The Cuba experience


The Cuba experience

Empirical evidence suggests that when strategic interests or core values are at stake, states have an uncanny ability to defy economic pressure.

The Obama administration’s decision to normalise relations with Cuba after six decades opens an understudied policy-relevant question: do economic sanctions work? Empirical evidence suggests that when strategic interests or core values are at stake, states have an uncanny ability to defy economic pressure.

While Cuba is the quintessential holdout that adapted and survived for decades without bending to the will of its giant neighbour, it is hardly the exception. North Korea has managed, despite UN approved sanctions, to maintain its reclusive identity and security.

The economic containment of Iraq after 1991 did little to alter Saddam Hussein’s calculus or degrade his domestic authority. What the sanctions did was impose significant humanitarian costs on the average Iraqi. Eventually, the Iraqi regime was bombed into oblivion, proving the inefficacy of sanctions.

International sanctions have been unable to undermine Iran’s ability to pursue its nuclear strategy. Tehran, for its own reasons, has elected to maintain a posture of restraint – that is pursue a path where it has full scientific knowledge of the nuclear enrichment process while restraining itself towards weaponisation.

It is highly improbable that a nuclear deal will succeed in rolling back Iran’s accumulated knowledge or nuclear infrastructure that Iran perceives necessary for its future security. India is another example where technology embargoes and diplomatic coercion was unable to diminish the resolve of the Indian state to pursue the nuclear option.

The US-Russia Cold War with the latter confronting currency instability and Western sanctions as a punitive “payback” for Russia’s assertion on its frontiers, again underscores a recurring pattern. States can defy economic costs when they assign a greater commitment to higher-order values such as identity or national interests.

Putin’s December 18 press conference showed that contrary to altering Moscow’s calculus, sanctions have steered Russia in a different geopolitical path towards Asia, and, provided an impetus to restructuring Russia’s political economy.

Thomas Schelling defined compellence as the ability to change the behaviour of an opponent via coercion. While Schelling was thinking in terms of military coercion – the threat of use of force – to change a state’s calculus, economic sanctions are intended to produce the same result. Akin to an escalation ladder, the targeted state is offered a choice between more aggressive sanctions or comply on a geopolitical issue or change its domestic policy.  

Economic warfare is predicated on altering the opportunity costs for different state actions. But this presumes that states value alternative choices equally, that is they view economic growth over state security or their regional identity.

Most nationalist regimes will value security over the economy, and, can bear significant costs to secure what they perceive are sovereign intrusions into their way of life. Neither do economic sanctions influence other unaffected states to revise their hierarchy of values and vital interests.

Finally, the inability of the US to enlist wide multilateral support for economic sanctions has blunted the ability to impose intolerable costs on the targeted state.

The reasons are clear. In 1990, the GDP of the G-7 economies was six-times the size of the seven largest developing economies. By 2013, the seven largest emerging economies exceeded the G-7’s GDP by $3 trillion. Plainly put, states have more options available.

In this context, Russia’s $400 billion gas deal with China is an example through which Moscow signalled alternative geo-economic options. If sanctions are largely ineffective, then two questions become relevant. Why does the US still persist with such statecraft? And, what are the consequences of economic warfare on other states’ calculus?

There is no conceptual clarity to the first puzzle. The US behaviour is guided by a complex ensemble of values and interests and these vary across time and space. The 1971 normalisation with China is a case of realpolitik trumping ideology. US’s blind eye to Pakistan is a case where an irresponsible state is legitimated and its behaviour condoned for decades because of its geopolitical utility.

In contrast, North Korea’s isolation is couched in messianic rhetoric as was Iraq’s until 2003. Ironically, the fact that both economic engagement and isolation are used as interchangeable strategies to reshape a state’s internal and external behaviour underscores the ad hocism and emotion underlying US policies.

Economic warfare

Perhaps, a more useful question would be to assess the impact of economic warfare on interdependence and the insurance strategies that states might pursue to counteract potential sanctions. Absolute economic security demands autonomy and self-reliance but does not produce a global division of labour where different states can expand the global economy and their own share of income and wealth in this collective process. Globalisation inevitably involves ceding some sovereignty in the pursuit of absolute and relative gains.

Economic warfare in an age of interdependence can have systemic consequences where states begin to insure against the process of interdependence. The Asian financial crisis and the Russian default in 1998 produced a conscious strategy among emerging economies to buttress their financial reserves to stave-off a repeat scenario. Today, Russia’s $420 billion foreign exchange reserves are an invaluable insurance buffer in its conflict with the West.

US is exploiting its reserve currency status and command over global finance to inflict asymmetric costs to pursue geopolitical goals. But this is reviving the idea of economic security among rising powers that are witnessing the use of economic coercion and the manipulation of the international financial system for national geopolitical advantage. The West is playing Russian roulette in the hope that its adversaries will bend or be swept away. History shows such gambles rarely pay off!

(The author is research scholar at King’s College, London)

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