Carpe Diem blog
According to the 2007 Heritage/Wall Street Journal Index of Economic Freedom, Cuba has a score of 29.7 (29.7% economically free) out of 100, and ranks 156 out of 157 countries, see the ranked list here. North Korea is #157 with only 3% freedom, and Libya ranks #155 with 34.5% freedom.
Hong Kong ranks #1 with 89.3% freedom, and the U.S. ranks #4 with 82% freedom.
From Cuba’s profile in the report: “Cuba is ranked 29th out of 29 countries in the Americas, and its overall score is so low that it is less than half of the regional average.
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This is the text from the Heritage Foundation - Index of Economic Freedom (100% indicates the most freedom)
Cuba’s economy is 29.7 percent free, according to our 2007 assessment, which makes it the world’s 156th freest economy. Its overall score is 2.5 percentage points lower than last year, partially reflecting new methodological detail. Cuba is ranked 29th out of 29 countries in the Americas, and its overall score is so low that it is less than half of the regional average.
As an avowedly Marxist state, Cuba scores relatively well in very few areas of economic freedom. Havana performs least egregiously in trade freedom and monetary freedom. Cuba has a moderate average tariff of 10 percent but very restrictive non-tariff barriers to trade. Inflation is moderate, but government efforts to control all kinds of prices are pervasive.
Business freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom are all weak. In theory, Communist nations dictate central economic policy, and Cuba aims to fulfill this in practice. All aspects of business operations are tightly controlled and government-dominated, and the private sector is very small. There are no courts independent of political interference, and private property (particularly land) is strictly regulated by the state.
Cuba is a one-party Communist state with a command economy that depends heavily on external assistance and a captive labor force. The Castro government, in power since 1959, restricts basic human rights, such as freedom of expression, and has detained hundreds of political prisoners in harsh conditions. Little reliable, independent information on the economy is available, and official figures on per capita GDP may not reflect actual income. Venezuela supplies Cuba with up to 80,000 barrels of oil per day, and its assistance has enabled Cuba to retreat on limited reforms undertaken in the mid-1990s.
Business Freedom - 10.0%
Cuba’s government controls and regulates the entire economy, and private entrepreneurship exists only on a very small scale. The inconsistent and non-transparent application of government regulations impedes the creation of new businesses. The overall freedom to start, operate, and close a business is seriously limited by the national regulatory environment.
Trade Freedom - 60.2%
Cuba’s weighted average tariff rate was 9.9 percent in 2004. Procedures for the allocation of hard currency and centralizing of imports have resulted in delays and bottlenecks, and customs corruption is common. Consequently, an additional 20 percent is deducted from Cuba’s trade freedom score to account for these non-tariff barriers.
Fiscal Freedom - 62.8%
Cuba has a high income tax rate and a moderate corporate tax rate. The top income tax rate is 50 percent, and the top corporate tax rate is 35 percent.
Freedom from Government - 10.0%
Total government expenditures in Cuba, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 59.7 percent of GDP. The state produces most economic output and employs most of the labor force. The industrial and services sectors are largely dominated by the state. Revenues from state-owned enterprises are used to finance social spending and new public investment programs.
Monetary Freedom - 65.8%
Inflation in Cuba is moderate, averaging 5 percent between 2003 and 2005. Relatively moderate prices explain most of the monetary freedom score. The government determines prices for most goods and services and subsidizes much of the economy (although the retail sector has some private and black market activity that is not government-controlled). Consequently, an additional 20 percent is deducted from Cuba’s monetary freedom score to adjust for measures that distort domestic prices.
Investment Freedom - 10.0%
The government maintains exchange controls. All investments must be approved by the government, and licensing is required for all businesses. Cuba has recently backtracked on limited liberalization of foreign investment. The government has revised the terms for business licenses to include “social objectives” and has erected other deterrents to investment, such as delaying payments from Cuban enterprises, imposing onerous regulations, and increasing operating costs. Some restrictions have been loosened to permit investment commitments and credit lines from China and Venezuela.
Financial Freedom - 10.0%
Cuba has increased freedom in the financial sector incrementally over the past decade, but the government remains firmly in control. The Cuban peso is used as the domestic currency, and a separate convertible peso is used as “hard” currency for foreign exchange and non-essential retail. A 2003 law requires that transactions between Cuban enterprises must be carried out in convertible pesos rather than U.S. dollars. Over a dozen foreign banks have opened representative offices but are not allowed to operate freely. The government established a central bank in 1997 and converted the Banco Nacional de Cuba into one of a new set of state banks. Central bank authority was enhanced in 2005 to more control the use of hard currency and convertible pesos more closely. Credit and insurance markets are heavily controlled by the central government.
Property Rights - 10.0%
Private ownership of land and productive capital by Cuban citizens is limited to farming and self-employment. The constitution explicitly subordinates the courts to the National Assembly of People’s Power (NAPP) and the Council of State, which is headed by President Fidel Castro. The NAPP and its lower-level counterparts choose all judges. The law and trial practices do not meet international standards for fair public trials.
Freedom from Corruption - 38.0%
Corruption is perceived as significant. Cuba ranks 59th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
Labor Freedom - 20.0%
The labor market operates under highly rigid employment regulations that hinder employment and productivity growth. The formal labor market is not fully developed, and the rigid labor market controlled by the government has contributed to creating a large informal economy that employs considerable labor.