Cuba Was Never Sweden!

In the wake of the Iranian Revolution of 1979, faced with the rising discontent of the people due to the lack of improvement in living standards, Ayatollah Khomeini would famously declare that "the purpose of all these sacrifices was not to have less expensive melons." To him and his followers, ideological purity was more important than the wellbeing of the people. It is ironic to see that following the death of Fidel Castro, leftists of various kinds have adopted the same arguments that a theocrat once used. The argument couldn't be further from the truth, though, for it was exactly the worsening of living conditions which fueled the support for the revolutions that would lead to Castro's, as well as Khomeini's, rise to power. As Figure 1 below shows, both Cuba and Iran went through a period of economic stagnation or decline prior to their respective revolutions. Most importantly, the rise of a dictatorial government following the revolutions, despite the seemingly opposing ideologies they upheld, led to outcomes that were comparable. Another dictatorial country nearby, Iraq, led by a seemingly nationalist ideology, did not perform much better either. (GDP per capita is often criticized as a catch-all indicator of wellbeing, and there are measurement problems especially for poorer countries. Yet it remains the best indicator to do cross-country comparisons. The data used in this article are from the Maddison project, which attempts to build historical series of the global economy).

The evolution of the Cuban economy is more saddening when one realizes that at the onset of the revolution this had been a relatively successful country within Latin America. The living standards of its population were among the highest in the region, and other socioeconomic indicators were also quite favorable. For example, the country already enjoyed a high level of literacy. But, as is often the case, success breeds success; and the Cubans wanted more of it when they overthrew the government of former dictator Fulgencio Batista. Unfortunately, in establishing an even more rigid dictatorship the country did not progress further. It fell behind other countries of the region for whom Cuba once served as a model, as Figure 2 shows.

The rest of the countries in the region, which had similar development levels to Cuba up to 1960, did not develop perfectly operating democracies but they have been able to maintain a much larger space for opposition to operate in. These countries at the same time have often undertaken policies that can be described as "left leaning." But by comparing the different growth paths that this group of countries took, it can be seen that it was the democratic institutions that they developed, and not the leftist ideology, which allowed them to keep on growing. Even better yet, the point at which the countries take a different path seems to be exactly around the date of the Cuban Revolution. Economists have undertaken a more formal statistical analysis of this type to find very much a similar result.

The real tragedy, however, is revealed only when a comparison with established democracies is made. For make no mistake about it, democracies can also undertake left leaning policies. Sweden is often considered a model for socialism because of its extensive social safety net, but one can clearly distinguish that its economic performance has nothing similar with Cuba. Even European countries that were similarly developed to Cuba in the 1950s (yes, that is not a typo, look at the data for the Mediterranean countries) have vastly outperformed the Cuban economy while being able to establish a social safety net.

So how can one explain these vastly different outcomes? How come countries that apply leftist politics are able to improve the living standards of their citizens while others utterly fail? The answer is clear. Political institutions and not economic ideology are the main determinant of economic growth. No matter their rhetoric and differences in social spending, countries with dictatorial politics will limit the amount of development that can occur in a country because they predetermine economic winners. Whether one lives in "theocratic" Iran, "socialist" Cuba, or "nationalist" Russia, the only thing that matters for success is the political decision of people in charge. It is only by developing democratic institutions that countries can limit this type of behavior by their rulers and allow people to pursue success and wellbeing.

Castro's life might be a source of pride for some romantics. Overthrowing a corrupt dictator is something that resonates with a lot of people. Standing up to a big power like the U.S might also make others happy. But this is merely a history of personal, not collective, success. Castro might have become famous personally, but the people of Cuba paid a heavy price for that without seeing any of the benefit.