November 10, 1999

by Peter J.M. Orvetti

Cuba Libre?
Rocky Mountain Regulation
Some Things Never Change

Cuba Libre?

President Clinton could favor easing the decades-old embargo on Cuba under the right circumstances, he said last week according to AP. But Clinton accused Cuban President Fidel Castro of using the sanctions as an excuse for his country's economic problems. "Every time we do something, Castro shoots planes down and kills people illegally or puts people in jail because they say something he doesn't like. I almost think he doesn't want us to lift the embargo because it provides an excuse for the economic failures," Clinton said.

The Cato Handbook for Congress notes that "[i]n 1970, 17 of 26 countries in Latin America and the Caribbean had authoritarian regimes. Today, only Cuba has a dictatorial regime. Although the transition to market-oriented democracies, which protect individual liberty and property rights under the rule of law, is far from complete in any of the region's countries and will be a long-term process, that transition is already leading to greater political stability and economic prosperity. Economic sanctions have not been responsible for the region-wide shift toward liberalization, however. They have, in fact, failed to bring about democratic regimes anywhere in the hemisphere, and Cuba has been no exception. Indeed, Cuba is the one country in the hemisphere against which the U.S. government has persistently and actively used a full economic embargo as its main policy tool in an attempt to compel a democratic transformation.

"The failure of sanctions against Cuba should come as no surprise since sanctions, however politically popular, are notorious for their unintended consequences-harming those they are meant to help. In Cuba, Fidel Castro is the last person to feel the pain caused by the U.S. measures. If sanctions failed to dislodge the military regime in Haiti, the poorest and most vulnerable country in the region, it is difficult to believe that they could be successful in Cuba."

The Cato Handbook for Congress continues, "America's four-decade-old policy against Cuba illustrates the failure of sanctions. When the United States first imposed a comprehensive trade embargo in 1961, Cuba was still highly dependent on the U.S. economy. Since then, sanctions have utterly failed to influence the government of Fidel Castro, which has used the embargo to excuse its own policy failures and gain international sympathy. More than 35 years after its imposition, the embargo has only hurt American companies and the people of Cuba, while leaving the Castro regime firmly entrenched with no prospect of change. The manifest failure of U.S. policy prompted Pope John Paul II during his historic visit to Cuba in January 1998 to declare that sanctions are 'always deplorable, because they hurt the most needy.'"

Rocky Mountain Regulation

A special committee of the Idaho Legislature is considering a plan to restrict state approval of utility mergers to only those that will result in lower rates, AP reported. The legislation follows on the $7.9 billion merger between ScottishPower and PacifiCorp, which have already committed to a 1.7 percent rate cut and no increase for five years. The merger has already won approval from three states but is on hold in Idaho, Utah and Wyoming.

According to the Cato Policy Analysis "The Deregulation of the Electricity Industry: A Primer", "Several states have enacted and others are contemplating changes in the traditional industrial organization of electricity markets. Those changes involve the creation of stock-exchange-like markets for the sale of electricity and the treatment of transmission and distribution lines as 'common carriers' that deliver power from any generator to consumers at regulated rates and under regulated conditions. Consumers in the Northeast and California have promoted such changes because they do not want to pay vertically integrated traditional utilities for their expensive electricity. The electricity is high cost because some nuclear plants are terribly expensive, as are some long-term contracts signed with independent and renewable power producers. In a competitive market for generation, some high-cost facilities would not be able to earn revenues to pay their initial capital costs. Shareholders rather than consumers should pay for that loss of wealth because shareholders of utilities have already been compensated for the risk created by changes in regulation.

"The focus on generation has precluded thoughtful consideration of the useful role played by vertical integration. Vertical integration, in which generation and transmission services are jointly owned, is an effective solution to the externalities that independent generators impose on a transmission system. Before we take apart vertically integrated utilities, we should consider simple deregulation, the elimination of state-granted franchise monopolies. We should let vertically integrated utilities compete without state-provided protection from competition."

Some Things Never Change

Further business tax credits are increasingly likely as the budget process continues. Finance leaders in both chambers of Congress are completing extension plans. The tax breaks will likely be attached to other pieces of legislation.

"For years, the U.S. government has been in the business of providing special benefits to individual industries and companies through tax breaks, trade policies, and spending programs. There are several problems with this approach. The federal government has a poor record of picking industrial winners and losers, so the economic benefits that these programs are purported to create inevitably fail to materialize. Furthermore, corporate welfare programs create an uneven playing field; foster an incestuous relationship between business and government; are anti-consumer, anti-capitalist, and unconstitutional; and create a huge drain on the federal budget," write Stephen Moore and Dean Stansel in the Cato Policy Analysis "Ending Corporate Welfare As We Know It".

They continue, "It is ironic that at a time when the federal government is in litigation with Microsoft, perhaps America's most innovative and profitable high-technology corporation in decades, for successfully dominating the software industry, Congress is spending hundreds of millions of dollars trying to prop up the firm's less efficient computer industry rivals. We now have a situation where federal regulatory policies are increasingly geared toward punishing success, while federal corporate welfare policies increasingly reward failure. That is not the way to preserve America's industrial might."