Restoring Growth in Puerto Rico: The Economic and Policy Challenges

By Soto-Class, Miguel A.; Lamba-Nieves, Deepak | Harvard Journal of Hispanic Policy, Annual 2007 | Go to article overview

Restoring Growth in Puerto Rico: The Economic and Policy Challenges


Soto-Class, Miguel A., Lamba-Nieves, Deepak, Harvard Journal of Hispanic Policy


Puerto Rico's economy has been the subject of numerous surveys and serious inquiries since the Spanish set foot on its coasts in the late fifteenth century. The list of curious minds is extensive and includes an interesting mix of individuals and institutions with varied interests, vantage points, and prescriptions. In most cases, the reports have drawn attention to the island's needs and provided proposals for future advancement. As Emilio Pantojas (1999, 13) has noted, "Every critical moment of this century has produced studies and reports that attempt to diagnose the macroeconomic problems of the country and formulate policies for its solution." (1) Such was the case in the depression era when a team of social scientists sponsored by the recently founded

Brookings Institution drafted Porto Rico and Its Problems, a landmark text that informed economic policy and offered a detailed look into a very poor economy in need of reform. In its introductory pages, the authors provide a description of the then-present conditions that provided a context for their study:

Porto Rico presents two problems to her own people and to the Federal government. The first is economic--how to raise the incomes and standards of living of her people to something approaching a parity with those prevailing in continental United States. The second is political--how to establish mutually satisfactory public relations between the Island and the mainland (Clark 1930, xvii).

More than seventy-five years after the report was published, the concerns expressed by the Brookings team still resonate. Today, Puerto Rico boasts many economic achievements but also some misfortunes. In light of these conditions, the Center for the New Economy (CNE), Puerto Rico's first independent think tank, labored together with scholars from the Brookings Institution to design an in-depth study that attempts, as was the spirit of the first Brookings team, to answer two key issues: why did the impressive economic growth registered in the island during the fifties and sixties stop and what can be done to get back on track. The result is the publication of The Economy of Puerto Rico: Restoring Growth, a book-length volume that incorporates the work of thirty-two renowned scholars from the mainland and the island, and analyzes various key economic development issues such as education, the macroeconomic sphere, entrepreneurship, labor supply and labor force participation, the fiscal system, and the financial dimensions of growth. (2) As will be argued in the following pages, one of the main causes of the island's economic slowdown has been the low labor force participation rate of the population. This trend has been fueled by a combination of factors such as the benefits structure of public transfers, the adoption of an industrial development policy that disproportionately favors capital-intensive efforts, and a vibrant informal sector. Reversing this negative tendency through innovative policy and political will should be the top priority at all levels.

Over a period of two years, authors and chapter commentators collaborated to produce a text that provides a comprehensive diagnosis of the economy and offers specific policy responses to the problems identified. In each chapter, experts on Puerto Rico's economy are paired with key scholars to ensure that the writings are thoroughly informed and to foster a transfer of knowledge between academic communities. Our hope is that these interactions pave the way for new ventures and an increased interest in Puerto Rican affairs.

The following sections will outline key findings from the volume.

Puerto Rico: A Glass Half Full

In the concluding chapter, Susan Collins and Barry Bosworth (2006, 566) note that "in terms of providing an environment conducive to growth, Puerto Rico can be characterized as a glass that is only half full." During the decades that followed World War II, Puerto Rican living standards were quickly converging to U. …

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