The Atlantic Report on the World Today: Puerto Rico

WHEN Governor Luis Muñoz Marin made his first official call upon President Truman last year, he surprised most observers by not asking for increased Federal aid for Puerto Rico. Instead he suggested that Puerto Rico, by virtue of her own experience, could contribute materially toward the implementation of the President’s Point Four program. It was more than a gesture. Puerto Rico, one of the most densely populated areas in the world and chiefly dependent upon agriculture for existence, is making notable progress in her efforts to solve her economic problems by promoting large-scale industrialization.

The hotels of San Juan do a thriving business accommodating expansion-minded industrialists attracted to the island by the prospect of low labor costs, the tax holiday until 1959, the hospitable industrial atmosphere, and a climate virtually unrivaled in the Western Hemisphere. The sun shines 360 days of the year in Puerto Rico; the average temperature is about 73° in winter and only a few degrees higher in summer. Although the island is classified as subtropical, the prevailing trade winds provide a constant breeze and a year-round climate similar to springtime in temperate areas.

Add inviting beaches, lush tropical scenery, exotic fruits and flowers, and picturesque historical sites dating from Columbus’s time, and it becomes apparent that Puerto Rico is possessed of most of the ingredients necessary to attract tourists in large numbers.

Since the end of World War II. sixty-one of these visitors have liked what they saw well enough to establish new factories employing some 8000 people and producing goods valued in excess of 50 million dollars per year. The Government of Puerto Rico operates on the theory that private enterprise, given intelligent encouragement and favorable conditions, can do much to raise living standards and reduce unemployment in this overcrowded, industrially retarded island.

Scarcely 100 miles long and 35 miles wide, Puerto Rico has a population of over 2.2 millions — an average of more than 220 persons for every 100 acres of arable land. The rate of natural increase is high and shows no signs of declining. Governor Muñoz Marin once remarked, “We have an agricultural birth rate and an industrial death rate.”

Operation Bootstrap

To transform this mounting surplus population into an asset is the goal of the industrialization program-Operation Bootstrap — launched in 1942 by the Puerto Rico Industrial Development Company, an agency of the Insular Government. The program, which has been called visionary by its critics, has a dollars and cents practicality that appeals strongly to many U.S. manufacturers.

To get the industrial ball rolling in the post-war period, the Development Company and its sister agency, the Government Development Bank for Puerto Rico, provided considerable financial assistance in the establishment of new manufacturing enterprises. A million-dollar textile plant was constructed in Ponce and sold to the Textron Corporation. To stimulate tourist trade, the luxurious 6-million-dollar Caribe Hilton Hotel was built and leased to the Hilton Hotels Corporation for twenty years with an option to buy.

It is significant that the Textron Corporation, whose government-built factory is now in full operation, is itself constructing a second plant at Humacao, Puerto Rico, entirely financed by private capital.

While one of the fundamental aims of the industrialization program is to promote higher wage levels and better living standards, the low wage scales which prevail are unquestionably a major attraction for industries having a high labor factor. Fortunately for Puerto Rico, Insular industries are not required to comply with the 75 cents per hour Federal minimum wage law. To do so at this time would be a deathblow for most of them. Insular minimum wages are set by Federally appointed industry committees composed of representatives of labor, industry, and the general public. This system has the support of the local labor unions and of the national headquarters of CIO and AFL unions as well.

The record of the past eight years indicates that Insular wage scales are ascending in accordance with employers’ ability to pay. New minimum wages from 1 to 35 cents per hour higher are slated to be put into effect shortly in thirty-two different industries. Even at the new levels, however, the wage rates for these enterprises will remain substantially below those for comparable work on the mainland.

No taxes till 1959

Of all the incentives offered industries to locate in Puerto Rico, the Tax Holiday Act has excited greatest public interest. It is a form of subsidy whereby most new industries are exempt from the payment of all income, property, and municipal taxes until 1959, and partially exempt for three additional years. Since no Federal income tax can be collected from Puerto Rican enterprises under existing law, potential tax savings are impressive.

Manufacturers can expect preferential treatment in the future. In his last message to the Insular Legislature, the Governor proposed that the tax structure be revised to provide permanently low taxes for all productive enterprise on the island. If such legislation should be enacted, the tax exemption program would be superseded except for those firms granted the exemption privilege prior to the effective date of the new tax legislation.

While proposing to reduce levies on a major group of taxpayers, Puerto Rico urgently needs to increase her total tax revenues substantially in order to finance expanding programs already under way in such fields as education, public health, and housing, as well as industrialization. It is planned to obtain these increased revenues by placing high taxes upon idle lands, other nonproductive holdings, and luxury items, and by more efficient enforcement of tax laws.

Thus far, Operation Bootstrap has been financed almost entirely on a pay-as-you-go basis. However, Puerto Rico is in a strong position to float sizable bond issues. With a record of never having defaulted or become delinquent on debt obligations, her credit is excellent. Her present indebtedness is only 4 per cent of her net annual income. An 18-million-dollar bond issue was sold out in a matter of days through New York financial agencies.

Independence is a luxury

A stable, democratic political structure is not the least of Puerto Rico’s advantages. With a government patterned after that of the United States, Puerto Rico has achieved a degree of political maturity which certain other Latin American areas might well emulate. Since Puerto Rico is under the flag of the United States and Puerto Ricans are American citizens, the same democratic safeguards exist as on the mainland. Political campaigns are hard-fought but orderly, elections are free, and the voting is heavy.

The dominant political figure in Puerto Rico is Luis Muñoz Marin, a practical idealist endowed with shrewd political judgment. In the last two elections, the Popular Democratic Party which he heads won sweeping majorities of the popular vote and captured almost every seat in the Insular Legislature, each time over strong political opposition as well as that of the island’s two largest newspapers.

Within the party, one strong contingent favors statehood for the island while another advocates independence, but Muñoz Marin has convinced these opposing elements that Puerto Rico’s immediate problem is economic, not political. He refuses to commit himself to the goal of either statehood or independence, maintaining that both are luxuries which Puerto Rico cannot now afford. There are excellent arguments to support this point of view.

Federal taxes collected in Puerto Rico or assessed on Puerto Rican products exported to the mainland revert to the Insular treasury and constitute about 20 per cent of the Insular Government’s income. It was the excise taxes collected on the enormous quantities of Puerto Rican rum sold in the whiskey-short United States during World War II which provided the funds to pay off most of the island’s indebtedness.

If Puerto Rico were to become a state, these Federal revenues would be lost to the island, and individuals and corporations located there would pay the Federal income tax and other Federal levies. It would necessitate a drastic reduction in the Insular income tax, from which the Government. of Puerto Rico realizes about 25 million dollars per year. As the Governor explains it, “If we had to pay Federal taxes, wo just couldn’t continue functioning. Our total operating revenues are only 70 million dollars per year, and Federal taxes would amount to about 60 million at present levels.”

The biggest argument against independence is the fact that such a change in political status would place Puerto Rico outside the tariff walls of the United States, the area which is likely to remain the principal market for Puerto Rico’s exports. The sugar industry, backbone of the island’s economy, is the source of approximately 60 per cent of all Puerto Rican exports to the United States. But Puerto Rico is a highcost producer. If forced to compete in the world market without the protection of the tariff and the help of Federal subsidies, the effect on the island would be disastrous.

Puerto Rico’s political status has been changing during recent years by an evolutionary process. No longer does the President of the United States appoint the Governor, the Attorney General, the Commissioner of Education, and other key officials. The only officials still appointed by the President are the Auditor and the members of the Supreme Court. Muñoz Marin, who took office early in 1949, is the first elected Governor in Puerto Rico’s four and one-half century history.

As the next step in the evolutionary development of her political structure, Puerto Rico seeks the privilege of writing her own constitution. Bills to enable her to do this are now pending Congressional action. When written and approved, the new constitution will supplant the 33-year-old Organic Act under which the island is now governed, and Puerto Rico will have achieved most of the advantages of statehood without the financial disadvantages previously cited; the last vestiges of colonialism will have virtually disappeared.

Our best customer

Puerto Rico’s economic well-being is closely bound up with the United States. As an “unincorporated territory” inside U.S. tariff barriers, Puerto Rico sells 96 per cent of her exports in mainland markets.

The advantage is not one-sided, for Puerto Rico spends 340 million dollars per year — more than half her net annual income — for agricultural and industrial products from forty different states. On a per capita basis, Puerto Rico is the best overseas market for U.S. products; in amount of goods bought, irrespective of population, she is our fifth-best customer in Latin America and thirteenth in the world. The record shows that as her national income has risen in recent years, her imports from the mainland have increased proportionally.

Prior to World War II, Puerto Rico consistently maintained a favorable balance of trade with the United States, but during the past eight years imports have greatly exceeded exports. The difference has been made up in large measure by incoming Federal funds — chiefly in the form of veterans’ benefits and military expenditures by the Department of Defense. The fact that, such expenditures are tapering off heightens the urgency of developing new sources of income for the island.

Apart from military outlays, which have amounted to hundreds of millions of dollars, the civilian Federal agencies have spent well over 500 million dollars in Puerto Rico during the past twenty years. Vitally important as these Federal contributions have been to the island’s welfare, lack of coördination and long-range planning has prevented the accrual of maximum permanent benefits. Some 83 per cent of the nonmilitary Federal expenditures have been in the category of relief or amelioration while only 17 per cent were of the productive nature which would ultimately reduce the need for relief.

Point Four proving ground

The stake of the United States in Puerto Rico is more than financial and military. The ultimate success or failure of Operation Bootstrap will materially affect U.S. prestige in the Latin American countries, most of which are closely watching developments in Puerto Rico.

Delegations from Venezuela, Brazil, Uruguay, and numerous other Latin American areas regularly visit Puerto Rico to study her education, housing, sanitation, public health, and industrialization programs. A number have returned to their home countries to pattern similar activities after the Puerto Rican model.

Several Federal agencies use Puerto Rico as a Point Four instrument. Through pamphlets and literature, the U.S. Department of Agriculture is spreading knowledge of Puerto Rico’s agricultural advances throughout Latin America. The State Department recently set up twelve fellowships to enable Latin American engineers to study under the Puerto Rico Water Resources Authority and the Sewer and Aqueduct Authority.

Puerto Rico has made an impressive beginning in her struggle upward, but she will continue to need the assistance and coöperation of the Federal government for many years to come. There seems good-reason to believe that the degree of that need will decline as Operation Bootstrap progresses. Meanwhile, this little Caribbean island offers dramatic proof to the world that enlightened government planning and free enterprise are not incompatible.