President Obama’s recent decision to restore diplomatic relations with Cuba was welcomed by many free marketers, but met with skepticism by those who favor political freedom on the island. Both sides in this debate make strong points. I tend to side with the market optimists, but we could all learn from watching coming developments closely.
Actually eliminating our remaining trade barriers with Cuba will require action by Congress to complement the White House’s executive overtures. I hope Obama will ask Congress to take such action soon. What happens next is anyone’s guess, but again, I believe there’s reason to be optimistic.
Our long-frozen non-relationship with Cuba is a Cold War relic, intended to drive a wedge between the Castro regime and our Soviet antagonists, under threat of economic pain. Following the fall of the Iron Curtain, successive U.S. administrations hoped that same pressure would lead Havana to adopt political and economic reforms. But such hopes proved misplaced.
In fact, if the embargo has affected the Cuban people, it has disappointingly little impact on Cuba’s leaders. If anything, half a century of evidence shows that the embargo has provided Fidel, and now his brother Raul, with the perfect scapegoat on which to blame all of the regime’s economic and political problems – the United States.
Even absent the failure of the Cuban embargo itself, we know trade drives prosperity and that restrictions on trade – by both exporting and importing countries – hinder the liberalizing potential of markets that results from the cooperative interactions between buyers and sellers. Moreover, experience suggests that when sanctions are dropped – even for communist countries, as it was in 1994 for Vietnam – trade does increase. Central planners lack the knowledge to micromanage large and changing trade arrangements, and an even slightly freer economy makes that ignorance even more obvious.
True free trade is a two-way street, however, and there are reasons to be cynical about the prognosis for our relationship with Havana. The Castro brothers, like other authoritarian leaders, favor policies that encourage economic growth only as long they don’t create conditions that threaten their political power – which is, after all, exactly the scenario which many free market embargo opponents have long desired.
In fact, to maintain economic output without permitting economic freedom, some Cuban officials have recently advanced a “Putin” model to square the circle, allowing economic but not political liberalization. Yet, falling oil prices have exposed the fragility of Putin’s once seemingly powerful political edifice.
The burdens on the Cuban economy go far beyond the restrictions imposed by the U.S. embargo, including a Byzantine set of restrictions the Cuban government itself has erected on trade with other nations. Cuba remains a highly centralized economy with international trade controlled by a single government agency. Lifting the embargo won’t end that situation overnight.
Yet, the embargo has been merely a convenient excuse for the ruling Castro regime to remain impervious to change. Cuba’s government could have opened the nation’s economy long ago, given that almost no other nation joined the U.S. embargo. Yet, the mantra that U.S. policy alone is the cause of the nation’s lack of development is common in Cuba (and among much of the U.S. political class). Wall Street Journal columnist Mary Anastasia O’Grady recounts a conversation in the 1990s with a Cuban architect who blamed the U.S. embargo for blocking the purchase of tiles needed to repair an historic church. When she suggested simply buying them from Mexico, he quickly admitted the real problem – the nation was simply too poor to afford them.
If Cuba’s leaders can be successfully pressured into matching the U.S. in tearing down trade barriers, however, we will definitely see greater commercial interactions between the two nations. Initial economic exchanges will present the opportunity for both competition and cooperation – negotiating over price, quality, financing, and payment, but finally shaking hands on mutually agreeable deals. The advantages could be vast.
More importantly, though, such initial economic relationships will create a template on which other forms of cooperation can grow. Greater cooperation between Cubans and Americans will lead to knowledge of the gains to be had from further economic and political reform. Trade has been making friends of strangers for thousands of years. Tearing down barriers to exchange – on both sides of the Florida Straits – will certainly prove a more effective way of bringing Cuba into the modern world than building them up ever did. And the Castro brothers aren’t going to be around forever.