The Black Market: The Embryonic Free Market

by Jeff Thomas, International Man:

In my lifetime, I’ve witnessed five Cubas.

Pre-Revolution, 1952–1958

In the 1950s, the Cuban people suffered under great oppression from the country’s military dictator, Fulgencio Batista. The great majority of Cubans at that time lived in fear and welcomed regime change. That change came from Fidel Castro and a small band of rebels in 1959. Although the rebels were poorly armed, poorly trained, and by no means expert military strategists, they had a distinct advantage: The Cuban people would get behind nearly anyone who would oust the tyrannical Batista.

The Soviet Years, 1959–1989

Following the revolution, Mister Castro went to New York and appealed to the US government to recognize his leadership. Unfortunately, Mister Batista had been a US government toady and the Mafia was heavily invested in Havana hotels and casinos. Mister Castro had destroyed those cosy relationships, and the US was unquestionably not going to give him its seal of approval.

At that time, Mister Castro was not a communist. In fact, he followed no particular philosophy of governance whatsoever. He merely sought power and was open to whatever offers were on the table that might ensure it.

But he didn’t have to wait long. The USSR realized that Cuba was a real plum, geographically, and, in trade for Cuba declaring itself to be communist, the USSR provided considerable military support. The Soviets also offered to buy Cuba’s main export product—sugar—at three times the going rate. Cuba then entered into an unsound economic system. Although it would lose the productivity of the free-market system, the government would gain the benefits needed by Mister Castro to solidify his power base. (It’s important to note that, although political victimisation still existed, it was below what had existed prior to 1959.)

Under the new collectivism, the possession of US dollars was punishable by up to two years in prison. Foreign exchange stores were only for foreigners and the politically well-connected. But whenever a government places a wet blanket on the free market, a black market arises in proportion to the suppression of the free market.

It’s often been assumed that political oppression in the Soviet period must have been severe, or the people would have overthrown the government. But this is not so. The reason why Cubans were largely accepting of the system was that the black market functioned well. Bureaucrats embezzled funds under an inefficient system, state-owned goods were routinely stolen, underground entrepreneurships flourished and, in general, life was better than it had been prior to 1959. In addition, literacy and health care became free to all, a fact that’s cherished by Cubans to this day.

The “Special Period,” 1990–1999

But, with the collapse of the USSR, all bets were off. The false economy crashed with a bang. Mister Castro euphemistically declared a “special period,” in which education and health care would remain as major priorities, but poverty would become rampant. I can remember that, in the 1990s, no dogs or cats were seen on the streets of Havana, as meat was so scarce that a pet in the stewpot was considered a luxury.

Early in this period, a major attempt was made to create an international tourist market. College professors, doctors, and engineers were pleading for permission to quit their professions to become bus drivers, tour guides, and waiters. At that time, a tour guide or hotel bartender might comment to me that he’d gain more in tips in one day than he’d earn in a month from his government-provided salary as a surgeon or attorney.

But, as much as the government sought to oppress such exchanges, a new class arose in Cuba. Those who received tips, or ran off-the-books businesses in tourism, soon were moving into better homes, buying more and better goods for their families, and, most importantly, growing the economy. As poverty was otherwise so dire, the “new rich” could now afford maids, nannies, and gardeners—job descriptions that had fallen out of existence in the Soviet era. The black market, in fact, became the dominant market and, in effect, an ad hoc free market, as it operated without regulation and by supply and demand—the cornerstones of any free market.

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