Cuba's Dreams and Economic Reality
By Craig J. Richardson
Late at night in the winter of 2016, I found myself in a van as it sped down the main road of Havana, Cuba, with heavy drops of rain thudding against the windshield. The driver slowed at a dark street corner and pointed across the street. I spotted a crumbling two-story manor home surrounded by a six-foot-high black steel fence. Built into the fence was a solid wood door secured with several steel locks. My faculty colleague, Manuel, and I stepped out into the rain. This casa particular would be our bed and breakfast residence for our ten-day visit. Across the country, about 21,000 of these rooms were available for rent by private individuals. The Communist government, to cope with the nationwide shortage of hotel rooms, had recently allowed a small opening for the free market to operate. As of 2016, the country had only 300 hotels, not nearly satisfying the demand of the 3-4 million tourists who arrived each year.1 (By 2018, Americans comprised fewer than 100,000 of the visitors, a 40% drop from the previous year, due to recent restrictions by the United States on travel to Cuba.)2
Along with a dozen other professors visiting Cuba, I was there for an educational program sponsored by the U.S.-based Council on International Educational Exchange (CIEE). The theme was Cuba’s economy, society, and political system. CIEE’s marketing brochure promised a mixture of academic lectures, cultural experiences and travel to various parts of the country. Along with North Korea, Cuba is the last of the Communist regimes to actively discourage free markets, private property rights, and profit making. Although I traveled there with an open mind, I was about to experience a country in which the state’s overarching vision of equality for all has vanquished nearly every aspect of entrepreneurial dreams—and many normal human dreams, as well.
A “Split-Level” House
We approached the decrepit manor on the dimly lit street, one of many in a similar state of decay. A middle-aged woman descended a crude cement staircase bolted to the left side of the house. She smiled and, in Spanish, introduced herself as Maria. We stepped inside and out of the rain. I looked around and saw that the cramped quarters had a tiny kitchen and small dining area. Maria beckoned us to see the bathroom.
I noticed a thick black electrical wire emerging from a banged-out hole in the bathroom wall. “Here—hot water,” she said in broken English. My eyes followed the wire along the wall as it wrapped around the water pipe supplying the showerhead. Where the wire met the water pipe, someone had stripped it bare.
She flipped a little metal toggle switch beside the shower curtain and the coiled bare wire glowed red around the pipe, just inches from her hand. “Hot, hot!… careful? Yes?” Her hand illustrated by moving sharply as if shocked by an electric current. I was beginning to appreciate the ingenuity of the enterprising Cubans living under Communist rule, stealing power from the state-owned power grid. At the same time, I imagined the North Carolina newspaper headline: Economics Professor Electrocuted in Cuban Shower.
Maria showed us our bedrooms. She pulled back the accordion style wooden doors at the back to reveal a room with a double bed and some modest wood furniture. Manuel spoke up, “I’ll take the upstairs, no problem,” and I set down my luggage. He ascended a set of cramped and steep stairs with his luggage into the darkness and, within seconds, I heard a bang and an exclamation: “Ow!” Then he was laughing. The light upstairs flickered on.
“The ceiling is like, 6 feet tall. I just hit my head and have to stoop to walk around up here.”
The house had been partitioned to make more room for guests: astonishingly, the upstairs floor, which had originally had 12-foot ceilings, had been made into two floors, each with a six-foot ceiling.
That evening, Maria told us her story in Spanish. She had remained in her house for decades because the government forbade the buying and selling of property from 1960 until 2011. In societies that have even semi-free economies and little rent control, people take moving from one place to another for granted. Doing so allows us to fulfill our dreams and ambitions, to expand and contract our dwelling as our families change, and to express our individual selves. It also allows us to build wealth and, if necessary, borrow against that wealth for education, home improvements and emergencies.
By forbidding the buying and selling of property, Cuba’s Communist government ended one of the most fundamental ways that humans express their wishes.
Manuel, translating, then turned to me with a wry smile and said, “Maria says she got divorced eight years ago, and because the government wouldn’t allow them to move, they decided to split the house in half this way, too.” He made a vertical chopping motion with his hand and pointed to the wall where we sat.
“Her husband lives on the other side of the wall. He took the daughter to live with him and she lives with her son on this side.” This explained why Maria came down the exterior staircase in the rain: her husband had the side of the house with the original staircase leading to the top of the house. The entire manor was now split in half by a 25-foot wall running right through the middle.
The Communist Assault on Property Rights
How did this all begin? In 1960, the new Cuban government established a policy stating that housing is for people to “live in, not to live from,” and with that, the private rental market ended. The government seized all homes owned by landlords, and many others, as well. Renters paid half of their previous rent to the new government and, after five to ten years, the apartment was theirs. Previous owners got a relatively tiny sum for life or a small lump sum to compensate for their loss.3
The property market came to a halt. From that point forward, the government gave the new tenants the legal permission to renovate (but only with government permission) their home, reside in it, pass it on to the next generation, or swap it for another house. Banks no longer offered mortgages, and real estate agents lost their jobs. Construction companies had no customers and the housing market froze. This began a half-century erosion of the housing stock that resulted in crumbling and dangerous living conditions across most of Havana. Between 2000 and 2013—not including 2010 and 2011, years for which no records were kept—3,856 buildings either partially or totally collapsed in Havana.4 That’s more than six buildings per week, on average, and with 11.5 million people living in Cuba, the housing stock will only get worse.5 All of this occurred largely because of one errant Marxist belief: profits are undeserved and a sign of exploitation of the working class, particularly if earned by landowners. Without an understanding that profits are a reward for risk-taking, for innovating, and for preserving and improving capital, the government caused the inevitable ruin of Cuba’s formerly grand housing stock.
Finally, in 2011, after 52 years of pure Communism, President Raul Castro allowed people to buy and sell. But the years of Communist rule had done their damage to the free market, and, to this day, mortgages remain hard to come by since median incomes are so low. In addition, there are few real estate brokers, no Multiple Listing Service (MLS), and no bank mortgages available from Cuba’s tightly controlled banking industry. That leaves two groups of buyers: locals with large savings accounts and locals backed by others outside of Cuba. Not surprisingly, the market sales are relatively few, and a housing shortage continues because government restrictions making starting construction businesses difficult, and that sharply restricts supply.6
Would You Like Some Luxurious Pepper with That Egg?
The next morning during breakfast, I gave Maria a small cardboard box that I had brought from the States. She opened it up, and her eyes filled with tears. Her voice cracked and she whispered, “Gracias, gracias.” Inside were 24 small tubes of toothpaste, some sticks of deodorant, and nicely scented soaps. In Cuba, there is a nationwide shortage of sundry items such as these. Any ordinary things we buy at a CVS or Walgreens are extraordinarily hard to find in Cuba because of the government’s aversion to business profits. For example, if you were assigned to buy a light bulb, a belt, a pair of shoelaces, and some socks, it might take two to three days to find them, if you found them at all. Lesson learned: when there are no profits to be made, nothing is for sale.
Breakfast was two pieces of plain white toast and jam, a hard-boiled egg, two slices of plastic wrapped cheese, and coffee. “All I could find today, I’m sorry,” she said in Spanish.
“Do you have pepper for the egg?” I asked a bit tentatively.
“No. No spices today.” She shook her head apologetically. This was in marked contrast to other Caribbean islands. Jamaica, a country known for its mouth-watering jerk chicken, curry goat, and browned stew fish, is only 250 miles away by air. But that distance might as well be 25,000 miles.
Maria explained that early each morning, she walked far in the hopes of finding someone selling food from a cart parked on a street. One seller might have tomatoes (inevitably tasteless and a product of the state-run communal farms); another might have a loaf of white flour bread (having nearly no nutritional value). Meat, especially beef, was particularly hard to find.
In Communist Cuba, the government considers spices to be an expensive luxury. Each family is issued monthly food rations. A typical family gets ten kilograms of rice, six kg of white sugar, two kg of brown sugar, one cup of cooking oil, five eggs, and a packet of coffee per person, along with two kg of meat every ten days, a bun every day and a bag of salt every three months. Milk is provided only for pregnant women and children under age seven.7
An Entrepreneur Persists in the Face of Huge Government Obstacles
Several years ago, a Cuban entrepreneur named Carlos Fernandez-Aballi spotted an opportunity to manufacture and sell spices to his fellow Cubans. He quickly found out why Cuba remains one of the most difficult places to start a business. The first problem is that a private business is not considered a legal entity. All businesses must be worker-owned cooperatives, so he founded the company Sazon Purita with 13 owners, each with an equal vote regardless of his or her work effort.8
Next, he needed to import an industrial dehydrating machine to make the spices. Cuba’s import rules mandated that the machine itself had to be made in Cuba. Luckily, one of the co-op’s founders had studied engineering in the UK and decided, after studying its design, that he could make the machine. Then another problem surfaced: the steel used to make the machine had to be purchased from Cuba’s state-run company that sold imported steel. The state company had a firm rule: steel imports could be sold only to state-owned companies in Cuba, not to private entrepreneurs.
Friends from the U.S. offered to bring in steel parts, one by one, and, over time, they built the dehydrating machine. Unusual for Cuba, his business became successful and makes modest sales of around $9,000 per month from 10 small shops, selling to restaurants and relatively wealthy Cubans who can afford the spices.9
Co-founder Luis Raspall worries that because his company is an experiment, it sticks out like a sore thumb by making profits and serving customers. The government has the authority to shut it down at any time. In addition, a 50% tax rate on earnings over around $25,000 has owners constantly looking for ways to hide income. All of these obstacles have sharply limited the growth of the company.10
I Get to Leave
On my last day at Maria’s house, I packed my bags and reflected on my visit. In all my travels to Africa, Asia, and Central and South America, I had never seen less market activity and more lost potential than in Cuba. Although the U.S. trade embargo plays a significant role, the vast majority of governments in the world have no such embargo against Cuba, and so the U.S. embargo cannot explain much of the sad shape of Cuba’s economy. A much more important factor is the government’s hostility to profits. Profits give people incentives to supply everything from housing to toothpaste to spices. People’s most basic needs were taken care of, but the vast majority lacked an avenue to pursue their dreams. This was the true price of “equality for all.” There was a dispiriting sadness about this beautiful island.
Maria was quiet that morning. As we hugged goodbye, she pursed her lips and said, “Tienes que irte,” which, translated, means: “You get to leave.”
 Dr. C. Juan Triana Cordoví, Center of Cuban Economy Studies of the University of Havana. “A Panorama of the Current Cuban Economy: Opportunities and Challenges.” Powerpoint presentation in Cuba for CIEE visit, January 2016.
 Anthony Faiola, “In Cuba, the Great American Tourism boom goes bust”, Washington Post, May 11, 2018.
 See Tracey Eaton and Katherine Lewin, “How Havana is Collapsing, Building by Building,” USA Today, Dec. 2, 2018. An excellent illustration of the state of Cuba’s housing stock is evidenced in the short BBC video, “Cuba’s Crumbling Housing Crisis,” at YouTube.
 Philip Peters, pp. 2-7.
 Joe Lamar, “For Cubans, the struggle to supplement meagre rations is a consuming obsession,” The Guardian, April 24, 2015. https://www.theguardian.com/world/2015/apr/24/cubans-food-struggle-rations-consuming-obsession
 Mimi Whitefield, “A new style Cuban cooperative hopes road to success is paved with spices.” Miami Herald, Sept. 2, 2015.
 This is an approximate conversion using a May 3, 2019 exchange rate from the 7,000 British pounds reported in Courier, “Havana’s hustlers: what it takes to start a business in the Cuban capital.” October 10, 2017. No byline.
*Craig J. Richardson is the Founding Director of the Center for the Study of Economic Mobility (CSEM) at Winston-Salem State University and is the BB&T Distinguished Professor of Economics.