its crops (Bloomberg). The storms were a significant blow to Cuba's farmers and could mean an economic pinch for a country that was already expected to import nearly $2.5 billion worth of food this year (NYT). Cuba is in the midst of significant changes in its agriculture industry, however, as President Raul Castro presses a series of reforms aimed at boosting crop production. It's too early to see the results of these efforts, but analysts say their long-term impact could be substantial, and might herald further economic changes to come.

The reforms of the younger Castro, who officially took charge from his ailing brother Fidel in February, shift control of Cuban agriculture from Havana to nearly one hundred local councils. This decentralization aims to increase food production and decrease the country's dependence on imports. "This is the first substantial reform to Cuba's economic model carried out by Raul," Jorge Pinon, a researcher of the University of Miami's Institute for Cuba and Cuban-American studies, told Bloomberg. Farmers can now use any farm equipment they can afford, and they also have the right to cultivate up to ninety-nine acres of unused government land for ten years. Some economists, including Oscar Espinosa Chepe, argue that it would be
preferable (PDF)
to turn over the land as property, instead of on a ten-year lease. This, he writes, would give young people a stronger incentive to farm.

It's unclear how much latitude farmers will have under the new laws to sell their produce on the open market. Philip Peters of the Lexington Institute, whose CubanTriangle blog is a good source of expert analysis on the island, writes that in some cases producers might not have contracts that require them to sell their crops to the state. Currently, big agricultural producers sell 80 percent of their output to the state at set prices. Small urban farms, or organoponicos, can legally sell directly to the public and keep their profits (FT). Organic farmers from around the world have praised (Harper's) these small farms for their efficient method of farming.
"Cuba has a chance to be a real role model for Latin America, as the region tries to figure out how to survive the coming global economic transition from high waste to high efficiency," writes Patrick Doherty of the New America Foundation. But he cautions that "economic change has to come faster than Raul is presently orchestrating."

Raul Castro is hoping that more individual control of farms will spurn farmers to grow more food and in greater varieties. Clearly, in this time of crisis, he sees the free market as the best driver out rather than his own state. The irony couldn't be thicker.

This can be viewed as merely a token jesture, however in a country as totalitarian as Cuba, any move toward privatization can be seen as monumental. Furthermore, how a country responds to crisis certainly says a lot about how it views the world. It's a bit disheartening to watch the major governments of the world move towards Socialization because that inherently says that our leaders don't see free markets as the best answer. Still, in Cuba, where everything is nationalized, they move towards Capitalism during a crisis.

We saw a similar phenomenon in France a couple years back. To combat a stagnant economy, Nicholas Sarkozy proposed a series of free market, capitalistic reforms. The French people, after seeing their economy sputter through a series Socialistic jaunts, responded by overwhelmingly electing Sarkozy on his free market platform.

Certainly, no one will mistake Cuba for the former Wall Street anytime soon, however, as much of the capitalistic world dismisses free markets during this crisis, we may want to look over and see how a truly nationalized society views nationalization in the midst of crisis as well.

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