Cuba Under Embargo: the Macro Impact

By Joe Atikian

America's embargo against Cuba has obviously had a broad and serious impact on the island's economy, but nobody has said exactly why it is obvious.
We hear that food is rationed and that medicines are scarce, and yet Cuba's life expectancy is just as good as America's. Newspapers report that cars in Cuba are over 50 years old, and yet new hotels welcome thousands of wealthy foreigners each week. The supposedly obvious economic harm of the embargo has never been independently quantified, and nobody knows the overall effect.
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Useful data on Cuba remain scarce, but some fragments are available from government and international agencies. These are standard economic indicators, but they are subject to manipulation so they can only tell part of the story. Because consistent data across the decades do not exist, the usual approach of tracking GDP will not work. To unearth the real impact on Cuba a new method is introduced here. It reveals the embargo's macroeconomic impact by looking at 3 somewhat obscure elements of Cuba's economy before and during the embargo:

1) Industrial Structure
2) Trade under the Gravity Theory
3) The UN Human Development Index
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Cuba has never been as thoroughly compared with its international peers, and the results are surprising.

Did Cuba actually fare worse than non-embargoed countries as is commonly assumed? The data show that Cuba was able to grow under many different conditions including the interwar years, the Soviet period, the post-Soviet period, embargo or no embargo. There were setbacks due to the embargo, but there were also compensating factors. How do these add up?

There may be plenty of reasons to endorse or denounce the embargo, but until now there has been too little information about its macroeconomic impact. Find out what the data reveal under this new analysis.

• Language: English
• Publisher: Joe Atikian
• Release date: Aug 22, 2012
• ISBN: 9781476234106

Joe Atikian

Joe Atikian is the author of 3 books on economics and personal finance. Joe's latest book is published by Palgrave-Macmillan (May 2013) and is suitable both for the general reader and for economists. "Industrial Shift: The Structure of the New World Economy" shows that in the rapidly changing global economy, the popular impression of declining manufacturing and agriculture is largely unfounded. Several charts from the UN and World Bank databases support the analysis, showing that factory output is growing virtually everywhere, but remains hidden by even faster service sector growth. Several surprises are revealed in employment, wages, and regional progress. "Saving Money, The Missing Link", outlines the mindset of a saver as well as the three basic ideas behind your financial power. No tips or tricks here, but a solid foundation based on how to think about this tricky aspect of personal affairs. "Cuba Under Embargo" examines the macroeconomic impact of the US embargo on Cuba. Since the usual types of macro data do not exist in Cuba's case, Joe has compiled a series of alternative indicators to assess the damage. And since there has never been such a study, the results may be surprising. Joe has a background in engineering, an honors degree in economics, and an early retirement.

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Cuba Under Embargo

The Macro Impact

Joe Atikian

Cuba Under Embargo: The Macro Impact

Smashwords Edition

Copyright 2012 by Joe Atikian

Cover design by Joe Atikian.

All rights reserved. No part of this e-book may be reproduced in any form or by any means, mechanical or electronic or other, including photocopying, recording or by any information storage or retrieval system, without the prior written permission of the author except for brief quotations for use in reviews or articles.

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Please purchase new copies for additional e-readers or other similar devices.

This book is also available in paperback at most online retailers:

ISBN-13: 978-1477445914

ISBN-10: 1477445919

For more information visit the author’s website:

www.atikian.com

Other books by Joe Atikian

Saving Money: The Missing Link

Industrial Shift: The Structure of the New World Economy

Table of Contents

1 Introduction

2 The Data Problem

3 Cuba’s Unlikely Growth

4 Comparing Regional Growth

5 The Global Trade Surprise

6 Revealing Industrial Structure

7 Human Development in Cuba

8 The Macro Impact

Appendix 1: Embargo Timeline

Appendix 2: Web Link Resources

Appendix 3: Reading List

Glossary

Endnotes

Caribbean Islands

Source: Courtesy of K. Musser (public domain)

1 Introduction

Cuba officially blames America’s trade embargo for the difficulties it has in advancing its economy and the wellbeing of its people. Cuba has publically repeated its official position several times, and it has done so using the world’s most recognised forum, the United Nations.

In a 2006 report to the UN, Cuba’s First Deputy Foreign Minister Bruno Rodríguez-Parrilla proclaimed that,

The economic, trade and financial embargo, imposed by the government of the United States against Cuba, continues being the prime obstacle to the economic and social growth of the country. 1

The UN has received similar reports every year since 1992, and each one has gained the General Assembly’s overwhelming approval. 2

It may seem obvious that America’s embargo against Cuba has had far reaching and serious impact on the island’s economy, but nobody has explained exactly why it is obvious. No one has yet quantified the aggregate effect of the embargo on Cuba’s economy.

The US government intended its embargo to act upon the Cuban populace by instilling general discontent and destabilizing political sentiments. Starting with the cancellation of American contracts to purchase Cuba’s primary export commodity, sugar, the embargo soon extended to a prohibition on all bilateral trade and eventually to any Cuban related transaction involving American firms and other countries’ firms operating in America (food, medicine, and humanitarian aid were excluded from these provisions to varying degrees over time). This act was supposed to result in one of two ultimate outcomes: a fundamental change in the regime’s policies, or its complete overthrow. Although regime change never figured prominently in the early US record on the embargo, a continuing string of direct actions including the failed Bay of Pigs invasion provides evidence of the goal. The Cuban Democracy Act of 1992 finally codified the intended regime change into law, requiring free elections as one of several conditions for ending the embargo. 3

Being a trade measure, the embargo’s path to regime change should run straight through the economy, so the regime’s survival with its policy structure intact can have one of two implications. Either the economy will have been little affected, or the Cuban people will have sided with their leaders and tacitly agreed to persevere in economic hardship.

Many observers adopt the latter position. That is, they take it to be obvious that the embargo has gravely damaged Cuba’s economy, and that the government’s vaunted policy of providing free education and health care sufficiently satisfies its people’s sense of justice that their support of the leadership remains assured. This view may be encouraged by the abundant information describing the embargo’s economic impact on specific sectors of the Cuban economy, and on specific instances of suffering. There is little dispute that such impacts exist, but they do not amount to a macro level or aggregate view.

Cuba’s original revolutionary government has in fact maintained its ruling presence and communist structure under the US embargo for fifty years. Its policy behaviour has not changed, so it may seem reasonable to conclude that the Cuban people remain satisfied. After all, they have not risen against their leaders. But focusing solely on whether or not the regime’s behaviour has changed misses the crucial step of assessing the real extent of economic impact. Did the people grant their loyalty to the regime even in the face of extraordinary economic suffering? Or did the presumed economic devastation never materialise?

The Cuban government’s unwavering policy resolve over five decades could also suggest that the economy has not been critically upset. In other words, it is just as reasonable to conclude that the embargo has not had the significant macroeconomic effect intended by US sanctions. Observers may assume that the embargo has negatively affected Cuba’s macro economy because the sanctions’ scale and persistence make it seem reasonable to believe. Nevertheless, the fact remains that any such impact has never been directly or independently quantified.

An initial hint of the extent to which the embargo would polarise observers may be taken from the two countries’ diametrically opposed views on the first trade measure, the 1960 US sugar import ban. A government sanctioned website presents Cuba’s damning view of President Eisenhower’s action :

That [Eisenhower] Administration carried out a vast number of threatening actions, including economic coercion and attacks against Cuba’s principal economic targets. The suspension of the Cuban sugar quota in the American market stands out among these acts of aggression. 4

A US State Department assessment demonstrates its reservation toward the early trade sanction under consideration in 1959 (December 14):

Any economic sanctions which are feasible would not have a very serious impact, but would be an irritant and probably counterproductive. A partial reduction of the Cuban sugar quota would be annoying to the Castro government but would have only a slight injurious effect on the Cuban economy. Even the total exclusion of Cuban sugar from the U.S. market—not considered feasible—would reduce Cuban national income by only about 5 per cent. 5

Resolving these divergent views requires