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Economic freedom in Cuba in early 2016

The unilateral lifting of the US embargo will have a limited impact on society if the Castros maintain their monopolies and laws suppressing economic freedom.

La Habana

The Economic Freedom Index has just been published, put out each year by The Heritage Foundation in collaboration with the The Wall Street Journal. This index is used to compare the degrees of economic freedom in 178 countries or economies around the world, organized by the levels reached in each. In first place stands Hong Kong with the highest degree of economic freedom, followed by Singapore, New Zealand, Switzerland and Australia. Further down the list, Cuba ranks 177, just above North Korea, which comes in dead last, and below Venezuela, which appears in the antepenultimate position. The United States has been deteriorating in recent years, occupying 11th place, behind Canada, Chile, Ireland, Estonia and the United Kingdom.

The index is calculated using data covering until the middle of last year, and factors in ten forms of economic activity measuring degrees of freedom in aspects that are essential to any economy. These variables include the prevalence of property rights in a state that respects the rule of law, freedom to trade and to establish and operate businesses, and the freedom to take or create jobs and engage in financial activities. It is important to note that the index does not address the political freedoms of the societies studied.

Noting the ranking of countries, one quickly observes that those with the greatest economic freedom tend to be the most prosperous. This correlation is not perfect, but it is indicative of the supreme importance of economic freedom for the prosperity of nations. The index for each economy is published separately and is accompanied by an indication of improvement or deterioration from the previous year. Cuba, for example, appears with a marginal improvement of  +0.2, surely due to the few and precarious degrees of freedom granted in terms of self-employment and small businesses, while Venezuela registered a -0.7 drop, reflecting the worsening economic conditions in that country.

The fact that the index for Cuba does not show a significant improvement reflects how little economic conditions have changed on the island since the normalization of relations with the US was announced. Thus far this dashes hopes for liberalization that many Cubans and foreigners have harbored, and suggests that the Cuban government expects Washington to take the lead and make all the decisions with regards to normalization. However, the unilateral lifting of the US embargo on Cuba's state economy would have a limited impact on improving this index, a fact which can be verified by analyzing its components separately. For example, so long as the Cuban government maintains a monopoly on foreign trade, its agricultural product stockpiling system, and restrictions on citizens opening new businesses, the freedom indices assessing the facilitation of trade, the operation of businesses, and access to credit for production will remain sunk at their current levels, without being bolstered by an easing of the embargo.

The lifting of the US embargo, on the other hand, would have a major and very positive effect on the Cuban economy if the government lifted its restrictions on the domestic economy, as it is these which function as the true economic blockade beleaguering the country. Under such conditions Cuba's economic freedom index would make a big jump in a short period of time, along with its economy, as Cubans have demonstrated that are fully capable of exercising freedoms in pursuit of their interests. There is abundant evidence of this. For example, the speed with which people went to work for themselves, opening small businesses and operations the second the government allowed them to do so, even though it did not provide them with credit, supplies or the freedom to hire. Another example is the survival of clandestine economic activities (black market) which, in fact, have enabled the country to function for over half a century.

What prevents the Cuban Government from granting economic freedoms, whether under Raúl or Fidel, rather than the prevailing politics or ideology, is its imperious insistence on managing the country's affairs as if Cuba belonged to them. Under such extreme conditions, where not even the Communist Party is free to effectively participate in the country's politics, the level of economic freedom in Cuba remains very low and, therefore, so does its level of economic activity. On top of this, the fact that, despite their reformist models, Vietnam and China rank 131st and 144th, respectively, on the Indexshows how difficult it is to increase economic freedom when countries are ruled by monarchies or oligarchies.

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