The Government Goes To Market

by John Marino

March 26, 2004
Copyright © 2004 THE PUERTO RICO HERALD. All Rights Reserved.

. Government intrusion in the marketplace has been making headlines this month, and more headlines about the subject are sure to be forthcoming in this election year.

Politicians are working overtime, not only slinging mud at each other, but also hunting for votes by making promises they cannot responsibly keep to special-interest groups.

Taking the cake is the suggestion this week that the government should develop a system to pay housewives or househusbands a pension when they retire.

In Puerto Rico where "informal" economic activity is estimated at at least $10 billion a year, such a move would only increase the temptation to keep any earnings made off the books. And where would the government get the money to pay for the pensions?

Not only does the proposal appear to be open to widespread abuse, it's not clear why proponents feel that stay-at-home parents need a pension. Traditional two-parent households, where one parent stays at home, are becoming increasingly rare, but they are probably among the most financially stable of families on the island. Forgoing one income is a conscious choice, and the stay-at-home parent benefits from the wage-earner's labor as well.

If the intention is to encourage more families to have a parent stay at home, it might be unnecessary, as the tax system already rewards married couples with one wage-earner with preferential tax rates. Witness the clamor, for example, to repeal the so-called "marriage penalty tax."

One of the biggest backers is Labor Secretary Frank Zorilla, who said the move would "do justice to all women and men who stay home to give their children a better quality of life."

Zorrilla is also pushing a move to have part-time workers in Puerto Rico qualify for the same benefits -- health insurance, paid vacation and sick leave, etc. -- that full-time workers enjoy. While his intention here may be noble, it would likely wind up making a part-time job as rare as snow in Puerto Rico.

That would hurt precisely who the measure is trying to help -- college students, mothers trying to work and raise their kids, and retirees struggling to make ends meet.

All three political parties also endorsed legislation this week that would create a public corporation to manage the new coliseum rising above the skyline in Hato Rey, which is slated to be named after beloved comedian José Miguel Agrelot.

The move comes after a group of local producers raised concerns that they could be cut out of producing shows at the soon-to-be-opened venue since a stateside firm SMG has a three-year management contract.

They worry that SMG, which reportedly is seeking a license to produce shows locally, could steal some of their business even though officials have said they are only interested in managing the facility, not producing shows. The producers also are concerned that stateside acts will likely prefer to have their shows produced by stateside producers, rather than working through a local producer.

In the end, my guess is that SMG will need all the local producers, as well as many stateside producers, to turn a profit at the $300 million facility. But the company can't be happy now that the new legislation will essentially replace them in three years with a public managing entity. The proposal also mandates that half of all events have to use local performers or athletes.

I would not be surprised if SMG bails out of its contract if the proposal becomes reality. The company has experience running some of the biggest venues along the east cost and has years of expertise giving the public what it wants.

Anybody want to bet that the proposed public entity will have a harder time than SMG in making the venue profitable?

Meanwhile, Texaco is suing Justice Secretary Anabelle Rodríguez over her decision to kill an incentive-sales program from gas wholesalers to gas retailers. She said the programs that grant special pricing based on volume are unconstitutional.

The move sparked a price hike at the pumps, which was already reflected in March because of the worldwide increase in crude oil sales. The Consumer Affairs Department followed suit by freezing the price margin that wholesalers can earn off sales to retailers. Before the move, the government had left the margin unregulated.

Both the incentives program, and the deregulation of the gas price margin, have worked to make gas prices in Puerto Rico historically cheaper than those in the United States. While that's still true, pump prices are being pushed up and the gap could narrow.

Government intrusion in the marketplace, and the mandating of benefits the private sector must pay for, has been a perennial problem in Puerto Rico.

But with the loss of federal industrial incentives, slated to end in 2006, continued government activism in this area will likely further harm the economic climate on the island.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

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