Boom and Bust in Puerto Rico: How Politics Destroyed an Economic Miracle , by A.W. Maldonado

In: New West Indian Guide / Nieuwe West-Indische Gids
José Caraballo-Cueto University of Puerto Rico Graduate Business School Puerto Rico Río Piedras

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A.W. Maldonado, Boom and Bust in Puerto Rico: How Politics Destroyed an Economic Miracle . South Bend IN: University of Notre Dame Press, 2021. ix + 254 pp. (Cloth US$ 35.00)

According to both peer-reviewed academic sources and nonacademic sources, there are several factors involved in Puerto Rico’s unsustainable indebtedness. A.W. Maldonado’s Boom and Bust in Puerto Rico: How Politics Destroyed an Economic Miracle belongs largely to the second strand of literature because most of the sources it engages are non-peer-reviewed documents.

The book is easy to read for a general audience and is useful for the historical narrative of local political dynamics in Puerto Rico during the last 100 years. Maldonado is correct that there was a “boom and bust” in economic growth; from 1955 to 1980, the heyday of the industrialization program, Puerto Rico was among the top 14 high-growth economies, while in the last 20 years it has been among the top 14 slow-growth economies.

Maldonado rightly points out that the Puerto Rican debt crisis was triggered when U.S. authorities removed the industrial incentives provided to Puerto Rico under Section 936 of the federal tax code without any substitutable economic strategy. This deindustrialization reduced the government revenues, increasing Puerto Rico’s dependence on external funding. In 1995 manufacturing represented 42 percent of Puerto Rico’s Gross Domestic Product, creating more than 30 percent of the local bank deposits, and generating 17 percent of the total direct employment (that is, without accounting for the large indirect employment resulting from local firms providing services to these factories and from the consumption of these high-wage workers). It is far from a coincidence that when the transition period of Section 936 ended in 2006, Puerto Rico entered the largest economic depression in more than 100 years. Juan Lara and I have recently verified the relationship between this deindustrialization and indebtedness with advanced statistical methods in “Deindustrialization and Unsustainable Debt in Middle-income Countries: The Case of Puerto Rico” (Journal of Globalization and Development, 2018).

However, an excessive emphasis on local dynamics has led Maldonado to hyperbolize the role of political forces in Puerto Rico in determining federal debates on tax incentives. This notion that the crisis was self-inflicted by Puerto Rico is common in the Puerto Rican media, unlike the media in the United States, where the Puerto Rican diaspora placed the responsibility on U.S. actors. Maldonado writes that “In the end, the economic, fiscal, and political crises are the result of the breakdown of Puerto Rican self-government” (p. 11). In my view, the local political dynamics were one of many exacerbating factors that fueled indebtedness in Puerto Rico, along with fiscal mismanagement, but not the main cause. The decision whether to repeal or leave Section 936 was mainly determined by federal forces, not local politics. In 1993, the GAO stated: “Congress periodically reconsiders the benefits and costs of the section 936 tax credit … Concerns about the tax benefits in relation to employment generated have led to proposals to revise the section 936 tax credit” (pp. 3–5).

Yes, local politicians had some influence over a handful of members of Congress, especially representatives of U.S. districts with a relatively large Puerto Rican population, but not over all of them. If they had influenced all of them, parity in Medicaid and the repeal of the 1920 Jones Act would have been achieved long ago because the main political parties and private-sector organizations endorsed them.

One could also question Maldonado’s reference to Puerto Rico as an economic miracle. He praised “operation bootstrap,” and it certainly was a strong growth policy that modernized the Puerto Rican economy. But stating that it was an economic miracle is problematic, and many authors would disagree with his assessment (see, for example, J.L. Dietz, Economic History of Puerto Rico: Institutional Change and Capitalist Development, 1986). For instance, in 1989, seven years before the removal of Section 936, 68 percent of children lived below poverty levels.

Boom and Bust in Puerto Rico could have benefited from discussion of other newspaper articles, such as J. Stiglitz and M. Medish’s assertion in a Wall Street Journal article (August 13, 2015) that “the U.S. must take responsibility for its imperialist past and neocolonial present. Washington owes Puerto Rico a future based on democratic legitimacy and a financially and socially viable development strategy—a development strategy that is more than a set of tax breaks for profitable U.S. corporations.”

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