Economic Crisis in Puerto Rico

ARECENT TIME article on Puerto Rico carried the obligatory and classic photograph of a Latin American city. In the foreground stand shacks, slum alleys, and ragged brown children; in the background rise white concrete and glass office buildings. One can find such an image of inequality in Caracas, Lima, Mexico City, or San Juan. It appears to make a profound statement about contrasts in underdeveloped countries, until one recalls the famous photo poster of the Sixties showing dilapidated shacks, broken streets, and ragged black children. In that case, however, the city was Northeast Washington D.C., and the structure in the background was the dome of the Capitol.

The contrast of wealth and poverty so apparent in most Latin American countries is less stark in Puerto Rico. Between the shacks and the skyscrapers lies a buffer zone of crackerbox concrete housing developments with a Volkswagen in every garage. Twenty years of industrial development as a self-governing commonwealth under American rule have created a large middle class whose veneer of prosperity conceals the extensive poverty that afflicts large sectors of the island's population.

Most Puerto Ricans still live in pauperized rural communities or urban slums. Abandoned when the agricultural economy collapsed in the 50s and never involved in the industrial expansion of the 60s, they have remained on the margins of subsistence. Though Puerto Ricans have the highest per capita income of Latin America, 63.4 per cent of the population had incomes below the federal poverty level in 1970. The recent recession had a devastating impact on Puerto Rico: unemployment is officially 20%, but unofficially admitted to be 35%. Even when employment is available, the average industrial wage, $2.29, is half the comparable figure for U.S. workers. Despite this drastic crisis, those Puerto Ricans suffering the most have undertaken little organized protest, perhaps because welfare benefits and federal food stamps (three-quarters of the population is eligible) keep them alive.

THE AMERICAN recession and the consequent decline in capital investment has exposed the debility of the "Operation Bootstrap" economic expansion plan, the foundation of Puerto Rico's economy. Begun in 1947 by the first elected government, Bootstrap and it's successor "Fomento" offered tax exemptions, government assistance, and cheap labor to attract runaway industry from the United States. At its onset, the Bootstrap program was the vigorous economic ideology of Puerto Rico's first mass reform movement, the Popular Democratic Party (PDP). The founders of the party saw Bootstrap as the way to make Puerto Rico's status as a self-governing colony economically viable. But the idea has become dogma, just as the Popular Party has become a political machine. For some time this policy did bring American investment. Since then, however, wages have risen, and the mobile sewing and light assembly industries have closed down and moved on to Hong Kong, Haiti, Columbia--anywhere they can still get labor for under a dollar an hour. Ironically, even the guayabera, the traditional embroidered shirt that is worn as a symbol of cultural pride, is now imported from South Korea.

The present Popular Party government has responded to the current crisis by trying to patch up the Bootstrap program. Its first answer is an advertising campaign in the American financial press that touts the benefits of doing business in "Profit Island, U.S.A.": political stability, tax exemptions, and a very productive labor force. Beyond the advertising, the government's most important plan is a renegotiation of the relation of Puerto Rico to the United States that would preserve the colonial framework but allow some autonomy in setting wages, pollution controls, and tariffs. This "compact of permanent union", now before Congress, would permit the island government to "adjust" the climate for investment. Unfortunately, it seems that the possible "adjustments" would place a burden on the public: more pollution and lower wages.

The PDP's major response is an austerity campaign recently announced by Governor Hernandez Colon. Based on the findings of an economic commission, the 'Tobin Report', the proposed action would restore the government's credit ratings by a show of resolve: cutting spending and freezing wages. It would improve the private sector's competitive position by restraining or cutting industrial wages for at least three years.

THESE PROPOSALS follow from the assumption that the Puerto Rican government is responsible for creating jobs, either by attracting investment or expanding its own hiring. Because the business sector is mostly American and therefore unresponsive to local pressures demanding more employment, the government has been obliged to take aggressive action in search of new employers. Yet even in the boom years, industrialization did not provide enough employment. The government used jobs as patronage and as a substitute for promoting private employment, as long as its credit lasted; approximately 25% of the labor force works in the public sector. The failure of this system of stimulating the economy would have been manifest much earlier, but about a third of the population migrated to the United States over the past two decades--a unique "safety valve" that is unavailable to other Latin American countries.

The PDP is committed to industrial expansion, but in return for jobs it will ask the working class to lower its expectations for a few more years. This is not a new request. Sacrifice on the part of the working classes has been the fundamental source of Puerto Rico's spectacular growth in the past two decades. While salaries at the top of the scale are near those in the United States, wages at the bottom have been significantly lower. This inequality will continue as long as the Bootstrap philosophy of development determines economic policy. Puerto Rico cannot recreate the economic growth of the 50s. For better or for worse, it has overpriced itself for the most intense labor exploitation.

ONLY THE independence parties make economic inequality a major plank in their platform. Recently, the independence movement has identified itself with socialism, moving from an analysis of colonialism per se to a critique of its local economic consequences. The Puerto Rican Independence Party (PIP) envisions a socialist democracy, perhaps in the style of Sweden, while the Puerto Rican Socialist Party (PSP) calls itself a Marxist-Leninist party and proposes revolutionary socialism like Cuba's. They point out that economic growth cannot become self-sustaining because the profits of Puerto Rican industry are remitted to the United States, and association with the United States forces Puerto Rico to buy American products which are more expensive than those available from other markets. But the thrust of their argument is that only by freeing themselves from United States domination can Puerto Ricans create a socialist plan for development which would correct the unequal distribution of wealth that characterizes the island today. Both the PIP and the PSP now emphasize recruitment among the working class, and their representatives in the legislature propose reforms that would tax luxuries and benefit the poor.

But the independence parties have found it difficult to gain support among the working class with economic arguments. Most Puerto Ricans have little confidence in the ability of the island to survive alone. This year, for example, the island will receive about $2 billion in federal aid, and much of it, like the food stamp program, fills demands that seem essential. People perceive the difficulties of weaning Puerto Rico away from its dependence on the American market and American credit. Though the independence parties can explain the pernicious effects of colonialism, they cannot offer a secure alternative program for development.

IN THE PAST, Puerto Rican voters have consistently chosen some form of association, with the United States. In the gubernatorial elections this coming fall, Ruben Berrios of PIP and Juan Mari Bras of PSP will both run, but they will probably poll together less than 10 per cent of the vote. Governor Hernandez Colon of the Popular Democratic Party will run against Carlos Romero Barcelo, mayor of San Juan and head of the pro-statehood New Progressive Party (PNP). The PNP derives its support mainly from conservatives in the middle and upper classes, though it appeals to all those who want Puerto Rico to cultivate closer ties with the United States. While as a state Puerto Rico would lose the power to offer tax exemptions, and island residents would have to pay federal taxes, they claim that the increase in federal assistance would compensate for the losses. When the PNP was in power, from 1968 to 1972, it mismanaged the Bootstrap program, even though its economic stand is pro-business and extremely anti-labor.

Since the principal electoral challenge to the PDP is a conservative statehood party, the Populars will probably direct their strategy toward the interests of the upper and middle classes. They will run a campaign emphasizing the importance of administrative continuity and their dedication to the task of reviving Bootstrap. In any case, the PDP is at an advantage because it has a loyal rural power base that has supported it since 1948.

The economy will be the basic issue in these elections, but the points of controversy will be trivial reforms--the "compact of permanent union" and Hernandez Colon's austerity plan--not the real question of how to create employment and economic growth without increasing inequality. The victory of either major candidate will mean four more years wasted attempting to resuscitate a bankrupt approach to development.