Puerto Rico must strengthen the capacities of its population in view of the possibility that cuts in federal public spending may affect the funds received on the island for social assistance programs.
U.S. President-elect Donald Trump has left it up to Tesla, SpaceX and Social Network X leader Elon Musk to cut federal government spending. In a photo taken Nov. 19 in Boca Chica, Texas, Musk and Trump walk before the launch of the sixth test flight of the Starship rocket. (Brandon Bell)
The year 2024 is almost over, and as we move towards 2025, it would be ideal to begin to understand the dimension of the changes that will come with the new federal government. Recently, Donald Trump announced the creation of the Department of Government Efficiency (DOGE) and will put Elon Musk, who has become a sort of ideological mentor, at the head of the agency. The new entity, also co-led by entrepreneur and one-time presidential pre-candidate Vivek Ramaswamy, will have the mission of implementing profound changes in federal government spending and apparatus.
The cuts being contemplated by President Trump respond to the serious fiscal challenges facing the United States, and simultaneously respond to his ideological vision and his closest entourage. The combination of motivations behind the fiscal actions will have a dramatic impact on the nation and Puerto Rico. MAGA (Make America Great Again) ideologues believe strongly in downsizing the state, reducing government spending, particularly social programs, eliminating regulatory agencies and reducing taxes. Just as the Argentine president, Javier Milei, is doing in his country, a conservative revolution is coming that will have repercussions in all areas of the United States.
I start from the premise that the fiscal revolution being promoted by Trump and his entourage represents the beginning of the end of the welfare state as we have known it for the past decades. When I refer to the welfare state, I am referring to how the state has created a system of programs, aids and incentives that have led to nearly half of the population being dependent on the state, in the case of Puerto Rico. That welfare state has been essentially financed by the multi-million dollar appropriations sent to the island by the federal government. There is consensus among economists that the consolidation of the welfare state has prevented the optimization of human resources available for work, distorted the behavior of the labor market, and created a parallel society that operates in marginality and economic informality.
The labor participation rate of 44%, well below the U.S. nationwide rate of 62%, and the poverty level of 45%, while the national rate is 12%. The socioeconomic disparities between the United States and Puerto Rico can be explained, to a large extent, by the fact that public policies bet on dependence on aid that is financed with money that we do not produce locally.
Strategies for handling potential cutbacks
To the extent that cuts in Washington focus on reducing fiscal resources to programmatic areas such as health, food, education, and even social security, state governments, including Puerto Rico's, will have to implement reforms to move as many participants in these programs as possible toward self-sufficiency.
In the local case, we have long warned that these changes cannot be postponed. After recent disasters contributed to raising federal allocations to the island to historic levels, today, the pendulum is beginning to swing towards a scenario of less federal assistance and, therefore, welfare policies will have to be modified. The question is: how to implement the coming changes with the least possible social and economic impact?
We cannot ignore that between 2020 and 2023, federal funds reached a historic level as a proportion of the Gross National Product (GNP), with 43%, 46%, 43% and 42%, respectively. Never in Puerto Rico's modern history have federal appropriations played such a major role in the country's economic activity.
As it is, I am concerned that the government or the private sector itself may not be aware of the social and economic scenarios that may be configured for us once the new Trump administration begins to implement the cuts. It is urgent to begin exploring strategies to help dependents migrate to economic independence.
Strategies to promote self-sufficiency
The outgoing administration took affirmative steps in this direction when it decided to expand measures such as the work credit and a pilot project to promote the transition to work among those participating in the Nutritional Assistance Program (PAN). With respect to the first measure, the tax benefit has succeeded in encouraging people to enter the world of formal work, or reinsert themselves into the formal economy, and to comply with tax obligations. Let us hope that the administration will continue these efforts, which are consistent with the republican vision of the new government.
Secondly, the government should promote the retraining of people who currently participate in social assistance programs to ensure their employability, so that they can be effectively inserted and meet the needs of the labor market. Along these lines, it would be ideal to promote entrepreneurship and self-management as models for the currently dependent population to move towards economic freedom and independence from the state. Finally, the municipal governments of the central region of the island can set up recruitment programs for the agricultural industry, which is lacking in labor.
It seems to me that the changes that will come after 2025 represent a great opportunity to make a great alliance between the government, the private sector and the universities to forge a country project that creates the conditions for the greatest number of people to move from the welfare state to the productive world and economic self-sufficiency.
This article was originally published in Spanish by El Nuevo Dia.
