I’ve just come back from a few days in Puerto Rico. Somehow I always find myself in the middle of stories. This one is about Puerto Rico’s financial and economic crisis that is in the headlines. The island, a territory of the United States, owes more than it can pay back to financial markets. Standard & Poor’s has downgraded its debt to junk status, meaning it is not considered investment grade.
You can see the economic pain in old San Juan. In areas where I visited five years ago, entire blocks seem to be abandoned or up for sale. A guide, who used to work for a big pharmaceutical company, showed us where the old General Electric plant used to be. It is in ruins. Ford Motor also closed a plant. All the pharma companies that were assembling in Puerto Rico because of tax advantages have pulled out. The island is a high-taxation, low-education place. It was once able to exploit its unique status, but globalization has hurt. Big companies have pulled out to go to Brazil, Mexico and other places.
One result of the dislocation is that an entire class of educated technical talent has left the country for mostly east coast U.S. cities like Tampa and Orlando. New York is no longer the same magnet it once was. Altogether, 4.2 million Puerto Ricans live outside of Puerto Rico. Only 3.8 million live on the island itself.
Teachers were in the streets while we were there, protesting the fact that their pension plan seems to have been raided by unknown miscreants. They make only $25,000 a year so they depend on their pensions. The fact that the teachers are being paid so little, and then are being cheated, speaks volumes. The island’s leadership doesn’t really care about high-quality education. The leadership seems to be self-dealing and corrupt. The governor, Alejandro Garcia Padilla, doesn’t even speak English, so how can American political and financial decision-makers even communicate with him.
So in some ways, Puerto Rico is to the United States what Greece is to Germany–a cultural island that resists the prevailing norms of the people who control the money.
The key difference is that the United States owns Puerto Rico. The U.S. Post Office is there, as well as the U.S. Coast Guard and some military units, the Environmental Protection Agency, the Forest Service and many other agencies.
So it’s time to do a Detroit. We need to put the financial monitors in place to clean the place up and put it back on some sort of firm financial and economic footing. At the current rate, Puerto Rico is going to continue to slide downward and just keep asking for more bailouts and more freebies. They can keep their language and their music and their culture, but it’s time clean up the mess. Why should the United States risk any hit to its reputation in world financial markets over Puerto Rican dignity?