Recent news coverage about Puerto Rico has focused on its high public debt and imminent default while, in U.S. Congress, powerful lobbies seem to hold more sway over Puerto Rico’s future than do more than 8 million U.S. citizens.
The relationship and interplay between the 3.6 million Puerto Ricans on the island and a growing diaspora of 4.6 million on the U.S. mainland isessential to understanding the economic crisis. All are U.S. citizens yet, in the awkward federal statutory and juridical construct that has evolved over the last century, these citizens go from having limited rights while they reside in Puerto Rico, to full rights by virtue of getting on a plane to New York, Miami, or Orlando.
The large Puerto Rican diaspora is the result of multiple waves of migrants who over generations have left the island seeking economic opportunity. Employers on the U.S. mainland have been recruiting talent in Puerto Rico; pharmacists, nurses, and physicians have been hired away in large numbers while U.S. Congress holds Medicare and Medicaid reimbursements well below U.S. mainland levels.
As a territory, Puerto Rico has less leverage for federal grants and programs, so we see top researchers and academics routinely hired away by mainland universities. Graduates of our highly rated local engineering school go directly to work at NASA, Silicon Valley, or other technology clusters.
We must acknowledge our shared responsibility for Puerto Rico and decisively step away from the notion that helping Puerto Rico right itself is throwing money at an underachieving, or otherwise undeserving, party crasher.
In the 21st century, where value and wealth creation derive increasingly from human know-how, the harvesting of human capital by wealthier states can be a drag on economic growth for less advantaged ones. The U.S. mainland is a magnet for talent globally, but its restrictive immigration policies limit the impact on other countries, except for Puerto Rico where all are U.S. citizens by birth and can migrate without restrictions.
Over the years, the Puerto Rican economy has lost, and the U.S. has gained, hundreds of thousands of educated and productive people equating to hundreds of billions of dollars in human capital and intellectual property.
Puerto Rico’s service and consumption economy has been gobbled up by U.S. multinationals. Leveraging powerful global service and supply chains, they have dramatically reduced on-island production and value creation and decimated local employment.
According to economists, every big box store job “created” eliminates 2.5 jobs from the local economy. As a result of the efforts of these supply chain and consumer product marketing behemoths, Puerto Rico today imports 85 percent of the goods it consumes, and they are especially costly because they must be transported on U.S. flag vessels. These imports unsustainably generate annual financial outflows in the tens of billions of dollars.
With the elimination in 1996 of the Section 936 tax incentives, which had helped Puerto Rico become the world’s largest pharmaceutical manufacturing center and provided the capital to build the island’s infrastructure, a major component of economic activity was removed. Contrary to U.S. Congress’ intent, manufacturing operations simply moved outside of the U.S. providing little, if any, benefit to U.S. tax collections. This set off a chain reaction of adverse events that has led directly to the immediate crisis.
Local governments have struggled to keep up with these changes. They tended to view the economic downturn as cyclical, rather than structural, and, unable to print money, they tried to use debt-based capital projects to stimulate economic activity. They tried cutting taxes, believing that putting money back in the pockets of businesses and citizens would grow the economy — with 85 percent of imports, that didn’t work too well. Now, the government owes more than $70 billion with a shrinking population and tax base.
Aligning and guiding future efforts
The debt burden, human capital outflows, loss of local wealth, and government inefficiency are significant challenges. Local government must be reformed, political patronage ended, professional civil service restored, and departments and agencies restructured and repurposed. However, building a future for Puerto Rico requires vision and imagination beyond fiscal discipline. In an effort that crosses political and sectorial lines, local organizations have come together to develop a shared vision of a coherent economic growth strategy that must align and guide our future efforts.
Puerto Rico is already a major travel destination with 10 percent ($7 billion) of GNP currently derived from visitors. However, with 1.2 billion annual travelers worldwide, that means 99.6 percent of them are currently going elsewhere. By bringing in only 2 million additional visitors and increasing average stays by only two days, Puerto Rico can double its visitor economy within five years producing as many as 60,000 new jobs.
Unlike other “sun and beach” destinations, Puerto Rico offers a wide variety of experiences that appeal to many different preferences — everything but winter sports. We have year-round good climate, nature, art, music, dance, history, architecture, and a unique and charming bilingual culture and personality. We are exotic yet sophisticated and enjoy all the benefits and protections of being under the U.S. flag.
We have accessibility and capacity. Our airport receives as many as 150 flights a day from the U.S. mainland, the Caribbean, the Americas, and Europe and can accommodate another 9 million visitors without additional investment. We have great infrastructure, both physical and digital – a network of freeways and gigabit bandwidth. We can and will become a premier aspirational destination not only for leisure travelers but for retirees, scholars and education seekers, health travelers andbusiness visitors.
To attract innovators and investors, Puerto Rico has created tax incentives and programs that welcome top entrepreneurs from around the world, even seeding and incubating their startups. It is part of a burgeoning ecosystem that supports a new class of young, local entrepreneurs building innovation driven enterprises. They are developing new services,business processes, digital content, software, and technology — supporting everything from the visitor economy to a tech-enabled agricultural sector. By substituting imports, adding local value and expanding exports throughout the region and the world beyond, this 21st century export economy will ultimately generate billions of dollars in new revenue and tens of thousands of local jobs.
Coherent strategy needed
Puerto Rico has major economic opportunities and significant assets to leverage. What is needed is the broad adoption of a coherent strategy to move beyond the crisis and build a new future. The U.S. Congress, our social institutions and the private sector, with a full understanding of the origin and nature of the crisis, must all play an important role in supporting apolitical and logical solutions aligned with that strategy.
A critical first step in the recovery process is allowing Puerto Rico to do one of two things; 1) restructure its debts using authority granted by the federal Bankruptcy Code currently available to all 50 states, or 2) allowing its own restructuring legislation, now before the U.S. Supreme Court, to stand. Doing nothing, which is where we stand now after Congress recessed for the holidays, and leaving the matter unresolved, isfiscally irresponsible and morally unconscionable.
We need to remember that Puerto Ricans are America’s authors, composers and poets, museum curators and opera singers, academics and scientists, doctors and engineers. They are astronauts and ambassadors, Supreme Court justices and federal agency heads. They are admirals and generals, CIA, Special Ops and Marine Corps, soldiers and sailors who have died for America in every war, and in disproportionate numbers.
We must acknowledge our shared responsibility for Puerto Rico and decisively step away from the notion that helping Puerto Rico right itselfis throwing money at an underachieving, or otherwise undeserving, party crasher. In doing so, all of us will be rewarded by the renewed success of an island that has been part of our American nation for 117 years.