Free Market Solutions for Socialist Problems

Watch Cuba and Venezuela over the next few years as they both look to free market solutions for their socialist problems.

February 8, 2021

By: Bobby Casey, Managing Director GWP

free market Cuba was heralded as a paragon of universal healthcare. The reality is a bit different from the fantasy, however. What American tourists like Michael Moore get and what everyone else gets are vastly different.

While sanctions are terrible, state run industry makes things that much worse. A bunch of bureaucrats who know nothing about textiles running the manufacturing of clothes, or those who know nothing of procuring and refining energy commandeering and nationalizing an oil industry, is disastrous.

Look at the want-ads of any company. There’s entry level work all the way to director level work. Entry level folks don’t require much experience at all, as they will be given smaller tasks and less responsibility. They will also receive training from more seasoned professionals.

Directors on the other hand require a certain number of years of experience; ideally in the specified area they are overseeing. And for good reason! You can’t have someone who has never run a restaurant managing a restaurant. You can’t have someone who’s never run a warehouse to suddenly take on a full logistics team.

This reality doesn’t magically disappear when it’s state bureaucrats with benevolent intentions to keep profits out of the hands of greedy corporate overlords.

Places that have proven this include Cuba and Venezuela. I’m not a fan of tariffs or sanctions. It’s an attack on the people not the crappy leaders that broker such arrangements. But at the same time, people don’t want to make horrible regimes successful.

Beyond the tariffs and the sanctions, however, is the internal matters between the citizens and their respective regimes. The internal work has to do with freeing their markets.

Cuba

Like many of its Caribbean neighbors, Cuba took a major economic hit last year due to the decline in tourism. It’s the biggest hit in nearly three decades.

In a stunning response, the country is looking to the productivity of the private sector to help fix this for the struggling nation. They are opening the majority of their industries to privatization:

Labour Minister Marta Elena Feito said the list of authorised activities had expanded from 127 to more than 2,000.

Ms Feito said just 124 economic activities would be exempt from private involvement although she did not mention which ones.

A bit concerned with the lack of disclosure on which 124 economic activities would be exempt from private involvement… If you keep that a secret, you risk a lot of unwitting criminal activity.

Nonetheless, that the country is finally admitting in a significant way that private industry is a big deal unto itself. Private ownership and management of industry will go a long way in creating a more sustainable economy.

Competing and some better run businesses is what that country needs. Decades of railing against private sector profits and now the only way out of the rut they are in is to allow the profit incentive to run freely through their streets.

I don’t know if this is just a quick switch that gets flipped by their government. I hope it’s not some long-drawn-out bureaucratic process to economic freedom. But Cuba will be a nation to watch for the next few years.

I can see US businesses wanting to engage in private commerce from Cuba more than state run commerce.

This shift alone could open some doors for Cuba, and that would be a fantastic case study for the US as it insists upon going in the opposite direction.

Venezuela

While Cuba loosens the reins on their private sector, Venezuela is not as fortunate. However, they are the one country so far that is using cryptocurrency to conduct commerce. Unlike many other holders of crypto who are looking to it as a long term hedge, they are using it to buy commodities and medical supplies:

In order to accommodate this, merchants in Venezuela have started to directly accept BTC payments. A deal between Panamanian-based cryptocurrency exchange Cryptobuyer and Venezuelan payments processor Microsoft has created around 20,000 point-of-sale terminals in the South American nation.

Venezuela is experiencing hyper inflation right now. One Forbes article made a case in late 2019 that they were seeing over 10,000% annual inflation rates.

Much like Cuba they are also on the receiving end of US sanctions… but they are also in the throes of the state running their oil industry back into the ground. Venezuela is a very rich country. But it goes to show you that if you don’t know how to manage wealth, you can still be poor no matter how much you have.

Meanwhile, the people are suffering. They are unable to get basic commodities. Venezuela has been using Bitcoin to pay for imports from allied countries like Iran and Turkey. It has been a successful work around US sanctions.

The government of President Nicolas Maduro is also planning to increase its usage of bitcoin in trade now that the Venezuelan Army is actively mining the cryptocurrency at its recently inaugurated crypto mining center.

The deepening of these harsh economic conditions have led to mass emigration out of Venezuela, but with that came billions in remittances:

Ecoanalítica estimated that in 2019 around $4 billion flowed back into Venezuela from abroad and that there were another $1.5 billion in withdrawals from foreign bank accounts.

In a country suffering this level of hyperinflation, a lot of value is lost in traditional currency exchanges. Every cent counts, so rather than risk or incur those losses, they’ve turned to Bitcoin as a safeguard as it will hold value better than the Bolivar.

The same is true for the USD only crypto is more accessible. You can’t buy USD as easily as you can Bitcoin.

Deviating away from central banking is a fantastic step toward economic freedom. Much to the dismay of the Maduro administration, the state backed cryptocurrency, the Petro, fell flat. The country using Bitcoin is one way they might loosen the grip of the current regime, and find their way back to sound money and prosperity.

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