Dependence that hurts economic self-sufficiency

Last week, the White House hosted a high-level meeting between federal and local government officials to discuss an economic agenda for 2023. Following the event, there was a press conference in which Governor Pedro Pierluisi and representatives of President Joe Biden explained some of the initiatives that will be promoted.

Clearly, far from announcing an economic policy program that will promote the long-term development of the island, the officials spoke of initiatives and projects tied to federal aid provided by FEMA and other agencies. I did not seem to hear anything about cabotage laws, changes in social welfare policies or restoring a productive culture on the island.

Congress fails to understand that the excessive expansion of aid to Puerto Rico is not only destroying the productive capacity of the local economy, but is also damaging collective self-esteem, writes Gustavo Vélez. In the photo, view of the meeting between White House officials and Pedro Pierluisi's administration. (José A. Delgado)

Despite the collapse of the economic model brought about by the end of Section 936 (1996) and the eventual bankruptcy of the territorial government (2016), it is evident that Washington, much less the territory's officials, want to think about structural changes that would make it possible to devise an economic strategy that does not depend on federal aid. As it is, it appears that we will remain hostage for the short term. Local politicians and in some instances, business groups, have preferred to go to the federal capital to ask for new aid disconnected from a coherent economic development program.

The eternal "Ay bendito boricua".

The context of government bankruptcy and the tragedies associated with hurricanes, earthquakes and the COVID-19 pandemic has been the ideal pretext on the local side to ask the federal Congress for new aid covered by the Puerto Rican "ay bendito". Congress -in the absence of a clear public policy regarding the island- seems to have chosen the easy route of providing aid to avoid major social and economic problems in its Caribbean territory, and to contain emigration to the north. It is estimated that there are already five million Puerto Ricans in the United States.

As it is, the two factors outlined above have Puerto Rico in a decisional limbo that will make the island's long-term economic viability unsustainable. Washington and the local leadership, along with the private sector, must provoke a serious and deep conversation about strategies and tools to enhance local productive forces.

In previous columns, I have described how the combination of all these aids has increased the island's economic dependence on federal aid. Between 2020 and 2021, recurring and non-recurring federal aid accounted for 30% of the island's Gross National Product (GNP).

As a result of this increase, the labor market has been adversely impacted, as fewer people are encouraged to work, despite the increase in the minimum wage and the job credit. Congress fails to understand that the unconscionable expansion of aid to Puerto Rico is not only destroying the productive capacity of the local economy but is also damaging the island's collective self-esteem. To the extent that aid is not transformed into economic development tools, the vicious cycle of dependency, productive destruction and diminished self-esteem will make it unfeasible for the island to achieve an acceptable level of economic self-sufficiency.

I am not referring to a transition to independence, but to an exponential increase in the production capacity of local industries, from agriculture and tourism to manufacturing, technology and specialized services.

Like other states such as Florida, Texas and New York, among others, Puerto Rico has to find a way to produce and reduce its dependence on aid from the north for several reasons. No society is viable without a reasonable productive base and work ethic. Secondly, the federal government faces a $30 trillion debt, and at some point, it will begin to reduce spending. And high dependency makes us vulnerable to political changes in the federal capital that could alter the flow of that aid.

There was a historic moment, between 1948 and 1977, when a visionary generation, with fewer resources and greater economic adversity, was able to build a development strategy that, with its successes and shortcomings, turned us into one of the most successful economies in the region. Today, we must recover our collective self-esteem and once again dream and think big to build a new development strategy that dignifies the Puerto Rican people.

This article was originally published in Spanish in El Nuevo Dia.

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