Cuba: Fidel Castro's admission that the Cuban economic model "doesn't work" is refreshing. However, his brother President Raul Castro's current slight opening of the market to foreigners will do little to help Cubans. On the other hand, freeing up domestic property ownership, savings and prices would. The Castros could even keep their parades. China's former leader Deng Xiaoping is reputed to have said "To get rich is glorious" and his policies reflected that spirit, sparking off phenomenal economic growth without weakening one-party control. The Castros might be able to do the same -- not by allowing foreigners further special privileges (which distorts the economy and does little for local living standards) but by freeing up the domestic economy for ordinary Cubans. Three particular reforms would make the most difference. First, Cuba could establish an un-corrupt land registry and allow unrestricted ownership of land with full transfer rights. That would allow small landholders to consolidate holdings or sell out and either start small businesses or take other jobs.
Second, Cuba could free prices for domestic goods and allow a freely floating foreign exchange market. That would quickly produce market price signals to regulate supply and demand, which ought to optimize the economy within a very short period and eliminate uneconomic activity. Third, Cuba could free up interest rates, monetary policy and its banking system so that savings received a positive real rate of return and were protected against expropriation. Ideally, savers would be allowed to choose domestic or foreign currency accounts -- in euros if not dollars. This would encourage saving and -- most important -- capital formation that could fund embryonic businesses. The Castros might then be in a position to stand back, avoid prosecution for "economic crimes," ignore the squawks from interest groups that lost out and bag the anti-capitalist rhetoric and penal taxation.
As countless countries have shown, with a well-educated workforce and low labor costs, doubling real incomes in five years is well within reach. As China demonstrated, allowing the populace to get rich does not necessarily destabilize a regime, if anything it may even entrench it. By discarding their misguided economic ideology, the Castros just might extend their island reign a bit longer than they anticipate.
