What the old Cuba would have taught you about economic self-organisation

A week in the old Cuba, fast vanishing, showed me the power of economic self-organisation by its absence. It wasn’t the big things like famine or mass unemployment, but the little things and odd observances which really rammed this home. The little things and odd observances showed how illiberal policy confounds the process whereby localised knowledge is made use of.

My friends sometimes label me a Jeremiah (well actually they don’t go much in for Biblical references, they use less kind words). Small wonder. At the age of 24, thoroughly sick at heart from writing my PhD, struggling to get it accepted and a string of failed attempts at companionship I felt it was about time I shocked people by doing something really different. I decided to go to Cuba. Alone. I wanted to see by myself the old, communist Cuba in its dying days before it would inevitably be swept away by the onslaught of American mass commercialism.

There is a wonderful essay by Winston Churchill somewhere where he talks about how decisions which at the time seem small become turning points in our lives. Deciding to travel to Cuba was one. Even on the drive from Jose Marti airport into Havana, I discovered a far deeper understanding than I could ever have had of Hayek’s profound (1945) paper “The Use of Knowledge in Society” and what the Smith-Hayek theorem at the heart of the “UQ model” was saying about how economies self-organise.

During my visit to that heartbreakingly beautiful country (it’s like a Spanish version of my ancestral home in North Queensland) I became increasingly aware of the power of self-organisation as only its absence can show.

What I saw: a country time-locked and crippled

To travel to Cuba was still even then to travel to the 1950s. It was like stepping out of the early 21st century and into an area of the planet which had somehow been time-locked for a half century but for the inevitable decay of time. All progress had stalled in the 1950s, and given itself over to the passage of the years.

When one took a cab from Jose Marti airport into Havana, the capital, one became immediately aware of the awful quality of the roads. The cement of the highways had been cracked long ago in the heat of the Caribbean sun, the paint on the road marks was flaked and fading, the grass of the countryside was beginning to encroach inwards to reclaim lost ground. You could tell that no one had bothered to tend to them in years.

One expects the countryside to be less well developed than the city even in a developed country. What shocked you as you used to drive into Havana was how the homes didn’t get much less unkempt and ramshackle. You could see the patch jobs that their residents (not owners, home ownership was illegal in Cuba) had thrown together to cover the worst of their homes breaking down into hovels, but they desperately needed the attentions of a professional builder.

You saw the long lines of people queuing for buses that never came, or came extremely late, never on time. You passed by the still ubiquitous famous Cuban classic cars, which were older even than the ancient 1960s Ford Cortina my Grandfather lovingly kept up until he could drive it no longer.

When you went for a walk in the afternoon in Havana toward the Malecon esplanade you had to pick your way through streets clogged with people milling about allowing their eardrums to be pounded by ghetto blasters belting out salsa and the buena vista social club and enjoying the sweltering, but gorgeous weather. It was beautiful, all these people enjoying life in a run-down but beautiful country, people bound together regardless of colour (a good half of Cubans are of recognisably African descent). But it was beautiful only until you noticed their bored vacant stares, their ill-fitting motley clothes and their clear, abject poverty. I remember it being oddly quiet in spite of the ghetto blasters.

They were united, but by their poverty and having nothing better to do at 3pm than spill out and loiter in the streets. They were a people devoid of hope, of promise, of future. They were a people resigned to impotently watch their lives pass them by very nearly wasted. They had been given no chance to “live deep and suck out all the marrow of life” as Thoreau put it well.

When you travelled out into the stunning countryside you became shocked to learn the extent of the decimation of the once bountiful sugar cane industry (the basis for Cuba’s rhum liquor). Valley after valley in the highlands lay fallow, having long been given over to but the occasional land clearance after the great plantations had been expropriated from the wealthy landowners. I couldn’t help but think of the boon my family (cane farmers from North Queensland) had been given in the 1960s by the Cuban revolution and the concomitant collapse of a major competitor in the global sugar market.

Most disturbingly and for me tragically, I discovered that Cuba’s literary and artistic culture was dead. Not just dead but actively destroyed by the uniquely crushing effect of state direction and control for political ends. The Cubans couldn’t name any great writers after Jose Marti, who was executed in 1895 (I made a point of asking, I wanted to learn). Marti wasn’t even best known for his writing per se, he was known for his political agitation therein. By comparison I could name three great Latin American writers from the mainland in the past fifty years of the top of my head (Jorge Luis Borges, Gabriel Garcia Marquez and Mario Vargas Llosa ), and I’d never taken much more than a passing interest in Latin American literature.

The one exception to this crippling of a country’s life and spirit were the areas around government buildings. Around the government and embassy quarters of Havana, the regional cities and at certain historical sites all of a sudden the country sprang to attention into the elegant, retired hacienda style of the late colonial period with but a few intrusions of communist brutalist architecture.

Cuba’s charm lay in the simple, almost childlike charm of its people and the stunning beauty of its natural environment and colonial architecture. Anywhere and everywhere the post-revolution government had touched the country, it had left a scar. Even as regards the famous Cuban doctors into whom the government poured so many resources, one wonders how many could have been great engineers, industrial leaders, artists, writers and poets if those were viable careers.

To understand this, and thus the power of economic self-organisation we require a little history, and some economics, specifically, the “UQ model” of economies as complex evolving networks formed by individuals acting on the basis of their psychology and social position.

The pendulum swing: Batista to Castro

The history of Fidel Castro’s daring revolution is the stuff of legend. Determined to overthrow Fulgencio Batista’s U.S. backed Fascist regime, and after the failed attack at the Santiago de Cuba barracks which led them to flee to the continent of South America, Fidel Castro and his cadres (including the romantic figure of Che Guevara) landed in Cuba again in 1956 after a dangerous crossing and headed for the strategic Sierra Maestra. Batista was waiting for them, and it is said no more than twenty survived to make it into the mountains.

From there they followed the strategy followed by Manuel Cespedes in his uprising, seeking to sweep north-westwards from the traditionally poorer regions around Santiago de Cuba, up along the island to encircle wealthy Havana. The critical battle occurred at the town of Santa Clara in 1958. Che Guevara delivered a crushing blow to Batista when he brilliantly commandeered a bulldozer to derail and then machine gun a train of reinforcements for the beleaguered and encircled government garrison. Batista almost immediately fled Cuba, leaving Castro’s forces unopposed to seize the government.

The pendulum swung from a regime of corporatist Fascism to collectivist Communism overnight.

What you couldn’t do: when everyday business becomes illegal

We in the liberal democracies can’t quite comprehend just how different a Communist economy is to our own. On seizing the government from Batista, Fidel Castro expropriated every single business in the country from the corporations down to the corner shops. Imagine that. Every single citizen with a job works for the government — is in effect a Civil Servant.

Private property became illegal for a half-century. There is no private property in a Communist economy. You don’t even own or rent the house you live in, you’re assigned it.

Not only ownership but control of businesses was centralised too. Communist economies are centrally planned, which means all initiatives and decisions either originate or must be approved by the government. No business decision could be taken in Cuba, from the boardrooms of the country’s corporations to the smallest restaurant without the approval of the bureaucracy.

This state of affairs continued for fifty years with only an abortive legalisation of small business in the 1990s in the face of famine. Self-employment was only legalised properly in 2011 and still regulation and taxation remains which would see governments swept from office in the liberal democracies.

Preventing self-organisation and why that matters

The key to understanding what I saw came on the very first day. I could see that the Cubans knew what needed fixing in their local area. Each individual Cuban knew what could have been done to better their lives. But they couldn’t act on it except in half-measures. The economy couldn’t self-organise.

Anywhere else in the world, people and local communities would act on their knowledge of what could be done to better their lives to hire any number of private contractors to fix their homes, to buy a car, to lobby their local responsible government official to hire contractors to improve public assets. The economy would self-organise. But the Cubans couldn’t act on that localised knowledge, it was illegal to do so without the express permission of the government, they had no responsible government, and that they had had outlawed businesses which might help improve public assets.

So why couldn’t the government just solve the problems itself? Surely the Cuban Communist party wanted to remain in power by more stable means than sheer force. Why didn’t they fix the roads, arrange to have houses kept up, organise local businesses?

Because it was impossible. It was for no small reason that Friedrich Hayek used to say that socialist central planning was based on a logical mistake. It is logically impossible to plan an economy from the centre in a way which reflects the collective knowledge of society about the best state of economic affairs, and that was what you could see in the old Cuba.

The level of knowledge required to coordinate the whole web of interactions which makes possible even the most basic transactions is staggering. The amount of information, let alone knowledge required to coordinate the system as a whole makes an abject mockery of the amount a cognitively constrained human being can have, even (especially) those high priests of the economy called economists. To pretend otherwise is what Hayek famously called the “pretence of knowledge”.

The central planner cannot replicate the outcomes which come from individuals acting on their localised knowledge even if the individuals try to convey it to them. The sheer amount of knowledge which constitutes society’s collective knowledge of the best state of economic affairs stupidly surpasses the time available for any one human being to learn it, let alone their capacity to process and act on it. A central planner is a human, and it is simply impossible for one human being to have the knowledge required to replicate even a fragment of the self-organised economy.

The only way it is possible for this knowledge to develop and be applied is for it to be dispersed amongst many individuals, each acting on their own small set of localised knowledge about the best state of economic affairs. Those decisions taken together constitute the self-organisation of the economy, and thereby apply society’s collective knowledge about the best state of economic affairs.

The Cubans were compelled and coerced from taking all those little decisions by which an economy organises itself. They could not apply their localised knowledge about the best state of economic affairs. The necessary conditions for market exchange were not met, for market exchange was illegal if not expressly permitted first by the central government. And so, quite predictably, the economy became stunted, half-grown, and half-developed. It could not support a modicum of wealth for its people, let alone support a vibrant artistic, literary and cultural life because the process of self-organisation had been confounded.

It was frustrating and yet fascinating to see, and made the nature of the self-organisational process and the importance of liberty to it crystal clear. It wasn’t the big things like famine or unemployment which revealed the self-organisational process by its absence. It was all the little faults and flaws which could have been rectified if the Cubans who knew about them and how they might be fixed were allowed to contract freely in markets to fix them.

Without liberty, the people cannot act on their localised knowledge, without the people acting on their localised knowledge the economy cannot self-organise, without the economy self-organising we cannot discover the collective knowledge of society about the best state of economic affairs. That was what a week in the old Cuba taught me.

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