By Jerry Haar
 
 MIAMI -- While heated debate over the morality and effectiveness of the U.S.
embargo on Cuba continues, scant attention has been paid to the practical,
business dimension of the issue -- namely, that even if the embargo on doing
business with Cuba were lifted tomorrow, the country would remain a highly
unattractive place in which to do business.
 
 Lifting restrictions would not result in Fidel Castro's swapping his copy of
Karl Marx's Das Kapital for Adam Smith's The Wealth of Nations, nor would it
inspire brother Raul, vice president and defense minister, to seek a leave
from government to spend a year as a visiting fellow at the Heritage
Foundation. A communist regime with all its totalitarian trappings -- not the
free market -- will continue to determine Cuba's business environment.
 
 Recognizably, firms such as Archer Daniels Midland, John Deere and Radisson
hotels eagerly await (and lobby for) the opening of the Cuban market. But
these companies and others should recognize the serious risks of doing
business there:
 
 Cuba's population of 11 million is less than that of the combined cities of
Guadalajara, Mexico, and Bogotá, Colombia, and less than Rio de
Janeiro, Brazil, alone.The cost of doing business in such a small market is
far greater than the cost of expanding market share in the three cities
mentioned. Moreover, Cuban consumers are poor. Gross domestic product per
capita is a paltry $1,500 per year, less than every Western Hemisphere nation
except Haiti.
 
 Cuba's much-touted Foreign Investment Law No. 77 is, like the Shakespearean
comedy, much ado about nothing. It fails to resolve problems such as the
restricted liquidity of investments, high risk for foreign exchange losses
and reversibility of investment agreements.
 
 The experience of foreign investors in Cuba is replete with horror stories.
In 1995, when the "liberalizing" law was passed, the Cuban government
unilaterally canceled Spanish utility company Endesa's investments in hotels.
Mexico's Grupo Domos found itself arbitrarily slapped with enormous back-tax
penalties, and Canada's First Key Project Technologies' proposal to build a
$350 million power plant was stolen by the Cuban government and shopped
around elsewhere.
 
 Cuba last year devalued its currency by 18 percent and fell behind in debt
payments of $500 million to private banks and firms in France, Spain, Japan,
Canada, Chile and Venezuela. (This does not include the repayment of
government trade credits to France for the last four years and the principal
on foreign debt of $35 billion.) With export prices down in nickel, sugar and
tobacco, along with a fall in tourism and remittances from abroad, Cuba will
remain an economic basket case.
 
 Doing business in countries that violate labor rights is not considered good
business practice.
 
 In Cuba, workers in foreign joint ventures are paid $400 to $500 a month,
except that the Cuban government contracts the workers and pays them 400 to
500 pesos, or $20 a month, instead. Exploitation of child labor is officially
tolerated, and it is commonplace to find children as young as 8 who are
working.
 
 Finally, liberalizing exports to Cuba will produce a revenue windfall for
customs brokerages, wholesale, distribution and retail stores -- all
government-operated. This will provide increased money for Mr. Castro's
intelligence and security services and neighborhood vigilante organizations,
further postponing democracy and economic freedom in Cuba.
 
 There are a score of countries in the Caribbean Basin that embrace free
markets, political democracy and institutional reforms, thereby offering far
greater opportunities than Cuba.
 
 For example, the Dominican Republic and El Salvador, both with gross
domestic products per capita nearly twice Cuba's, offer high-growth,
pro-business environments where manufacturing, tourism, telecommunications
and consumer demand are fueling economic development and employment.
 
 The prospect of doing business in Cuba is more attractive than the reality.
Even if communism were to fall tomorrow, Cuba would have to create the
functioning administrative, judicial, financial and regulatory institutions
essential for a market economy.
 
 In the meantime, U.S. companies in search of market expansion and greater
profitability would be wise to look elsewhere in the hemisphere, where
capitalism has been emerging over the last four decades rather than where it
has been completely absent.
 
 Jerry Haar is director of the Inter-American Business & Labor Program at the
University of Miami's Dante B. Fascell North-South Center and senior research
associate in the Center for Human Resources at the Wharton School of the
University of Pennsylvania.
 
 Copyright 2002 The Baltimore Sun Company