Monday, 30 August 2010

Viva La Revolution!

As the majority of the Western world went into a synchronised recession, Cuba was consequently hit hard by the relative hardships inflicted on our countries. Cuba's main source of hard currency to pay for imports is tourism. A country that has been stuck in permanent depression ever since the Communists took power from Batista with a philosophy of the state mobilising economic resources has meant Cubans productivity has fallen woefully behind other nations around the world. 

History has always shown that the best way to innovate is to let individuals who understand their respective market mobilise resources. The Google empire used to be two guys working in a garage. Mighty Microsoft was once a small two bit outfit doing small time work in Alberquerqe. Sony, the Multinational Japanese electronics giant was two men who had a passion for technology. They set up their company after the Second World War, during Hyperinflation and resource shortages where many of the materials they required to make electronic components were not available. Its a testament that all the above ventures have improved all our lives immeasurably, driving up product quality and innovation and driving down costs. 

Cuba however followed the romantic ideal where the "people" would run industry for the "people" (despite the fact that companies are always created by ordinary people). Widespread nationalisation took place, giving economic resources to people who had no interest in such ventures. The popular Che Guevara for example took control as the minister of industries while serving as the national bank president. This was despite the fact that he had no interest what so ever in either ventures or had proven competence. Through the years the decline in living standards has been taking its toll on the country. Cuban people are getting restless. 

Since the collapse of the Soviet Union, Cuba could no longer leach from its big brother, Castro had no option but to open up to tourism, abandoning the autarky he had previously tried to maintain. The problem with this solution is the Cuban people began to see how the West were really living, contrary to the state propaganda they had heard. Fancy gadgets, multiple overseas holidays, all you can eat hotels (while the population has rationing) and the freedom to say what they want and do. Not ideal for a dictatorship.

From 1993 Cuba has also begun slowly abandoning its rigid dogma, now trying more market orientated solutions such as allowing individuals to make profits to increase production. Periodically these have been revoked as uprisings occurred. The resourcefulness of Cubans during the regime is quite remarkable. During my stay we were told they use sugared water as an alternative to brake fluid in cars as they can't afford to import the real stuff. All the old American cars are quite a sight, with people packed into them. Despite the resource shortages people are still able to keep such cars running. Due to the lack of motorised transport and fuel it is law that you have to give people lifts if you own a car and they wish to go the same way as yourself. Such is the desperate state of the country.

Within the news recently it is becoming apparent that more market alternatives are being considered. Its not only the West which are announcing cuts. Cuba has cut the subsidies paid to its pensioners on cigarettes. With monthly pensions of $10 and a pack costing around $0.33, its any wonder how they live on such a low amount (a serious smoker would need all their income to buy a pack a day. Now compare that with your own countries pension and cost of cigarettes). They have been removed from rationing along with other products - the government are now acknowledging you need real prices to direct supply and demand. Announcements have been made that more workers will be self employed and set up businesses, taking people out of the unproductive public sector and into the private sector. 

All of this is inevitable, that is Communist and Socialist systems break down. North Korea, China, North Vietnam, India, Russia, Zimbabwe and Eastern Europe. They all fall apart as peoples living standards decline. Cuba is no different. Often viewed under the academic romantic ideal it is no fun for its people. The free market will win out eventually.

The only reason any such country last as long as they do is usually natural resources. Venezuela is held up by the left as a great example of the good work socialism can do but in reality Chavez is becoming a tyrant and is propped up by all the Oil he sits on. He continually tries to blame 'speculators' and tries to control prices in a vain attempt to give something for nothing to his people. In reality he impoverishes them with product shortages in the long run. For nations such as North Korea who are resource poor they just rely on aid from others such as China and South Korea who are scared of the implications if such nations collapsed leading to a plague of people  rushing for the borders. 

Through this Century the free market will expand and with it Socialism will go into further decline.  We may have some turbulence to come but this will enforce the long term trend. In the West which are already viewed as free market entities they will go even more market orientated. Central Banks will loose the faith of the people as they mismanage the national currencies and people wish to find out why such events are happening. Alternatives will be put forth. Market alternatives, with money and interest rates moving away from political interference. 


A small mention that I will start using my twitter account to post snippets of my view on what's happening (as an alternative to the detailed posts I put here). You can view/follow what I have to say here if you use twitter.

I think we have some interesting news to come, especially when the budget cuts become reality and the Governments finances further spiral out of control. Inflation is already embedded here in the UK. Despite the recent GDP growth its all government driven and its all making things a whole lot worse. QE2 will recommence at some point despite the high levels of inflation. Interest rates will rise which is why they will try and hold these down over the short term using monetary policy. But like the Statist nations above that try to fix prices, the same disastrous consequences will occur. Shortages and further long term problems.

Thursday, 19 August 2010


Free markets work in wonderful ways, especially when it comes to technology. Prices come down, quality goes up, its a win-win situation for consumers. History has a habit of repeating itself and it seems to be repeating once more in regards to Apple. Once more Apple are ahead of the herd releasing new products to the market such as the iPad and iPhone but once more the market is chasing them down once more.

Apple has always been an innovative company ever since they created the first personal computer as the big players such as IBM ignored such innovations labelling them as too insignificant and 'toys'. During the 80's they create machines such as the Macintosh, which were unparalleled  innovation during its time. There was nothing on the market like it. This is where Apple always slips up. If they had a similar business model to Microsoft we would in all probability be using Apples operating systems which were always far superior, however Apples solution was to keep the hardware locked down in their own control. Microsoft in the meantime just concentrated on the software and allowed the hardware manufactures to compete in selling the computers, thus lowering the costs greatly and also allowing consumers greater flexibility and choice of product (treating people as individuals with different requirements and needs).

Apple relies on its image, its marketing. Sure the Apple OS may be better than early Microsoft versions (such as the dreadful Windows 9x OS) but for consumers there are two concerns, quality and price. Why don't I drive a BMW or Audi? The cars would be superior in quality to the cars I have had, but price is also a big factor for consumers. 99.9% of the time people want a car that gets you from A to B. Its the same with Microsoft OS compared with Apples - it gets you from A to B at half the price. You put up with no fancy cup holder or an extra gadget here because the engine turns over and its cheep to maintain. 

Since Apple have released their iPhone and iPad, Google and to some extent Microsoft are again packaging the software for the manufactures to use. Just like the Mac in the 80's, Apples early products have market share which is sure to be eroded in the future once more. Android is already gaining popularity with its open format and with Chrome OS due to be released later in the year this will surely take away market share from Apple (and Microsoft) as they are open, free and do the job. People can openly contribute and build apps for such systems and its only a matter of time before more applications appear for such devices. Over £400 for an iPad? Please, it sounds like daylight robbery to me. The competition is already offering much reduced priced products at half the price. It's not long before the quality catches up too and surpasses Apples offerings.

Of course you could claim that Apple do this on purpose, ie appeal to a niche markets and work from high margins. However unlike the German car companies who compete with the Koreans and the Japanese on quality and charge the premium, I can't see Apple being able to do the same against Google. Google have opened up the code and are offering it for free, allowing all sorts of customisation, thus will appeal to the masses once more. They won't need to copy Microsoft's model of vendor lock in. Times have moved on. It seems Apple have not learnt anything from 25 years ago and are repeating the same mistakes. Give it another 10 years and we will in all probability see a repeat of Apple in the wilderness once more, similar to the 90's.