Tuesday, September 14, 2010

Why Cuba's economic model failed

Fidel Castro, Cuba's long-standing dictator, recently confessed (link) to the American journalist that Cuba's communist political and economic model never worked. This is nonetheless a shocking statement revealing the actual awareness of the fundamental fallacies of the communist economic model. Cuba was long known for miserable social and economic indicators that were tried to be hidden by the ruling Communist party of Cuba. So, why is Cuban economic model destined to fail?

First, prior to the 1959 communist revolution, Cuba enjoyed the status of one of the wealthiest countries in Latin America, known for high level of judicial independence and strong protection of private property rights. Not surprisingly, before the revolution, Cuba recorded the highest stock market capitalization of any Latin American countries. The solid level of capital market development was a mere reflection of sound contract enforcement instituted by the judicial protection and the rule of law. When the revolution began, Cuba eliminated all private property rights by collectivization of land and by a complete nationalization of private enterprises. By that time, the very fundamentals of economic development were destroyed.

Second, Cuban communist leaders looked up to the Soviet Union as a role model of the socialist society. By the time of the revolution, Cuba followed the course of destructive economic policy. It began imposing price controls and the trade with the rest of the world, except for the socialist countries, was ended. In addition, civil and personal liberties vanished under the communist regime. Therefore, Cuban economic model resulted in food shortages, land depletion, massive immigration and frequent oil crises.

The collapse of the Cuban system was anticipated since every communist nation ended its Marxist economic experiment in the disastrous failure. For instance, Yugoslavia's socialist model resulted in the political disintegration of the country, record-breaking hyperinflation and a civil war. Cuba long praised its supposedly superior health care system which was said to outperform the quality of the American health care system. It is not difficult to infer that the majority of health indicators was manipulated by the government bureaucracy. Recently, Raul Castro decided to fire 500.000 government employees as an attempt to boost the growth of the struggling socialist economy (link).

The ultimate roots of Cuban economic failure lie in the belief of the power of the state to replace free price mechanism and free enterprise system as the coordinator of economic decisions of individuals and firms. The intention of Cuban revolutionary leaders to create "heaven on earth" resulted in probably the most significant economic and social stagnation in the 20th and 21st century. The case of Cuba reaffirmed the unprecendent failure and theoretical inconsistency of Marxist economic theory and policy. Cuban political and economic experiment once again showed that socialist political philosophy is based on false and misguided philosophical premises that completely misunderstood the meaning and nature of human liberty.

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