Why the U.S. Should Drop the Embargo and Prop Up Cuban Homeowners

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Nilda Bouzo, right, speaks with her husband Ives Lopez next to a sign that reads in Spanish " Exchange Apartment Two for One" in their home balcony in Havana, Cuba, Thursday, Nov. 3, 2011. (Franklin Reyes / AP)

It wasn’t too surprising when Cuba announced on Thursday, Nov. 3, that people on the communist island may now buy and sell private homes. They can buy two, in fact – one in the city and one in the country, perhaps for those weekends when you just need to get away from your neighborhood’s Committee for the Defense of the Revolution. President Raúl Castro, who has to liberalize his moribund economy to keep it afloat, had already said Cubans could own cars and businesses; purchasing real estate wasn’t that big a leap.

And yet, it is. That’s because more than any of Castro’s previous reforms, it opens the door to something Cuba hasn’t experienced much of since the 1959 revolution: real economic development. And that stands to make Washington’s 49-year-old trade embargo against Cuba look all the more futile.

Thursday’s home-ownership decree ratchets up the debate about whether Castro’s reforms are a nod to China’s communism-cum-capitalism model, or whether, as Castro keeps insisting, they’re simply a means of preserving Cuban socialism. The answer: Whatever. It’s all just an ideological semantics game at this point, because what matters is that Cubans will now have one of the most valuable tickets to the formal economy: legal title to salable property.

Cubans, despite their universal health and education, have for the past half century been scraping by in the underground informal economy – what they call resolver, or solving the hard quotidian shortages of communist life as shrewdly (sometimes illicitly) as they can. In that regard, brain surgeons in Havana are largely in the same boat as slum squatters from Caracas to Calcutta: they’ve had no legal title to assets like houses that they could use either for profitable trading or for loan collateral. But as the Peruvian economist Hernando de Soto points out in his 2000 book The Mystery of Capital – still one of the best treatises on how to unlock development – formalizing property ownership can start an economic chain reaction, galvanizing more robust and widespread commerce and tax collection. “Money,” De Soto wrote, “presupposes property.”

It’s safe to suppose more money will pour into Cuba now. In the past couple years, Cubans have received some $2 billion in remittances from relatives abroad, and that may well rise now that there’s house-buying to be done – enough house-buying, in fact, to make a Florida real estate broker weepy nostalgic. Financing those home purchases must be done via Cuba’s central bank; still, depending on new banking regulations that Castro is expected to spell out, homeowners may be able to secure credit and capital outside the central bank to improve their houses or, more important, to start or expand the private businesses that Castro hopes will absorb the up to 1 million state workers he needs to lay off. Foreign bankers and NGOs will be eager to funnel loans to a market of 11 million well educated, entrepreneurial people who live just 90 miles from Florida and remind the world of the Chinese a generation ago.

If Castro allows that – and he can’t successfully wean a million Cubans off the dilapidated state economy if he doesn’t make sure their enterprises are sufficiently bankrolled – the island could begin to see genuine economic opportunity emerge. Politically that can make a populace either restless or relaxed. But either way, the embargo hardliners in the U.S. can’t just keep screaming that money that goes into Cuba simply props up the Castro regime and its human-rights abuses.

Like it or not, we’re beyond that – just as we’ve been beyond it in communist China for a generation now. Property ownership promises to jumpstart the kind of economic heartbeat that an embargo, especially an ineffective unilateral trade blockade like Washington’s, can’t really stop. So the only question now is whether the U.S. loosens, or better yet gets rid of, the embargo so that Washington can let the kind of yanqui investment into Cuba that props up families and entrepreneurs – so that when political change does come to Cuba after the Castro regime fades away we’ll have sown some goodwill and influence there – or whether it turns its back on them so it can keep indulging the regime-overthrow delusions of the embargo lobby simply because the Beltway still fears that Cuban-American votes can swing elections in Florida.

One of De Soto’s more salient points is that the economy-generating effects of legal property ownership – the “institutional framework to produce wealth” – was one of the key factors in making U.S. capitalism so successful over the past two centuries. It may not lead to a Caribbean Spring in Cuba – but then, neither has five wasted decades of embargo. The bottom line is that Washington needs to conjure the common sense to engage alternatives when Castro himself provides them.

(See: “Party Time in Havana: Cuba’s Bay of Pigs Generation Hopes to Get It Right”)