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Now What?

April 4, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Reports from Washington of the unlikely passage of the Calderon administration’s proposed amendments to Section 956 have local economic development officials asking themselves "now what?"

The reports are not news. For months CARIBBEAN BUSINESS has been warning that the picture did not look as rosy as was expected by local officials.

More importantly, from the moment the initiative was announced 10 months ago, even as we expressed our support of it, we issued a very clear warning: "Don’t put all your economic development eggs in one basket."

Local economic development officials, regardless of the administration, sometimes seem unable to do two things at the same time. The last administration, for example, expended a very promising, visionary, and productive push to develop our tourism industry, but tended to neglect manufacturing. For the incumbent administration, by its own admission, the future of Puerto Rico’s economic development is wholly dependent on obtaining the new Section 956 incentive for the manufacturing industry. What a puzzling lack of vision!

For all its apparent, almost scientific complexity, economic development really boils down to a single, very simple proposition: Create jobs.

And the experience, both in Puerto Rico and in the mainland U.S., is that manufacturing is not the economic sector with the best job creation potential anymore for the simple reason that many other countries offer cheaper labor.

The historical record is clear. In the last 30 years, Puerto Rico’s population has grown by 43%, from 2.7 million in 1970 to an estimated 4.0 million in 2002. Meanwhile, despite a peak of 160,000 in 1989, manufacturing employment on the island has remained fairly stable, hovering in the 140,000-150,000 range, down to 138,000 jobs today. By contrast, the service sector (not including wholesale and retail commerce), which in 1970 generated 133,000 jobs, has grown steadily during the same period, now accounting for at least 350,000 jobs, a 163% increase.

Now, as we have said countless times in the past, that does not mean that we throw overboard the significant competitive advantages in manufacturing that we have built over time. No sir. Indeed, we ought to do everything within our reach to keep the jobs that we have in manufacturing and do our best to attract those companies that want to keep their operations under the American flag.

But to put all our economic development efforts behind an incentive for an industry that is not growing in terms of job creation is foolhardy. More so given the fact that just as it could give it, Congress could take it away. It already happened to us with Section 936. Why is it so difficult for us to learn from our own past experience?

The growth of the services industry will continue to be the way of the future. And of all the service sectors, none offers more job creation potential than the computer and information technology industries.

According to occupational employment projections compiled by the U.S. Bureau of Labor Statistics, eight of the 10 fastest growing professions today and for the foreseeable future are computer-related; software engineers, support specialists, data communications analysts, desktop publishers, database administrators, computer systems analysts, and software, network & computer system administrators.

Can Puerto Rico realistically develop a world-class information technology industry to serve–along other service sectors–as our economy’s job creation engine? Of course we can. As indicated in our front page story, some of the most robust high-tech economies are not in Asia, Latin America, or other low wage, third world economies, but in the U.S. mainland. Places like Silicon Valley in California and Silicon Alley in New York are expensive places to do business, but they function without tax incentives because they provide two very necessary assets–skilled labor and world-class infrastructure.

Could Puerto Rico ever? You betcha. But for that to happen, regardless who’s in office, economic development officials will have to learn to walk and chew gum at the same time.

Economic development means job creation, whether in manufacturing, tourism, information technology, telecommunications, banking, insurance, retail, even fast food restaurants or any other commerce or service sector.

Puerto Rico has a lot to offer, starting with an abundant labor supply. Let’s broaden our job creation efforts to include more than just manufacturing jobs that depend on incentives from Washington.

This Caribbean Business article appears courtesy of Casiano Communications.
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