Made in the USA: The Crisis in Puerto Rico and the Resignation of Governor Ricardo Rosselló
Offering a comprehensive overview of Puerto Rico’s history and evolution since the installation of U.S. rule, Ayala and Bernabe connect the island’s economic, political, cultural, and social past of residents of the island as well as the many Puerto Ricans in the diaspora. The authors discuss a wide range of topics, including literary and cultural debates and social and labor struggles that previous histories have neglected. Ayala and Bernabe argue that the inability of Puerto Rico to shake its colonial legacy reveals the limits of free-market capitalism.
Puerto Rico in the American Century is available now in both print and ebook editions.
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Made in the USA: the Crisis in Puerto Rico and the Resignation of Governor Ricardo Roselló
After two weeks of unprecedented massive protests the governor of Puerto Rico resigned on July 24, 2019, effective August 2, 2019. While corruption scandals and an exposed chat between the governor and his inner group were the immediate triggers of the crisis, the explosion in Puerto Rico was too intense and too extensive to have been the product of conjunctural factors. It has long term roots.
In 2006, we wrote in the conclusion to Puerto Rico in the American Century as follows:
“At the time of writing, the decrease in manufacturing employment continues, public debt has reached unprecedented levels and Wall Street rating agencies are close to reducing Puerto Rico’s government financial instruments to the level of junk bonds. More critically, government agencies have run out of funds two months before the end of fiscal year 2005-2006. An impasse between the Popular Democratic Party-controlled Executive and a New Progressive Party-led Legislature forced a two-week layoff of close to 100,000 public employees. Coinciding with this, Congress is conducting hearings on possible mechanisms of dealing with the status question. Erosion of the prestige of the major political parties, fiscal crisis and growing exasperation on the island, on Wall Street and in Washington with Puerto Rico’s overall situation: Puerto Rican society is at the end of an era.”
The trends described in 2006 continued and the crisis deepened: manufacturing employment continued to decrease, public debt spiraled upward, Puerto Rico’s bonds were downgraded to junk-bond rating in 2014 and most analysts eventually recognized that Puerto Rico’s debt is unsustainable and must be restructured (how and on what terms is another matter). Puerto Rico, as we pointed out over a decade ago, is at the end of an era.
The crisis in Puerto Rico is about 20 years old and it is made in the USA. More specifically, it is made in Washington. It started when the US Congress eliminated the tax incentives that attracted investments to Puerto Rico, in a phaseout during the years 1996-2006, without providing an alternative economic plan for the Island’s economy. Manufacturing employment collapsed as a result of those changes to Section 936 of the Internal Revenue Code, about which we wrote in Puerto Rico in the American Century. Puerto Rico has about half as many manufacturing jobs today as it had in 2000. The following graph from data from the Federal Reserve Bank of St. Louis shows the trend in manufacturing employment in Puerto Rico since 1996, the year in which the phaseout began.
Source: Economic Research Division, Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org)
Because Puerto Ricans are US citizens, and because so many in Puerto Rico have relatives and social networks in the United States, it is relatively easy to emigrate. The result of the economic crisis combined with the ease of exit was a massive exodus of population. According to the US Census Bureau, the island had a population of 3,808,610 in the year 2000, a population of 3,725,789 in 2010, and a population of 3,195,153 in 2018. Puerto Rico had 19.2% more people in 2000 than in 2018. Basically, the island lost one in five residents in the last two decades. The Census projects that Puerto Rico will have less than 3 million inhabitants in 2025. The economy of Puerto Rico has experienced no growth in the last 12 years.
The decreasing population, independently of other cyclical pressures such as the mortgage crisis of 2008 in the US economy, created a downward economic spiral which became a vicious circle. As the population decreased, real estate prices declined, retail sales dropped, many businesses closed due to reduced number of customers, producing further economic contraction. Additionally, the government experienced a plunge in tax receipts because there were less people to pay taxes, which it tried to compensate by increasing sales taxes, a regressive measure which hurt the poorest sectors of the population disproportionately.
In 2015 the government of Puerto Rico declared that it could not pay bondholders, that is, it essentially declared that it was bankrupt without being able to formally declare bankruptcy because of US laws, producing further cuts in government expenditure which affected education, health, and reduced the quality of life of the citizens. The response of the US Congress was the Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA, which means “promise” in Spanish). It can be in large writ be described as a re-colonizing measure. A committee of seven individuals –bankers and others related to the financial world– called the Fiscal Review Board, now determines what the government of Puerto Rico can spend money on, eliminating any semblance of self-government in the island. Before 1946 Puerto Rico was governed by presidentially-appointed governors, always from the continental United States. The island has now returned to direct colonial rule, with the caveat that it has a seven-member “collective governor,” the Fiscal Review Board, rather than a single individual in charge.
The multiplier effects of the crisis are many and occur in many social dimensions. For example, loss of population combined with decreasing fertility rates means that there are less children in school. Many schools have closed as the Department of Education has concentrated the decreasing student population in a smaller number of schools. But for many families, this means increased travel distance to schools and in many cases children have difficulties getting to the new schools to which they are assigned. This and many other manifestations of the crisis unfolded before Hurricane María, which devastated Puerto Rico in September of 2017, causing massive destruction, over 3,000 deaths, and generalized devastation of the infrastructure, particularly the electric grid.
Imagine that in the middle of the crisis described above, your local school closes down and you now have problems getting your children to school. Hurricane María complicates the situation further due to lack of electricity for months, and impassable roads in some places make matters more difficult. Now to add insult to injury imagine that the Secretary of Education in charge of your children’s education (Julia Keleher) is charged by a federal grand jury in July of 2019 of embezzlement of funds. Perhaps your accumulated frustrations reach a point where you say enough is enough. Hundreds of thousands of Island residents experience the same in all dimensions of social life. You decide you will no longer suffer in silence.
The recent protests which forced governor Ricardo Rosselló to step down reflect a deep seated frustration on the part of the local population with a corrupt administration. They are ALSO protests against historical regression, that is, against the new form of colonialism introduced on the heels of a crisis which was largely “made in the USA.”
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César J. Ayala is professor of sociology at the University of California, Los Angeles, and Rafael Bernabe is professor and director of the Federico de Onís Hispanic Studies Center at the University of Puerto Rico at Río Piedras.