Friday, January 13, 2017

The Black Market, Subsidies and the Strange Economics of Cuba

For a couple of capitalists, traveling in Cuba was strange and mystifying. There is a Cuban urban myth about the poor retirees living on $20 a month and state employees earning not much more than that in their jobs. While we heard of these people over and over, we really did not see any of them. It is estimated that 95% of Cubans participate in some way in illegal activities in order to make ends meet. We regularly paid $5 to $50 for short and long taxi rides. One night in a "Casa Particular" with breakfast and dinner for two costs about $60, or twice the official monthly wage of Cubans. One family did not even blink an eye as they exchanged $200 in currency with us. They are not as poor as they would lead you to believe. Cuba has definitely gone through huge changes and has suffered large economic shocks. When the Soviet Union collapsed, Cuba lost its primary benefactor and trading partner. Now, Venezuela is collapsing and the steady stream of free oil from Venezuela is about to dry up. Still, despite all of the hype about Cuba being so poor and how life is so hard, it did not look much different from other Caribbean countries we have been to. Take away the old cars and the socialist propaganda, and you could be in Puerto Rico, Trinidad, Bonaire, Grand Turk, or some of the more remote parts of the Yucatan. Many Caribbean islands had their heyday in the sugar and banana industries but those industries are now globalized and what you have left are a bunch of relatively arid limestone islands with limited economies mostly relying on tourism. Cuba is just the biggest one of these islands. The big difference is the way the economy works and, as a tourist, it is hard to figure out. 

First, imagine a country with no drugstores, no bike shops, very limited clothing shops, and definitely no department stores. All shops are tiny, poorly stocked, and generally sold out of a number of items. We normally think that we can buy things as we need them while traveling but that simply isn't possible in Cuba. Need Tylenol, decongestant or bandages? Forget it. Bring everything that you need for your stay. You may have some luck in the big tourist hotels, but it will be hit or miss. Also, everything is completely thrashed. We went scuba diving once, and the gear was leaky, torn, and barely functioning. The scuba shop was clearly pulling in a good amount of money because the dive bus was full. Cuban tourism industries seem to be in a position where they have money to invest but can't spend it to improve the experience because there is simply no place or process for buying scuba gear. They can't just order spare parts off of the Internet or from another country because import and export is not allowed. 

Apparently, in 2010, Cuba came to terms with its bloated payrolls in the state enterprises and fired about 500,000 state employees. To compensate, they started to allow limited private industry in the form of taxi drivers, shop owners, room rentals and restaurants. All stores must buy their goods from the Government, because nobody is allowed to import or export. So, how do you make money if you are buying from the Government and then reselling the same goods that the Government also sells? A lot of Cubans make a living by getting to the store and buying out large quantities of government goods, and then reselling them at a profit. This leads to shortages for the average working Joe, as one of my teachers bitterly pointed out. If you have a day job, you can't go to the store and wait in line to get what you need. The unemployed wait in line, buy it all, and then resell it in their shops at a markup. As a tourist, it seems that none of the stores have anything worth buying anyway, but the average Cuban relies on this meager stream of goods to survive. 

In 2015, many of the restrictions on money transfers (remittances) from Cubans living in the USA were lifted, and now a steady stream of money is heading into Cuba from Cuban Americans. We could usually tell the households with foreign money coming in because they are rebuilding or expanding their homes and running Airbnb businesses. Speaking of Airbnb, we found our hosts to be very helpful because, in order to get a taxi, you have to know somebody who knows somebody. We would tell the host where we wanted to go and when we wanted to leave and, in a day, they would let us know that they had located a taxi and they gave us the price. Clearly, if we were just going cross town, we could get a taxi on the street, but to go from one town to the next, you need to use the social network. Everybody gets a little cut. 

We went to the cigar "factory" in Trinidad. About 40 people in a room full of old small desks. They made pretty crappy cigars at that place but, as we walked by, the workers would open up hidden drawers and try to sell us the good stuff from other factories. A lot of workers in state enterprises pocket things to sell on the black market. Everyone from hospital employees to cigar factory workers. I got two of these (surely fake) Cohiba cigars from the boss lady's secret stash and smoked one. It was the best smoke I have had in a while. It is probably a factory second from the main production plant. Nicely rolled, excellent flavor, aesthetically pleasing. Best fake cigars on the planet.

The economics of condoms in Cuba

We had two odd condom experiences in Cuba, both of which are a commentary on the state of the economy and the politics. While in Havana, we were sitting on the sea wall one night and we saw a fisherman using what looked like three big balloons to help float his bait out into the water and to also keep "sailing" the hook out into deeper water. Since ordinary Cubans can't own boats for fear that they will sail north, they have to find other ways to deep sea fish. As he was floating/casting the line, I said to Sherry that those looked like condoms, not balloons. Apparently, condom fishing is actually a thing in Cuba:

Our other experience was in one of our Airbnb houses. I walked into the dining room and saw a few hundred boxes of 3-packs (like the one pictured). I asked him what he was doing, and he said that the condoms in Cuba are heavily subsidized, so he gets a bunch of them, and then sells them in Europe somehow. I didn't get details on the whole process, but this is probably a familiar story anywhere that portable goods are heavily subsidized by the government. He also said that they make good temporary plugs for flat tires. 

Cuba is a challenging place to travel and, even after 3 weeks there, we were still not entirely sure how many mechanisms work or how to make simple things happen. 

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