In its effort to rejuvenate its economy, Puerto Rico is playing the wrong game

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The Puerto Rico government is lawyered up, spending millions of dollars in court battles to restructure the island’s $70 billion debt stack. The federal oversight board, created last year to monitor the U.S. territory’s finances, is also engulfed in the litigation. While the primary agents of potential change are consumed by process and procedure, the territory’s economy continues to unravel.

The latest volley between the seven-month old administration of Gov. Ricardo Rosselló and the oversight board concerns more screw-tightening. On the table is the board’s proposal to reduce government work hours. Rosselló is wisely resisting. 

{mosads}Over the last ten years, the local government has shed 79,000 public jobs. This is almost twice the number of private manufacturing jobs that were lost since a federal tax break for this sector expired in 2006. The results of these job losses have not been pretty. In search of livelihoods, some 400,000 island residents have departed, mostly for the U.S. mainland.

Other than the same predictable distress calls for U.S. assistance, local economic revitalization initiatives are largely counter-productive austerity measures or milquetoast ideas overwhelmed by the din of the debt restructuring drama.  

Or they are wholly unrealistic. The marquee plan by the current administration was to forge ahead in June with a statehood plebiscite. Despite its 97 percent support among the minority of voters who did not boycott the process, there is no chance that the U.S. will act on the result, much less ever admit the bankrupt island as a state anytime soon.

Other economic development initiatives are ersatz themes and schemes shared by both major political parties of the island. Their quixotic mission over the last 60 years is to convert the island into a low-tax mecca of pharma, high-tech and complex financial services. Falling dead last in patent procurement after all 50 states and having a miniscule number of financial experts, Puerto Rico has no realistic chance to revive its economy with these activities. 

When Puerto Rico’s economic debacle is not darkening the news media, however, its brightest lights as a tourism destination and producer of elite artists, entertainers and athletes continue to show the way for those that wish to see. 

Puerto Rico’s privileged location and human resources for a world-class entertainment economy are grossly underutilized by local policymakers. From Tony and Grammy Awards, to Olympic gold and the Baseball Hall of Fame, to music heard around the globe, the island’s talent punches far above its weight. Local policymakers fleetingly celebrate individual achievements, but neglect their collective economic potential. Instead, they prefer highly improbable pursuits in which Puerto Rico has no reasonable chance of competing. Meanwhile, with only 15,000 hotel rooms, Puerto Rico remains a relatively obscure and undeveloped destination for tourism and entertainment. 

Major opportunities in this space are ripe for the taking. But policymakers persist in marketing the island as a tax haven for uncompetitive activities with little connection to its true capabilities. Using myriad tax incentive programs to prop up dubious sectors, Puerto Rico deliberately exempts 88 percent of its formal economy. Its trivial property taxes on major land holdings and high-value real estate are also chief culprits of the government’s insolvency. 

To achieve development on par with the rest of the U.S., Puerto Rico must focus on inherently competitive economic activities that will pay taxes for the privilege of doing business on the island.

However, having spent years trying to influence public policy on these matters, I am pessimistic.  As noted by local economist José Joaquín Villamil, the most likely outcome of this crisis will be a markedly smaller regional economy with fewer people residing on the island. The U.S. mainland will continue to be the primary refuge for millions of U.S. citizens who would love to make Puerto Rico their home but simply cannot find work on the island to sustain themselves and their families. 

In a perfect world, local matters should be decided locally. However, there is some merit to the idea of having outsiders dislodge the entrenched interests that keep Puerto Rico down. The next time the island comes calling for special federal aid not accorded to U.S. citizens in general, this aid should be conditional.  It should be conditioned upon making basic changes to Puerto Rico’s tax and economic policies. Big-money interests must pay more to fund public services, and the island must concentrate on activities in which it can truly compete in a world economy.

Martin is a business lawyer and author of “Puerto Rico’s Future Entertainment Economy” (Create Space 2016). 

The views expressed by this author are their own and are not the views of The Hill.

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