IN a recent National Review cover story, Mario Loyola, who is Puerto Rican, noted that the once-bustling neighborhood where his grandparents lived now “sits eerily abandoned, a common sight in Puerto Rico.”
According to Loyola, “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.”
And yet, Loyola said, under Luis Muñoz Marín, the island’s governor from 1949 to 1965, Puerto Rico became for a time the most successful society in Latin America. Muñoz Marín, he added, “exhorted Puerto Ricans to take pride in their work.” And they did. “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.”
Loyola said income rose 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.”
But 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.”
Loyola said “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.”
In Puerto Rico, moreover, “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.”
As for the Puerto Rican government itself, Loyola said based on the World Bank’s Governance Indicators, it “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.”
In 2016, the U.S. Congress passed PROMESA (Spanish for promise) or the Puerto Rico Oversight, Management, and Economic Stability Act to create a fiscal-oversight board with broad powers to manage Puerto Rico’s finances. Loyola said 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.”
The PROMESA oversight board reduced Puerto Rico’s budget but it remains severely bloated, Loyola said. “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.’ ”
Loyola believes that 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, he said, “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.”
In a letter to the editor in response to the article, Center for a Free Economy President Ryan Ellis said Loyola “is correct that unfunded mandates on business and the labor market, combined with cradle-to-grave welfare dependency, have been toxic for Puerto Rico.” But many Puerto Ricans do not want independence, Ellis said, adding that “statehood has been the winner in several nonbinding referenda in Puerto Rico over the years.”
Instead, Ellis recommends the passage in the U.S. Congress of free-market reforms.
However, as Loyola has pointed out: “The unfortunate reality is that America is now firmly in the grip of a progressive system of government, regardless of the party in power. That means an increasing concentration of power in the federal executive branch, which can only increase dependency and powerlessness among minority communities long beset by those conditions….”
Over 30 years ago, a governor of another U.S. Commonwealth appeared before a U.S. House subcommittee and said:
“There are many positive accomplishments in the [CNMI]. Through wise federal policies and our own local…initiative, we brought about an economic miracle in the Pacific. We are an economic success story in insular areas…. We reduced the size of government relative to private sector. We decreased our burden on the Federal Treasury. We have dramatically increased local revenue and just as dramatically reduced our reliance on the federal taxpayers.
“Economic self-sufficiency for the Northern Marianas is in sight. We have a booming tourist industry. This industry, and the garment factories as well, will collapse under the weight of mainland wage and immigration policy. Don’t send us back to a coconut economy. Don’t make us a federal welfare state again.”
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