June 21, 20223:35 PM

The reform of the labor reform: blow to competitiveness

Society does not reach full development if it does not have a social environment that facilitates economic activity and investment. In Puerto Rico, it is thought that economic development is the main function and responsibility of the state. It is not like this.

Societies with strong economies and sustained growth are those whose citizens, and not the state, are the ones who identify opportunities, take advantage of them and exploit them and, in doing so, generate jobs, economic activity and new wealth for society. If a society does not have entrepreneurs ready to assume the risks inherent in taking advantage of existing opportunities in the market, the state will never be an adequate substitute. When the state intervenes to assume such a function, it does so in an inefficient and ineffective manner, with severe consequences for citizens in terms of taxes and limitations on their freedom of action, particularly against government opponents and dissidents.

Governor Pedro Pierluisi signs the Labor Reform. (Supplied)

In Puerto Rico, we start from the assumption that the state is and must be the main promoter and protagonist of our social and economic activities. Likewise, to Puerto Ricans, that state instills on us to visualize ourselves as employees in perpetuity, and not to develop ourselves as agents of production and generation of our own wealth. This, and no other reason, explains why despite having so much talent and preparation, Puerto Rico stagnates and plunges into economic and social bankruptcy.

The COVID-19 pandemic forced us to confront our daily environment in a different way. Those people whose lives were subject to the instructions and assignments that others gave them, realized that they could, by themselves, offer and make their talents available in the market, to generate - without intermediaries - the means to support themselves and grow economically.

Our rulers and developers of social work do not understand the new world that is coming after the pandemic. This explains the reform of the labor reform that the Legislative Assembly has just approved and that the Governor is preparing to turn into law. With this reform that reverses and nullifies the reform approved just five years ago, the same cliches and stereotypes of our historical failure are perpetuated. Instead of building an instrument for Puerto Ricans' own development, our function as mere pieces of production of the wealth that others produce and to others corresponds to, is accentuated.

Another important economic result of the pandemic was the creation of an employee-friendly market. Instead of taking advantage of and promoting competition between the business sector, in order to ensure that they offer better compensation arrangements and employment conditions to attract the best available talent, the reform of the labor reform equalizes for all economic agents the basic costs of human capital, eliminating the aggressive competition that otherwise would have arisen. Even more worrying, the measure increases the operational costs of the commercial sector, causing, in turn, increases in the final value of the products that consumers will have to absorb, catapulting the already worrying inflation that afflicts us.

The final permanence of this reform of the labor reform is subject to challenge by the Fiscal Oversight Board. Although we agree with the Board's assessment that this measure, far from helping, harms Puerto Rico, our assessment is that the Board does not have solid legal grounds to successfully challenge it. This measure deals with regulating the benefits of employees in the private labor sector, exclusively. In that sense, it does not have a direct impact on the finances and budget of the government and therefore, it seems to us that it falls outside the jurisdictional scope of the Fiscal Oversight Management Board's authority.

Regardless of what will finally happen, the fact is that, once again, in Puerto Rico we are approving another measure without the necessary economic analysis of the realities of the market. I fear that the consequence will be that the measure will not have the desired effect of helping the worker and the local economy, but will end up harming it, perpetuating the same levels of inefficiency and anti-competitiveness that they find themselves in today.

This piece was originally published in Spanish in El Nuevo Día


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