Cuba and the Cartel Effect
Dmitri Prieto
HAVANA TIMES – The word “cartel” refers to a form of monopoly, when multiple vendors in a market agree to keep prices high, regardless of demand.
In Cuba, the economist Camila Piñero has drawn attention to the appearance of such arrangements in one of her recent research papers (published in the journal “Temas”) on the emerging sectors of the Cuban market.
But you do not have read academic journals to realize that.
A few weeks ago my father was admitted to a hospital and wanted a hamburger for his dinner. I went looking to see what I could buy from the self-employed street vendors in the zone and the first thing I noticed was that a beef burger in downtown Vedado where the hospital is, cost about 60 Cuban pesos (fair enough, some of them were asking for 58) which is a lot more than normal.
I then went to a well-decorated establishment, equipped with tables, supplying beer in cans with a big flat screen TV running video clips of Marc Anthony. Hoping the quality of beef would match the quality of the singer, if not the TV, I ordered a beefburger ” to go”.
I got the burger in no time, in a disposable bag, and I carried it off triumphantly to my dad.
Oh well. In his opinion, and even though the product itself seemed to contain beef, it was like plasticine and practically tasteless. I tried a piece, and I had to agree with him.
Note, by the way, that only establishments “for the rich” in Cuba, have the aforementioned paraphernalia, by which I mean the TV, Marc Anthony, the beer and the company uniforms with a logo similar to McDonalds.
But the main product they were selling was good for nothing.
I do not know if the other micro establishments “for the rich” in the neighborhood are just as bad.
But for me it was proof of the cartel effect … and that the last thing the Cuban market economy does is guarantee customer quality – or at least a “proper” price-quality relationship.
Luis, I suppose it is (I have no Internet access) The paper is about the three viewpoints on the desirable transformation of the Cuban ‘socialist’ economy (basically, Camila counts the state-centered viewpoint, the market-economy viewpoint and the self-management viewpoint). This is the URL for Temas: http://www.temas.cult.cu/
To be clear, I do not advocate a 100% free laissez-faire market. There needs to be a sensible level of regulation to ensure fairness, competitiveness and to limit corruption. The problem with Cuba is that the limited economic reforms have come with extensive regulations and stipulations from the government. Also, in most cases, as the only vendor for raw materials or supplies are the state owned enterprises, the govt determines costs. Burger shops must buy their bread from state bakeries at retail costs. There are no wholesale suppliers.
The exception to this is the introduction of fruit and vegetable markets where farmers can sell their produce.
The debate between Griffin and Luis is an interesting one that is applicable in several microeconomies around the world. Eastern European economies formerly controlled by the Soviet Union are facing exactly this situation as well. Newborn capitalist economies have tremendous difficulty shaking the old trappings and behaviors of socialism. Even in the US, the ‘free” market market must have some government regulation to provide worker protections and consumer quality controls. HOWEVER, combining a free market with a democratic society has proven to be the best combination to insure a growing economy over time. Clearly, Cuba lacks both of these ingredients.
For all means, there is simply no basis for what you describe in your first paragraph. Alas from the links you provided, even the ultra-conservative, skeptical and biased Economist concludes in the 2010 article that in Cuba “for the first time, there is a small but real place for private enterprise.”
If you really did agree with and understand the depth of my final statement, you wouldn’t show a ‘the free market would solve everything’ line of reasoning in your second paragraph, for yes, the Modern State heavily regulates economic life. Thankfully, because otherwise you and I would be working 18 hours a day in a coal mine.
I don’t think the economic reforms are ‘superficial’, as when I began reading HT 4 years ago the topics on economy had an entirely different focus compared to today’s.
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Dmitri is Camila Piñero’s article available on the online edition of Temas?
Cartel or state monopoly?
“Cimex, Cuba’s largest commercial corporation” The State owned enterprise with holdings in finance, tourism, restaurants, taxis, gas stations, recording company, satellite TV, manufacturing, fashion and so on.
http://www.reuters.com/article/2010/09/27/us-cuba-corporation-factbox-idUSTRE68Q55320100927
The armed forces’ holding company, called GAESA, has emerged as the dominant force in the economy. It is run by Raúl’s son-in-law, Colonel Luis Alberto Rodríguez. A shadowy figure who speaks English with an impeccable upper-class British accent (which he says he picked up from his KGB tutors while a student in the Soviet Union), he boasts that his organisation controls 40% of the Cuban economy.
Colonel Héctor Oroza, formerly the number two at GAESA, was recently put in charge of another state conglomerate, CIMEX, replacing its civilian director. CIMEX is Cuba’s biggest company, turning over more than $1 billion; among other things, it processes remittances from Cubans abroad and rents property to foreigners.
http://www.economist.com/node/17463421
It is absurd to suggest the highly regulated self-employed sector that is emerging in Cuba is in anyway an example of free enterprise. Employees wages, job descriptions, suppliers costs and retail prices are all stipulated by the government. The only way a self-employed business can find a profit margin is by adulterating the product. The result has guaranteed corruption.
If there really existed a free market, restaurants could buy their supplies on the open market, instead of from required state-run suppliers. If there really was a free market, customers would have a range of restaurants to choose from and they would avoid the cheats and poor quality.
Luis, I do agree with your last sentence, “the dichotomy ‘State vs Market’ is, and has always been, a false one” …especially in a system where the State continues to regulate every minute facet of economic life.
Dimitri’s experience does not prove the existence of a cartel among the restaurant owners, but of the continued State monopoly despite the window dressing of the superficial economic reforms.
Long live the ‘invisible hand’! Yep if we let the ‘Market’ decide for its own, this is exactly what happens – the formation of cartels and single-handed monopolies as the big enterprises buy the smaller ones. So in the ‘free market economies’, ironically, the State must issue laws against those practices. That’s what I meant before when I commented that the dichotomy ‘State vs Market’ is, and has always been, a false one.