A brief history of Cuba
We started with a brief history of Cuba, so it is easier to understand more about the transformation of Cuba as a whole. Cuba was a Spanish colony for 400 years from 1492 to 1898, they started 3 wars to fight for independence and finally with the ‘help’ of USA, they became independent in 1898. There was USA military intervene from 1898 to 1902, during that time, they built lots of companies in Cuba to control the economies in order to manipulate the politics. The USA left in 1902. Cuba was a rich country under capitalism for 50 years afterwards, it was a tax haven, and Havana was a capital for drugs, diamond and gold, which attracted lots of mafia from outside of Cuba. From 1952 to 1958, there was a short period of dictatorship, before the famous revolutionary war started by Fidel Castor and Che Guevara. When they won the war, Cuba become independent and they declared Cuba as a socialist country, where all the private-owned companies are turned into government-owned, needless to say, the USA did not like it and started an embargo to Cuba from that time, which is still effective today, after almost 60 years.
It is interesting and also sad to study how the country changing from a rich capitalist country to socialist in 1961 and changed everything.
Government-owned Vs private business
Since it is not allowed to have a private company (only small scale shops like restaurants, barbershops, shop vendors etc as private businesses are allowed, not big scale company like a telecommunications company) in Cuba, it forces people to become micro-entrepreneurs. Since the introduction of private business in 2010, people are able to get certain licenses and operate their own businesses.
We discussed the inefficiency of state-owned companies, how low paying government jobs (including university professor and doctor) can creates unmotivated employees; while in the private enterprises, in a free market where it is easier for both employees and employers to look for each other, services are much better. Also, since all the companies are government-owned, it creates a monopoly which further reduces efficiency.
It is difficult to imagine how the professor can survive with just 40CUC (~40USD) as monthly salary and have to spend 20CUC on cell phone package. Of course like many others, they have to have side jobs that earn more than their salary. For government-paid job, it is not required to pay tax; however for self-owned business, they have to pay 10% monthly tax and another 10% at the end of the year for the yearly income, just mean they end up paying approximately 20% as tax.
Surprisingly, the official price from Havana airport to downtown costs 25CUC, probably one of the most high earning jobs in Cuba. Fortunately, recently I have mastered a new skill of finding someone to share a taxi to/from the airport with in different countries and it saved me a good amount of money and allowed me to make some good friends to travel with.
The benefit of socialism
Luckily, education, housing and health care are free for all citizens.
In each community, there are several doctors and nurses who serve as a family doctor for the neighbourhood. One Doctor and one nurse share a house, they live on the first floor and have their ground floor as clinic. People can visit their family doctor for minor issues. For more serious illness, they can visit hospital. Health care is free, even plastic surgery like boobs job is free, for sure there is a waiting list, fortunately they do prioritise those with emergency.
Education starts as soon as the baby can walk, which is when the baby is 1 year 6 month old. They can start kindergarten at this young age. After that, like the rest of the world, they will go through primary school followed by secondary school. At the age of 14, they would have completed secondary school and have 3 options – to finish school completely, go to a technical school to become a plumber, technician etc, or go to pre-school for university. The university lasts 5 years in general, with medical school lasts 6 years. Upon graduation, they are assigned by the government for a job, which men has to work for 2 years and 3 years for women. The difference is due to men need to spend 1 year in military. After that, they can choose to stay at their job or change to another one.
If you are homeless, the government will give you a place to stay without paying rent. Sometimes you would see homeless people, they are usually either drunk or have mental illness so they do not remember where they live. Private property ownership do exist, and can be passed on by generations. The Airbnb that I stayed in Havana is a beautiful apartment, fully furnished with a ceiling of 5m height. However many buildings you see on the street are of poor condition, some are also ready to be demolished. Living condition varies greatly. Buying and selling of property are done by individuals on their own without the help of a real estate agent, thus real estate agency do not exist.
Also, the government subsidies highly on water, electricity, natural gas for home, which costs only 1CUC per month for a small apartment.
One of the most interesting thing is the food rationing system that still exists. The government subsidies highly on some necessities, which is almost free for the citizens. Before the fall of Soviet Union, they used to get a lot more food, as of today, they only get rice, spaghetti, refined and non-refined sugar, potatoes etc…
It is very common to see people lining up in the street in front of the small groceries store or butchers, waiting for their portion of ration that can be taken every month. Citizens are given a small booklet as a family where you have to write down the name of each person, and they will mark down how much food you have taken for the month by hand, it is a pretty traditional way of bookkeeping. As for the rest of the food like vegetables and fruit, they have to pay from their own pocket.
Our conversation reminded me how much I loved studying microeconomics – one of the major reasons is the study or predictions of human behaviour resulting from different economic system or situation.
Wifi VS data
Some people have cell phones, but it is also common to see people calling on a phone booth on the street. Wifi is pretty limited to a few parks in downtown Havana (I had also used wifi in my friend’s hostel) and you have to buy a scratch card at 1 to 2CUC for one-hour usage. You can buy a sim card at a hefty price of 40CUC with 10CUC value included. Most tourists would not buy the sim card at this price point. For sure it is not easy to find an equilibrium to maximise profit, but with market research and trials they can probably find a way maximise the profit from tourists in this sector, which can be a good source of income for the government besides the visa fee. This is exactly one of the problems of socialism. With a monopoly of telecommunications by the government, there is no competition from another company, so there is no point in striving for better services or products. Without a free market, the market cannot function as efficiently.
CUC Vs CUP
Since the fall of the Soviet Union, the CUP deflated and causing a big economic crisis in Cuba. The implementation of CUC to replace the circulation of USD was causing other issues due to the imbalance of parity between CUC and CUP. Today, most tourists will be using CUC while most local would be using CUP, however, anyone can use both currencies. In general, things are a lot cheaper in CUP but it is difficult for tourists to get CUP, occasionally you might get some changes in CUP if you are lucky. As of now, the exchange rate is 1CUC to 25CUP.
You will be amazed by how cheap local food can be. For example, in a local take away place, you will be paying 20CUP for a small pizza, which is $0.75USD. Different friends have reminded me that it might be difficult to get cash from ATM, so I brought 3 debit cards with me, with 2 from Hong Kong with different networks, one is Union Pay, another is cirrus/mastero. Even though the ATM support Union pay, the card doesn’t work, neither is Cirrus which is working all over the world except Cuba. Luckily I was prepared and carried some Euro with me, and the European debit card N26 works.
The USA still has an embargo on Cuba since they declared as a socialist country back in 1961, as the USA was no longer able to control Cuba politically or economically through capitalist companies. Obama changed the policy slightly and let cruise ships and tourists into Cuba, but Trump reversed it. It is a myth that American cannot travel to Cuba, which is not true, it is still possible and there are direct flight between two countries.
As far as I have heard, the socialist system promotes equality between people and the government tries its best to offer necessities for free, even though the government is actually not making a lot of money. The main source of income of the government is exporting medical employees and medical treatment for foreigners. Even though Cuba probably don’t have the best medical equipment in the world, it treated the largest amount of patients from Chernobyl.
With the introduction of private business, which started with just 10% in 2010 to 30% in 2020, it is not difficult to predict that the gap between the rich and the poor will increase. How will it change in the next 10 year? Will it slowly change to a capitalist country?
At the end of the tour, I asked, as an economist, do you think socialist is good for the country? I am sure he got asked this question many times. ‘No system is perfect, socialist need a blend of capitalism to work best, the capitalist is not perfect either.’ Are people happy with the system or the government? It is difficult to tell but people seem to be content and enjoying their life – live music, mojito, cigars, the Caribbean sea… You will see streets full of people just talking to each other, they don’t need luxury products to be happy. With a taste of capitalism, we will see how it will impact the individuals and society as a whole.
Yasmany said Cuba is still far from the ideal socialist they are hoping for. I hope one day not far from now, perhaps with the growth of capitalism, they can live in their utopia.