Stagflation threatens Puerto Rico’s economy

The Puerto Rico Herald ^ | August 25, 2005 | Georgianne Ocasio Teissonniere

[Willie Green]

A cornered economy

Stagnant growth, higher costs, rising inflation, double-digit unemployment, reduced incomes, the threat of salary cuts and layoffs in the commonwealth government, and loss of confidence are backing Puerto Rico´s economy into a tight corner.

Hold on to your wallets and pocketbooks because the cost of living and doing business in Puerto Rico is literally going through the roof and threatens to only get worse. The price of gasoline, water, electricity, food, medicine, tolls, and everything is on the rise. Everything that is, except for income.

In a 2005 study of cities prepared by Mercer Human Resource Consulting, San Juan was declared the most expensive city in all of Latin America and the Caribbean. This not only affects individuals, but it also impacts businesses, forcing many to pass on their costs to consumers who, in turn, are left with less disposable income, aggravating an already bad situation for Puerto Rico residents.

The problem of limited personal-income growth has been a part of the economic dilemma afflicting Puerto Rico since the 1970s. Furthermore, the island´s limited-income growth will only get worse, as the Commonwealth threatens to impose salary cuts by as much as 15% to 20% on a substantial number of government employees. Spending cuts also will affect numerous government agencies, consequently impacting the quality of services, already considered poor by many standards when it comes to productivity.

The private sector, in turn, faced with higher expenses due to increasing oil prices, utility rates, transportation expenses, and the cost of doing business, will be unable to absorb employees from the public sector who need additional income or are seeking alternative employment opportunities.

[Willie Green]

The Bush Administration's emphasis on CAFTA is undermining economic development of Americans in Puerto Rico.
In "the race to the bottom", these Americans will be the first to plunge into Third World poverty.

[coconutt2000]

I have a tendency to think that poor local politics and economic policies tend to be a big part of the problem.

Hawaii has a lot fewer of the natural resources that Puerto Rico has, yet it has managed to be prosper.

[SolidSupplySide]

This article displays a complete lack of knowledge of economics.

I will state two obvious facts.

1. Inflation is purely a monetary phenomenon.

2. Puerto Rico uses the US Dollar

If the dollar is being debased, it would affect every economy that uses the dollar -- not just Puerto Rico. Bad things may be happening to the Puerto Rican economy, but inflation is not the culprit.

The Bush Administration's emphasis on CAFTA is undermining economic development of Americans in Puerto Rico.

The concept of "comparative advantage" eludes you, doesn't it? Your lack of economic understanding is similar to the lack of understanding of "Fair Tax" proponents.

[BlackRain]

This is the economy when you kick out the US Navy.

The Puerto Rican Island of Vieques was a bombing range for 75 years until Hillary Clinton and company shut it down which resulted in the closing of Roosevelt Roads Naval Air Station. The US Navy added $300 million annually into the local economy.

This resulted in the loss of jobs and income for PR.

Who's to blame for this economic crisis?

Hillary Clinton,
Reverend Al Sharpton,
Mrs. Jesse Jackson,
Joan Baez,
Robert F. Kennedy, Jr.,
Edward Olmos,
Michael Moore and
Ramsey Clark

[hermgem]

Puerto Ricans couldn't wait and refrain from violent protests to throw the U.S. Navy out by withdrawing their firing range.
Lots of jobs did go and so did an inflow of monies into their economy.
Where is this Reverend Jackson now who so steadfastly organized and participated in those protests with the undertone that explosives testing on this island off Puerto Rico is equal to dissing native minorities.

[Willie Green]

Hawaii has a lot fewer of the natural resources that Puerto Rico has, yet it has managed to be prosper.

Actually, Hawaii has almost twice the land area of Puerto Rico.
But Puerto Rico is far more densely populated.

	Hawaii	Puerto Rico
Annexed as Territory	1900	1898
Land Area (mi2)	6435	3459
Population (2005)	1,463,000	3,916,632
Population Density	227	1132

[Willie Green]

The concept of "comparative advantage" eludes you, doesn't it?

Actually, I understand it quite well.
Transnational corporations have a "comparative advantage" over ordinary, middle-class, taxpaying Americans when it comes to the Bush Administration's economic policies.
Wall Street is sodomizing Main Street, and Dubya is the cheerleader.

[Okies love Dubya 2]

A lot of people mistakenly claim that was the average Puerto Rican who wanted us out of there. We pumped in money like you wouldn't believe to the local economy, from employing P.R. civilians on base to patronizing restaurants, stores, etc. When we (my husband and I) lived there at Roosey Roads, we had many family members come to visit, which meant we went out and saw the sights in San Juan, the local rain forest, etc. More $ for the local economy.

It wasn't the locals who wanted us out--it was the loony leftists and their own gov't who shortchanged the average Puerto Rican.

[Grampa Dave]

The anti American Thugs, communists and union thugs with American Left Wing Lunatic politicians demanded that our Navy leave Puerto Rico.

Well, they got their wish. Now their economy has gone in the tank.

The isolationists who hate a strong America played a big hand in this fiasco.

[coconutt2000]

That doesn't change the fact that Puerto Rico has more in the way of natural resources.

Potential for oil exploration, nickel, copper, to name a few.

Puerto Rico also has a more diverse industrial base, yet its commercial development is behind that of Hawaii.

My point is, is that Puerto Rico's primary stumbling block to economic parity with the 50 states is internal politics. I honestly believe that Puerto Rico can become prosperous and the equal of any of the 50 states, if they could formulate a cohesive plan for their future and stick to it.

[Hurricane]

"Puerto Rico's primary stumbling block to economic parity with the 50 states is internal politics"

You are right on. My wife and I lived there for a year(1993) while I worked at Roosy. The Island is beautiful and the people great. I had 200 locals working for me, many of whom commuted from Vieques. The attitude of the government was that of a third world country and seems to remain so today.
Vieques was a political disaster on our part. It should never have happened.

[Clemenza]

My point is, is that Puerto Rico's primary stumbling block to economic parity with the 50 states is internal politics

Corruption has long been a problem for the Commonwealth government. Heads up to Boricua Freepers to give us local perspective on this issue.

[AuH2ORepublican]

"Corruption has long been a problem for the Commonwealth government."

---

That is certainly the case, but it plays a very small part in explaining why Puerto Rico's per-capita GDP is half of Mississippi's (when the so-called Commonwealth status was adopted in 1952, per-capita GDP in Puerto Rico and Mississippi were pretty much the same).

The biggest problem is probably the fact that, after decades of patronage and economically liberal policies, the government is a behemoth that can no longer be trimmed by any politician, since about 35% of the labor force works for the government, and throw in their spouses, children over 18, and parents, and over 50% of voters are directly affected by cuts in government payroll. Having so many government employees has driven state tax rates so high that it provides disincentives to economic growth.

Probably the second biggest problem with the Puerto Rico economy is the "political risk" of investing in a territory whose political future is up in the air. When one invests millions of dollars in a manufacturing facility or other business, one wants to be assured that things won't change too much over the next 30 years or so. In the case of Puerto Rico, it might become a State of the Union (which would improve the economy, but perhaps subject the manufacturer to increased taxes), or maybe it will become an "associated republic" (and thus lose the protection afforded to businesses by being within the U.S.). German automakers would rather build plants in Alabama, where labor costs and tax rates are higher than in Puerto Rico, not just because of Alabama's better access to distribution channels (the federal law that mandates that shipping to and from the mainland from Alaska, Hawaii, Puerto Rico, etc. to take place in expensive U.S.-flag vessels doesn't help, either), but because, no matter what, Alabama will not become an independent country in the foreseeable future.

[Clemenza]

(the federal law that mandates that shipping to and from the mainland from Alaska, Hawaii, Puerto Rico, etc. to take place in expensive U.S.-flag vessels doesn't help, either)

This provision of the Jones Act should be repealed NOW!

[AuH2ORepublican]

"This provision of the Jones Act should be repealed NOW!"

---

Absolutely. I guess Alaska and Hawaii, with their combined 3 Representatives (out of 435), have not been able to exert enough influence in the House to get it repealed. If Puerto Rico were a state, it would have 6 Representatives, and perhaps would have better luck (although boatbuilding states would surely try to block such amendment to the Jones Act, as they have done every time it's come up).

[ThermoNuclearWarrior]

If Puerto Rico was to become a state which way would it vote in national elections?

[Willie Green]

If Puerto Rico was to become a state which way would it vote in national elections?

Like anywhere else, Puerto Rico is a mixed-bag of political opinion dependent on the issue.
With statehood being the major issue facing the island, there doesn't appear to be a direct correlation between Puerto Rican political parties and those on the mainland. Perhaps there is, but the quick search I conducted indicates fairly even partisan distinctions between those who are pro-statehood v. pro-commonwealth with a minority third party favoring independence.

My personal opinion is that Puerto Rico would likely lean to the left, but on many issues not as solidly left as partisan critics would imply. Nevertheless, Puerto Ricans ARE U.S. citizens, and I don't believe that the demographics of party affiliation should be a factor in extending the representative rights of full citizenship. As a matter of principle, I find the concept of "2nd class citizenry" to be repugnant.

Population Estimate ~ July 2004 (pdf)
Puerto Rico...............3,894,855
Oregon......................3,594,586
Oklahoma.................3,523,553
Connecticut...............3,503,604
Iowa..........................2,954,451
Mississippi................2,902,966
Arkansas..................2,752,629
Kansas.....................2,735,502
Utah.........................2,389,039
Nevada.....................2,334,771
New Mexico..............1,903,289
West Virginia............1,815,354
Nebraska..................1,747,214
Idaho........................1,393,262
Maine.......................1,317,253
New Hampshire.........1,299,500
Hawaii......................1,262,840
Rhode Island.............1,080,632
Montana......................926,865
Delaware.....................830,364
South Dakota...............770,883
Alaska.........................655,435
North Dakota................634,366
Vermont.......................621,394
District of Columbia.......553,523
Wyoming......................506,529

Puerto Rico has a population of U.S. citizens that is greater than many states that are already part of our Union. IMHO, these citizens deserve the benefits of full statehood if that is what they choose.

[ThermoNuclearWarrior]

"Nevertheless, Puerto Ricans ARE U.S. citizens, and I don't believe that the demographics of party affiliation should be a factor in extending the representative rights of full citizenship. As a matter of principle, I find the concept of 2nd class citizenry to be repugnant."

I don't see what's repugnant about their 2nd class citizenry. The Puerto Ricans and/or the representative they elect to the house SHOULD NOT be allowed to vote because that would be representation without taxation. They can't have the pros of U.S. statehood without accepting the cons as well. While they may not be able to vote in presidential elections they also don't have to pay federal taxes like Americans residing in one of the 50 states are forced to do. What do you see that's so repugnant about not paying federal taxes but receiving billions in federal aid? If they were forced to pay federal taxes then it would be repugnant if they were not allowed to vote in national elections. But they aren't forced to pay federal taxes so I don't see how anyone can honestly argue that Puerto Ricans are being wronged in anyway.

The Independence party in Puerto Rico doesn't have much support and can't compete with the two major parties. If the large majority of Puerto Ricans don't want Independence and think of themselves as second class citizens then why isn't there a large majority who want statehood? I have a feeling it's because they would rather not have a say in Presidential elections if doing so means they must pay federal taxes. Taxes in Puerto Rico are already high. Statehood would give them a chance to vote but they would only have around 3 electoral votes which wouldn't sway most elections and they would be paying high federal taxes. Why want Statehood when you can already get federal aid without paying taxes? If most Puerto Ricans thought of themselves as being treated wrongly there would be an overwhelming majority that either favored Independence or Statehood and there isn't. If a large majority of Puerto Ricans supported one of these options then it would have easily have happened long ago.

There are those out there that want Puerto Ricans to have the right to vote in Presidential elections while still not having to pay federal taxes. That position is just ridiculous. If you want all the same rights as other Americans you must also let the federal government steal a ridiculous amount of your income the same as it does other Americans. Puerto Ricans must also become much more affluent in English before granted statehood. Puerto Rico could easily make Spanish it's only official language and cause all kinds of problem for the rest of the U.S.. We should never allow statehood to any territory whose population doesn't have a large majority who can speak fluent English. Bringing in states that don't have a majority who can speak fluent English is just asking for trouble. Especially when that state has a very different culture than the other states of the Union. Many Puerto Ricans see themselves more as "Puerto Ricans" than "Americans".

I'm actually surprised at how small a percentage of Puerto Ricans there are who speak fluent English. Apparently the government hasn't seen a need to pursue this more aggressively. With the real chance of Puerto Rico becoming a state one of these days I think the government should start teaching English in schools K thru 12. If this is already happening (I honestly don't know what kind of English classes they have at the moment. If it's taught like Spanish is taught in most schools here they won't learn anything useful) they should make changes because it obviously isn't working well enough. But sadly Puerto Rico doesn't seem to have any desire or intentions to become more fluent in English and that should disqualify them from statehood for now.

The house is also limited to 435 members which would cause some states to lose reps. Puerto Rico would also be the poorest state. The federal government would probably pour even more federal money into Puerto Rico even though it already receives billions in federal aid. It would also be one of the states with the highest crime rate.

They also forced the shut down of the Vieques military base for very ignorant reasons. The base was no more of a danger to anyone or anything than the bases our fifty states have openly accepted. The accident that occurred there was no reason for the uproar that was created. There have been accidents on other bases located in the states and they were never met with protest like the ones that occurred in Vieques. I think that is a very significant incident to look at when considering statehood. The difference in reaction to bases in our current states and Puerto Rico should cause concern. Statehood for a territory that kicked out the U.S. Navy when almost all of the 50 states have embraced military bases in their community doesn't make sense. Why have statehood for a left leaning territory with a good number of anti-military welfare recipients who would weaken the Union?

Of course there are many Puerto Ricans who are nothing like these people and who are very proud Americans. Many have served in the Armed Forces themselves. But when talking about statehood there are many other factors that must be considered. While many didn't want the base at Vieques gone many of them didn't do a lot to save it either. The people who wanted the base closed were in the majority. I don't see protest closing bases here by a minority of the population and I don't see it happening there either. We should have granted Puerto Rico independence after the pull out. Too many who want Independence with the rights of statehood.

I believe Puerto Rico needs some major changes before granted statehood if that's what it someday decides. Why let a territory where the majority of people don't speak fluent English and who don't intend to learn it, become our 51st. state? I don't see this benefiting the Union. I can see a left leaning state government causing all kinds of trouble after statehood. I think the independence movement could become stronger down the road after statehood with some Puerto Ricans doing everything they could to highlight the cultural differences with the other states. It could very likely become our Quebec. Maybe we should seriously look at granting them their independence. What we have to some degree at the moment is representation without taxation.