The Journey to Economic & Political Freedom in Cuba

Therese Gratia

IWP 634: Geography and Srategy

October 20, 2015

An Introduction to Economic and Political Freedom

While the connotation of economic freedom is clearly positive, what exactly does

economic freedom mean? According to the Fraser Institute, the widely accepted, formal

definition is as follows:

Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.i

This definition is a good introduction to the subject, but is still too vague to grasp the meaning

fully without putting the term into context. Building up to their first publication in 1996, the

members of the Economic Freedom of the World project worked to identify the bases of

economic freedom, namely “personal choice, voluntary exchange, freedom to enter markets and

compete, and security of the person and privately owned property.”ii Furthermore, these criteria

are measured with consideration of the size of government relative to the economy, private

property and the rule of law, access to sound money, trade regulation and tariffs, and regulation

of business, labor, and capital markets. The data collected from this research amounts to the

annual Economic Freedom of the World index, which is then used to analyze the “impact of

economic freedom on investment, economic growth, income levels, and poverty rates.”iii

Expectedly, economic freedom invariably aligns with higher investment rates and income, rapid

economic growth, and rapidly declining poverty rates.iv On another note, how economic freedom

aligns with political freedom is a bit less understood.

First, let us briefly define political freedom. According to Capitalism.org, having

political freedom “means to live in a social system based on individual rights.”v In the influential

book Capitalism and Freedom, Milton and Rose D. Friedman, two applauded American

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economists, affirm that political freedom cannot exist without economic freedom, but economic

freedom can exist without political freedom.vi Hence, economic freedom fosters political

freedom, and therefore, must occur prior to political freedom. It is necessary to note that

economic freedom is not a “sufficient condition” for political freedom, as there are other aspects

that must be achieved.vii

It is particularly interesting to analyze the complex factors of political and economic

freedom for a country that has a low score on the Economic Freedom index, such as Cuba.

Henceforth, we will discuss the issues with Cuba’s economic and political freedom by analyzing

the country’s global position according to major institutions including The Fraser Institute, The

Heritage Foundation, Transparency International, the Central Intelligence Agency, the World

Bank, and Gapminder. Amidst the analyses of Cuba, we will shed light on the economic effects

of US foreign policy and suggest what the US and Cuba could do differently to reroute Cuba’s

course towards economic and political freedom.

An Analysis of Economic Freedom in Cuba

Cuba has been under communist rule since the 1960s. Communism is often a major

precursor to the decrease in political freedom. In opposition to a democracy’s bottom-up

economy, the central planning involved in a top-down Communist economy such as Cuba’s does

not consider the individual; it is devised by a small group of political elites who feel they know

best what society needs, which completely depletes an individual’s right to consume freely.

Without individual rights, citizens are extremely limited in their roles in the economy.

Cuba relies heavily on its labor force of approximately five million people, 72.3 percent

of which are in the state sector.viii Due to its many suffering industries including agriculture,

mining, and tourism, Cuba also relies heavily on external assistance, particularly oil subsidies

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from Venezuela and remittances from Cuban émigrés in the US. Because its prominent

industries are struggling, there are no safe bets for job security or livable wages. Without fair

wages incentivizing people to strive for success, Cuba’s socialized economy keeps citizens in

constant survival mode. In an effort to improve its poor economic realities, the Communist

Cuban government has “made measured concessions to encourage more entrepreneurship and

private-sector growth” and has “endorsed reforms to cut government payrolls and expand

approved professions.”ix

Specifically, the country has improved over the last year in trade freedom, fiscal freedom,

and freedom from corruption. In the “open market” realm of economic freedom, Cuba’s trade

freedom score increased by 3.8 since last year; its average tariff rate is still at a steep 8.1 percent

creating expensive obstacles for foreign businesses looking to export to Cuba. High tariffs force

businesses to increase the prices of their goods, making these goods unattainable for consumers.

Henceforth, the high tariffs on private goods prohibit Cubans from engaging in personal choice

and voluntary exchange—two major principles of economic freedom, and force them to rely on

public goods. Also in the “open market” realm, Cuba’s extremely low scores in investment

freedom and financial freedom remain stagnant. Finance and foreign banks continue to be vastly

controlled by the government.

In the “rule of law” realm, Cuba’s freedom from corruption score increased the most

since last year by 4.8. Freedom from corruption is also where Cuba has its best ranking in

comparison to the other countries at 63rd, but corruption remains a prominent issue. Also in the

“rule of law,” property rights stays at a low score of 10 due to the government owning nearly all

means of production. Only state enterprises are allowed to engage in foreign business

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agreements. In this realm, the economic freedom pillars of security of private property and

freedom to enter markets and compete are non-existent in Cuba.

In the “government size” realm, Cuba’s fiscal freedom score minutely increased by 1.8

since last year, while its zero score for government spending remains zero. As expected from a

Communist society, “public expenditures account for 60.2 percent of the domestic economy.”x

Lastly, “regulatory efficiency” includes business freedom, labor freedom, and monetary freedom.

Cuba’s business freedom and labor freedom scores are both at a stagnant 20, and monetary

freedom actually decreased by 1.0 since last year. In order to contain inflation, the government

controls prices and free-market activity areas, which in turn affects monetary growth. This tight

control is simply another representation of Cuba’s lack of economic freedom. These small

strides are noteworthy, but they are not expansive enough to substantially improve overall

economic freedom. Cuba’s overall economic freedom score increased by .9 to 29.6 since last

year, following suit with its minimal, but steady increases over the last five years. Cuba’s 29.6

falls well below the world average of 60.4 and very far below the free economy average score of

84.6. Hence, Cuba is ranked second-to-last at 177 with only North Korea in its shadow. xi As for

the country’s future in accordance with the world economy, Global Economic Prospects

forecasts slow and steady GDP growth at two percent annually, similar to its growth rates over

the last five years.xii

Enhancing Economic Freedom in Cuba

In light of the Cuban people having such little freedom to build a successful life or voice

their desire for reform, it is clear why the US has a problem with the human rights situation in

Cuba. While I understand and empathize with the US government’s stance, is a fifty-five year

long embargo in the best interest of US or Cuban foreign policy? As Professor Marek

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Chodakiewicz notes, “If the United States was unwilling either to back free Cubans or liberate

Cuba ourselves, the policy of American ostracism toward the Castros made sense.”xiii Perhaps

this is true. Perhaps “non-recognition was a symbolic policy of our objection to the trampling of

the island’s freedom.”xiv I appreciate and reckon with this argument, but I cannot help

considering the people. American exceptionalism is important for our reputation as a great

power, but connectivity may trump in this case. In our globalizing world, how can we expect the

future generations of Cuba to grow and overcome communism if we disconnect them more than

they are already forced to be disconnected? After all, the US is the most globalized and

progressive democracy in the world. It would be interesting to see an analysis of whether the

lives of the Cuba’s general population have enhanced or worsened since the embargo lift. Is it

possible that influence and economic engagement is more necessary and strategic in this case

than maintaining our exceptionalism? Only time will tell, but it is worth posing the question.

Regardless, in December 2014, Cuba and the US announced the restoration of diplomatic

relations.xv As of June 30, 2015, both countries announced the formal renewal of diplomatic ties,

meaning the reopening of embassies in each country. In the same address, President Barack

Obama urged congress to lift the embargo, a change that Raul Castro has been pushing for the

last few years. Lifting the embargo would undoubtedly boost Cuba’s economy and likely

advance US self interest. By allowing Cubans to trade with capitalist American business people,

the US would be exposing Cubans to a democratic way of life while enhancing their economic

freedom. With enhanced economic freedom, opportunity for enhancing political freedom will

soon follow. The US must continue to fight for normalization with Cuba if it wants to play a role

in bettering economic and political freedom for Cuba’s people; as stated in the Wall Street

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Journal, “true normalization between the two countries will come only when decades-old laws

banning most US business and travel on the island are lifted.”xvi

As for Cuba addressing its own issues, its government recently eased restrictions on local

businesses, but these changes “have proven to be cosmetic in what remains a socialist state.”xvii

The government also eased restrictions for Cubans traveling to foreign countries, but not enough

to make a difference for the majority of Cubans. It is imperative that the country exhausts all

opportunities to ignite rapid economic growth. The best way to facilitate rapid growth is to make

property and trade more accessible for Cubans. One aspect of accessibility is bringing the

majority of people well above the poverty line. People do not need charity, but opportunities to

make satisfactory incomes. In turn, Cuba must loosen property and trade restrictions so people

can put their earnings back into the economy and create a more natural economic flow.

Obviously, these drastic changes imply proper free market reform, which is difficult to imagine

beyond the “cosmetic changes” the government is making now.xviii However, I do not see a route

to economic freedom that does not involve a free market. Supposing Cuba does find its way to a

true market economy, the state will need to supplement “its reforms with measures that

strengthen institutions, protect consumers and the environment as well as financial regulatory

bodies that allow for open competitiveness.”xix Without this comprehensive foundation, Cuba’s

free market will be engulfed by monopolies.

Corruption: A Complex Hindrance

Tying in with the many obstacles Cuba must overcome in the economic sphere, there is

another subset of issues within the political sphere that affect both political and economic

freedom. One of the biggest political issues in Cuba is corruption. According to the 2014

Corruption Perceptions Index, which draws “data from expert and business surveys carried out

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by a variety of independent and reputable institutions” to measure corruption in the public sector,

Cuba has a score of 46/100 (zero being highly corrupt).xx While this score is pretty mediocre,

Cuba is not among the worst. In actuality, Cuba ranks 63/175 countries, number one being most

transparent.xxi Although the state has been running an anti-corruption campaign for the last five

years and cracking down on offenders, corruption is still a major hurdle that must be

overcome.xxii

In fact, some critics suggest that corruption is a bigger challenge than communism in

Cuba. With “a transition process heavily based on economic reforms,” corruption must be

eradicated.xxiii The most exposed proponent of corruption in Cuba is the black market. Cuban

citizens find themselves illicitly involved in the informal economy because of incentives that are

simply not present in the formal economy. Because the black market does not abide by the laws

and tariffs enforced in a socialist economy, people on both the supply and demand sides are

drawn to it, whether it is for a product that is unattainable in the public sector or because of lower

taxes.xxiv Moreover, many people turn to the black market for necessities such as food due to the

insufficient government-subsidized food rations; as stated in IB Times, “human rights groups

have pointed to frequent food shortages they say fuel a black market for food.”xxv Hence, the

black market is corruption that indirectly results from issues created by Cuba’s public sector.

As expected, there are many wealthy elites involved in the black market, plenty of which

are government officials. For instance, eighteen government officials recently were prosecuted

in Cuba for stealing over eight million eggs and selling them on the black market.xxvi In addition,

the Cuban government is cracking down on foreign businesses engaged in the black market. One

example is when Cuba arrested the president of a Canadian transport company, seized $100

million of his company’s assets, and sentenced him to prison for fifteen years for bribery. Oddly

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enough, Cuba released him just three years into his sentence without any explanation from the

Cuban or Canadian government. The probability that the Cuban government was bribed by the

Canadian government to release the executive is both ironic and alarming.xxvii

While reports of the Cuban government cracking down on corruption portray a reforming

economy, we must consider those instances of corruption that are not reported. It is quite

possible that Raul Castro could be corrupt and is off the radar for a variety of reasons. It is also

important to consider that Castro’s anti-corruption campaign is not solely motivated by his desire

for the common good. It is likely that Castro has become adamant about tackling the black

market not only to promote justice or the betterment of the Cuban people, but also to protect and

ensure his regime’s money, control, and ultimate power. It is impossible for anyone on the

outskirts of Castro’s regime to know where all of the money seized from the black market goes.

Also, it is likely that he is keeping a tight leash on the “free market” that Cuba is moving towards

not only to prevent economic failure or foster a smooth transition, but also to protect the long-

standing communist government from transforming into a democracy. Regardless of Castro’s

intentions, the doings of a national government should not be this mysterious.

The Greatest Obstacle to Freedom

Whether we are considering political freedom or economic freedom, it is understood that

neither can be achieved without human rights. One of the most prominent human rights issues in

Cuba is the human trafficking industry, which was not actually reported by the country prior to

2013. Despite the fact that Cuba is a source country for trafficking victims, the government

“does not fully comply with the minimum standards for the elimination of [human] trafficking

and is not making significant efforts to do so.”xxviii Furthermore, the state does not offer

assistance to trafficking victims.xxix Cuba desperately needs to put a stop to the modern slave

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trade happening within its borders. The government also needs to offer services to those who

have escaped trafficking so they may have a chance to escape slavery and not be dependent on

their illicit incomes. Ultimately, these victims of government negligence will not be truly free or

protected until Cuba depletes the black market by granting its people freedom to operate in a

market economy.

Perhaps the most widely known human rights violation imposed by Cuba is the “violent

repression of civil society and of dissidents,” which “has increased dramatically…under Raul

Castro.”xxx While the state has freed and exiled many political prisoners in recent years, it has

turned to other means as it moves forward with repression. Human Rights Watch discusses

Cuba’s new approach:

Arbitrary arrests and short-term detention have increased dramatically in recent years and routinely prevent human rights defenders, independent journalists, and others from gathering or moving about freely. Detention is often used preemptively to prevent people from participating in peaceful marches or meetings to discuss politics. Detainees are often beaten, threatened, and held incommunicado for hours or days.xxxi

Public shaming is used in addition to these tactics. Considering Cuba’s use of physical abuse,

threats, and unjust imprisonments on its citizens, political freedom is virtually non-existent.xxxii

In order to overcome this human rights hurdle, Cuba must grant its people freedom of

expression.xxxiii Cuba is fearful to do so because of what critics or dissidents may reveal to the

world, but perhaps an approach that works simultaneously with economic enhancement would

create more positive rhetoric. Cuba cannot continue to suppress its people for having opinions

that acknowledge the hardships of citizens or opinions that do not align with its stark

government.

Another human rights issue worth discussing is Cuba’s prison system. According to IB

Times, “Political prisoners are commonly denied parole after their minimum sentences are

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completed,…and Cuba’s prisons are overcrowded and unclean, with prisoners who are often

malnourished and suffer from illnesses.”xxxiv It seems that poor prison facilities should not be an

issue in a socialized state that controls the majority of the money. If the government insists on

controlling food rations, there is no excuse for malnourished prisoners, particularly if they are

unjustly imprisoned. Again, lack of justice and mistreatment of people are not the bases of

political freedom. If Cuba has any desire to improve the human rights conditions in its country,

the state must learn to value its citizens as humans and assets to the economy and government.

Concluding Remarks

As briefly mentioned earlier, many US politicians and academics are weary of Barack

Obama’s decision to befriend Cuba due to human rights violations. However, the fact of the

matter is that the US’s isolationist policy towards Cuba did nothing to improve human rights. In

fact, the destitution imposed by the embargo enabled Cuba “to garner sympathy abroad,” to

alienate potential allies for the US, and to blame the US for its human rights issues.xxxv Now that

the US is doing its part by apprehensively moving towards a policy of engagement, Cuba

simultaneously needs to own its human rights abuses and improve circumstances. Achieving

basic human rights for citizens is imperative before Cuba can consider the bigger picture of

granting its people economic and political freedom.

Furthermore, the moral battle behind congress’s decision of whether or not to lift the

embargo is warranted. It is understandable why some members of congress do not want the US

to associate with or to help enhance a corrupt country that oppresses its people. However, it

seems that they are not considering the important goal of enhancing political and economic

freedom for the Cuban people. Instead of shutting out Cuba because of its unjust, corrupt

government, congress members should be relishing in the potential opportunity to help an entire

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population gain the basic freedoms that our country prides itself on. They should also see it as

an opportunity to ally with other democracies in the region “to promote human rights, judicial

independence, free elections, independent unions, and free expression.”xxxvi The US must take a

new, multilateral approach in order “to move the Cuban government toward respecting

fundamental rights.”xxxvii Cuba’s economy will flourish most with the involvement of multiple,

like-minded actors, particularly those who value economic and political freedom for their people.

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i “Home Page,” Free the World, accessed October 10, 2015, http://www.freetheworld.com/.

ii James Gwartney, Robert Lawson, and Joshua Hall, Economic Freedom of the World: 2014 Annual Report (Vancouver, B.C.: The Fraser Institute, 2014), v, accessed October 10, 2015, http://www.freetheworld.com/2014/EFW2014-POST.pdf.

iii Gwartney, Lawson, and Hall.

iv Ibid.

v “What is freedom in a political context?,” Capitalism Magazine, accessed October 10, 2015, http://capitalism.org/freedom/what-is-freedom-in-a-political-context/.

vi Milton and Rose D. Friedman, Capitalism and Freedom: Fortieth Anniversary Edition (Chicago: University of Chicago Press, 2002), 10, accessed October 10, 2015, Google Books, https://books.google.com/books?id=iCRk066ybDAC&pg=PA7&source=gbs_toc_r&cad=2#v=onepage&q&f=false.

vii Friedman.

viii Terry Miller et al., 2015 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation; New York: Dow Jones & Company, Inc., 2015), 179, accessed October 10, 2015, http://www.heritage.org/index/pdf/2014/countries/cuba.pdf; Central Intelligence Agency, World Factbook, s.v. “Cuba,” accessed October 11, 2015, https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html.

ix Terry Miller et al., 2015 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation; New York: Dow Jones & Company, Inc., 2015), 179, accessed October 10, 2015, http://www.heritage.org/index/pdf/2014/countries/cuba.pdf.

x Ibid., 180.

xi Ibid., 179-180.

xii World Bank, s.v. “Cuba,” accessed October 11, 2015, http://data.worldbank.org/country/Cuba. Note that this was the only dataset and there was no further information due to “data limitations.”

xiii Marek Jan Chodakiewicz, “Cuba Libre,” American Thinker, December 23, 2014, accessed October 13, 2015, http://www.americanthinker.com/articles/2014/12/cuba_ libre.html.

xiv Ibid.

xv Encyclopædia Britannica Online, s.v. “Cuba,” accessed October 13, 2015, http://www.britannica.com/EBchecked/topic/145542/Cuba.

xvi Felicia Schwartz, “Obama Announces Renewed Diplomatic Ties with Cuba,” Wall Street Journal, July 1, 2015, accessed October 11, 2015, http://www.wsj.com/articles/u-s-cuban-embassies-to-reopen-july-20-havana-says-1435762387.

xvii Miller, 179.

xviii Ibid.

xix Romina Ruiz-Goiriena, “Cuba is a Kleptocracy, Not Communist,” Daily Beast, December 19, 2014, accessed October 12, 2015, http://www.thedailybeast.com/articles/2014/12/ 19/cuba-is-a-kleptocracy-not-communist.html.

xx Transparency International, 2014 Corruption Perceptions Index, s.v. “Cuba,” accessed October 12, 2015, http://www.transparency.org/country#CUB. Note that this was the only dataset and there was no further information, presumably due to data limitations.

xxi Ibid.

xxii “Cuban Officials Jailed over Egg Black Market Scam,” BBC News, March 20, 2015, accessed October 12, 2015, http://www.bbc.com/news/world-latin-america-31993579.

xxiii Ruiz-Goiriena.xxiv

Ibid.

xxv Philip Ross, “Cuba Human Rights: Violations Persist as Political Dissidents Face Beatings, Arbitrary Arrest: Report,” International Business Times, January 23, 2015, accessed October 12, 2015, http://www.ibtimes.com/cuba-human-rights-violations-persist-political-dissidents-face-beatings-arbitrary-1792700.

xxvi “Cuban Officials Jailed.”

xxvii Daniel Trotta, “Cuba Frees Canadian Businessman Tokmakjian after Three Years in Jail,” Reuters, February 21, 2015, accessed October 12, 2015, http://www.reuters.com/article/2015/ 02/22/us-cuba-corruption-canada-idUSKBN0LP0QA20150222.xxviii

Central Intelligence Agency, World Factbook, s.v. “Cuba,” accessed October 12, 2015, https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html.xxix

Ibid.xxx

Miller, 179.

xxxi Jose Miguel Vivanco, “Lifting the Embargo means Cuba can No Longer Play Victim,” Human Rights Watch, December 19, 2014, accessed October 12, 2015, https://www.hrw.org/ news/2014/12/19/lifting-embargo-means-cuba-can-no-longer-play-victim.

xxxii Ross.

xxxiii Vivanco.

xxxiv Ross.

xxxv Vivanco.xxxvi

Ibid.xxxvii

Ibid.