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Following The Wrong Legacy

by Lance Oliver

February 16, 2001
Copyright © 2001 THE PUERTO RICO HERALD. All Rights Reserved.

News of layoffs beginning to pop up in the United States, where unemployment still lies far below 5%, doesn’t have the same impact as in Puerto Rico, where the headlines have been reporting one plant closing after another since the beginning of the year.

About 5,000 manufacturing jobs have been lost as several plants have closed. From an Intel factory to three clothing factories around the island, the news was widespread. In small towns such as Guánica, even news of 340 layoffs has a big impact, especially when good-paying jobs are as rare as rainy days on that southwest coast of the island.

The plant closings are both a challenge and an opportunity for the administration of Gov. Sila Calderón: a challenge because her term is starting off with bad economic news and a difficult outlook, and an opportunity because it provides ammunition for lobbying for federal tax incentives.

Politically, this plays into the Popular Democratic Party’s hands, because it can support its claims that the previous administration of Gov. Pedro Rosselló is to blame for the current problems because it did not defend Section 936 federal tax breaks.

The problem is that this view of the situation doesn’t match reality very well. First, Puerto Rico, as usual, had no clout to use in Congress to defend Section 936. A vigorous defense would have probably met the same fate as Rosselló’s feeble defense. And secondly, tax breaks are not a cure-all, as the PDP likes to portray them.

A spokeswoman for Sara Lee, among the companies closing textile plants, denied allegations by PDP politicians that the Rosselló administration had refused to grant additional tax incentives that might have kept the factory running. In fact, the Sara Lee officials said that neither the lack of additional local incentives nor the loss of federal Section 936 benefits was the key to the closing.

Economic reality dictated that the plant close. Regardless of the tax situation, it no longer made sense to keep the factory open. That assessment, coming from the company itself, which has no reason at this point to be dabbling in Puerto Rico politics, is an important statement.

It’s important because it is completely at odds with the mainstream thought in the Calderón administration. Obtaining federal tax breaks is the top item on Resident Commissioner Aníbal Acevedo Vilá’s agenda, even if the employers back home are saying that such tax breaks are not enough.

During some of the wilder times in the U.S. economic expansion, Wall Street types would talk about people worshipping at the Church of What’s Working Now. Whatever was hot that week was where everyone wanted to be.

Unfortunately, Puerto Rico’s leadership (and not just in the PDP) tends to worship at the Church of What Was Working Yesterday.

The rise of Puerto Rico’s economy and living standards during roughly the third quarter of the 20th century was so dramatic that many people can’t get past it. If manufacturing pulled Puerto Rico from its severe Depression-era poverty, why can’t it fuel our 21st century economy?

The problem is, manufacturing is no longer the future, except in nations far less developed than Puerto Rico. To think that all it takes is the right tax incentive to keep the remnants of the textile industry open in Puerto Rico is to be naïve.

Labor-intensive manufacturing will continue to slide. The pharmaceutical industry, for example, does well in Puerto Rico because it is capital-intensive and because all the necessary support industries, everything from shipping to printing labels, have sprung up to serve it. The industry has reached critical mass in Puerto Rico, and that makes Puerto Rico a good place for a pharmaceutical business. The same must be replicated in other high-tech industries, but it cannot be done overnight or with federal tax breaks alone.

It’s hard to abandon the old ways, however. That’s especially true for the PDP, so heavily shadowed by the legacy of Luis Muñoz Marín and the economic growth his administrations guided.

But the real legacy of Operation Bootstrap is not that manufacturing shall save us forever, but that Muñoz Marín and Teodoro Moscoso had the nerve to abandon the old economy of Puerto Rico and build a new model. Instead of doing that today, the Puerto Rico political leadership in general and the PDP in particular keep trying to copy what Muñoz Marín did by emphasizing manufacturing.

That would have been like Muñoz Marín putting all his economic development efforts into the coffee industry.

The real legacy is the daring to scrap the old, outdated model and build a new one. So far, that has not been done.

    Lance Oliver has written The Puerto Rico Report weekly for the Puerto Rico Herald since 1999. This is his final column. We wish him success in his new endeavors.

    We are pleased to announce that with next week's edition of the Puerto Rico Herald, Robert Becker, Managing Editor of the The San Juan Star, will write The Puerto Rico Report. We take this opportunity to welcome him to the Herald.

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