Whither Puerto Rico: Where Did It Go Wrong?

In happier times?

I wrote up a quick piece on the Puerto Rican debt crisis for Cafe Con Leche Republicans, a pro-immigration Republican advocacy group. The fact that bureaucrats and dimwitted legislators in Washington micromanaged and abetted San Juan into committing fiscal suicide seems beyond any real doubt.

However after visiting San Juan last month, I did become interested with the roots of this political dysfunction. While Puerto Ricans and their stateside boricua cousins can debate statehood versus the status quo versus “free association,” I can’t help but try to imagine a counterfactual scenario where Spain had won the Spanish-American War, or at least held onto Puerto Rico during peace negotiations.

On the one hand, while 1898 is a far ways away from 2015, it does seem that Puerto Rico might have been better off under the Spanish. While, like Cuba, there had been intermittent rebellions and seditious (read: pro-autonomy or independence) activity, there had been no Valeriano Weyler nor concentration camps (as jarring as that might be to the ear, Spain, like Britain, was in fact quite fond of using this tactic against recalcitrant civilian populations). In fact there are two points in favor of Spanish nostalgia back in old San Juan;

  • Debt. Once nice side effect of being a true blue (or azul in this case it seems) colony is that one is not responsible for one’s own local debts. While certainly colonies pay taxes, as los Yanquis found out to their chagrin, in the Spanish Empire there was simply no issue of spiraling local debt as there is today. This is not to say that the motherland never had issues. Both the Hapsburg and the Bourbon dynasties defaulted on their loans. In fact if anything colonial revenue (Mexican/Peruvian silver, Caribbean rum, molasses and azucar) helped keep Madrid stable, as the blue blooded penisulares shamelessly accepted colonial help. Furthermore at the time of the American invasion, it did seem as if they had it under control. Raimundo Fernandez Villaverde, Finance Minister to HM, el Rey Alfonso XIII, under the Silvela administration, had largely tamed the deficit. Thanks to his fiscal reforms, Spain enjoyed a series of surpluses and was brought back from the precipice of bankruptcy. The fact Villaverde had done so with the loss of Spain’s profitable colonies is quite a feat indeed.
  • Representation. While much of the current constitutional debate in Puerto Rico consists of how much representation is just enough, it should be noted that while much of Puerto Rico’s history was some amalgamation of local and Spanish rule, the months before the USS Yosemite rolled into San Juan’s harbor, the Carta Autonomica had been granted by the Crown, giving a wide latitude to the local Puerto Rican polity and representation in the Spanish Cortes. In fact since 1815, the Bourbon reforms had gradually improved the state of the Empire’s colonies, despite the lax and haphazard nature of their enforcement.

That being said, traditionalist readings of history usually turn into some sad lament of, “How much better things were” if only X ruler/dynasty had not been exiled. In reality, while some thousands still apparently long for Spanish direct rule, there were probably a few upsides to being ruled from DC and not Madrid;

  • Debt. Ah, we meet again. While being a part of the Spanish Empire did relieve it of some responsibilities, like managing its own checkbook, Puerto Rican contribution to the Spanish Exchequer operated as a form of violent and (locally) unproductive form of redistribution. Part in parcel with the Bourbon reforms was an exceptionally hands on tax policy in regards to the colonies. For instance in the last days of New Spain, tens of millions of pesos were collected and shipped off. While much can be negatively said about the delusions of local planners and their attempts to (mis)manage an economy, at least some of it is spent locally. As part of Spain, capital assets were reduced as tax collectors would often grab anything not nailed down. In fact under the Captaincy General, while they had not suffered some destructive revolution, Puerto Rico had not enjoyed any real gradual, organic progress either. On the eve of invasion, 85% of the country remained, effectively, illiterate peons with an exceptionally low quality of life. By comparison, under imperatives like Operation Bootstrap during American rule, Puerto Rican living conditions, wages and health slowly improved to the point where they enjoyed a similar, if not superior level to the old Mother Country (Spain, not America), as they switched from an agricultural to manufacturing economy.
  • Representation. Hmmm. It’s almost as if each “improvement” brings with it new problems. Odd that. It’s as if there are no solutions, only trade offs. While no doubt joining the new empire, just as they were ‘liberated’ from the old hurt the pride and dignity of many reformist liberals in San Juan, it’s not difficult to imagine the alternative if Puerto Rico had still been part of Spain or independent during this last century. It’s safe to say that American rule probably spared the island the ravages of the Spanish Civil War (which raged in the last remnants of the Spanish Empire as well as in Iberia) or the horror of turning into a second Cuba.

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An excerpt of my piece over at CCLR;

While Greece and its ongoing economic meltdown has captured world headlines recently, closer to home, the American protectorate of Puerto Rico is suffering its own Greek tragedy of massive proportions. Puerto Rico has a massive debt to GDP ratio of 70%. [By comparison Rhode Island has a ratio of 20%] This debt comes from a variety of sources; the largest of which are government employee pensions, clocking in at a whopping $37 billion.

How did Puerto Ricans get here? For starters you can blame Washington’s intrusive mismanagement and big government. Economists from the Cato Institute, help outline several major policies that helped create the Puerto Rican debt crisis.

The first is through its nonsensical minimum wage policy…The second is that the Federal Jones Act of 1920 forces Puerto Rico to import and export goods only on US chartered vessels with US crews….Lastly, [t]he final knock out punch was delivered courtesy of the Clinton administration, which phased out preferential tax policy for the island. Starting in 1976, US companies could avoid many prohibitive taxes by relocating to Puerto Rico. The island’s first major recession began as the exemption was finally ended in 2006.

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Some parting thoughts;

It seems like Peter Schiff has some decent ideas. A little simplistic no doubt but probably a good start.

For those interested in Latin America, Spanish history and the economics thereof there are some great sources

  •  The Economist, Vol. 57. July 8th 1899, “The Spanish Budget for 1899-1900.”
  • Bankruptcy of Empire: Mexican Silver and the Wars Between Spain, Britain and France, 1760-1810 by Carlos Marichal
  • Spain’s 1898 Crisis: Regenerationism, modernism and postcolonialism ed. Joseph Harrison & Alan Hoyle. “Tackling national decadence: economic regenerationism in Spain after the colonial debacle,” by Joseph Harrison.
  • Economic History of Puerto Rico: Institutional Change and Capitalist Development by James L. Dietz
  • Puerto Rico’s Nostalgic Monarchists
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