Despite struggles, Puerto Rico can be positioned for economic diversification

In spite of the countless headlines highlighting Puerto Rico’s economic and infrastructural struggles in recent months, it is important to also discuss the myriad opportunities for the territory to achieve consistent economic prosperity going forward. Inarguably, the majority of current news headlines focusing on Puerto Rico have focused on issues that include inability to pay back debt, challenges in the face of natural disaster, and difficulty rebuilding local infrastructure. These articles have primarily illuminated problems that many citizens, businesses, and government institutions of Puerto Rico have been facing, and discussed the relative severity of respective events. While news stories such as these have been important in providing much-needed awareness of current events in Puerto Rico, they have almost uniformly presented a bleak, solutionless storyline based around singular or multiple problems that citizens, business, and institutions of the territory are facing.

Undoubtedly, it is hard to ignore many of the contemporary critical economic and infrastructural problems affecting Puerto Rico, but it would be shortsighted to disregard the realistic economic opportunities possible within the territory going forward. First, to understand many of the economic struggles that Puerto Rico faced, even before the destruction caused by Hurricane Maria, we must go back to 2006 to understand the territory’s recent overall economic decline. Beginning in 1947, the United States government, along with the governor of Puerto Rico, implemented a series of policy measured called “Operation Bootstrap”. These measures were designed to transition Puerto Rico from a traditional agrarian economy to a more modern industrial economy. The measures were largely successful in achieving their goal, and in the ensuing decades Puerto Rico’s manufacturing sector continued to grow as jobs in agriculture declined.

However section 936, a provision in the United States tax code, allowed US-based corporations to avoid paying income taxes on profits gained in United States territories. This led to an influx of companies to Puerto Rico, and increased jobs. Despite growth in the manufacturing sector during this time, the massive tax breaks for the corporation also allowed the tax burden to primarily fall on the shoulders of Puerto Rican citizens. In 1996, President Clinton signed a bill into law that would begin a ten-year period of phasing out section 936 corporate tax breaks. By 2006, the section 936 provision had been completely eliminated. As a result, many corporations and manufacturing facilities based in Puerto Rico left, taking jobs with them.

Notably, we can observe how the strength of Puerto Rico’s economy is deeply intertwined with policy measures determined by the Congress and the presidency, but the territory has little leverage in negotiation and policy making in comparison to US states. Further, it is also strikingly apparent that the root of Puerto Rico’s drastic economic decline in the past two decades has been a result of an undiversified economy, largely caused by outdated policy measures developed by political leaders with limited knowledge of Puerto Rico and priority for the territory’s overall economic well-being. This puts the territory in a difficult position, with little ability to control its own destiny in fiscal policy making.

To alleviate the persistent economic decline facing Puerto Rico lessons must be learned from the past. Aside from the necessity steps being taken to provide Puerto Rico with greater political presence in the federal Legislative branch, there must also be a renewed focus on the prioritization of economic diversification going forward. The drastic decline of manufacturing jobs in Puerto Rico reveals the endemic troubles of basing the majority of a local or regional economy around a single business sector. Once Puerto Rico’s electrical grid and basic infrastructure has been sufficiently rebuilt, increased capital investment locally and from the United States mainland in areas such as education, healthcare, and technology must be the next step in the territory’s economic development plan.

For too long the decline of the manufacturing sector and loss of residents to the United States mainland has depleted Puerto Rico’s tax base and stalled the economy. The Legislative and Executive branches in the United States must be the first to step up by introducing policy measures to provide Puerto Rico the necessary provisions to first rebuild basic power services and infrastructural repairs. This must then be followed by a detailed plan developed mutually between Puerto Rico and the Legislative and Executive branches to move towards economic diversification in Puerto Rico. Ideally, this plan would involve clearly outlined goals for a set number of years going forward for funding, development, implementation, and marketing to take place across various sectors, including education, healthcare, and technology, agreed upon between Puerto Rico, Congress, and the President. While the near-certainty of partisan disagreements and political gridlock in Washington could make this plan difficult to expediently achieve, Puerto Rico can, and must, be positioned to achieve economic diversification and growth moving forward in the wake of natural disaster and decades of economic decline as a result of shortsighted fiscal policy measures.