Wednesday, May 23, 2007
Is Puerto Rico Self-sufficient?
As published in Business Puerto Rico
Could Puerto Rico be self-sufficient? What are the facts? Here are some figures to get a feel for the situation.
Puerto Rico is an island of 3,424 square miles on top of a dormant volcano that lies on a seismic fault-line between the Atlantic Ocean and the Caribbean Sea, and between North and South America, that suffers from periodic hurricanes, floods, droughts, and minor earthquakes.
It has 4 million inhabitants, half of which live in the metropolitan San Juan area.
The labor force consists of 1 million people (employed and unemployed). 1.7 million are not in the labor force (the chronically unemployed, or the “underground economy”). 1.3 million are either too young, on disability or too old to work. (www.census.org )
Of the 1 million in the workforce, 200,000 are unemployed and 296,000 work in government jobs (Caribbean Business Jan 11, 2007, pg.6, story by Jose L. Carmona), which leaves roughly 500,000 paying jobs in the private sector.
160,000 receive wages above 25,000 (which is 16% of PR labor force, as opposed to 66% of US labor force making over 25K).
Of these 160,000, about half (80,000) make a living wage commensurate with the cost of living on this island. (see below for cost of living index comparison)
84% of the labor force makes under 25,000 a year.
Therefore 96% of all Puerto Ricans (160,000 in the labor force making more than 25K divided by 4,000,000 total population = 4% of the population are making over 25,000) are either unemployed, underemployed or not in the labor force at any given time and live beneath the US poverty line. (http://www.census.gov/prod/2/gen/96statab/outlying.pdf .)
Socially this creates the necessity of having both parents in the workforce, to the detriment of the nuclear family. Economically local businesses must have clients with disposable income, or else they will fail. Ethically this creates the basis for the underground economy, used as a safety valve by many just to get by, and is the reason why 60% of the population is on welfare and a large proportion of working people do not report all of their income to Hacienda. It also underlines the necessity for federal transfers, which the island has received since the Spanish instituted the “situado” in the 1500’s, and the United States now carries on that tradition as the Puerto Rican government’s principal source of income (12 billion of the 20 billion in transfers goes to pay for government expenses).
Virtually everything consumed on the island is shipped in from abroad, from the United States, Mexico and Asia. So, costs of goods in Puerto Rico (81.4 Cost Of Living index) are comparable to costs in Miami (83.9 COL index) and Boston (76.8 COL index). The COL index lists New York City as having 100 COL, for comparison. (http://www.finfacts.com/costofliving.htm, scroll down to find the table.)
Employment opportunities are low, unemployment is high, and costs are the highest in the Caribbean, if not in all of Latin America (only Brazil is more expensive). Puerto Rico has experienced high inflation during the last year which, together with the new IVU tax and higher electricity costs, means San Juan is more expensive to live in that many cities on the mainland. For an island whose economic base has shifted from manufacturing to tourism, the high cost of living works against it, as savvy travelers choose less expensive destinations. (the Dominican peso is currently at 32 pesos per dollar, for example)
Could Puerto Rico feed itself?
Of the land mass of 3,424 square miles, or 2.1 million cuerdas, 690,000 cuerdas are under cultivation, with a historic high of just over 1 million cuerdas under cultivation. The rest are developed, paved over, or in mountainous, mangrove or semi-arid desert areas not suited for agriculture. Approximately 5% of all the land area of the island (100,000 cuerdas) is set aside for preservation in federal and state parks (PR Senate numbers). For comparison, Costa Rica has 33% of its landmass set aside for conservation, and the U.S. has 27%). (http://www.nass.usda.gov/Census_of_Agriculture/index.asp)
Historically, 5 acres fed a family of ten (grandparents, parents, kids), so let’s say for argument’s sake that ½ an acre per person minimum is needed for subsistence agriculture. If that is the case, 4 million people would need 2 million acres of arable land. But there are less than 1 million acres available, so the island could barely feed 2 million people without any production left over for export and no leeway in the face of a hurricane or drought. The island will have to depend on outside sources of food. And due to the Jones Act, which limits all carriers to US flagged vessels, all goods shipped in are more expensive than if we were in an open market.
Puerto Rico generates thousands of tons of garbage a day, and is running out of landfills. Importing foodstuffs, consumer goods and appliances adds exponentially to the waste disposal problems, with all the additional packaging needed for transport. the Landfills themselves have become a breeding ground for foul smells and toxic breezes.
As for energy production, Puerto Rico uses thermal power plants, run on refined petroleum, to generate most of the islands electricity. Less than 1% of electricity is generated from hydroelectric technology, which flies in the face of common sense, since there are over 1300 rivers and streams on the island.
Oil is the dominant fuel in Puerto Rico. The amount of gasoline consumed is equivalent to 2,550,000 metric tons of coal. Energy consumption is measured at 2,493 kwh per capita. Every rise in oil prices affects the population of the island, as public transportation until recently was non-existent, with the exception of an irregular bus system, and now the Tren Urbano (mass transit system) only covers parts of the metropolitan area, as yet not significantly affecting the 500,000 cars that commute into San Juan every day from outlying towns.
An immediate transformation of the island’s economy has some similarities to the aftermath of Hurricane Katrina in the Gulf Coast. Those people that could get away from the oncoming hurricane did so. Those that stayed went through a horrific seven days of anarchy and violence, and they will live with the consequences of Katrina’s devastation for years to come, as the area slowly rebuilds. And two years after the fact, half of the 250,000 people from New Orleans that were shipped to out-of-state recovery centers have not returned. They simply relocated.
Puerto Rico would be facing just such a hard transition and just as prolonged a recovery were it ever to sever its ties with the United States abruptly. Many professionals will inevitably move to the United States until the brunt of the hardship passes, much as the majority of the population of the Gulf states after Katrina will not return until the economic, educational, health, infrastructure and other factors are back in place, simply because life is just too hard under those circumstances.
When asked this question, Sen. Jose Izquierdo (PDP, Ret.) answered: “What if we woke up tomorrow and we were independent? With no funds from the Federal Government? It’s going to be chaos. There will be a mass exodus of people emigrating to the states. Society could simply desintegrate. It’s hard enough as it is now, and we still cannot balance the budget.”
Oreste Ramos (PNP, Ret.) answered by saying that “the economy would collapse. Real estate prices would collapse. Those that could, would leave; there would be a massive migration of professionals and well-educated people to the United States. Puerto Ricans would suffer without the income from welfare (60% of the population would lose their income without hope of getting employment), no medicare/medicaid (those people of retirement age without insurance would have no health coverage), no foodstamps (50% of the families on the island would not be able to feed their children), no Section 8 Housing subsidies (over 60,000 would immediately become homeless).”
“There would be no law enforcement, because there would be no money to pay for it. Druglords would overtake the economy. Schools would lose their funding.Banks would see their mortgage portfolios become worthless. There would be a panic. Realize that of the 20 billion in Federal Transfers, 12 billion goes to fund our government, who is also the biggest employer on the island. One third of the work force would be unemployed” Ramos said.
Neftali Garcia (PIP, ex-gubernatorial candidate) thought that “there are certain responsibilities that the United Status cannot ignore, and for which they must be held accountable. Under Spanish rule, our economy was propped up by “mesadas” from Mexico. After the Spanish-American War, the Americans introduced better infrastructure, better health, and better education to the island, but did so in order to serve the US corporations that came to the island to do business and furnish them with easy transport and a healthy and educated labor force.”
Then after the Commonwealth was created, the plan was to attract businesses to the island by giving them federal and local tax breaks. “But you must realize that any society that imports capital must by definition export profits, which means that money does not stay in the local economy.” Garcia also explained that part of the transfers were in fact money owed. “Our economic dependency on the United States is very real; but a large portion of the transfers are payments into military pay and retirement and social security - that is, for services rendered, and already paid for. And that does not take into account the 32 billion dollars net outflow of funds to American companies that repatriate their profits” said Garcia.
“The net result? Puerto Rico’s government is severely in debt, and the island has a poor, underemployed and unemployed population with low salaries and a high cost of living. 4% of the population makes a living wage; the middle class is heavily in debt, and a sizeable underground economy is used as an escape valve. Real unemployment runs in the 20 to 25 percent range right now. With its policy of “Exención Contributiva” (tax exemptions) and foreign investment repatriating their profits, the government has little income and paradoxically is also the largest employer on the island” added Garcia.
One might add that as a business plan, inviting foreign investment in exchange for a handful of low wage salaries as a way to self-sufficiency is a plan doomed to failure from the beginning. Under these circumstances, the island cannot hope to keep its educated and skilled workforce. “When a society exports its brightest citizens, there comes a point when it simply is no longer viable” said Garcia.
And lastly, Garcia predicted that “environmentally this will not bode well for Puerto Rico. If the government has no money to cover health and education needs, and the economy does not have adequate salaries (which range from 20% to 35% less than the salaries of the poorest State of the Union, Mississippi), how can it have any money to preserve and protect our natural resources? If a family has no way to feed its children, how can they be expected to save the environment?”
Many mainland Americans were perplexed or vaguely insulted when, during the last plebiscite regarding the political status of Puerto Rico vis á vis the United States, a majority of Puerto Ricans voted for the “none of the above” option instead of Statehood, Independence or two kinds of Commonwealth status. One reason for that vote may be that there were too many confusing alternatives on the ballot, each carrying unclear economic outcomes. Another reason they could be confused is that many Americans don’t really know much about Puerto Rico, other than it’s a tropical island in the Caribbean. Many do not realize that Puerto Rico is a US territory and that Puerto Ricans are American citizens living in substandard conditions without representation in Congress or the right to vote for the President. But another very real possibility is that Puerto Rico is a third world country historically showcased as a triumph of American largesse, and the population finally rejected this hypocrisy.
It could be said that Puerto Rico was the United States’ first experiment in exporting the American ideals of capitalism and democracy to an interested group of people (unlike other places today – Iraq, Afghanistan - that are not at all willing to accept the change). Unfortunately, democracy and capitalism was imposed from above (the Treaty of Paris), without island representation, and at less than optimal economic conditions for the locals, which is a roundabout way of imposing liberty without self-sufficiency, a contradiction in terms, for how can you be free if you are dependent? The first fifty years of American rule were strictly geared towards allowing big-money interests to buy cheap land, use cheap labor and exploit a small island’s vulnerability, without any serious thought to helping the island become economically autonomous. In 1952, Puerto Rico elected it's first local governor, who promised to address all the iniquities.
But today, after over five decades of self-government, it is up to the individual Puerto Rican to forge his or her own way in a political system awash in partisanship and cronyism, in a market saturated in competition with multinational corporations, in an economy bogged down by debt, and a real estate market with stratospheric prices, without much help from the local government for the small businessman. Not unlike what is happening in many capital cities in America and the world at large as well.
Could Puerto Rico survive an abrupt change in status? Yes. Would the transition be hard and unforgiving? Yes. Would it create a second Diaspora of displaced Puerto Ricans immigrating to the States? Yes, and this time it will not be day laborers leaving, but skilled professionals as well. Would islanders see a rise in crime and violence? Yes. Would recovery and economic stabilization take a long time? Yes, one or two generations at least. Are there alternatives that should be considered or better options that could be put in place? Absolutely. And the faster Puerto Rico comes closer to being self-sufficient, the better chance it will have to survive. With such a large population, with so few jobs, such a high percentage of second-generation families on welfare, no possiblility of agricultural self-sufficiency, and no natural resources to speak of, the island will face a large demographic movement to the mainland, and those who stay will face a very hard and insecure transition period.
Next month: A Plan towards self- sufficiency
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