Lessons From Operation Bootstrap

September 25, 2007

In the 1950s, Puerto Rico tied its development strategy to market-oriented reforms and to the U.S. economy. The mixed results of the experience may offer some clues to what Mexico can look forward to in a NAFTA-dominated future. When Pue- rto Ricans participate in debates over the North American Free Trade Agree- ment (NAFTA), they do so with a feeling that they have been there before. In the 1950s, Puerto Rico under- went the same kind of economic restruc- turing that Mexico is undergoing now, z tying its develop- 2 ment strategy to E market-oriented reforms and to the A Puerto Rican drugstore in the 1940s. Even before Operation Bootstrap, there was a significant U.S. presence in the Puerto Rican economy. U.S. economy. Pue- rto Rico's on-going reform pack- The Puerto Rican development lack of trad age has proved neither a cure-all model was launched after World island and for the economic ills facing the War II under the name Operation of population island, nor an unmitigated attack Bootstrap-or, in Puerto Rico, 936 of the on social well-being. The plan has Manos a la Obra (Let's Get to which leave brought benefits to some, and very Work!). It promoted the island's profits earned real costs to most. The mixed industrialization through the estab- sidiaries of results of the experience may offer lishment of export-oriented, U.S.- four conditi some clues to what Mexico can owned manufacturing operations. midable m( look forward to in a NAFTA-dom- The model is a showcase of devel- ment, and t inated future. opment strategies based on an circulation Hector R. Cordero-Guzman is a researcher at the Center for Puerto Rican Studies/CUNY. This article was written in coordination with the research group of the Northeast Puerto Rican/Latino Roundtable on NAFTA. openness to foreign investment and the free movement of consumer goods, capital, and labor power. Bootstrap was the precedent-set- ting forerunner of the principal U.S. hemispheric economic initia- island and States. U.S. inve enjoy seve First, they b cheap and tives launched over the past three decades: the Alliance for Progress of the Kennedy years, the establishment of Mexico's maquilado- ras during the 1970s and 1980s, the Caribbean Basin Initiative and the enterprise-zone pro- posals of the Reagan Administration, and now NAFTA, which is clearly part of more ambitious designs for further hemispheric integration. Bootstrap's pillars were low wages, the te barriers between the the mainland, a policy mn control, and Section U.S. Federal Tax code, s relatively untaxed the ed by Puerto Rican sub- U.S. companies. These ons have created a for- agnet for U.S. invest- riggered the sustained of people between the the mainland United estors in Puerto Rico :ral key advantages. enefit from a relatively skilled labor force. Vol XXVII, No 3 NOV/DEC 19937 Vol XXVII, No 3 NOV/DEC 1993 7ANALYSIS / PUERTO RICO Second, they operate in sectors All these (mainly pharmaceuticals and are tied to electronics) where research and economic development expenditures- United St partly subsidized by the federal 1980s, Pu and commonwealth govern- highest i ments--translate into relatively imports fr high prices for consumers, and served as h hefty profit margins for compa- total U.S. ny stockholders. Third, Puerto Latin Am Rico offers companies a mod- world's fif ern subsidized infrastructure goods to t that reduces their costs of pro- States. 1 Bu duction, thus further increasing between ec their profits. All these advan- economic d tages are multiplied by very low ence sugg tax rates both in Puerto Rico costs of tI and for parent compa- nies in the mainland. Recent calculations by the U.S. General Accounting Office (GAO), for example, indicate that in 1987, U.S. pharmaceuticals doing business in Puerto Rico obtained more than $3 billion 5 in Section 936 tax credits. This trans- lates into $70,000 for each job created in Puerto Rico. In other A squatter settlement in Punta Diamante (top) and a middle-class communi- words, the govern- ty in Punta Alegre (bottom) in Ponce, Puerto Rico. ment gives about $2.67 in credits to the pharmaceuti- cal industry per dollar paid out in wages. The evidence commonly cited by Bootstrap's supporters is familiar, but nonetheless bears highlighting. Puerto Rico had economic-growth rates averaging 6% in the 1950s, 5% in the 1960s, and 4% in the 1970s. Even with subsequent reversals and some stagnation dur- ing the 1980s, this pace of eco- nomic expansion looks very good when compared with the record of the rest of the Caribbean and Latin America. These growth rates have given Puerto Rico the second high- est per-capita income in Latin America, impressive for a tiny Caribbean island with limited resources and a population of only four million. In addition, modem port facilities and an extensive highway complex that accommo- dates over a million vehicles reflects Puerto Rico's infrastructur- al modernity. The island's industri- al/occupational profile--except for a somewhat bloated public sec- tor-has a decidedly modem cast as well, with high-tech manufac- turing, financial services, and trade and commerce the dominant eco- nomic activities. Agricultural wage-workers, by contrast, repre- sent a minuscule proportion of the labor force. The literacy rate is above 90%, and life expectancy is on a par with that of the most advanced nations. indicators of progress Puerto Rico's close relationship with the ates. Well into the erto Rico boasted the ndex of per-capita om the United States, [ost to about a third of direct investment in erica, and was the 'th largest exporter of he mainland United t there is a difference economic progress and Ievelopment-a differ- ested by the human his progress, both in Puerto Rico and for the Puerto Rican population on the mainland. This dif- ference is not lost on members of the Puerto Rican labor movement, local environmentalists, and industry leaders in labor-intensive, import-sensitive sec- tors. These sectors have not been well- served by the pene- tration of Puerto Rico's economy by U.S. capital, and the consequent subjugation of island interests brought about by Bootstrap-generated progress. Most families in Puerto Rico have seen their incomes and wages stagnate over the last 20 years. Federal transfers-such as Aid to Dependent Children and food stamps-make up a growing por- tion of their income. In some years, the level of transfers has surpassed the profits generated on the island by U.S. businesses. Despite the full application of federal minimum- wage standards on the island, aver- age wages there remain at about the same relative distance from average mainland wages as they did in 1973, and real personal income per capita is the same per- 8 NACL4 REPORT ON THE AMERICAS 8 NACLA REPORT ON THE AMERICASANALYSIS / PUERTO Rico centage of the mainland figure as it was at the start of Operation Bootstrap, some 40 years ago. In 1990, about 60% of the population on the island and 40% of the Puerto Rican population on the mainland lived in or near poverty. 2 The prolonged and privileged flow of U.S. capital into Puerto Rico seems to have brought more rather than less unemployment, and more rather than less emigra- tion. Labor's efforts to secure greater social equity and to improve the wages and benefits of Puerto Rican workers are continu- ally met with stiff resistance from the business community. Main- stream economic theory, in fact, provides a veneer of legitimacy to this resistance. Some economists, for example, argue that relative to international market conditions-- and despite 20 years of stagna- tion-Puerto Rican working hands are over-priced. 3 Bootstrap's pro- ponents blame this "over-pricing," not the export-oriented develop- ment plan, for the island work- force's high unemployment rates, long duration of unemployment, and marginal and unstable connec- tions to formal employment. These harsh labor-market conditions per- sist despite massive emigration (nearly half the potential workforce of Puerto Rican descent is on the mainland) and despite explicit poli- cies of population control (by the late 1970s one third of Puerto Rican women of child-bearing age had been sterilized). Another troubling feature of Puerto Rican development is the island's inappropriately high level of dependence on the U.S. econo- my-from the standpoint of Puerto Rico's future development. Reflecting this dependence, the gap between the gross national product (GNP) and the gross domestic product (GDP) has increased steadily over the last two decades. This means that native capital for- mation has been thwarted by the Puerto Rico faces an uphill battle to build a self-reliant national economy. By the mid-1980s, this lack of self- reliance meant that 85% of Puerto Rico's production was for export while 45% of food consumption was imported from the mainland United States. penetration of U.S. firms. North American companies effectively monopolize banking, transport, tourism and high-tech manufactur- ing. U.S. transnationals have also made steady incursions into the growing service sector of the econ- omy. As a consequence, Puerto Rico faces an uphill battle in its efforts to build a self-reliant national economy. 4 By the mid- 1980s, this lack of self-reliance meant that 85% of Puerto Rico's production was for export while 45% of food consumption was imported from the continental United States. The battle will be even more uphill should the U.S. Congress pass NAFTA. The agreement will place Puerto Rico, other Caribbean states and Mexico in direct compe- tition with one another, especially in labor-intensive sectors like apparel, footwear, and electronics assembly. This will force govern- ments to provide yet more attrac- tive conditions to the absentee owners of capital-basically lower wages, and fewer labor and envi- ronmental regulations. olitical developments on the island-necessarily quite dif- ferent from developments in sovereignty-conscious Mexico- have to be understood within this economic context. Puerto Rico was granted commonwealth status in 1952 to provide a semblance of decolonization for the Bootstrap design of "associated develop- ment." Over recent decades, how- ever, a powerful movement advo- cating U.S. statehood for Puerto Rico has emerged. This movement now competes on fairly even terms with pro-commonwealth forces. Both principal political camps- the independence movement is now a distant third in all public- opinion polls-see the massive U.S. economic presence in Puerto Rico as a benediction rather than a problematic aspect of the island's development. Commonwealth supporters argue that a "perfected common- wealth" would give Puerto Rico even more freedom to court for- eign capital and sell its labor power at rates below those cur- rently sanctioned by federal over- seers. The current pro-statehood offensive is based on the argument that the solution to Puerto Rico's socioeconomic crisis resides in the island's further absorption into the U.S. economic and "social sup- port" apparatus. A large part of statehood's popular appeal derives from the argument that under this formula the unemployed and the poor will never lose their welfare benefits on the island, nor their capacity to relocate to the main- Vol XXVII, No 3 NOV/DEC 1993 9ANALYSIS / PUERTO RIco land whenever economic condi- tions deteriorate. Among many Puerto Ricans and U.S. Latinos, there is an uneasiness about NAFTA, frequently accom- panied by an element of fatalism- a fatalism that sees the structural and political forces behind the agreement as overwhelming. Many feel the only realistic alternative for the present is to go along with the agreement, try to carve out a beneficial niche or two, and hope to reshape its design at some future date. 5 Some government officials, and a number of activists and busi- ness people, see the treaty as an opportunity to develop Puerto Rico as a regional "financial center," as long as Section 936 continues to generate extraordinary profits for U.S. companies and banks. In their minds, Puerto Rico could-with permission from the U.S. Treasury-become a source of financing NAFTA-spawned invest- ment opportunities. Hence, diverse Puerto Rican interests came togeth- er to orchestrate a largely success- ful defense of Section 936 when this tax haven was threatened by President Clinton's deficit-reduc- tion program. Many of NAFTA's original pro- moters have also moderated their positions. They now recognize the limitations inherent in the agree- ment's design, and urge Puerto Rican policymakers to support the treaty because its effects on Puerto Rican and other U.S. workers are likely to be minor and would take a long time to manifest themselves. They no longer encourage any expectation that genuine break- throughs against joblessness and poverty are in the offing. It is gen- erally recognized that, if anything, NAFTA is likely to exacerbate Puerto Rico's unemployment prob- lem. Indeed, the promises that the treaty now holds out to Mexican workers-when seen through the lens of the Puerto Rican experi- ence-take on a different cast. Despite the new enthusiasms for free markets, free trade, incentives to capital, deregulation and privati- zation, NAFTA supporters cannot claim to have any well-founded proof of the capacity of capital-in combination with compliant states-to nurture and develop the human resources at its disposal. 0 This article was written in coordination with the rest of the members of the research group of the Northeast Puerto Rican/Latino Roundtable on NAFTA. The other members are Frank Bonilla (Inter- University Program for Latino Research), Angelo Falcon (Institute for Puerto Rican Policy), Hector Figueroa (Amalgamated Clothing and Textile Workers' Union), Maria Figueroa (New School for Social Research) and Palmiro Rios (New School for Social Research). We thank Emilio Pantojas-Garcia for his helpful comments and suggestions. The article is based on a talk by Frank Bonilla to the Southwest Voter Research Institute Conference for Latino Leaders, held in Chicago on June 13, 1992. For further information on the Roundtable, contact Carmen Moreno, Institute for Puerto Rican Policy, 286 Fifth Ave., 3rd floor, New York, N.Y. 10021. 1. See Frank Bonilla and Ricardo Campos, "A Wealth of Poor: Puerto Ricans in the New Economic Order," Daedalus, Vol. 110, No. 2 (1981), pp. 133-176; Ricardo Campos and Frank Bonilla, "Industrialization and Migration: Some Effects on the Puerto Rican Working Class," Latin American Perspectives, Vol. 3, No. 3 (1976), pp. 66-108; and Emilio Pantojas-Garcia, Development Strategies as Ideology: Puerto Rico's Export-Led Industrialization Experience (Boulder, Colorado: Lynne Rienner Publishers, 1990). 2. National Council of La Raza, Poverty Project Newsletter, Vol. 4, Nos. 2 and 4(1992). 3. See Carlos E. Santiago, Labor in the Puerto Rican Economy (New York: Praeger, 1992); and Health and Migration Taskforce, Center for Puerto Rican Studies, Labor Migration Under Capitalism: The Puerto Rican Experience (New York: Monthly Review Press, 1979). 4. See the U.S. General Accounting Office, "Puerto Rico and the Section 936 Tax Credit," Report No. 93-109 (June, 1993); and Pantojas-Garcia, Development Strategies. 5. See Annette Fuentes, "Bad Table Manners: Latinos and NAFTA," Dialogo No. 7 (June, 1993).

Tags: Puerto Rico, Operation Bootstrap, free trade, development, dependence

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