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IN THE more than forty years of this century coöperation between Cuba and the United States on questions touching sugar has proved its value. This coöperation has developed in the manner characteristic of democracy; there has been a protracted discussion of the problems involved and a laborious adjustment of interests; and the final results have been acceptable to both sides. On February 28 of this year, the Defense Supplies Corporation on the one hand and the Cuban Institute for the Stabilization of Sugar on the other signed at Havana a contract for the purchase of the entire Cuban sugar crop of 1942. This action constitutes a real cause for satisfaction in days like these when common action is absolutely essential for the defense of our common liberties, our common culture, our common way of life. If we are to preserve the material and spiritual values of our civilization we must have unbroken and unbreakable solidarity among the nations of the Western Hemisphere. Cubans and Americans are glad that in these dark days they can point to their coöperation as a valuable contribution to that solidarity and as a constructive example for the future arrangements of the postwar era.
But, as already indicated, the collaboration of Cuba and the United States on questions pertaining to sugar is nothing new. In particular, it has manifested itself in three periods of great importance.
In the first period, that from 1900 to 1913, the commercial treaty of 1902 assured to Cuba a 20 percent tariff preference on sugar, the Dingley Tariff rate of 1.685 cents per pound being reduced to 1.348 cents. As a result, the Cuban sugar industry, in large part destroyed by the War of Independence, was rehabilitated; production rose from 850,000 Spanish long tons, with a value of $34,850,000 in 1902, to 2,428,000 tons, with an estimated value of $106,078,000 in 1913; the amount of American capital invested in Cuba increased from $80,000,000 to $220,000,000 in that same period; and the average annual value of American exports to Cuba increased from $28,401,000 in the period 1900-1903 to $65,184,000 in the period 1910-1914.
In the second period of coöperation, that from 1914 to 1919, the Underwood Tariff of 1914 granted to Cuba a new reduction in the duty on sugar, from 1.348 cents per pound to 1.0048 cents. The island increased its sugar production from 2,428,000 to 4,009,000 tons in quantity and from $106,078,000 to $454,478,000 in value; the total of American capital investments reached $1,500,000,000, of which $800,000,000 was in the sugar industry; and the value of American exports to Cuba jumped from an annual average of $65,184,000 in the years 1910-1914 to $177,-000,000 in the years 1915-1919.
This second period came to an end at the close of 1919. In the summer of that year, the directors of the United States Sugar Equalization Board had failed to arrive at any decision as to whether the measures of control established during the war should be continued or terminated in order to reëstablish a free market for sugar. In Cuba, too, the Government and the producers had to make decisions respecting national sugar policy. After informal discussions with the members of the Sugar Equalization Board, a committee representing the Cuban producers, foreseeing the uncontrolled speculation which would inevitably follow the reëstablishment of the free market -- for there still was a sugar shortage -- proposed to the Sugar Equalization Board to sell the United States the whole 1919-1920 crop "at a price which would compensate the producer and would be within reach of the consumer," that is to say, as the crops of 1917-1918 and 1918-1919 had been sold. On July 29, having received no reply, the committee of Cuban producers renewed its proposal. But President Wilson had already decided to abandon control measures. On December 11, the expiration date for the agreement, the United States Government announced officially that controls were no longer in effect. The free importation and sale of sugar was thus reëstablished.
The unlimited speculation which the Cuban producers had foreseen and tried to avoid was not long in appearing. In some quarters the responsibility for this speculation, and for the very high prices which consumers in consequence were compelled for a short time to pay, was attributed, through lack of knowledge of the true facts, to what was called "the Cuban producers' inordinate desire for profits." In the confusion and irritation of the moment, this charge turned American opinion against Cuba and weakened the policy of coöperation between the two countries. The replacement of the Wilson Administration by that of Harding on March 4, 1921, offered an opportunity for changes in economic policy, including the sugar policy. But the change actually effected as regards sugar was to make things worse for Cuba. On May 27, 1921, Congress approved an emergency sugar tariff which raised the duty on raw sugar to 2 cents per pound, with the result that Cuban raw sugar, which had previously paid 1.0048 cents per pound, now paid 1.6 cents. On September 22 the new sugar provisions of the Fordney-McCumber Act imposed a further increase, fixing the duty on raw sugar at 2.206 cents per pound, which meant 1.7648 cents per pound for that which came from Cuba. These tariff changes definitely put an end to the policy of Cuban-American coöperation which had been maintained for twenty consecutive years. Nine years later the Hawley-Smoot Act of June 17, 1930, again raised the duty on sugar. Under the general rate of 2.5 cents per pound, Cuban raw sugar had to pay 2 cents per pound on entering the United States.
The substitution of the high tariff policy on Cuban sugar for the policy of Cuban-American coöperation as regards sugar was effected with a definite purpose -- to secure a higher price for sugar produced domestically in the United States and a greater share of the home market for the domestic sugar industry. This new policy was applied rigorously for more than twelve years. Far from obtaining the desired goals, however, it had just the opposite results.
The Fordney-McCumber Act and the Hawley-Smoot Act did not succeed in preserving and expanding the home market of the domestic sugar producers, but merely transferred Cuba's share in the American market to the insular possessions of the United States. It created a very difficult situation for the domestic sugar industry. It ruined the Cuban market for American exports. And in Cuba it provoked a disastrous economic crisis which reached its climax in a revolution.
When Franklin D. Roosevelt assumed the Presidency of the United States in 1933, the sugar crisis required urgent remedies. In his message of February 8, 1934, therefore, the President submitted to Congress a plan which gave a new direction to the national policy in regard to sugar. With it began a third period of Cuban-American coöperation. It is with this period that the present article chiefly deals.
The plan put forward by President Roosevelt aimed to raise the income of American farmers; to contribute to the economic rehabilitation of Cuba; to grant adequate sugar quotas to the Philippines, Hawaii, Puerto Rico and the Virgin Islands; and at the same time to guard against higher prices for the American consumers. In order to put his plan into execution, he issued a proclamation on June 8, 1934, which reduced the general tariff on sugar from 2.5 to 1.875 cents per pound and thereby automatically lowered the duty on Cuban raw sugar from 2 cents to 1.5 cents; and thereafter Congress, acting on the executive recommendations, passed a series of laws, among which the Philippine Independence Act (March 24, 1934), the Jones-Costigan Act (May 9, 1934) and the Reciprocal Trade Agreements Act (June 12, 1934) were of the first importance. The Jones-Costigan Act established a system of sugar quotas for all areas which supplied the American market. Cuba was included in this system, and shortly thereafter a Cuban-American trade agreement, signed on August 24, 1934, granted a new reduction of the duty on Cuban raw sugar from 1.5 to .9 cents per pound.
It was not long before the favorable effects of the new policy of coöperation began to be felt. Shipments of Cuban sugar to the American market had reached a low of 1,601,000 short tons in 1933. The system of quotas checked the decline and brought about a noticeable increase; thus the annual average for the years 1933-1940 was 1,931,898 short tons. The price of sugar also improved. From an annual average of 1.113 cents per pound (f.o.b. Cuba) in the period 1930-1933, it rose to 2.266 cents in the years 1935-1939. The combined effect of the increase in exports and the increase in price raised the average annual income of the Cuban producers. Moreover, just as in the two previous periods of coöperation, the increase of incomes in Cuba inured proportionately to American agriculture and industry. Between 1930 and 1934 the value of American exports to Cuba averaged only $39,197,000 per year, reaching in 1933 a low of $22,674,000. In the first five years in which the new plan was in effect the average went up to $72,912,000. In 1941, with an even higher income from sugar, Cuba imported from the United States goods to the value of $117, 110,000.
Beneficial as the sugar policy of the Roosevelt Administration has undoubtedly been, it nevertheless has not brought about the complete rehabilitation of the island's sugar industry, nor has it permitted the Cuban producer to regain the position which he occupied in the United States market in the years before the Hawley-Smoot Tariff. The increase in American exports mentioned above is reckoned on the basis of the minimum figure to which they fell in 1933; the rise in the price of Cuban raw sugar is over the very low level to which it dropped in the year of the most disastrous crisis in the history of the sugar industry. There has been a limited improvement, then, and because of the serious economic situation in which Cuba found itself in 1933 this has been very important; but a comparison of statistics makes it plain that Cuba, at the time when World War II broke out, had not yet made a complete recovery.
The Roosevelt Administration's sincere desire to coöperate in bringing about the complete rehabilitation of Cuba, and its realization of the very great obstacles in the way of achieving this exclusively through concessions on sugar, have led the two countries to extend their coöperative efforts, especially with the aim of solving two of Cuba's other great economic and social problems, both of them closely related to the sugar economy. One problem is to provide wide and equitable distribution of the income from sugar so that it may bring the greatest benefit to the Cuban people; the other is to diversify agricultural and industrial production so that the country may not be wholly dependent on sugar.
The expansion of sugar production during World War I was too violent, and the lure of huge and quick profits too tempting, for anyone interested in the sugar business, whatever his nationality, to think of anything but building new sugar mills, promoting new plantations, acquiring land at any cost, clearing century-old forests to plant more and more cane, importing workers from Jamaica, Haiti and elsewhere so as to speed up the work as much as possible -- all without taking into account the consequences which this abnormal growth of an enormous industry on an unsound basis might entail for Cuba in the near future. The fever of speculation on a grand scale swept over the whole country; the chance of quick profits dominated all calculations. It was the heyday of Pharaoh's "fat kine" in the Biblical story. Amid all the luxury and glitter no one gave a thought to the future. The lack of foresight was shocking, the waste was stupendous; and the sudden arrival of the hungry "lean kine" took the country by surprise and brought it overnight to bankruptcy. Cuba paid a very high price, in years of misery and revolution, for her mistakes and for the mistakes of others. But although ruined and bleeding, she was able to survive.
When the Roosevelt Administration initiated the new period of coöperation the hard lessons of the crisis had not been forgotten either in Cuba or in the United States. The interest of the United States in the economic rehabilitation of Cuba paralleled Cuba's interest in a wide and equitable distribution of the income from sugar. In Washington, considerations of a sound policy of good neighborliness and a high sentiment of social justice joined to create this interest. But there were also motives of a practical nature. The wide distribution of the income from sugar among the Cuban masses was an effective means of raising their purchasing power, and, consequently, of reëstablishing the Cuban market for American exports. To the dictates of political wisdom and of justice were united advantages in trade.
In Cuba there had been much criticism of the sugar industry, and although occasionally it had been flavored by an understandable sentiment of hostility and ill will, its basic objectives had been sound. It had exposed and condemned the mistakes which had been made and had suggested more or less adequate ways to remedy them. This work of criticism spread an acute feeling of the importance of economic problems among all classes in Cuba; thus the crisis brought its own salutary lesson and, at the same time, gave the revolutionary ferment one of its most useful consequences. The internal situation and that of the foreign markets urgently called for a reorganization of the industry on a new basis. The producers themselves were the first to recognize the need of such a reorganization and were willing to collaborate actively and loyally to bring it about.
The fundamental unity of views on this question between the Department of State in Washington and the successive Cuban governments after 1934, and the sustained support of Colonel Batista -- now President of the Republic -- facilitated the work of reorganization which had already been begun in the last years of the government of General Machado. National domestic policy dictated this work, and it has been carried through by Cuban governments and Cuban producers. But since American capital controlled about 60 percent of the production, opposition from the Department of State might have created serious difficulties for any substantial reorganization plan. Far from offering opposition, however, Washington, without neglecting to defend any legitimate American interest, accepted all reasonable and equitable reforms without hesitation and encouraged their execution. The crisis, for its part, had driven from Cuba the adventitious American elements in the sugar industry. At the same time, it had linked up the solid elements more closely with Cuba's destiny and had united them with the Cuban producers in the comradeship of the common disaster and the hard work of bad times. These circumstances facilitated the adoption of extensive legislation -- in the form of decree-laws of the Executive and laws approved by the Congress with a minimum of friction and complaints. The resulting reorganization of the industry was so fundamental in its economic and social aspects that it constituted a veritable revolution.
Among the basic preliminary dispositions of the new structure of the industry were the restrictive measures and quotas put into effect during the Machado régime. These and subsequent measures, culminating in the Law of Sugar Coördination of September 2, 1937, converted the sugar industry of Cuba into a huge national enterprise for the growing of cane and for the manufacture and sale of sugar and molasses. The income from the sugar is distributed among the millowner, or hacendado, the grower of the cane, or colono, and the agricultural or industrial worker, skilled or unskilled, in the mills and in the fields, in the manner and in the proportion determined by the law. Of the income, 52 percent (determined according to the official average price of manufactured sugar) goes to the colono, who is responsible for all expenses connected with producing the cane; and 48 percent goes to the owner of the mill, who shoulders all the expenses of transporting the cane and of the manufacturing operations. The share which goes to the agricultural and industrial workers, who cut and bring in the cane and who do the specialized work in the mills, is taken out of the two percentages mentioned above and is determined (over and above the basic minimum wage for an eight-hour day fixed by law) according to a graduated scale of increases which parallels increases in the price of sugar. The official price is published fortnightly by the Ministry of Agriculture; and whenever there has been a rise in price the mills and the colonos are obliged to pay the corresponding increases in wages. Besides arranging the distribution of the income from sugar, the legislation insures the continued existence of all plantations, great and small, so as to avoid the concentration of the industry into a few hands; and it has checked the dangers of the latifundio, assuring the grower his quota of cane and granting him the right to remain permanently on the plantation, so long as he produces his annual quota and, if he does not work on his own land, pays the moderate rent fixed by law.
By this unique arrangement the official price of sugar automatically regulates the income of the colono, according to the quantity of cane he has delivered to the mill each fortnight during the season; and, as it rises and falls, it determines the workers' wages above the level of the basic minimum. One of the system's many advantages is that it maintains the vigilant personal interest of the workers and the colonos in the economic problems of the industry and in its position in foreign markets. The scope and significance of the American "ceiling price" of sugar, for example, and even the name of Leon Henderson, were known immediately by the workers and colonos from one end of Cuba to the other. They were awaiting, with no less interest than the most powerful sugar company, the results of last autumn's negotiations for the sale of the sugar crop to the United States; for the colonos' return on their bi-weekly deliveries to the mills and the workers' wages, both of them for the whole season of 1942, were being determined by the price agreed upon in Washington. This constant attention to the great economic problems of the sugar markets and sugar prices, and to the treaties and trade agreements connected with them, will gradually create a well-informed and intelligent public opinion, not only about the sugar question but also about the economy of the nation in general. Thus will be laid more and more solid bases for democracy in Cuba.
Cuba's great sugar industry has many parts -- active sugar mills, extensive fields of cane (colonias), reserves of land available for more extensive planting, private railways for transportation of cane from the fields to the mills and from the latter to the ports, ample storage space for sugar and molasses, and all the rest of the equipment necessary to handle the huge crops during the period of maximum production. At its disposal are specialized technical personnel for the work of cutting, transporting and grinding the cane, and for extracting, weighing, bagging, and storing the sugar; it has its own laboratory men, carpenters, iron workers and masons. This entire personnel, with that of the colonias, forms the great body of sugar workers, several hundred thousand in number. They are organized in associations of a technical character and in numerous syndicates, unions and other groups. Direction and administration of the mills and the colonias are in the hands of managers and growers of long experience. A high proportion of them -- in the colonias practically all -- conduct their own businesses, aided by expert and experienced subordinate men. Although each unit functions independently within the provisions of the law, the whole great productive machine, when it comes to certain general questions (distribution of quotas, permits for shipment, etc.), operates under the Cuban Institute for the Stabilization of Sugar, in which both producers and Government are represented.
Apart from the small quantity consumed on the island, almost the entire sugar production is exported -- mostly to the United States, a part to the United Kingdom. This makes all millowners, planters and workers conscious of the importance of Cuba's maintaining good relations with both those nations, and especially with the United States; and the resulting feeling in favor of coöperation has been and still is a factor of great weight in the general political and economic relations between Havana and Washington. To the practical motives have now, since the war began, been added others of an ideological character. They combine to intensify the disposition in favor of coöperation, the determination to maintain solidarity with the United States in the struggle against the Axis and against all totalitarian tendencies and activities. Cuba's sugar industry as a whole understands that it has a part to play in the war. It will make sacrifices and assume the burdens of hard work in order to contribute to the victory.
Now let us deal briefly with the question of diversification. The economic history of the island tells us that, practically from the first period of Spanish colonization, a continuous effort has been made to multiply sources of wealth, and that this was understood, for very practical reasons, to involve agricultural and industrial diversification. The producers felt this pressure in order to satisfy their own needs -- the most powerful stimulus to enterprise and work. In all periods, moreover, Cuba has had statesmen, economists, professors, planters and industrialists who appreciated the advantages of diversification as the basis of a well-balanced and stable national economy. Moreover, the disequilibrium of Cuba's economy, properly speaking, was due not so much to an excessive production of sugar as to the lack of other productive activities. In periods of high sugar prices it has been more profitable to the planter to produce cane than any other product, and he has followed the line of greatest gain. Conversely, in the years of low sugar prices there have been incentives to devote attention to other crops. The gradual decline in the price of sugar after 1925 pushed the Government of General Machado into developing an active policy of diversification, having as its double purpose to reduce imports of goods of primary necessity and to develop new products for export. The acute crisis of 1930-1933 justified that policy, and it gathered more and more strength. Successive Cuban Governments fostered it, and gave a strong impetus to the production of new articles both for consumption at home and for export.
Since the Roosevelt Administration has been favorable to the general idea of diversification, and since it apparently is convinced that Cuba's economic rehabilitation could not be carried out adequately on the basis of the limited sugar quota at recent prices, it has shown a lively interest in the Cuban policy of diversification and an intention to help towards making it a success. Thus American and Cuban views coincided in this matter as well as regarding the manner of distributing the income from sugar.
Although Cuba's progress in providing for the needs of home consumption has been very considerable, her production for export has run into a series of obstacles such as tariff barriers, seasonal limitations and quotas. In the trade agreement negotiated with the United States in 1934, and in the supplementary trade agreements of 1939 and 1942, Cuba obtained some concessions for its exports of fruits, fresh vegetables and other articles of national agriculture and industry. These concessions, however, were limited. Much more important were President Batista's recent approval of a plan for diversifying Cuban production and the granting by the Export-Import Bank of a credit of $25,000,000 to put it into operation.
History, under basically similar circumstances, tends to repeat itself. World War I, at a critical moment, imposed a policy of Cuban-American coöperation. World War II, two years after its outbreak, has begun to produce a similar result. The developments of the year 1941 and those which are taking place in 1942 may be cited as conclusive evidence.
In January 1941, Cuba possessed an enormous stock of sugar in storage. Cuban raw sugar (cost and freight, for immediate shipment) was being quoted in New York at two cents per pound. The refiners were not interested in making purchases at this price. As the date for starting a new crop drew near, the situation seemed very dark for the Cuban producers. Their estimates of exports to the American and world markets, taken with the figures of accumulated stocks from the 1940 crop, did not justify them in thinking that the 1941 crop could be any more than 2,000,000 long tons. Such a small crop would have aggravated the already unfavorable economic conditions in the country and greatly reduced the total of workers' wages for the year, just when rising living costs made higher wages imperative.
After carefully studying the statistics, the Cuban Institute for the Stabilization of Sugar fixed the crop for 1941 at a figure as low as that of the worst year of the crisis of 1930-1933. At the same time, it prepared a plan for grinding an additional 20 percent, this to form a special reserve to be sold in the world market if favorable opportunities occurred. This emergency project sought to overcome the detrimental effects which the short crop of 1941 had had on the country. But how to finance it? No less than $11,000,000 was required, and such a sum could not be obtained through ordinary banking channels. An appeal was made to the friendly coöperation of the United States, and the Export-Import Bank of Washington said it was willing to lend its support. Negotiations were opened, and on June 13, 1941, a contract was signed whereby the Export-Import Bank granted the Cuban Institute for the Stabilization of Sugar a credit of $11,027,000, payable in five years at 3.6 percent interest, to permit the grinding of the additional 20 percent of the sugar crop. With this security the 20 percent was ground.
Meantime, however, in the months between January and June 1941, the sugar situation had undergone a considerable change. A strong demand for sugar had arisen both in the United States and in the United Kingdom, and the difficulty and slowness of transportation from more distant sources of supply obliged them to depend upon shipments from Cuba. The growing demand impelled the United States Department of Agriculture to order a series of increases in the year's sugar quota. The original quota was increased on March 19, for all areas; on May 9, for domestic beet sugar production; on July 9, July 19, July 30 and August 24, again for all areas, making the total very high. However, these increases in the case of some areas remained nominal. When certain areas could not supply their quotas it became necessary to redistribute them among those which had sugar on hand and could make shipments. Cuba's original quota for the year was thus increased by more than 38 percent.
The new situation now required the active coöperation of Cuba. In June the Government of Cuba and the Institute for the Stabilization of Sugar offered to place at the disposal of the United States, at the current market price, the additional 20 percent of the crop which had been ground as a reserve for the world market. In addition, the Institute took rapid steps to stimulate and to facilitate shipments of sugar of the 1941 crop and quickly authorized the exportation of sugar from the stocks of previous years. By December 1941 the Cuban producers had supplied the whole quota which had been assigned to them, including the additional 20 per cent of the crop, and they were in a position to liquidate in its entirety the loan from the Export-Import Bank. Cuba also produced during the year a large quantity of invert molasses and blackstrap, which was exported to the United States for the production of industrial alcohol, used in the making of explosives and other war necessities.
In its desire to forestall a possible shortage of sugar and molasses, the United States Government in October 1941 informed the Cuban Government that it was interested in acquiring, as a war measure, the island's entire 1942 production of sugar and molasses; and it requested Cuba's coöperation in making the purchase and in seeing that the crop be as large as possible. The Cuban Government and the Institute for the Stabilization of Sugar were glad to coöperate, with the result that on November 12, American and Cuban commissions met in Washington to negotiate the sale and to fix the conditions. The Cuban delegates expressed their willingness to contract for the sale of the whole crop; to designate, in accordance with American needs, what part of the crop should go into sugar and what part into molasses; to produce the molasses at the beginning of the season, in the middle of it or at the end, whichever would best serve the interests of American defense; and to offer whatever other facilities were within the power of the Cuban producers. The question of the purchase price was then discussed, along with other particulars. It is notable that from the start the discussions were devoted not so much to the price itself as to determining equitable principles and fixing the reasonable norms to which the price should be adjusted. In other words, these were not mere commercial negotiations; they proceeded on the high grounds that close solidarity between Americans and Cubans was absolutely essential in dealing with all the problems created by the war.
Having carefully examined the many aspects of the sugar question, the negotiators took into consideration the plans which were being discussed between the two Governments for a supplementary trade agreement, which would grant a new tariff reduction on Cuban sugar, and the probable extension of an American credit of $25,000,000 to advance the policy of agricultural diversification in Cuba and the execution of various projects intended to strengthen the Cuban economy. In the prevailing atmosphere of mutual respect and good will, both sides were able to accept certain reasonable conclusions in principle. The price of Cuban raw sugar and of the sugar contained in molasses was to be 2.5 cents per pound, f.o.b. in Cuban ports. This price was to be raised to 2.65 cents upon the signing of the supplementary trade agreement, then under negotiation. The Cuban delegates returned to Havana, reported these results, and obtained their Government's approval. The contract was signed, as mentioned at the beginning of this article, at Havana on February 28, 1942, and went into effect immediately. Thanks to the high degree to which the Cuban sugar industry is organized, and to its adequate industrial equipment, without which a rapid increase of production would have been impossible, Cuba has manufactured in the present year, 1942, the maximum quantity of sugar and molasses requested. The figure, which is a war secret, is of course very much greater than that for 1941. To realize this achievement Cuba has not had to ask for priority on a single ton of steel indispensable to defense in the United States, except for essential repairs.
Though we may feel justifiable satisfaction with what has been accomplished, we must not fall into exaggerated optimism or slacken our vigilance. The war is constantly creating new problems which must be solved and new dangers which must be warded off. Cuban-American coöperation must become stronger and stronger not merely on sugar but on all questions. What would be the situation in Cuba, for example, if the instincts which were dominant in the sugar business during World War I were again to become masters of the field, repeating the lamentable errors of that boom period and threatening to destroy the laboriously established organization of the industry? Might there not be serious consequences if the great American nation, devoting its energies wholly to the vast military problems of the war, were unable to find time to pay attention to the above danger, and by this omission contributed to Cuba's again becoming a free field for wild speculative instincts? What would happen to Cuba if, after such a great expansion of production, there began to seem a danger that the present organization would break down as Cuban-American coöperation broke down, suddenly and disastrously, at the close of World War I?
These are not idle questions in times when obscure and powerful forces, both of creation and of destruction, have been loosed by the war. They are present in all countries. It is well that history, guided by wartime needs, has repeated itself in the speeding up of Cuban-American coöperation; it would be terrible if it repeated itself by giving birth to a new and frightful crisis in Cuba in the future.