Comparing the legacies of two bad men.

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On November 26, 2016, the world learned that the former prime minister, president, and first secretary of the Communist Party of Cuba, Fidel Castro, is no more. Predictably, Cuban dissidents cheered, many leaders lamented the human rights abuses that occurred in his name, and, of course, a chorus of praise for the former dictator resounded from the far corner of gaga-eyed leaders of the Left like Canadian Prime Minister Justin Trudeau, who expressed his “deep sorrow” for “the loss of this remarkable leader.”

The chorus of praise from the Left stands in marked contrast to nearly unanimous vilification of another autocrat from Latin America, former president of Chile Augusto Pinochet. There is, of course, no excusing the gross human rights abuses committed by either Castro or Pinochet, both of whom jailed, tortured, and executed thousands of political opponents. But in the case of Castro, naïfs of the Left show a remarkable leniency in ignoring Castro’s political abuses and his profound failures in economic policy, seeming to believe they are mitigated or offset by his achievements in overthrowing a corrupt regime while providing education and healthcare to all Cuban citizens. Yet they do not extend this courtesy to Pinochet, whose regime ushered in a series of economic reforms that arguably laid the foundation for Chile to become the best-performing economy in Latin America.

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Cubans were able to live in an economy that, while broken, was at least sufficiently functional to allow them to lead a minimally comfortable daily existence.

The statistics indicate that Cuba now has a 99 percent literacy rate. It also has a healthcare system available to all Cubans for free (well, it has to be paid for somehow, but more on that below). According to one report, 84 percent of Cubans own their own home. And for many years, as long as the Soviets were subsidizing the economy, Cubans were able to live in an economy that, while broken, was at least sufficiently functional to allow them to lead a minimally comfortable daily existence.

By themselves, these are worthy accomplishments. Yet it is an old saying in economics that there is no free lunch, and in the case of Cuba, these accomplishments have been served as an extremely expensive lunch indeed.

Though it has relaxed restrictions on private enterprise in recent years, Cuba is a state-directed planned economy. The government directs most economic activities in the service of state-sanctioned ends, such as universal healthcare and literacy. The result is an economy run on ideals, which inspires millions in the whirlwind of a revolution, but ultimately. must confront the enormous administrative burden of overseeing the allocation of resources across an entire island economy of 11 million people.

Not surprisingly, the omniscience required for such an enterprise is often found to be wanting. Indeed, despite its accomplishments in the areas of education and healthcare, Cuba is an economy in which three-fourths of the people work in the public sector and earn an average of $20/month. Rations are common. Infrastructure is dated. Supplies at hospitals are lacking. Taxi drivers make more than doctors, and a nurse quits her job “to start a small business selling fried pork skin and other snacks from a cart,” earning ‘about 10 times more every month’ than she did as a nurse.

Needless to say, inefficiencies abound.

Some of the deprivations in the Cuban economy can be attributed to the U.S. embargo, yet it is difficult to argue that the embargo has an outsized effect on the economy in comparison to the fundamental inefficiencies of a planned economy. Cuba does not exist in isolation. China, Canada, the Netherlands, and other countries trade with Cuba. European tourists visit regularly. And one wonders if the removal of the U.S. embargo would benefit ordinary Cubans, or whether the benefits would merely accrue to foreign capital and cronies of the regime with whom the U.S. negotiates deals.

The nurse who quit her job to start a business selling fried pork was motivated in part by soaring prices of staple items like onions and peppers and garlic, prompting her to say “[w]e have to be magicians” to prepare a decent meal for the family.

Indeed, it is difficult to argue that ending the embargo comes close to being a panacea given the fundamental defects associated with a planned economy. A recent article in the New York Times details how an influx of tourists in recent years has exacerbated the problem of scarcity that one encounters in any economy, but especially in an economy run on rations and price controls. The nurse who quit her job to start a business selling fried pork was motivated in part by soaring prices of staple items like onions and peppers and garlic, prompting her to say “[w]e have to be magicians” to prepare a decent meal for the family.

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The prices are high because an influx of tourists has increased demand. Last year, for example, 3.5 million tourists visited an island with a population of 11 million Cubans, effectively increasing the population by 32 percent. Of course, 3.5 million visitors are spread out over the course of a year, so the population size is not 14.5 million throughout the year, but this is nonetheless a large demand shock in a country where, according to University of Havana economist Juan Alejandro Triana, “[t]he government has consistently failed to invest properly in the agriculture sector.’”Supply has failed to catch up to demand. The result is soaring prices for staples like onions, peppers, and garlic.

The government has responded in the only way it knows how—by controlling prices, a policy destined to backfire, as the U.S. learned when the Nixon administration imposed wage and price freezes in the U.S. in the early 1970’s. The government imposed price controls on agricultural products in the public sector, i.e. state-run stores. But foreign tourists eat at private restaurants which can thus afford to pay the higher prices, so farmers and vendors sell to private restaurants, which empties the shelves in state-run stores. The government could, of course, restrict sales to private restaurants, but then fewer foreign tourists may visit, depriving the government and the economy of foreign currency and a much-needed jolt to the economy, which might then depress prices but also reduce employment opportunities in the private restaurant business (economies are complex networks of feedback loops, and unidimensional policies expose the risk of ignoring general equilibrium effects.)

Thomas Carlyle once said “[t]each a parrot the terms ‘supply and demand’ and you’ve got an economist.” The Cuban regime apparently has few parrots running its economy, however much it parrots rhetoric about the virtues of socialism and the vices of capitalism. Ultimately, markets will not be ignored. Unfortunately for the Cuban people, the problem of scarcity (i.e., the problem of equating supply and demand), is one that a socialist government disregards when it ignores the signals conveyed by prices.

…a time of severe economic deprivation that likely had many wondering about the virtues of living in a society in which everyone is literate and has access to healthcare but simultaneously must worry about going hungry.

The Cuban Government was able to ignore the problem of scarcity so long as the Soviets subsidized the economy. But when the Soviet collapse unmasked fundamental inefficiencies inherent in the economy, Cuba entered the so-called “Special Period” of the 1990’s, a time of severe economic deprivation that likely had many wondering about the virtues of living in a society in which everyone is literate and has access to healthcare but simultaneously must worry about going hungry.

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In short, the ideals of a planned economy, such as literacy and healthcare, have come at the high cost of a planned economy. This is not to say that achievements in education and healthcare do not deserve a note of praise. But as those with little training in economics often fail to appreciate, there is no such thing as a free lunch. Ideals are not sufficient to make an economy work. One must tend to the tedious work of cost-benefit analysis. It is one thing to achieve 99 percent literacy and universal healthcare, but at what cost? For all its corruption and inequality, Cuba was a thriving middle-class economy in the 1950’s, with a literacy rate approaching 80 percent.

In comparison, the Cuban economy is now a sclerotic, lethargic machine of inefficiency where taxi drivers earn more than doctors.

As for healthcare, Cuban medicine has had its benefits. Its preventative approach to health care is cost-conscious and reasonably effective. The Latin American School of Medicine (ELAM) in Havana is a reputable medical university. And perhaps many doctors are content with a salary of $67/month because they view public duty as more important than remuneration, but it is hard to find fault with one doctor who fled to (where else?) Chile in the 1990’s because he “could barely afford to buy a single egg to eat a day.”

As this doctor explained, Cuba is a two-tiered system: “one for ordinary people, like my family, and another that is exclusive to the Cuban ruling class, who live better than any capitalist.” Elites like Castro can live till 90 because the best doctors and nurses and hospitals are available them. The rest of Cuba? Yes, they get healthcare, but hopes of living to 90 may diminish in a system where, according to one account, “[g]etting a pair of glasses to alleviate near-sightedness can take months through subsidized State channels, or twenty-four hours at Miramar Optical where you pay in convertible pesos. Nor do the bodies who staff the hospitals escape these contrasts: we can consult the most competent neurosurgeon in the entire Caribbean region, but he doesn’t have even an aspirin to give us.”

So, while many point to Cuba’s lower infant mortality rate than the U.S. and its comparable life expectancy despite spending a lower share of its GDP on health care than the U.S. (though problems of metrics and comparative statics make these comparisons dubious), the Cuban economy chugs along at its sluggish, inefficient pace, and the Cuban people chug along to clinics to get their shots and have their blood pressure taken, perhaps inwardly ruing their inability to obtain a simple pill of aspirin.

Fidel Castro’s fatal flaw as a revolutionary was his ideological rigidity.

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The wonder is that any of this should be a matter of dispute. Cuba under Castro has been an outright catastrophe, but it should not be surprising. Fidel Castro’s fatal flaw as a revolutionary was his ideological rigidity. Castro came to power as a 32-year old combative Cuban nationalist (or 33, by some accounts) six years after he led a band of revolutionaries on July 26, 1953 in an attack on the Moncada barracks in Santiago de Cuba. The attack resulted in the arrest, imprisonment, and execution of many of his comrades, and ultimately sent Castro to prison for 15 years after a trial in which he famously stated: “History will absolve me.” Two years later, President Fulgencio Batista, who had come to power in a 1952 coup, granted him amnesty and released him from prison. Castro made his way to Mexico where he immediately set about forming a band of revolutionaries who would return to Cuba to overthrow the regime. In Mexico, he famously met Ernesto “Che” Guevara, the Argentinian revolutionary who was on his own ideological quest to overthrow corrupt, corporatist Latin American regimes. But in those heady days before they set sail on the Granma in November 1956 and landed on the southeastern coast of Cuba under the banner of the “26th of July” movement (most dying a gruesome death at the hands of Batista forces), Castro was marshaling the beginnings of a movement to fight for the causes of anti-imperialism, anti-corruption, and Cuban nationalism.

Castro and Guevara and a dozen others (out of 82) would survive the bloody shipwreck and survive for three years in the Sierra Maestra Mountains, drawing support from political contacts on the island and in the United States, campesinos in the countryside, and propaganda props like Herbert Matthews of the New York Times to advance their cause while incrementally waging a guerrilla war against the Batista regime.

Castro was undoubtedly motivated by concerns about exploitation, disenfranchisement, and inequities that were wide and deep and which forced many countryside campesinos to live a threadbare existence with little access to healthcare, education, and economic opportunity. There is no denying the rigid and unjust social conditions prevalent under repressive oligarchic states in Latin American countries in the time of Castro’s contemporaries. But these were problems of history, incompetence, underdevelopment, autocratic indifference to the welfare of the populace, and a lack of viable, durable, indigenous institutions due to neglect by centuries of Spanish colonial administration.

Castro assumed he could build on the back of revolutionary ideology a whole new society from the ashes of half-a-century of institution-building and half-hearted American paternalism, as well as centuries of Spanish rule and custom before that. His combative presumptiveness is perhaps not surprising given that he had spent the previous two decades enduring the “gangsterismo” culture of the 1940’s, the coup of 1952, prison, and the guerrilla war of the late 1950’s, but the approach was rigorously intolerant of any aspect of human nature that strayed from the rigid homogeneity of his thinking about social problems.

Idealism and intolerance was at the root of the Castro regime and its incompetence. Anything that was wrong, or went wrong, was the result of Yankee imperialism, oligarchy, and exploitation. It was a singularity of thinking whereby anger at the sight of injustice was the sole foundation for a proper accounting of social ills and a proper assessment of the medicine to be applied. It brought a tone of inflexibility and intolerance just as corrosive as the corporatism and corruption that so enraged Castro, and a myopia to his diagnosis of social problems that precluded a more methodical and nuanced analysis of social ills and what their solutions should be. When everything is a result of exploitation, one is blind to all the many other reasons that things are as they are. Former Guantemalan President Jacobo Arbenz fell because the populace was not aware of its exploitation by Yankee imperialists, regardless of the nuances of Cold War geopolitics revealed in part by the shipment of Soviet arms to the Arbenz government. It’s all because Allen Dulles was on the board of the United Fruit Company; all other decision-makers in the foreign policy apparatus of the U.S. government are irrelevant.

Such is the force that ideology exerts on the human mind that millions swooned as Fidel spoke to a massive crowd in a televised speech in Havana in January 1959 and allowed a white dove to land on his shoulder. But when you run a country on rhetoric and ideology, and everything bad is caused by the Yankee imperialists and everything good is because Fidel and his white dove saved the fatherland, you breed an atmosphere in which a competent and highly respected economist named Felipe Pazos, originally appointed to head the National Bank, expresses concern about the direction of the new regime, and he is sacked and replaced by the fanatic Che Guevara, a man with no training in economics and fixated on harebrained ideas like firing the managers and owners of a Coca-Cola plant (and then severely reprimanding the chemists because they could not replicate the secret Coca-Cola formula), importing snow plows from Czechoslovakia to cut sugar cane (which instead squashed and killed the cane), and his quixotic conception of the “new man,” according to which men would be motivated by ‘moral’ rather than material incentives (workers were penalized for shirking, while receiving a mere certificate if they outperformed; production collapsed.)

But Castro ultimately proved himself far more interested in, and far more adept at, power than governance.

The Cuban regime was built on the notion that revolutionary conviction was sufficient to build a new society that would thrive on the principles of socialism. But Castro ultimately proved himself far more interested in, and far more adept at, power than governance. Castro was politically savvy and enjoyed the exact combination of historical and social conditions necessary for revolution in Cuba, as well as the moxie to exploit them. But a half-century later, Cuba is a country that has been devastated by a regime that has proved itself no slouch when it comes to political oppression and economic mismanagement.

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The record of Castro’s economy stands in marked contrast to the economic legacy of Chilean autocrat Augusto Pinochet, who became president of Chile in 1973 after orchestrating a coup that overthrew the feckless but democratically-elected government of Salvadore Allende. Pinochet quickly moved to eliminate any political opposition. He dissolved Congress, got rid of the Constitution, and jailed and tortured opponents. In a news conference soon after coming to power, Pinochet made it clear that he planned to impose “an authoritarian government that has the capacity to act decisively.”

One is hard-pressed to justify the ruthless suppression of political opponents that Pinochet exacted, and it is not the position of this author to argue that the human rights abuses which occurred under his name should be overlooked. After all, a Pinochet obituary notes that “more than 3,200 people were executed or disappeared, and scores of thousands more were detained and tortured or exiled.” Nevertheless, it is important in the view of this author to note that these abuses do not negate the legacy of economic reforms he initiated which helped Chile to become one of the top-performing economies in Latin America, not unlike how supporters of Castro argue that his human rights abuses do not negate his “achievements” in education and healthcare.

Pinochet’s legacy in this regard is impressive indeed.

Pinochet came to power in a time of economic turbulence characterized by hyperinflation, caused at least in part by price controls and protectionist trade policies, but primarily because the Central Bank printed money to fund budget deficits. With so much inflation, people didn’t save. Low savings led to low investment. As Hernan Buchi, who become Finance Minister under Pinochet in 1985, notes, “[t]his meant that in many industries, no new machines were installed, no new firms were started, and fewer and fewer new jobs were created. There were no capital markets, and the government-controlled interest rates did not reflect scarcity of funding. The balance of payment (BOP) deficit increased over a period of three years, and the socialist government increased its foreign debt by 23 percent.” Mr. Buchi explains that the “crisis was homemade,” wryly noting that “[w]hen some people complained about the excessive increase in the money supply that was causing high inflation in 1973, the Central Bank president at the time said that money supply was a ‘bourgeois variable,’” sounding the ideological rhetoric familiar to someone named Fidel Castro. Mr. Buchi also notes that Chile at the time was “a vanguard of controlled economy and big government.”

In other words, Chile looked a lot like Cuba. But Chile then moved to liberalize trade, reducing tariffs and negotiating free trade agreements. It also privatized many state-owned enterprises (though it retained government control over its state copper enterprise). These and other reforms were implemented as part of a plan put together by a team of economists which included alumni of the University of Chicago, prompting the media to dub them the “Chicago Boys.” Reflecting controversial neoliberal policies advocated by the likes of Milton Friedman, these policies may have been debatable, but they reflected a fundamental respect for the power of markets to allocate resources.

It was not always a smooth ride, including severe setbacks like the financial crisis of 1982…

Chilean economic reform continued for two decades. It was not always a smooth ride, including severe setbacks like the financial crisis of 1982, which Friedman argued could be traced to the fixed exchange rate policies of Sergio de Castro, who served as Minister of Finance in the late 1970’s. Poverty and economic inequality remained significant problems. Nevertheless, over the long term, Chile experienced impressive entrepreneurial growth and transformed itself into the Switzerland of South America. It is an economy that ranks high in global competitiveness (first in Latin America), per capita income, and perception of corruption (also first in Latin America.) It saw reduced infant mortality rates and improved life expectancy, and is characterized by the World Bank as a high-income country. While economists like Amartya Sen argue that the successes of the Chilean economy are more directly attributable to policies of government intervention rather than neoliberal market reforms, it is nonetheless true that, as summarized by the CIA World Fact Book on Chile, “Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America.”

The basic difference between Castro and Pinochet is that the Pinochet regime respected the power of the market. Castro established a statist, planned, centralized economy, while Pinochet ushered in a liberalized market economy that reigned in inflation, promoted free trade, privatized enterprise, and created an independent central bank. Cuba’s economy was built on price controls, rationing, and failed Mao-like campaigns to build a super cow and produce ten million tons of sugar in a single year. Meanwhile, Chile went on to become the best-performing economy in Latin America.

This is more than can be said for Castro, who stayed in power for life despite significant political opposition…

In 1990, Pinochet voluntarily stepped down after a 1988 plebiscite voted for him to leave office. He continued to serve as Commander-in-Chief of the Army, but Patricio Aylwin took over as president after winning the 1990 election. This is more than can be said for Castro, who stayed in power for life despite significant political opposition, or at least until health concerns persuaded him to hand over direct power to his brother in 2008 (who himself rules despite significant opposition among the Cuban people.) Meanwhile, reforms continued under Patricio Aylwin and successive administrations, the nature of which has varied (including further attempts to mitigate poverty and inequality), but the result of which has left Chile as one of the best-performing economies in Latin America.

It is perhaps a fool’s errand to trace the current state of economic prosperity in Chile to one man named Pinochet. The reforms instituted under the Pinochet regime were many, and questions about metrics and comparative statics can make it difficult to discern the exact causal relationships between policies and results. But there is no denying that, for all the vicissitudes of reform under the Pinochet regime and successive administrations, the basic direction of economic policy was to allow markets to work. One may question whether the successes associated with market-based reforms justify the brutal dictatorship of the Pinochet regime. One can also argue about the extent to which individual policies contributed to Chile’s success in economic development. But one cannot deny that while both Chile and Cuba suffered a dictator, only Chile came out as a world-class economy.

Like Castro, Pinochet ruthlessly suppressed political opposition. But unlike Castro, Pinochet was willing to listen to the advice of people who understood how markets work. While the Left praises the ‘achievements’ of Castro’s Cuba in literacy and education, it ignores one of the most vibrant economies in Latin America, which is in many ways a legacy of the man they vilify, Augusto Pinochet.

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