The 'Why' of Puerto Rico's Predicament

 

Quiz
 

1.  Which of the following is true?

a) Citizens of Puerto Rico are citizens of the United States

b) Citizens of Puerto Rico have no vote in the U.S. Congress

c) Citizens of Puerto Rico are ineligible to vote for president

d) Citizens of Puerto Rico elect delegates to the Democratic and Republic conventions


2. How did the U.S. come to own Puerto Rico?

a) The people of Puerto Rico voted (in 1909) to join the U.S.

b) The island was discovered by an American

c) A secret deal between President McKinley and King Phillip

d) The U.S. won a war with Spain

e) It just happened

 

3. Which of the following were prohibited by the Ley de La Mordaza (Gag Law), enacted by the Puerto Rican legislature in 1948?

a) displaying the Puerto Rican flag  in one's home

b) singing Puerto Rican nationalist songs

c) clapping at nationalist rallies

d) kneeling during the national anthem

e) speaking against the U.S. government

f) shipment of goods to or from Cuba

 

4. True or False

Hurricane Maria hit Puerto Rico just as the island was experiencing an economic boom.

 

Answers;

1. All are true. Puerto Rico, officially the Commonwealth of Puerto Rico, is a U.S. territory. The people of Puerto Rico are American citizens. However, because it is not a state, Puerto Rico has no senators, and its representative in the U.S. House of Representatives is a non-voting delegate, called the Resident Commissioner. Within the island, Puerto Ricans vote for their governor, legislature and local officials.

2. d

3. a, b, c

4. False. Let's now find out how false!

 


 

Student Reading:
The 'Why' of Puerto Rico's Predicament


In September 2017, Puerto Rico was hit by two powerful hurricanes. The second, Hurricane Maria, was the most powerful storm to hit Puerto Rico in more than 80 years. The hurricane demolished homes and communities and left the entire island without electricity, which will likely take many months to restore.

Federal response to Maria was slower and far less robust than the response to recent storm damage in Texas, Florida, and other mainland states. President Trump  appeared to show little sympathy for hard-hit Puerto Ricans with statements like:

Such poor leadership ability by the Mayor of San Juan, and others in Puerto Rico, who are not able to get their workers to help.  (Sept. 30)

They want everything to be done for them when it should be a community effort...(Sept. 30)

We cannot keep FEMA, the Military & the First Responders, who have been amazing (under the most difficult circumstances) in P.R. forever! (Oct. 12)

Puerto Rico survived the Hurricanes, now a financial crisis looms largely of their own making. (Oct. 12)
 

The President was widely criticized for the disparaging remarks and the slower, less vigorous relief effort in Puerto Rico. But the island has had a long history of neglect and poor treatment by the federal government. When President Trump stated that  Puerto Rico, was already "suffering from broken infrastructure and massive debt," he was correct. Consider:

  • The Puerto Rican economy shrank by 10% since 2006
  • Unemployment  is twice the national rate
  • The poverty rate is over 40%
  • The government of Puerto Rico owes over 70 billion dollars
     

But  when Trump tweeted that Puerto Rico's financial crisis is "largely of their own making," he is leaving out the outsize impact of federal policy on the island's economy. Ever since the U.S. gained control of Puerto Rico in the Spanish-American War, U.S. (non-Puerto Rican) corporations have dominated the economy.

Beginning soon after the war, sugar (mostly owned by American  companies and marketed in the states) became the dominant crop. By the 1930s, American banks and holding companies owned most  of the island's economy—sugar and tobacco plantations, shipping, banking, railroad and postal system. Pay for agricultural workers was far lower than the already very low wages paid to workers on the mainland.

Specific laws also distorted the economy:  Immediately after acquiring the island, the U.S. changed the currency to the dollar and the Puerto Rican peso was devalued by 40%. Since Puerto Rico is an island, all goods must be shipped there – which is expensive. But the federal government made the cost of goods even higher by passing the Jones Act, which required that all ships carrying goods between U.S. ports had to be American. The Jones Act makes goods in Puerto Rico at least twice the cost of goods on nearby islands not covered by the Jones Act.

Then, in 1993, Congress passed the North American Free Trade Agreement (NAFTA), which eliminated the advantages that Puerto Rico had over Latin American countries in exporting to the U.S.

Beginning in the 1940s, in an attempt to boost the Puerto Rican economy and help the island shift away from agriculture toward manufacturing, the U.S. Congress established a series of tax incentives to lure U.S. corporations to Puerto Rico. It was called Operation Bootstrap. The plan worked to an extent—many corporations opened factories and wages increased. But the agricultural economy, which was being replaced, had provided many more jobs, so unemployment grew. This prompted  a period of massive migration to mainland United States.

In 1976, the tax code was amended to provide even greater incentives for companies to move to Puerto Rico. American companies located there would no longer have to pay federal taxes on profits. About 300 companies took advantage of the tax break and employed huge numbers of people, mainly in the pharmaceutical, electronics and food processing industries. However, some opposed the tax breaks, in part because they favored outside corporations over local ventures, crippling the island’s economy – and because they allowed corporations to avoid paying taxes that support public services they rely on.

Fast forward to 1996, when President Clinton signed legislation eliminating the tax break over ten years. The effect, fully realized in 2006, was catastrophic for the island's economy. The exodus of companies fleeing Puerto Rico after the tax breaks ended created a cascade of disastrous consequences:  11 years of declining GDP (gross domestic  product) and economic depression, steep decline in tax revenue and employment, decrease in government spending and corresponding increased need for safety net spending. Puerto Ricans—disproportionately  young and educated—began leaving the island in historic numbers.

As revenues declined, Puerto Rico's debt steadily increased to the 70 billion dollars it owes today. Over one third of the government’s income now goes to pay off its debts. Other governments and corporations are often able to declare bankruptcy when they get in such dire financial straits, but by law, Puerto Rico must first get permission from Congress to declare bankruptcy and eliminate part of its debt. And as their credit rating falls, they must borrow money at ever-increasing rates.

To make matters even worse, the loans to Puerto Rico (which look shaky) are sold by more established banks to hedge fund "vultures" at big discounts. These creditors use all their political clout to prevent Puerto Rico from getting a break from bankruptcy.

So the desperate situation in Puerto Rico was made even more desperate by the hurricanes. It simply does not have the resources to provide necessities to its inhabitants and rebuild the infrastructure.

It remains to be seen whether an anti-spending Congress and president, with no votes to gain, will intervene positively in Puerto Rico.
 



For Discussion
 

1.  How much of the material in this reading was new to you, and how much was familiar?  What questions do you have about the reading?

2. Do you think Puerto Ricans be treated differently by the federal government if its citizens were able to elect presidents, senators and voting congresspeople?

3.  Based on the reading and your own knowledge, what changes might improve the situation for Puerto Rico and its people?

4. Puerto Ricans have long been divided over whether their island should become a state, declare independence, or continue its current status as a territory of the U.S. In a June 2017 referendum on Puerto Rico’s status, the 23% who voted overwhelmingly supported statehood. What benefits would you see from Puerto Rico becoming a state? What downsides?  What might be beneficial about Puerto Rico becoming an independent nation, and what might not be beneficial?

5. As voters (and soon-to-be-voters), we vote for politicians who make decisions on complicated  policies affecting  taxes, debt, insurance, subsidies, minimum wage, and other issues affecting the economic well-being of Americans. Should high schools be required to teach economics so that voters will make more educated choices in elections?

 



Extension Activities


A. Research & Discussion

Divide the class into three groups. Each group will research one option for Puerto Rico: Statehood, independence, or continued status as a territory. Ask each group to research these questions:

  • What is the history of efforts to organize for this status?  (statehood, independence, or continuing as a territory)?
  • What are the three strongest arguments in favor of this status, in your opinion?
  • What are the three strongest arguments against this status?

In the next class, have each group present its arguments for and against, and facilitate a discussion of these options and what it might mean for Puerto Rico to gain independence or statehood today.

 

B.  Action

Have students research ways they might be of assistance to people in Puerto  Rico in the wake of Hurricane Maria, and help them decide on a strategy.  The PBS NewsHour put together this list of aid campaigns.

 



Sources
 

https://www.bls.gov/eag/eag.pr.htm

https://www.census.gov/search-results.html?q=poverty+rate+Puerto+Rico+&search.x=0&search.y=0&search=submit&page=1&stateGeo=none&searchtype=web&cssp=SERP

http://www.nytimes.com/1993/05/10/business/puerto-rico-fighting-to-keep-its-tax-breaks-for-businesses.html?pagewanted=all

https://www.huffingtonpost.com/entry/puerto-rico-debt-default-explained_us_56870c25e4b0b958f65bca7a

http://welcome.topuertorico.org/economy.shtml

http://www.truth-out.org/progressivepicks/item/30925-how-the-united-states-economically-and-politically-strangled-puerto-rico

https://taxfoundation.org/tax-policy-helped-create-puerto-rico-s-fiscal-crisis/

http://www.cnn.com/2016/05/02/americas/puerto-rico-exodus/index.html

https://www.cnbc.com/2017/09/26/heres-how-an-obscure-tax-change-sank-puerto-ricos-economy.html

https://www.nytimes.com/2017/09/25/opinion/hurricane-puerto-rico-jones-act.html?_r=0