Over the next three weeks, I will be travelling in Indonesia. As I prepare to head abroad, I am reminded that more than 3 million Americans live in conditions not unlike those found in economically-challenged, underdeveloped countries where the unemployment and poverty rates are high. Those Americans, not unlike some of their counterparts in developing countries, are at least partially politically-disenfranchised. I am, of course, talking about Puerto Rico. Some may find my thinking quite provocative.
Today, Puerto Rico has a population of 3.337 million people, down 10.4% from 2010 (U.S. Census Bureau). That is an astonishing rate of decline. Had the United States as a whole suffered such a loss of population, the nation’s population would have fallen by nearly 32.2 million persons in the 2010-17 period.
During the 2010-15 period for which data is available, as the Bureau of Labor Statistics does not compile Puerto Rico’s data as part of U.S. GDP reporting (U.S. Bureau of Economic Analysis), Puerto Rico’s current dollar or nominal GDP grew at less than one-third the rate for U.S. nominal GDP (St. Louis Fed and U.S. Bureau of Economic Analysis). In real terms, using the GDP deflator, Puerto Rico’s economy contracted during that timeframe (St. Louis Fed). Puerto Rico currently suffers from high unemployment and very high poverty. Census data indicated that Puerto Rico had a 43.5% poverty rate in 2017, meaning more than two out of every five persons lived in poverty. In June 2018, Puerto Rico’s unemployment rate stood at 9.3% (U.S. Bureau of Labor Statistics), just below the peak 10.0% U.S. rate following the Great Recession of 2007-09.
A convergence of declining population, contracting real economy, and high public debt culminated in a severe fiscal crisis. A June 3, 2016 Congressional Research Service (CRS) report explained:
The government of Puerto Rico faces severe fiscal challenges. A federal district court judge in late March 2016 held that the island’s government was insolvent and unable to pay its obligations on time…
The precarious state of Puerto Rico’s public finances stems in part from prolonged economic weakness. Economic growth was sluggish even before the 2007-2009 recession, and projections suggest that the economy is contracting. Past analyses noted low employment and labor participation rates, high rates of outmigration leading to a decline in population, an economic structure shaped more by tax advantages than comparative advantages, and intensified global competition, among other factors.
Puerto Rico’s misery was compounded by the landfall of Hurricane Maria on September 20, 2017. Maria made landfall on the southeast coast of Puerto Rico as a severe Category 4 hurricane with maximum sustained winds of 155 mph (National Hurricane Center). An estimated 4,500 people lost their lives (Harvard School of Public Health). The vicious hurricane destroyed much of Puerto Rico’s electrical infrastructure and is projected to lead to further significant population decline and economic challenges. Hunter University’s Center for Puerto Rican Studies published a research brief on October 2017 that observed:
Hurricane Maria’s impact on Puerto Rico and its population is unprecedented. Though it is difficult to find comparable situations, we estimate that between 114,000 and 213,000 Puerto Rico residents will leave the island annually in the aftermath of Hurricane Maria. From 2017 to 2019, we estimate that Puerto Rico may lose up to 470,335 residents or 14% of the population…
Researchers from the Climate Impact Lab estimated the impact of Hurricane Maria using an econometric model of the costs of cyclones over the past 60 years and applied it to the pre-storm economic conditions in Puerto Rico. They found that “Maria could lower Puerto Rican incomes by 21 percent over the next 15 years— a cumulative $180 billion in lost economic output.”
The Puerto Rico Oversight Management, and Economic Stability Act (PROMESA), which was signed into law on June 30, 2016 (Congressional Research Service) has proved vastly inadequate. A different, more comprehensive approach is needed.
First, Puerto Ricans need to be enfranchised with all of the rights and privileges enjoyed by American citizens. They must be freed from a Purgatory in which they are American citizens in name, but not in fact, unless they move to the Mainland. To achieve this outcome, Puerto Rico should be put on a fast-track to statehood. Statehood would allow its residents to vote for the President, send Representatives and Senators to Congress, and put Puerto Rico on equal legal and political footing with the 50 states.
Political resistance from some within the U.S. can be expected. Anti-statehood elements would argue that Puerto Rico’s admission as the 51st state would shift the balance of political power in the House and Senate. That is a weak argument that puts partisan considerations ahead of the full expression of what it means to be an American citizen. Empowering Puerto Rico’s residents to fully participate in American elections is both the right thing to do and it is consistent with the intent of the 14th Amendment. Partisan objections should be rejected. Any political movement that depends on limiting or even shrinking the electorate to achieve or retain power is really one that is unable sell itself effectively on the merits of its policies and positions. Such movements should not be propped up by artificial barriers to political participation.
Second, Puerto Rico needs to have the same kind of bankruptcy mechanism that is available to municipalities under Chapter 9 of the U.S. Code (Legal Information Institute). The struggling Island needs substantial debt relief. Such debt relief can only become possible under a legally robust framework such as the Chapter 9 bankruptcy mechanism. Without such debt relief, Puerto Rico will have enormous difficulty drawing private and public investment funds. Without such investment, it will find it difficult to create a self-reinforcing growing economy.
Third, the Merchant Marine Act of 1920 (Legal Information Institute), also known as the “Jones Act”, should be repealed, at least as it relates to Puerto Rico, and preferably in entirety. This outdated law requires that all ships that transport goods from one U.S. port to another must be U.S.-flagged vessels. This anti-competitive law unnecessarily raises the costs of shipping and impedes Puerto Rico’s ability to sell goods to the U.S. Mainland.
Fourth, Puerto Rico needs a rational economic policy framework that seeks to improve the market attractiveness of the Island’s economy. Favorable market conditions would increase private initiatives and investment flows, both of which are crucial to building highly competitive companies and nurturing the formation of economically-beneficial industry clusters (Harvard Business Review). Puerto Rico’s people need a reason to stay to build their lives and fortunes in Puerto Rico. Investors outside Puerto Rico need an economic reason to finance new or growing ventures in Puerto Rico. Companies outside Puerto Rico need a sound business reason to expand their operations to Puerto Rico. Over time, critical masses can coalesce in industries and industry clusters can develop.
Fifth, public investment will also be needed. Investment that creates long-term value is crucial to making the Island economically attractive. Such investment includes financing Puerto Rico’s fiscally-challenged colleges and universities. Financing these institutions will help reverse the adverse consequences of the “brain drain” that has resulted from the outward migration of Puerto Rico’s people since 2010. It would deepen the pool of Puerto Rico’s human capital on which employers in highly competitive companies depend.
Pubic investment should also be devoted to building critical infrastructure that is essential to a functioning economy. Federal reconstruction can play a large role, as such an undertaking was rendered necessary by the devastation inflicted by Hurricane Maria. Such reconstruction funding has followed such hurricanes as Katrina (2005), Sandy (2012), Harvey (2017), and Irma (2017).
Puerto Rico, which lies 980 miles from the U.S. Mainland, has been an American territory since 1898. But it has been treated as not truly being a part of the United States. In contrast, Hawaii, which has a population less than half of Puerto Rico’s and whose islands lie some 2,000 miles from the U.S. Mainland, achieved statehood in 1959. Puerto Rico deserves no less.