Cuba's misguided attack on entrepreneurs

I submitted this to The San Antonio Express-New almost three weeks ago and they have not printed it, so it looks like it will not make it in.

According to a recent Wall Street Journal article Cuban leader Raúl Castro’s likely successor, Miguel Díaz-Canel, “has excoriated small-business owners as enemies of the state.” What a sad mind set, to attack entrepreneurs, the people who create wealth and prosperity.

But it gets worse. Cuban leaders are “scared that more economic freedom would lead to political liberalization.” Therefore, they stopped “issuing new licenses for restaurants and other businesses.” They are also concerned that some people might own as many as five restaurants.

The fact that they believe that economic freedom could lead to political freedom validates the views of Nobel Prize winning economist Milton Friedman. In his book Capitalism and Freedom, he said that economic freedom was a necessary (though not sufficient) condition for political freedom.

Economic freedom means a person or corporation can own their own printing press or TV station. If the government owned all of them, could we really have political freedom?

Perhaps not. Every story that appeared on TV or in a newspaper would have to be approved by a government official.

It may be that we need economic freedom to ensure that we have free speech. That means letting entrepreneurs start businesses and keep their profits.

The attitude of the Cuban leaders also reveals something about their culture. It devalues and fails to recognize the contributions of individuals who take risks.

This may ignore the true cause of the great prosperity that the world has seen in the last two centuries. It might have been due more to a change in culture than anything else.

The great economic historian, Deirdre McCloskey, argues that what made the world so wealthy today was a change in values prior to 1800. This gave entrepreneurs the dignity and liberty to seek profit and generate social welfare, which in turn led to a flurry of inventions, innovations and new institutions that made our modern world.

In more recent times, we have seen this happen in China and India. Their increased use of free markets these past few decades has lifted hundreds of millions out of extreme poverty.

But Cuba’s attitudes and policies towards small business will prevent this kind of flourishing. Right now, they rank 131st in the world in per capita GDP with $11,900 (Mexico has $19,500). Given their clamping down on entrepreneurs, this seems unlikely to improve.

We should not be complacent here in the U.S., though. Our own attitudes and policies towards entrepreneurs are not always optimal.

A 2010 paper by Alan Krueger, a former chair of the Council of Economic Advisors under president Obama, found that 29% of jobs require a license. It was only about 5% in the 1950s.

Regulations can also harm small business. Even though president Trump has not added many so far, they still pose a threat.

Look at the issue of states wanting to collect sales taxes on goods bought by their citizens from out of state firms through the internet. The Wall Street Journal recently reported that there are 12,000 jurisdictions in the U.S. that charge a sales tax, double the number in 1992.

It will be costly for small businesses to comply with such a rule. Even worse, if a business collects too little in taxes, it faces penalties and jail time while collecting too much can lead to lawsuits.

It might be no surprise then that in recent decades the rate of new business formation has been in decline. We should guard against over burdening entrepreneurs the way Cuba has.