In the comments to Department of non-leading indicators, commenter Arrow asks:
How much Cuban poverty could be eliminated by getting rid of economic sanctions? Would their economy grow as fast as China's?
No. The American trade embargo costs Cuba something, but they pretty much sell as much stuff as they can make (including tourism) to Europe and Latin America. Their problem is supply-side, not demand-side; a command economy just isn't very productive, particularly on a small island nation with nothing much in the way of natural resources.
The difference between Cuba and China is that Cuba is a communist state.
Good point. China's problem had nothing to do with external sanctions - it didn't start to grow until the government began to allow markets, greater property rights, etc. The sanctions may have worsened Cuba's underlying problem but didn't create it.
Cuba is like playing Settlers of Catan, only you keep rolling sevens.
Public choice theory suggests that the more important effect of opening trade will be that it will put certain Cuban government functionaries in a position to gain from liberalization of the economy (which ever minister is in charge of trade relations with the US might suddenly find he has many new American buddies with expense accounts). In China, the individual benefit to certain party members from trade liberalization gave the free market wing of the Party enough power to influence the ideology of the whole Party which then lead to further country-wide liberalization. Even if there isn't a well developed market, political actors still respond to incentives.
"In China, the individual benefit to certain party members from trade liberalization gave the free market wing of the Party enough power to influence the ideology of the whole Party which then lead to further country-wide liberalization."
Interesting that you should mention this. What do you think is behind the recent shifts away from market reform in China? Is it that the other side is gaining power, or that the princelings (children of powerful Party members) have gotten as far as they're likely to get from competition, so now they're growing further by forced consolidation in the market?
I am certainly no China expert, but from my view in the international business/IP world, businesses in China are seeing themselves as incumbants of the system rather than insurgents against it.
I am certainly no China expert, but from my view in the international business/IP world, businesses in China are seeing themselves as incumbants of the system rather than insurgents against it.
There is this thing called "sugar." Let me give you a brief historical overview:
1. Cuba grows lots of sugar, sells it to the US.
2. Batista flees, the Cuban government buys United Fruit properties at the values UF had declared on its tax filings, the US outlaws the importation of Cuban sugar.
3 ????
4. Profit!!! (for Floridian sugar-growers)
If the embargo were lifted tomorrow, would Cuban sugar production magically leap to the level it would have attained had they been shipping sugar to the US rather than slinging it halfway 'round the world to the USSR and the UP? Would it magically win back all the technological gains which they have ceded to American-approved sugar producers? Would 40 years worth of sugar-wages and -profits materialize in the bank accounts of Cuban peasants? No, no, and no.
But the fact that they currently experience supply-side problems doesn't mean that they weren't thrown on to a certain economic path by a demand-side shock. Furthermore, Cuba has no chance of ever catering to any of the economic demand of its larger, richer neighbor until the embargo is lifted. (Counterfactual: If we had an embargo against China, would there exist unmet demand for cheap consumer goods in the US? No. Would it be fruitless to lift the embargo? No!)
Capitalistgnome, the loss of sugar production and profits would not be "the amount sold to the U.S. if there weren't sanctions", but "the additional marginal cost of selling Cuban sugar to Canada, Western Europe, and Japan, as opposed to the United States".
The reason it's those countries is that the USSR/Eastern Bloc paid Cuba more for its sugar than world price, as a subsidy to the Cuban economy. Without the embargo, the sales would accordingly have been to the USSR/Bloc first and the U.S. second, instead of the USSR first and Japan/Canada/Western Europe second.
Now, those marginal costs were driven up by the fact that some European states had trade barriers that preferred (former) colonies' sugar, so the embargo was a bit more expensive than it would have been in an otherwise free market in sugar, but it would still be a wildly high estimate to place those lost sugar profits as high as ten percent of historical Cuban sugar revenue. Cuba would probably be a little better off today, but not enough that Cuba would be anything but desperately poor.
The Japan-North Korea situation is rather more analogous to an embargo-removed U.S.-Cuba relationship than U.S.-China. And we can see that it is the failure of the country to decontrol, rather than the presence of an embargo, that is the deciding factor. Command economies do not respond to market opportunities because they are command economies, not market economies.
Which brings us to the public choice argument. That is in fact why Cuba wouldn't have liberalized in an embargo-less world. Inital liberalization would have created people who found the Castro-associated and -identified hardliners an obstacle to getting richer; they would agitate to replace them with more reform-minded persons. So Castro and the hardliners would then squelch them as a threat when they were in embryo. This is why there was, for example, a crackdown on the European tourist industry a few years back, despite the fact that Cuba's need for hard currency hadn't actually changed.
China, however, overthrew its orthodox command economy rulers first; Mao died, and the Gang of Four was defeated and purged by Deng Xiaoping's clique. Since Deng Xiaoping was associated with economic reform even in Mao's time, the newly prosperous under his reforms were natural supporters; if he fell, the replacement would be an old hardliner, not someone even more reformist. The newly wealthy thus supported Deng as their protector, and Deng supported them as his power base.
Now, it doesn't hurt anything to drop the embargo on Cuba now. But it won't provoke reform in Cuba, either. That depends on a reformist winning the internal battles and winding up on top in Cuba's government. Poisoning cigars might help that (or, of course, backfire spectacularly), but dropping the embargo won't.
Now, it doesn't hurt anything to drop the embargo on Cuba now. But it won't provoke reform in Cuba, either. That depends on a reformist winning the internal battles and winding up on top in Cuba's government.
Speaking from the Vietnamese experience, again, I'm with nelziq. The extreme proximity of massive potential profits helps enormously in shifting elite opinion within the Party. And in Cuba after Fidel, no one person in the Party will be wielding anything like the influence of the country's founding father.
On the other hand, every country is different, and one communist country is not necessarily like another.
Oildrilling
Didn't Cuba under Bautista have a quota for exporting sugar to the US at well above the world market price? I'm hazy but that's how I remember it, and that after Castro took over the quota was largely shifted to the Dominican Republic. Which would mean that the loss to Cuba was considerably greater than merely the additional marginal cost of selling to other countries, since the selling price would also be considerably lower.