Possible to guide a growth model

Last Friday the Summit on a Growth Policy for Puerto Rico was held, sponsored by the Center for the New Economy. The CNE is a non-governmental organization that analyzes economic aspects of the country and stimulates the discussion of alternatives to achieve new development models. All the speakers had excellent interventions. I want to summarize three presentations that outline the challenges we face and the actions we must take.

Puerto Rico has faced structural limitations basing its economy on one of dependency and colonial enclave. On this dependency model, the economics professor Francisco Catalá declared: “He who only asks, never can.” That has been the impediment to establishing a robust economic development model. This has resulted in a lack of competitiveness, a labor share of just 44%, massive migration, and a dramatic increase in the underground economy. To all this is added the governmental decomposition caused by corruption.

The cause of the current economic disaster has been a wrong vision of development. First, foreign companies with tax exemption. These companies do not increase the number of jobs, they do not contribute in tax terms and they displace the small and medium merchant. They draw from Puerto Rico annually in profits between $ 34 and $ 36 billion, paying an average tax rate of just 2%.

Second, non-recurring federal funds. These funds are not consecutively reallocated. I mean, you have them now, but not tomorrow. An institutional scaffolding of economic development cannot be mounted on the allocation of unsecured funds. Furthermore, many of those funds are lost to corruption. Remember the Whitefish cases, then Maria and the fatal tests during COVID-19.

Professor Joseph Stiglitz, Nobel Prize in Economics, made an approach in line with what famous Puerto Rican economists have raised. The economy cannot be separated from the political. To achieve an economic development model, it is necessary to transform governance models, rethink government institutions and refocus the vision of public policy.

The public debt crisis leads to the economic crisis. In this regard, the Nobel Prize in Economics pointed out the disadvantages of Puerto Rico in establishing a development model. They are summarized in: 1) the lack of power to direct our own destiny, due to our colonial status and 2) PROMESA, in particular the Fiscal Control Board, is a deficient instrument to service the debt and condemns Puerto Rico to a future bankruptcy. The effects of PROMESA and the Debt Adjustment Plan – approved by the Pepepe and popular leaders – will cause irreparable damage to the economy.

Finally, the panel led by Professor Belinda Reyes focused on the educational aspect as a pillar of social and economic development. The strengthening and breadth of university services, added to alliances with the public and private sectors to offer experience to students and strengthen services, are part of the models that have worked in multiple jurisdictions. Even financial assistance for postgraduate studies in exchange for public service is part of the investment necessary to retain future professionals.

The government has no compass. The rulers repeat the same failed models. If we want to break the cycle of bankruptcy, economic depression and poverty, we must overcome our colonial condition of political subordination; fight corruption head-on; rethinking governance models; combat the abuses of the Control Board (forcing Congress to eliminate this defective entity and respond to its decolonization responsibility); articulate a comprehensive tax reform and return to education as a priority. There is the map for a policy of economic growth.