The first airplane my father ever boarded was the one that took him from Puerto Rico to New York to attend the United States Military Academy at West Point. He graduated in 1967 and fought in the Vietnam War. During my embed as a journalist in Iraq in 2007, as one platoon convoy was mounting up, I brimmed with pride when I realized that the vehicle commanders of all four Humvees were Puerto Rican.
For a century, Puerto Ricans have pledged allegiance to the flag of the United States, fighting and dying for it. And yet that has not diminished the island’s distinct identity. Only 10 percent of Hawaiians identify as native, and only a tiny number of them speak Hawaiian. In Puerto Rico, by contrast, nearly everyone identifies as Puerto Rican and speaks Spanish as their first language. Puerto Rico is the only major society to be swallowed whole by the United States and still think of itself — and still be thought of internationally — as a distinct people.
Is Puerto Rico a country? One homage to it by a popular salsa band proclaims, “Esa es mi patria” (“That’s my country”), and it wouldn’t be strange to hear supporters of Puerto Rican statehood singing it. It is certainly a Latin American country as far as the rest of Latin America is concerned, and a leading one at that. A powerhouse in Latin music, for example, Puerto Rico has a status akin to that long held by Cuba before the Communists.
At different times in my youth, I lived with my grandparents (as often happens in Latin families), in the seaside town of Mayagüez. Nearly all the houses in their neighborhood belonged to someone in my family. My grandmother’s sister lived across the street, close enough that they could chat and argue from balcony to balcony. Her brother, my grand-uncle, lived a few houses away, next to my great-grandparents; my cousins, who were my best friends growing up, were within walking distance.
None of them could speak English, but there’s nobody to speak anything there now. Today that once-bustling neighborhood sits eerily abandoned, a common sight in Puerto Rico. The island has lost more than 15 percent of its population since the start of a major fiscal crisis in 2006. And while 2018’s Hurricane Maria made matters worse, the exodus was well under way by then. Its overwhelming causes are not natural disasters but federal policies — in particular a suffocating combination of welfare policy and the minimum-wage law that has made it virtually impossible for most Puerto Ricans to find gainful employment. With massive welfare rolls sitting atop a frightfully tiny tax base, the government of Puerto Rico has found managing its finances an impossible task.
The great Luis Muñoz Marín, who governed the island from 1949 to 1965, exhorted Puerto Ricans to take pride in their work. They did, and Puerto Rico became for a time the most successful society in Latin America. Right as Cuba plunged into the stygian darkness of Fidel’s dictatorship, Puerto Rico’s living standards took off. It soon became — under U.S. protection — a flourishing showcase of freedom.
Alas, just as that strategy, which guaranteed Puerto Rico’s security, currency, and rule of law with minimal federal interference, was really working, the U.S. replaced it with the straitjacket of progressive social policies, and Puerto Rico was plunged into utter dependency on U.S. taxpayers. As long as the federal government continues to run such programs with no flexibility for local conditions, neither Puerto Rico nor any other disproportionately low-skilled workforce (such as those in American inner cities) will ever reach its potential.
Puerto Rico desperately needs autonomy from progressive social policies so that it can re-create the conditions of a productive workforce and competitive economy. Unfortunately, the United States is headed in the opposite direction, toward an increasing centralization of power within a progressive scheme of government that has swallowed up Republicans and Democrats alike. With many Republicans now abandoning free-market principles and embracing heavy-handed government solutions, the United States is headed toward socialism on an increasingly bipartisan basis. Puerto Rico’s only hope may well be independence.
During Muñoz Marín’s years as governor, Puerto Rico came to be known as an “economic miracle,” with income rising from 20 percent of the U.S. average to 40 percent. In 1964, direct federal transfers to residents accounted for just 5 percent of Puerto Rico’s personal income. As capital-intensive industries (e.g., pharmaceuticals) replaced labor-intensive ones (e.g., sugarcane cultivation), Puerto Ricans increasingly filled managerial positions long held by Americans and other foreigners.
Then came the flood of federal handouts. In the 1970s, the federal minimum wage was imposed on Puerto Rico while welfare benefits were introduced at close to full federal levels. The minimum wage is just a prohibition on employing low-skilled labor; in effect, for everyone with a marginal product lower than the set wage, it deprives them of the right to work entirely. The higher the minimum wage is set in relation to average wages, the greater the disemployment effect, and in Puerto Rico, as in America’s inner cities, the effect was disastrous. A flood of welfare dollars replaced productive income for a large fraction of Puerto Rico’s labor force. Direct federal transfers to Puerto Rican families quickly rose to 20 percent of average household income; today, it’s more than 40 percent. When you add federal grants to Puerto Rico’s government, U.S. taxpayers are paying for more than half of the commonwealth’s GDP. It’s a staggering waste of money, and it’s only poisoning Puerto Rico, like the heroin to which so many of its youth have succumbed.
Not surprisingly, half the island’s residents are on some kind of federal welfare, a transformation that happened almost overnight. In 1973, Puerto Rico had one of the highest levels of nutrition in Latin America. But when federal food stamps were introduced, the income threshold was set so high that half of all Puerto Ricans qualified for them. Millions of Puerto Ricans who had never considered themselves poor were now officially below the federal poverty line and sucked into the cycle of dependency.
By 1980, food stamps accounted for an astonishing 7.5 percent of Puerto Rico’s household income, compared with 0.5 percent on the mainland U.S. After years of steady gains as women entered the workforce, labor-force participation began falling and never stopped. Household income fell from 40 percent of the U.S. average to barely 30 percent in just a few years, a huge step backward for a society that had been steadily catching up with the mainland.
By significantly shrinking the number of Puerto Ricans who were gainfully employed and correspondingly increasing the number dependent on welfare, the federal government created the perfect conditions for a Greece-style fiscal crisis. The main reason such a crisis didn’t happen in the 1970s was the simultaneous introduction of a major federal tax shelter, Section 936 of the Internal Revenue Code, which drew large corporations to Puerto Rico. No longer taxable by the IRS, the income of companies that benefited from Section 936 was still taxable by local government, so a large new source of corporate tax revenue cushioned the impact of a suddenly diminished tax base, all at huge cost to U.S. taxpayers.
When Section 936 was finally phased out in 2006, the fiscal crisis that had long hung over Puerto Rico came crashing down. Labor-force participation nose-dived, falling below 30 percent, perhaps the lowest in the world. By comparison, during the worst of Greece’s fiscal crisis, labor-force participation never fell below 50 percent. And in Puerto Rico, most people who work at all are employed in a myriad of government agencies, so the labor-force-participation rate in the private sector was in the teens. The impact on local-government finances was catastrophic; public utilities soon started defaulting on their bonds.
In 2016, Congress stepped in and enacted PROMESA (the Puerto Rico Oversight, Management, and Economic Stability Act), which established a fiscal-oversight board with broad powers to manage Puerto Rico’s finances. Progressives in Washington slammed the board’s intrusion on Puerto Rico’s sovereignty, a comical complaint given that it was their intrusion into the territory’s sovereignty — with their ruinous social engineering — that had caused the problem in the first place.
Many people on and off the island blamed Puerto Rico’s own government for the crisis, and its performance has admittedly been abysmal. According to the World Bank’s Governance Indicators, Puerto Rico ranks in the bottom half among world governments, well behind Chile and Costa Rica. Of the last three governors, one was arrested by the FBI on corruption charges, and another had to resign after text messages came to light in which he and close confidants engaged in vulgar and embarrassingly juvenile insults against other politicians and journalists.
The PROMESA oversight board has had difficulty untangling the mess of Puerto Rico’s finances. With 13 different government agencies having issued bonds, each purporting to have senior status, it was hard to establish even a baseline order of priority among creditors. Unsurprisingly, Puerto Rico’s budget, though cut under the PROMESA oversight board, remains severely bloated. And the results are abysmal, with educational performance particularly woeful. “The roads are still full of holes,” one longtime resident tells me. “Everything is a problem, and it’s all the same problems as ten and 20 years ago. Nothing gets resolved. Nobody fixes anything.”
That should sound familiar to many Americans. The vagrancy and listless business activity besetting many cities in America are purely the result of progressive social policies and their effects on the least skilled, who are driven out of the workforce — cut off from the productive economy and from pathways to gain skills and rise up the income ladder. In Puerto Rico, with lower educational levels than in most of the United States, those effects have been apocalyptic.
Read the full article on the National Review.