What Happened to Puerto Rico?

When I grew up on the island of Puerto Rico in the 1960’s, little did I know that I was living through the brief "heyday" of Puerto Rico’s over 100 year history as part of the United States. 

Both The New York Times and The Economist have devoted some recent ink to the sorry tale of "la isla del encanto". The bottom line is resoundingly bad, and the most interesting thing about the recent press coverage is that Puerto Rico’s current plight is the result of decades of poorly conceived investment subsidies and welfare transfer payments.

As a child, I knew that being born in Puerto Rico made me an American citizen, but our family could not vote for the President of the United States.  We also did not pay federal income taxes.  U.S. companies such as the one that employed my father– the Harwood Corporation based in New York City– a then-publicly-held textile manufacturing concern, took advantage of tax breaks– the most advantageous and best known being Section 936, which was only finally phased out in 2005.

Another thing I knew about Puerto Rico in the 60’s and early 70’s was that a lot of people were on welfare and found it more attractive to hang out, receive monthly checks from Uncle Sam, and maybe earn a little money working off-the-books in the "grey" economy, while avoiding the "stress" of serious work–  and guess what?  Having the option to do nothing and get paid seems to be at the root of the crisis in unemployment and the underutilization of a well-educated workforce that cripples Puerto Rico today.

So how bad are things in Puerto Rico?

Acccording to The Economist

*Puerto Rico’s annual income per person in 2004 was around $12,000, less than half that of Mississippi, which is the poorest state in the U.S.

*Over 48% of the people on the island live below the federally defined poverty line– this is 4x the national average and 2x the misery in Kentucky, Louisiana, Mississippi, and West Virginia.

* Best estimates of unemployemnt on the island range from 45% to 55%.

* Federal transfer payments (welfare) to the island still make up over 20% of the island’s personal income.

*Despite Puerto Rico’s beautiful beaches (and great sailing and surfing and diving) jobs in tourism engage a lower share of the workforce in Puerto Rico than in any of the 50 states.

*Around 30% of the island’s jobs are in the public sector, so Puerto Rico can boast of a bloated bureaucracy.

The Economist concludes the following:

"… Most important, however, is that the United States government assumed too big a role in the Puerto Rican economiy, and its largess enabled the commonwealth’s government to do the same.  Through hubris, clumsiness, and sheer size, these governments knocked Puerto Rico off the promising path that it was following, and the island’s economy is now lost in a thicket of bad incentives.  Two federal intrusions stand out: an oversized welfare state, and misguided rules on business investment…. Manuel Reyes, of the Puerto Rico Manufacturers Association, also sees little hope that the government’s role will shrink. ‘There is no light at the end of the tunnel,’, he says, ‘because we are still in denial’."

My father was the President of the Puerto Rico Manufacturers Association before his death in 1974.  Because he was an optimist, I know he would not have accepted "being in denial" as an answer.  I also know he would be saddened to see where the road has led for this beautiful place that, ironically, remains left behind as a commonwealth that is part of the United States.

Que lastima!


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