Needed: A Few Improvements in Paradise

It was one of those things I read in the middle of the night, and it didn’t tell me much that I didn’t know. And though the article in The New York Times was expansive, it could be more simply put: the island is a mess and people are getting out.

There’s the crime. Yes, we only had 883 murders last year, but the year before? Over 1100—a record for us.  And New York, with at least twice the population, had about half a many murders as we did.

Per capita income: $15,200, which is half that of the poorest state, Mississippi.

Infrastructure: you could swim in some of the potholes in the roads.

Electricity: sky high.

Public schools: can’t even assure the physical safety of the pupils, who are sent out to the streets if their teacher is absent (no one ever hearing of a substitute teacher…).

It goes on and on, the litany of ills affecting us, and so our professional classes are doing the obvious. Unlike the 1950’s, when poor people moved to the states to work in factories, our educated classes are leaving the island. Here’s what the Times had to say:

Puerto Rico’s drop in population has far outpaced that of American states. In 2011 and 2012, the population fell by nearly 1 percent, according to census figures. From July 2012 to July 2013, it declined again by 1 percent, or about 36,000 people. That is more than seven times the drop in West Virginia, the state with the steepest population losses.

All this—however depressing—I get. What don’t I get? Well, check this out:

Un proyecto de ley senatorial que propone otorgar incentivos contributivos a puertorriqueños que han emigrado para que regresen y residan e inviertan en el país, recibió ayer el endoso del Departamento de Desarrollo Económico y Comercio (DDEC) y de varias entidades privadas.

(“A senate law project that proposes to award tax incentives to Puerto Ricans who have emigrated in order for them to return, live and invest in the island received the endorsement yesterday of the Department of Economic and Business Development and various private entities.”)

Guys?

In the first place, we’re broke and the governor has just had to raise taxes. In the second place, has anyone thought of why all those doctors, lawyers, nurses and teachers left the island in the first place? A sudden desire for 20-below zero weather? The joys of shoveling snow? Struggling daily with a language that is not your own, a feeling every day that you’re an outsider?

Listen, guys, it was one of the hardest things I’ve ever done, and one of the three things that neurologists say completely remap your brain (the other two being having children and getting married…). Do you think any of these people, having made such a sacrifice, are going to be lured back by a tax incentive? And by the way, how big a tax incentive will it have to be to compensate for the loss of income with which they’ll be hit by moving back to the island?

More to the point, why did all these people leave in the first place? The crime, the infrastructure, the lousy pay and horrible government—has any of that changed? Everything that prompted people to leave in the first place is not the same—it’s worse.

So what should be done? Well, as I write in the café that is my office, I’m seeing the owner busy rearranging her shop. So I asked her: “what’s the hardest part of running your business?”

She’s stunned, can’t speak, and makes circular gestures with her hands. In short, it’s everything. I give her prompts: the cost of electricity, the regulations, the permits, the…

“The taxes,” she says. “Yeah, that’s the hardest….”

I read recently that Georgia had improved their economy by improving their ease of doing business from a ranking of x to eight. Right—so what was Puerto Rico?

Well, we’re number 40. And our neighbors? Dominican Republic is 112; Haiti is 177. Both Cuba and the Virgin Islands are unranked. Singapore is number 1, the United States is number 4.

The ranking is done by the World Bank; here, drawn from their website, is their description of the ranking:

Economies are ranked on their ease of doing business, from 1 – 189. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2013.  

And what are the ten topics?

·      Starting a business

·      Dealing with construction permits

·      Getting electricity

·      Registering property

·      Getting credit

·      Protecting investors

·      Paying taxes

·      Trading across borders

·      Enforcing contracts

·      Resolving insolvency

OK—so how does Puerto Rico do? Here’s the list with Puerto Rico’s rankings

·      Starting a business---------------------------18

·      Dealing with construction permits--------172

·      Getting electricity----------------------------38

·      Registering property-------------------------132

·      Getting credit---------------------------------13

·      Protecting investors--------------------------16

·      Paying taxes-----------------------------------110

·      Trading across borders-----------------------87

·      Enforcing contracts---------------------------101

·      Resolving insolvency-------------------------21

What’s interesting is how skewed these numbers are. Getting credit is 13, our lowest score; dealing with construction permits is a whopping 172. Shouldn’t that suggest something to our lawmakers?

Look, I’m a blogger, I’m a musician. What am I not? An economist. But shouldn’t we be putting our efforts to streamlining the permission permits, clearing up the monumental backload in the Registry of Property, revising the tax structure, and making it easier to enforce contracts?

Maybe, in fact, we could send some guys over to Singapore to figure out how they do it?

Might be money better spent than trying to lure professionals back to the island….

Bad Party, Terrible Hangover

The good news?

I did not wake up this morning with a hangover.

The bad news?

The island did.

Whatever you think of the current governor, nobody can dispute that, on at least one point in the news conference yesterday, he was right: both the major parties that rule Puerto Rico got us into this mess. And that is? Yesterday, after years of waving red flags, Standard & Poor’s degraded our credit rating to junk status.

Terrible golpe al país shouts the The New Day’s headline in a special 15-page extra to today’s regular printed edition. Conscientious blogger that I am, I read all 15 pages, which told me basically what I knew, as well as some things I didn’t.

The gist of it is that for forty years, the public has allowed our political leaders to engage in politicking, instead of providing services, making fiscally responsible decisions, and running efficient governments. And how did they do that? By doing on a collective basis what many of us do on a personal level: living on credit.

There’s nothing too sexy about economics—nothing as sexy as building a great whacking (thanks, Franny!) stadium or investing a billion dollars in “special communities,” which today remain just as special as they were when the program began. (The program identified poor communities and tried to invest funds for improvements to infrastructure and social services…)

OK—so how bad is it? Some facts lifted from the special edition of today, as well as a New York Times article on the topic:

•       Our debt is almost 70 billion dollars
•       Each person—man woman and child—would have to pay $10, 635 dollars up front to clear this debt. That’s ten times the average per state
•       As a result of this decision, we’re going to have to pay about 940 million bucks, since we promised we would if our rating was sunk to junk status
•       We had been planning to go ask the market to buy bonds that would give us an additional 1 to 2 billion next month
•       Puerto Rico is the third largest issuer of municipal bonds, after California and New York
•       Many of these bonds are collected in mutual funds, which are attractive: you don’t have to pay taxes on the interest you collect on them. Therefore, a lot of mutual funds in the US hold Puerto Rico bonds. However, a lot of the bonds are held by the Puerto Rican middle and upper classes, especially retirees; some 1.5 billion dollars of Puerto Rico debt is held on the island

Now, how’s the economy doing?

•        In December of 2013, the rate of unemployment was (officially) 15.4%
•       Largest employer in Puerto Rico is…the government of Puerto Rico: 27.8% of the work force works for the government. Estimates for the average state public sector range from 10% to 15%
•       Manufacturing accounts for only 9% of the non-farming Gross National Product
•       25% of the commonwealth budget comes in federal funds
•       The population of Puerto Rico is 3.67 million: in 2013, the government estimated that 1.3 million people were working. That means that one in three Puerto Ricans is working

OK—so what was the response on the island? Well, the editorial in The New Day called for…unity. Now is not the time, it said, for finger pointing. The governor, as well, said that now is the time for all Puerto Ricans to come together and figure out what to do with this mess.

Though there were some who couldn’t resist, of course. The governor himself couldn’t resist suggesting that his government, though young, had acted like adults, but that it was time for the local Supreme Court to “put on the toga of adulthood.” Why the jab? Because the Supreme Court had put the reform of the teacher retirement system on hold until the lawsuit brought by the unions had been resolved.

And the President of the Senate came out and said that the current government had been firm and financially responsible; nowhere else in the states had a government acted as Puerto Rico had to correct their problems. Puerto Rico didn’t deserve this betrayal.

The teachers, too, pointed out that since we got degraded to junk status, it was clearly proof that a reform of the retirement system wasn’t needed in the first place.

Yes, you say, but beyond calls for unity—however successfully heeded—what does the government propose to do?

It would be premature, said the governor—donning the mantle of a serious and wise leader—to discuss any specific measure until they had been carefully and thoroughly scrutinized and examined in order to assure that the measures taken will have the maximal impact on the economy while minimizing any adverse effects on the private lives of the people of Puerto Rico, who working together, hand in hand, making ties that extend beyond petty politicking, can go forward confidently towards a better future.

All right—I made that up. That’s what I would have said. The governor doesn’t know what he’s gonna do—so he fell back on rhetoric.

Nor does the average person know what this means: according to The New Day, even business people didn’t really understand what all this meant. The reality is that almost 90% of the students I have taught over the last 20 years have tuned out politics. And now that the crisis is here? Many people are confused.

And the worst of it? However bad the hangover, it was never a very good party anyway….