First a Spanish colony and then an American one, Puerto Rico, a small island in the Caribbean,
defines itself as a free state associated with the United States.
An associated state whose citizens have American citizenship but, unless they move to another
state, cannot vote in the presidential elections and, even though they have a representative
in Congress, he also lacks a vote.
All their major issues, be it political, economic or military lie under the federal jurisdiction
of the United States.
Lately, there’s been much talk about this territory, not only because in September 2017
they suffered the harsh impact of Hurricane Maria, but also because a few months before,
in May of that same year, Puerto Rico declared itself bankrupt.
After more than 10 years of economic crisis, Puerto Rico’s public accounts could no longer
keep going.
Because the island’s public debt surpasses 70 billion dollars and another 50 billion
in future payment commitments, such as pensions.
Dear viewer, we’re talking about figures that are huge for an island that barely has
more than 3 million inhabitants.
Due to this, in recent years Puerto Rico has begun to be known as the Greece of the Caribbean.
Because, dear viewers, Puerto Rico is, simply and plainly, insolvent.
But...
How did they get to this point?
Listen up.
Lately, there is a lot of discussion going on, on how to solve Puerto Rico’s serious
crisis, and on how to stop the exodus the island is suffering, which we saw here in
a past video.
But first... to address this issue, I think we need to answer a question...
What on earth happened?
What caused Puerto Rico to be so insolvent, what lead it to be a broke island?
Well, of course the great culprit has been, without a doubt, the Puerto Rican government
itself.
A government that has been spending uncontrollably for decades, has had many suspicions of corruption,
and an absolute disdain for production.
But, beyond Puerto Rico’s government...
Washington also holds a large responsibility in this whole mess.
My friends, Washington's responsibility is so great, that it wouldn’t be unreasonable
to say that the federal government has been the great driver of Puerto Rico’s bankruptcy.
You heard that right.
The United States has “bombarded” Puerto Rico with 5 policies whose results were devastating.
Five policies concerning trade, regulations, salaries and welfare.
Don’t believe me?
Keep listening.
(TAX-FREE DEBT)
With the supposed intention of helping the Puerto Rican economy and aiding its government
to access the capital markets, at the dawn of the Jones-Shafroth Act, Washington created
a triple municipal, state and federal exemption on Puerto Rico’s debt’s interests.
Thus, if any US citizen purchased Puerto Rico’s public debt, he or she was exempt from paying
taxes on the interest received.
In other words, if an American bought debt from a company, they had to pay taxes on the
returns obtained, but if he or she invested in the debt of Puerto Rico’s politicians,
he or she didn’t have to pay anything at all.
So... you can imagine that with such attractive conditions, people would be queueing to lend
money to the island’s government.
Easy money that local politicians didn’t take long to spend, aimed at a single thing:
buying, I mean, winning votes.
What better scenario could we concoct for irresponsible politicians?
(TAX ENGINEERING)
Against all logic, while the federal government encouraged the island to get deeply indebted,
it also made things harder for the private economy.
You heard that right.
In 2006, Congress abolished the so-called section 936 of the tax code, a section that
provided significant benefits for the companies that invested in the island.
Let's not forget, my friends, that Puerto Rico is the poorest territory in the United
States.
Well, the fact is that this incentive model was very, very successful.
For years it helped Puerto Rico grow a lot, even leading it to become an incipient manufacturing
and pharmaceutical power.
However, once the incentives were over, in 2006, two years before the great international
financial crisis, Puerto Rico began its fall into the abyss.
Overnight the companies’ conditions changed drastically...
forcing investments in the island to sink.
Legal security?
Ha!
But that’s not all, not at all.
(THE MERCHANT MARINE LAW)
This may be the most controversial point of all... and at the same time the most absurd
law.
The Jones Act, which was passed in 1920 and is still in force, forbids foreign-flagged
vessels to transport goods between two United States ports.
Thus, a ship loaded with containers and coming from China cannot stop in Puerto Rico, because
it has to continue to the mainland.
There the containers destined for Puerto Rico are unloaded to then be loaded again on another
ship, this time one with a US flag and crew, which is obviously much more expensive.
The result?
Puerto Rico has the most expensive shipping costs of all Caribbean countries, something
that not only hinders trade but also makes exports more expensive and reduces the every
Puerto Rican’s purchasing power.
In fact, to get an idea of this law’s implications, we should mention that even though Puerto
Rico has an average income, which is approximately half that of Mississippi, and is the poorest
state in the United States, its cost of living surpasses the state average.
It’s crazy!
(MINIMUM WAGE AND WELFARE POLICY)
And if that weren’t enough…
there's more.
The average salary in Puerto Rico is the same as the federal minimum wage, that is, $ 7.25
per hour worked.
The thing is that, as we’ve seen, both the development level and average income in Puerto
Rico are much lower than those of the other states of the United States, leading this
policy’s distorting effect to be... enormous.
See, the federal minimum wage in New York or Illinois may affect a few people... but
in Puerto Rico... it’s different…
the federal minimum wage is equivalent to 77% of the average salary in Puerto Rico,
that is, the average salary of every profession and job on the island.
This has led to only one in three people of working age do so.
And, by the way, if this number is already abnormally low, over a quarter of all people
with jobs work for the government.
Which means…
my friends… that less than 25% of the island's population works in the productive economy.
On the other hand, the federal regulation also implies an abnormally high level of social
benefits for Puerto Rico’s parameters.
In fact, studies show that for many families, it is more convenient to receive social aid
than to work... because they income they’ll receive is substantially higher.
Well folks, the result of these 5 federal policies has been a huge crisis, a crisis
that has lasted more than 10 years, which has caused – or has at least fuelled – the
island’s bankruptcy and has generated a gigantic exodus of people who leave to the
continent, especially, of course the youngest.
As we saw here in a past video, only in the last 10 years, 500,000, 500,000 Puerto Ricans
have packed their bags and moved to the continent.
That is 1 out of every 7 people.
There’s a lot of talk about how to solve the island’s problems… but the question
is... is Puerto Rico’s current connection with the United States compatible with any
of these solutions?
Leave your answer in the comments as well as in the survey.
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Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!