Economic Staff aP per Series Economics

4-20-1978 Puerto Rico And The aC ribbean Economies: Models and Patterns Richard Weisskoff Iowa State University

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Abstract The asicb argument of this paper is that the Puerto Rican experience of economic development, both quantitatively and qualitatively, is relevant for the rest of the and, indeed, for the rest of the developing world. This argument is made in contradiction to the general view that by its very-success, Puerto Rico represents the exemplary case which is "too special", particularly in terms of its relationship with the U.S.

Disciplines Growth and Development | International Business | International Economics | Political Economy

This report is available at Iowa State University Digital Repository: http://lib.dr.iastate.edu/econ_las_staffpapers/113 PUERTO RICO AND THE CARIBBEAN ECONOMIES

MODELS AND PATTERNS

by

Richard Weisskoff Associate Professor of Economics Iowa State University Ames, Iowa 50011

No. 70

Notice to the Reader

This paper is tentative and preliminary. Materials should be quoted only with the author's permission. The author would also be grateful to learn of your comments and reactions to this paper.

Prepared for the seminar on "Political and Economic Choices in the Contemporary Caribbean," Washington, D.C., April 20, 1978 Draft Purposes Only

PUERTO RICO ANT) THE CARIBBEAN ECONOMIES

MODELS AND PATTERNS

by

Richard Weisskoff Associate Professor of Economics Iowa State University Araes, Iowa 50011

The chief object of the American...occupation...(is to)... bestow the immunities and blessing of our enlightenment and liberal institutions and government.

— proclamation Issued by General Miles on the capitulation of Ponce on July 28, 1898.

Associated statehood for a quarter of a century had made Puerto Rico different in degree but not in kind from the neighboring states of the Caribbean and circum-Caribbean- with the notable exception of .

~ Frank W. Knight, The Caribbean: The Genesis of a Fragmented Nationalism, 1978, p. 16^~ Puerto Rico & Hie Caribbean Economies: Models & Patterns

by

>1 Richard Weisskoff

SUMMARY & PURPOSE

f

^ The basic argument of this paper is that the Puerto Ric'an experience of economic development, both quantitatively and qualitatively, is relevant for the rest of the Caribbean and, indeed, for the rest of the developing world. This argument is made in contradiction to the general view that by its very-success, Puerto Rico represents the exemplary case which is "too special", particularly in terms of its relationship with the U.S.

Among the so-called developing countries,.there is something similar about the class of small, open, densely-populated countries. The similari ties and differences between these small nations — such factors as market size, resource base, their reliance on foreign capital, their colonial experience, lack of political power — may be open to dispute. But our • starting point is simply that there are lessons from the development experi ence of a class of country which has grown on the fringe of major' itidustrial powers.

Within this class of small, open countries, the economies of the Carib bean have had similar experiences, and it is in this context that the Caribbean "pattern" takes on" new meaning. The "economic unity" of ,the Caribbean is examined therefore in "cross sections" of the Caribbean which highlight the range and heterogeneity of their different economic structures. A second approach, the examination of "time series,," is based on the notion not that country A passes through a similar trajectory as country B, but simply.that there are diferent possible routes. A series of moving pictures, based on the past, may provide indications of possible paths to the future — or of paths to be avoided.

Within the Caribbean, Puerto Rico is exceptional, not, as many have claimed, for its spectacular economic growth or its unique political status. Its growth, diversification of exports, reliance on , out-migration, . stability, as well as its commonwealth status, all bear simirarities to other colonial , all of-which have their own unique, negotiated agreements with different industrial powers. Puerto Rico is exceptional only ; in the quantitative sense of having pushed a particular development "strategy" to the extreme. This strategy has been guided, I argue, by pragmatic elements in both the U.S. and Puerto Rico, and has been analyzed in terms of the "labor- surplus" model which has since been applied to many other, developing situations.

The great success of Puerto Rico shows the limits., not of the special case, but of the general case, since that Island has traveled the farthest in the shortest time on this particular path. The net result of the forces ^ which have pushed from within and have led from without are not dissimilar ^ f,rqm those forces acting on the entire class of small, open,, densely-populated countries. The experience of Puerto Rico is relevant to Latin America in particular. Yet the application of the "structuralist model," so very important in analyzing the shortcomings of the Import substitution strategy, has evoked little response from Latin American scholars in its application to Caribbean problems. A strange unity is now being seen betwean an inwardly-oriented import-substitution strategy, on the one hand, and an outwardly-oriented, export-promotion strategy ("Industrialization by invitation"), on the other, a unity perhaps consummated in the transnational corporation. Thus, the economic arrangement which Puerto Rico "enjoys" with the is actively sought in part by many other Latin American, some African, and the lesser-developed nations of Europe with respect to a whole variety of policies in which Puerto Rico had Initially "pioneered": branch plants, tax holidays, migrant labor, to name a few policies; , Turkey, Spain, Portugal, Algeria, Tunisia, Ireland to name but a few countries.

Finally, I argue that the viable alternative "models" which may prove useful for correctly analyzing development remain yet to be created: that is not the task of this paper. Such models must be built on observing reality, not in imagining it. The present paper is but a preface to an analysis of that type2of model which grows out of an empirical study of the Puerto Rican economy.

The reverse cannot be said about Caribbean economists. See Girvan (1971).

2 Colonial Industrialization in the Caribbean: The Economic 'Development' of Puerto Rico (1978). Puerto Rico & The Caribbean Economies: Models & Patterns

by

Richard Weisskoff

INTRODUCTION

It is the fashion among economists who claim to be concerned with the developing countries to ignore and discount the experience of Puerto Rico as a "model" or "case" worthy of study or emulation. Having praised Puerto Rico s progress widely in the 1950's and early 1960*3,, economists today turn elsewhere .for their "model countries," Its rapid and long-term growth is wished away as a thoroughly typical case, the."super" (and thereby"inimitable) success by the very criteria which once held Puerto Rico as the exemplary

or prototypical case. To othiers, Puerto Rico represents tlie worst in a certain "style" of development, and by becoming just another subregion with the U.S., Puerto Rico has lost its relevance as a national economy. The truth, however, is quite the opposite. Despite the fall from grace

t as a worthy academic model, many elements stemming from the Puerto Rican

experience operate in a real way throughout the rest of the Caribbean. The ^business community, having learned from the Puerto Rican environment, has come to expect ^d has, received — similar treatment by other islands. While the nationalist movements in the Caribbean see Puerto Rico as the model of the evils of development and extreme neo-colonialism, many of the elements

» ' especially Reynolds (1965), but the literature goes back to Galbraith (i963^ (1955), Baer (1959), Jaffe (1959). Haring a961)', and Pico Important in the Puerto Rican program are already operational in their

countries: tax-holidays, industrial promotionj tourism, enclave industries.

.Not only does Puerto Rico represent the extreme case of the "labor-surplus"

model for the rest of the Caribbean, but the most perceptive critique of the

Puerto Rican path comes not from within Puerto Rico or from the United

States, but from other Caribbean observers.

Because Puerto Rico has traveled the farthest in the shortest time

along a particular development path, the island's experience demonstrates the

limits, not of the special case, but of the general one for a wide range of

developing economies. Because the failings of the Puerto Rican path are

glaring and well-known (they range from high unemployment to human rights violations), it may be important within the development "establishment" to minimize the Puerto Rican experience and look elsewhere for less extreme and

less prominent examples. As the original case of the "labor-surplus"

economy, the experience of Puerto Rico demonstrates the bankruptcy of the very model that has become the "standard operating" paradigm for viewing

development problems in the West.

PART A: ON THE BIPORTANCE OF THE PUERTO RICAN MODEL

The general argument for dismissing the Puerto Rican case within the

U.S. is advanced in terms of its "intimate" relationship with the U.S.

Puerto Rico is "not a model for Caribbean small-state development," summa rizes Ben Stephansky, an authority on Puerto Rico.

. 2 Other writers have demonstrated similar reservations. See Ingram (1962) and (1969), Reynolds and Gregory (1965). Gordon Lewis (1963) has always his own Iceen perspective on the Caribbean. A Tlie reason is that the vital source of Puerto Rico's development is its unique politico-institutional relationship to the U.S. Tliis relationship... [a customs untion, a conimon currency, ample . budget for public expenditures, fiscal autonomy and flexibility, -access to-capital markets, a secure legal framework]..;Is not transferable.

Yet Stephansky does admit that Puerto Rico*s presence has changed the

situation by its "accomplishments":

The demonstration that the "Caribbean species of the small state, beset by the characteristic constraint of small size, limited resources, monoculture, overpopulation, and low level of human achievement, was capable of development and not doomed to eternal . backwardness constitutes a psychological breakthrough for the whole region... "

But "psychological breakthroughs" and "demonstration effects" work

both ways: first, by other Caribbean governments and politicians searching

for material improvement within their own setting, anxious to imitate their

neighbor's "success" at-riding the economic tiger (while avoiding its fate);

and second, by transnational enterprises anxious to avail themselves of other

iow' wage, profitable island-opportunities, and who (like the tourist) have

discovered the value of island-hopping.

Nor is the "vital source" for Puerto Rico's growth the politico-institu

tional relationship to the U.S. A general style of development and the

concrete programs are duplicated under a variety of "politico-institutional"

3 See his essay, "Puerto Rico", p. 93, in T. Szulc, editor; (1971). Ironically," McDonald's chapter, "The Commonwealth Caribbean," tells'^ us more about" Puerto Rico, while Kalman Silvert's concluisions, "The Caribbean and North America," igriore their fundamental differences. ^Ibid., p. 93. ,"' arrangGniGnts. Simply by its being and being successful, Puerto Rico offers itself as a model for Caribbean development,^

But Puerto Rico had not always been regarded so equivocally*

W. Arthur Lewis, himself the author of what was to become known as "the labor-

( surplus model," had seen Puerto Rico's "export promotion" campaign as the strategy for the small, densely-populated, islands. He wrote:'

...What should be done, is to try to persuade existing suppl.iers with established channels in Latin America, to open factories in'the islands to supply their trade...It is what Puerto Rico is doing, in its invasion of the U.S. market, and it is oge of the outstanding lessons of the Puerto Rican experience...

Lewis' enthusiasm continues:

There is no reason why the should not succeed in. getting the very small share of these markets which is all that is needed to put the^islands on their feet. Puerto Rico shows that it can be done.

Although her wage level is much higher than that of the British island, she is exporting a wide range of manufactures to the ' U.S. Wliat Puerto Rico and the countrigs of Europe...can do," the British West Indies can do also...

Stephansky's conclusion that "both Puerto Rico and the Caribbean region could pursue their own paths of development without each other..." is true only insofar as no locus of power actually connects the Caribbean, save those which pass through the central grids of those external agencies and govern ments whose interests are affected by them. Ibid., p. 9^. Stephansky was executive secretary of the U.S.P.R. Commission on the Status of Puerto Rico. See U.S. Congress (1966). ^Lewis (1951), p. 30. Emphasis added. The modern reader cannot help but comment on the two-way nature of the "invasion." ^Ibid., Pi' 33. Emphasis added. ®Ibid., p. 35. Lewis saw a key in clusters of Industries, in industries that "hung

together" and used one another's products. "Industries are like sheep, he g wrote. "They like to move together." And, changing metaphors, "for once

the snowball starts to move downhill, it will move of its own momentum and

will get bigger and bigger as it moves along.

Lewis preferred foreign capital in manufacturing rather than in the

extractive sectors, and praised the tripartite wage-setting procedures

established in Puerto Rico:

That a policy of inducements does not conflict with protection of legitimate interests is amply illustrated by Puerto Rico. In that island, minimum wages are fixed by law for practically every trade, with a thoroughness unknown to the British islands, and at a much ^jgher level... All that is required is a sense of proportion.

Lewis proposed a Colonial Development Corporation on the model of

PRIDCO (Puerto Rico Industrial Development Corp.) with offices in London

and New York.

...The British islands do not have far to look if they want to study the technique of industrialization. For, on their very doorstep lies Puerto Rico, whose Industrial Development Company is a most intelligent model of what is required...

Where is the money to come from? [PRIDCO]...has had appro priations i^ounting to $25 million with which it has worked wonders...

9 One is reminded of the coat of arms of the Commonwealth of Puerto Rico. ^^Yet the very chronology of a number of industries in Puerto Rico has not been unlike the fate of a snowball in the Caribbean: they start moving., and then evaporate!

Lewis was not keen on allowing just any industry. He outlined eight criteria (wage shares, horsepower, etc.) which would guide planners, and then ranked 42 industries by these criteria. ^^Lewis, op. cit., p. 39. 12 Ibid., p. 30* Emphasis added. Lewis concludes:

...Some key is needed to open the door behind which the dynamic energies of tlie West Indian people are at present confined^ The key has obviously been found in Puerto Rico, where the drive and enthusiasm of a people hitherto as lethargic as the British West Indian warms the hearty and inspires confidence in the future... put hope, initiative, direction, and an unconquerable will into the rest of their affairs. And this is the hardest task of all.

Tills is hardly the place to review Lewis' contribution to development theory, nor the criticisms of that theory.the 1960*s and 1970's unfolded, however, the practice derived from that theory was shown to be increasingly difficult. Demas,^^ by taking Lewis and other theorists to task on the assumptions, behavior, and the "omitted" variables, plays the game of economic models in the Caribbean. And he too sees in aspects of

Puerto Rico's growth some possibilities for the "real" development for small nations — in the emphasis on export manufacturing ^d on the construc tion sector.

13 Ibid., p. 53. Emphasis added.

14 Compare Lewis (1954) and Demas (1965), Chapter 4, "Bnployment Strategies in the Commonwealth Caribbean." ^^See especially Demas (1965), (1971), and (1976). Demas remarks (1971), p. 7, that the "two main intellectual influences underpinned the attempts to create a new economic, social, and political order in the West Indies in the post-1945 world were the Moyne Commission Report, 1938, and the philosophy of industrial development evolved in the early 1950*s from the experience of Puerto Rico." (Emphasis added.)

Demas writes much candidly on the dangers of dependence and private foreign investment, on the limited opportunity for import substitution and economies of scale, on external vulnerability and on the dangers of Keynesian economies applied to an open economy. "Wliat is the real meaning of self- sustained growth in a satellite economy?" he asks. Having raised the central question, he answers, "I must confess, I do not know." Demas(1965), p. 32. Citing Hoselitz' concept of "satellitic pattern of growth," (Patterns of Economic Growth," Canadian Journal. 1955), q concept which incidentally never did catch on in North American economics, Demas continues, "T would rnther consider them as a crse of highly open economies with 'the capac I ty...to adjust...to the needs and opportunities of the countries surrounding them.'" N. 32, p. 32. .7

While unwilling to offer any fundamental critiques of the system as a whole, Demas in his later work takes little pain in criticizing Puerto Rico's experience:

It is possible for a small Caribbean island to achieve a relatively high per capita income and become "prosperous" by literally selling-out its national patrimony to unscrupulous foreign investment and permitting the introduction of tax havens, casinos, free ports and numbered bank accounts...a highly artifi cial pseudo-prosperity.. .not by any stretch of the imagination..", "economic development"...not internally-generated self-sustaining and soundly-based economic growth, full employment and an atti^ tude of independence and national self-reliance and self-respect.^

IWo separate traditions have been derived from the writings of Lewis and Demas. The British'Caribbean has given rise to many concrete studies of-integration and dependence, corporate imperialism arid the influence of the multinationals, fragmentation and decision-making, plantations and colonialization.^^

A second tradition has taken quite a different turn. Stimulated by

Lewis (on the British Caribbean) and Reynolds (on the American Caribbean) 1 8 , and thus derived from the experience of the smallest of nations, the "labor surplus" model has become generalized and embellished and finally applied to

^^Demas (1976), p. 107. ^^See especially Eduardo Seda-Bonilla, "Dependence as an Obstacle to Development: Puerto Rico.," pp. 103-108, and Lloyd Best, "Independent Thought and Caribbean Freedom," pp. 7-28, both in Girvan and Jefferson (1971). The literature of the British Caribbean is refreshing and extensive.

See Levitt and Best (1969) and Beckford (1972) on plantation economies; Girvan (1971) and Jefferson (1972) on ; Tliomas (1965) and St. Pierre . (1975) on ; Armstrong et. al. (1968) on ; Brown and Brewster (1975) for summary hypotheses and some 171 references!

18 See Lewis (1954); Reynolds (1965). 19 th'e largest of all nations. Tlie consequences of the dominance of this tradition has been that words like dependency, colonialism, and the multi national corporation, have virtually no place in mainstream economics in the

United States.

What then Is the lesson of Puerto Rico to the U.S.-trained economist?

In one branch, those trained in "dual" or "labor surplus" economics, Puerto

Rico must be ignored, generally with some reference to the unique "political

20 arrangement." A second branch of mainstream economics, takes almost the contrary tack: that Puerto Rico, like many other countries, is but another

"small, industry-oriented" economy, along with Jamaica and , to be found in the company of such nations as Bolivia and Paraguay, Norway and the

21 Netherlands.

19 See Reynolds (1975) on . He writes, "China is still a 'labor- surplus economy' in the sense that there are many rural workers whose marginal product is below their consumption." (p. 425). The raarginalist's vision knows neither geographic nor historical boundaries!

The present writer's own travels to People's China and his reading of her history leads him to conclude that the Chinese model totally contradicts the basic propositions of the labor-surplus model.

20 Only on the most basic of challenges does the modern neo-classical economist rely on political factors.

21 See Chenery and Taylor (1968), for example, p. 397, for charts of the primary and industrial sectors shares "among countries and over time." The fashion for "pooling" the experiences of large numbers of countries is carried on in hope of being able to observe a common statistical pattern. The present author, not exempt from such practices, had attempted to distin guish household consumption patterns of the densely-populated island-countries from the more sparcely-populated continental ones, and Latin American patterns from the Asian. See Weisskoff (1971). Puerto Rico, Jamaica, and the are included in the 15 country sample. ' Whether Puerto Rico is treated as "an aberrant observation," as. in the

f first branch of mainstream economics, or as just another "series of observa-^

tions" to be homogenized with the rest of the developing world, the net

# effect is identical: the experiences of Puerto Rico, indeed of the Carib

bean as a unit, are ignored. v ? Other disciplines do not seem quite as perplexed as "modern economics"

by the existence of the Caribbean as a viable or meaningful region.

Frank Knight, in his recent essay, writes like an econometrician with a

microscope. "Ihe major assumption," he begins, "is that while the separate

units pass through the same general experience, they do so at different times

—hence comparisons of the Caribbean should be systadial rather than syn- chronic."^.^

23 , In his "examination of fragments," the -,

I^ight touches a great many themes that are as relevant to Puerto Rico's i

modern history, although they are drawn from the experiences of Haiti, the

Dominican Republic, Cuba, or the British West Indies from earlier time 4 j 24 spepiods.

22 Knight (1978), p. x. Compare his essay to Birnberg and Resnick (1975), esp. Ch. 1.

23 Ibid., p. xii.

24 The present day economist sees the chronic absenteeism of plantation proprietors analogous to the modern transnational corporation; the willing ness of the European powers in the 19th century to accommodate representa tive political arrangements within, a neo-colonial economic setting as analogous to the present commonwealths; the adeptness at imitating the mother cpujitries' culture; the use of general funds-to subsidize the "profits of a'few"; not to mention the constant and overwhelming importance ifi the 20th century of the active intervention of U.S. capital and U.S. Marines. See Knight (1968), Ch. 7, "Caribbean Nation Building, 1804-1970," esp,. pp. 159, 162, 169, 175. .10

On contemporary Puerto Rico, however, Knight yields to his own instincts. "The Puerto Rican 'Operation Bootstrap,*" he writes, "once highly hailed, 25 proved eventually to have more style, than substance." In ohe sense, he is right, if the "Operation" is to be judged in terms of its original polemics. Seen in a different perspective, however, "Bootstrap" ("self-reliance ) was enormously successful as an economic alliance forged by Tugwell and Munoz Marin to undercut the nationalist appeal of Albizu Campos, fend the overt colonial status of Puerto Rico, and transform the island into a Commonwealth. And the substance of this transformation, while-profound, differs in degree, "but not in kind from the neighboring states of the Caribbean...with the notable exception of Cuba." If the Caribbean is indeed a natural and relevant unit of analysis for the historian, the political scientist, the anthropologist, the businessman, then why not for the economist as well? We turn, therefore, to an empirical review of those quantitative "degrees," which distinguish and .unite the

Caribbean economies. .••

^^Ibid., p. 211. ^^Ibid., p. 166. .^^See Gordon K. Lewis (1968) on the British West Indies; Sid Mintz (1971) 'on "the Caribbean as a Socio-Cultural Area"; Maingot (1978) on West Indian politics. Compare Johnard (1974) on Caribbean investment rules to Wac^tel (1977) on transnational banks in the Cayman Islands. See also Mintz' intro- duction to Guerra y Sanchez (1964) on the sugar islands, and compare Hagelberg (1974) on modern Caribbean sugar to Girvan (1976) on Caribbean . 11

PART li: (JIIANTtTATLVI': DrMKNSIONS 01-' CAR 1IIHICAN I-CONOMI KS

The objective in reviewing a number of dimensions of the Caribbean economy

is to attempt to discern common patterns and structures. However involved that

task, the approach here is very straightforward: to identify simply those

characteristics which set Puerto Rico and its neighbors apart from or close to

one another.

Many economists have noted that the Caribbean consists of a set of open, densely-populated islands. 28 But of the world's small countries, seven of the

Caribbean economies can be counted among twenty of the world's most "open"

tading economies, and of these twenty, Puerto Rico ranks seventh in the world

and fourth in the Caribbean, behind the Netherland , Barbados, , and Guyana (see Table lA, col. 1). 29

In terms of simple population density—inhabitants per hectare—Puerto Rico ranks fifth of twenty and second in the Caribbean sample after Barbados. But in terms of "food potential"—inhabitants per hectare of arable land—Puerto Rico ranks third highest among all the small countries and considerably above the

30 other Caribbean countries. '^^See Demas (1965) and Lloyd (1968).

29Since "openness" to foreign trade, here taken as the sura of imports and exports relative to , fluctuates with international events* the present writer has calculated four-year averages to "smooth out" the cyclical influences and thus focus on comparative structures.

30 See Table lA, cols. 4-6. Three concepts of density are presented here: simple density (people/total land area); agricultural density (agricultural population/arable land), index of the pressures on resources; third, a "food potential density" (total people/arable land), a measure of possible pressure should the country pursue a more self-sufficient food policy. It should be remembered, however, that land, like people, is variable. "Arable land" has been destroyed in the Caribbean through strip-mining and quarrying, erosion;, and urban sprawl; while land has also been added due to drainage, terracing, irrigation, and forest clearing. Nor are the three types of densities defined here necessarily consistent with one another. The I'eople's Republic of China (not shown in the tables) is characterized by a simple density of .9, an agricultural density of 4.2, and a food potential density" of 6.5 inhabitants per hectare. Puerto Rico's densities, in,contrast, are 3.3, 1.0, and 20.0, respectively, more a reflection of both people abandoning the lend and land being removed from arable uses. Table lA: World's Most Open, Small Countries: Size, Density, 1975

- Openness B. C.- X + M A. Density Density GDP 1975 1975 - Density (Ag- Total (1970-74 Population Total Land (People/ population (population Most Open average) (thous.) (thous. hect.) hect.) arable land) arable land) (1)' (2) (3) (4) (5) (6) 1. * 592 238 96 2.5 2. Malta 151 329 32 10.3 .1.4 •23.5 3. Barbados* 138-' 245 43 5.7 1.3 7.4 4. Swaziland 129 469 1,720 .3 2.2 2.8 5. Trinidad -Tobago* 121 • . 1,009 513 2.0 1.1 6.4 6. Guyana* 116 791 19,685 .04 .5 4.0 7. Puerto Rico* 113 2,902 886 3.3 1.0 20.0 8. Surinam* 108 422 16,147 .03 1.9 9.4 9. Fiji 104 577 1,827 . .3 1.1 2.5 10. Liberia 103 1,708 9,632 .2 3.3 4.5 11. Belgium-Luxembourg 103 10,154 3,310 3.0 .1 3.1 12. Mauritius 102 • 899 185 4.9 2.6 8.5 13. Gambia 100^' 509 1,000 .5 1.6' 2.0 14. Netherlands 13,653 804 17.0 24.4 369.0 15. Lebanon 99^./ 2,869 1,023 2.8 1.2 7.1 16. * 95 136 2,280 .1 2.8 17. Cyprus 89 673 924 .7 .6 1.6 18. Ireland 86 3,131 6,889 .5 .6 2.7 19. Malaysia (Peninsula) 83^' 10,123 13,159 .7 1.8 3.5 20. Panama "82 1,678 7,505 .2 1.2 3.1 ^Indicates Caribbean country. Definitions: Openness: • (Exports + Imports)/Gross Domestic Product. Small: Population less thdn 15 million inhabitants. Land area less than 20 million hectares.. Sources: col. 1: United Nations, Yearbook, of National Account Statistics, 1975, Vol. Ill, Table 2A, cols. 5 plus 6, and Table 2B, cols. 6 and 7. Barbados, Gambia, Lebanon, and Malaysia from the World Bank, World Tables 1976, Series 1. cols. 2,"4-6:. vpbpulation and agricultural population from FAQ Production Yearbook, 1976, Vol. 30, Table 3, cols. 2-3. cols. 3—6: FAGProduction Yearbook, 1976, Vol. 30, Table 1, row 2 for each country. The denominator for col.'5 is from Table 1, row 3, "arable and permanent cropland." I)

Compared to the full array of Caribbean countries, Puerto Rico's ?2,605

per capita income in 1973 stands nearly three times that oF Trinidad, Surinam, and Barbados, her nearest rivals, and more than eighteen times the $141 of Haiti (Table 2A, col. 1). Nevertheless, compared to all so-called developing countries, the entire Caribbean, with the exception of Haiti, fall among the

T 1 highest in the developing world.

The remainder of the record testifies to the great economic fluctuations,

successes and failures throughout the Caribbean. From 1960-70, Puerto Rico's

GDP grew at 5.9% per year per person, twice the U.S. rate for that decade and higher than most economies throughout the world. During the 1970's, Puerto

Rican growth slowed to a crawl, a fraction of the U.S. rate. The Haiti and

Dominican annual growth record is almost the reverse oE the Puerto Rican: -.9% and 1.5% per year, respectively, during the 1960's but 7.8% and 2.6% per year from 1970-74 (Table 2A. cols. 2-3).^^ In the 1970's, Puerto Rico's population grew at 2.6% per year, the fourth highest in the Caribbean, although the absolute natural rate of population

increase was the second lowest (16.8 per 1,000) and the absolute decline In Infant mortality was the second highest in the Caribbean (cols. 5-7). But Puerto Rico is not alone In the Caribbean for its progress at having reduced the live birth rate and infant mortality (cols. 7-8). The records of Barbados, Belize, Cuba, the Dominican Republic and Trinidad are especially

31 See World Bank, World Tables 1976, p. 548. For available data of income distribution in five countries, see Appendix Table IB. The Cini cooCficient for Puerto Rico (.45) compares favorably to the U.S. and Guyana and indicates greater equality than the Dominican Republic (.49) and Jamaica (.58). The coniparatively small share of income (33.6Z) received by the top 10% of households and the large share (1.6%) received by the bottom 10% in Puerto Rico speak to division of the pie which is generally more equitable, than, say, Jamaica and Venezuela (cols. 4-6, Table IB). See R. Weisskoff (1970) and Weisskoff and Figueroa (1976) for a review of Latin American Income distributions. 32Is the "secret" of Puerto Rico's early growth being "passed" around the Caribbean? Table 2A': Cross" Section of .Socio-Economic Characteristics: GDP, Population, Mortality

..... - ,' •" Natural Average Annual Economically- Population Rate of Decline—' Tierl GDP/Capita .Real Growth Rates Active Grow.th Population Crude Infant Caribbean US $ Per Capita GDP (%) Population (%) Rate (%) Increase Live Birth Mortalitv Countries 1973 1960-70 1970-74 . 1970 1970-75 (per 1000) Rates Rates CD' (2) (3) (4) (5) (6) (7) (8)

Barbados 1004 — 38.7 .6 11.1 12.4 1.8

Belize 533 — 2.4 27.6 3.1 32.6 7.4 14.8

— — Cuba — 30.8 — - 19.6 7.0 . 9.5 Dora. Rep. 529 ' 1.5 7.8 31.0 3.0 34.8 3.6 34.1

— Guyana 398 — 26.3 2.2 26.2 9.9 9.9 Haiti 141 -.9 2.6 53.7 1.6 19.5 — — Jamaica 950 — .4 31.2(42.4)^ 1.7 23.6 6.4 12.2 Puerto Rico 2605 5.9 .6 25.2(28.4)^ 2.6 16.8 11.5 18.6 Surinam 1183 — — 27.4 3.3 33.7 1.4 —

Trinidad 1295 — 8.3 30.9 — 17.5 15.4 11.9 USA 6189 3.0 2.7 44.5 .8 5.8 10.2 8.2

Notes: a) 1975. b) 1976. c) From 1956 to 1974, Change in number of live births per thousand population". d) From 1965 to 1973. Change in deaths of infants under 1 year per 1,000 live births Sources: Col. 1: UN, Yearbook of National Account Statistics, 1975, Vol. Ill, Table lA. Col. 2-3: UN, Yearbook of National Account Statistics, 1975, Vol. Ill, Table 4A. Col. 4: ILO, Yearbook, 1976, table 1. Col. 5: UN, Demographic Yearbook, 1976, Table 3. Col. 6: Col. 7: UN, Demographic Yearbook, 1976, calculated from time series of 1956 and 1974 from Table 21, Col. 8: UN, Demographic Yearbook, 1975, calculated from time series of 1965 and 1973 from Table 15. 15

significant when compared to the meager (and in some cases, negative) progress

33 in some of the other islands.

These economic indicators point to Puerto Rico's inclusion as a somewhat "progressive," but ordinary member of the Caribbean. Its population density

is high, but not atypical. Its population, once held to be at the root of a

neo-Malthusiah dilemma, 3^ is now characterized by the lowest rate of net repro duction (1.33 per 1,000) and of infant mortality (24.2 per 1,00,0) in the Caribbean,

the foulrth lowest live birth rate (after Barbados, Trinidad, and Cuba) and the third lowest death rate (after Cuba and Belize). (See Table 3A, cols. 1, 5, 3, 7, -respectively.) Indeed, to the extent that population growth was ever a, "problem," its.connection either with economic growth or with the reproduction

of a people has apparently been severred. 35 ••

. One statistic points to a general problem underlying Caribbean societies: the difficulty of putting their people to work. Except for the cases of Haiti and Barbados, the share of the economically-active population—that, is, those over 14 years old working or seeking work—never surpassed 31%. In Puerto Rico, only a quarter of the relevant population, the lowest in -the area, was economically active, but the other countries were not far ahead. (Table

• 33 • See Appendix Table 2B for "Other Territories and the Leeward and " and Appendix Table 3B for the original time series.

34, Contrast the early writings of Taylor (1952) on Puerto Rico with.Meade (1968) on Mauritius.

•'35Harriet• Presser (1974) estimates that by 1965, "one^third of ail Puerto Ricap mothers from 20-49 years of age were sterilized," (p. 179) and that the sterilization of one-sixth of the same age group of women by 1953-54 had hot ' resulted in a decline in fertility. She concludes that in the absence of a large government or private campaign, the "popularity" of sterilization was a^ response by Puerto Rican women who,were searching for an effective way to limit the size of their families." Table 3A: Time Series of Socio-Economic Characteristics

Net Reproduction Crude Live .. Caribbean Rate^' Birth Rate-' Infant Mortality^ 3/ Rates - Rates per Thousand- 4/ Countries 1973 1956 1974 • 1965 1973 Crude Birth Crude Death (1) (2) (3) W (5) (6) " (7) Barbados 1.43 31.3 18.9 39.5 37.7 19.5 8.4 Belize — 46.1 38.7 48.5 33.7 38.7 6.1 Cuba 1.83 29.3 22.3 38.4 28.9 25.4 5.8 Dom. Rep. 2.78 40.0 - 36.4 72.7 38.6 45.8 11.0 Guyana 2.10 41.5 31.6 . 48.4 38.5 33.4 7.2 Haiti 1.73 — 35.8 — — -35.8 16.3 Jamaica 2.51 37.2 30.8 38.8 26.6 30.8 7.2 Puerto Rico 1.33 34.8 23.3 42.8 24.2 23.3 6.5 Surinam 2.95 39.4 38.0 33.6 — 40.9 7.2 Trinidad 1.57 37.0 21.6 38.1 26.2 24.0 • 6.5 USA .88 24.9 14.7 24.7 16.5 14.7 8.9 ON Sources: Col. 1; UN, Demographic Yearbook, 1976, Table 22. Col. 2-3: UN.oo. cit.. 1976. Table 21. dd. 492ff Col. 2: Cuba, 1957,' Col. 3: Guyana, 1971; -p Haiti, 1970- Col. 4-5: UN, op. cit. 1975, Table 15. Data for Belize refers to 1957, Guyana to 1968. Col. 6-7: UN, op. cit. •1975,-Table 4, pp. 154ff. Notes: 1) Number of daughters born alive per 1,000 females 15--49 years old taking death into account 2) Number of live birth per thousand of population. 3) Deaths of infants under one year per 1,000 live births. 4) For various recent years. •17

2A, col.

The general economic structures of the Caribbean economies show differences in degree, Surinam and Guyana lead In the size of* government expenditures relative to GDP, while Puerto Rico and Jamaica surpass the other economies in .the share of gross fixed capital formation (Table 4, cols. 2 and 3). On the orientation toward foreign trade, however, the Caribbean breaks into two groups: Ciiba, the Dominican Republic and Haiti, on the one hand,' which show a limited (less than 20%) share of exports to GDP and the other islands and

Guyana, whose export share exceeds 35% of GDP. How have these characteristics changed in the Caribbean since the early- 1960 s? The time series (Table 5) chronology of these variables indicates that the government sector in Puerto Rico has groim from 13,to 18% of GDP, and is ' parallel to a similar expansion in Guyana and Jamaica (cols. 2-3).^^ The growth in the.share of capital formation in Puerto Rico from 21 to 25% of GDP is comparable to increases in-Jamaica and the Dominican Republic and contrast to the d_ecline in Trinidad and to the stability in Guyana, Haiti and the U.S.

(cols. 4-5). The stability in the shares of both exports;and imports in Puerto Rico (cols, 6-7) between 196-62 and 1970-72 is striking when compared to the' vagaries of .trade experienced in the rest of the Caribbean. In the Dominican Republic and Jamaica, -the share of exports fell and Imports rose, while both shares rose in Guyana and fell in Haiti and Trinidad. In contrast to the stability of "trade" in Puerto Rico, net "openness" increased in four and declined in two

3'6How ironic. that both Haiti, the poorest country in• the Caribbean,•.with an income of $141 per capita,and the U.S., the richest nation with an income of $b,189 per person, should put the highest shares of their adults to work.' 37„The concepts used in the Cuban accounts are not comparable. f « >1 «

Table"4: Cross Section of Economic' Characteristics: Expenditures on Gross Domestic Product, Percentage !

% % % % 1975 % Gross Fixed Exports/ Imports/ Openness GDP/cap Govt/GDP Cap. Form/GDP GDP GDP (X-H-i/GDP) .US$ 1970-73 1970-73 1970-73 1970-73 1970-73

Cuba* — — 19 21 27 48 Dominican Republic 768 10 19 20 24 44 Guyana 637 19 20 56 60 116

Haiti 162 — 8 13 17 30 Jamaica 1438 13 23 35 42 77 Puerto Rico 2830 18 25 45' 64 109

Surinam 1183 25 — 58 — — Trinidad & Tobago 1868 12 22 58 58 116

USA 7087 19^ 18 4 . 7 11

Notes: *Refers to. net material product. Sources: col. 1: United Nations, Yearbook of National Account Statistics, 1976, Vol. II, Table lA. Data for Barbadas, Haiti, Trinidad and Tobago refer to 1974, Sorinam to 1973. cols. 2-5: op. cit., 1975, Vol. Ill, Table Ik. Trinidad and Tabago: cols. 2, 4-6 refers to 1966-68 average, col. 3 refers to 1965-67 average. col, 6: Sum of cols. 4 and 5. t *•) »V

Table 5:' Time Series of Economic Characteristics: Expenditures on GDP

Percentaee Shares * Annual

Growth a Gross Fixed GDP/capita Government Capital Formation Caribbean Countries % "% % Exports/GDP Imports/GDP Openness 1960- 1970- 1960- 1970- I960-- 1970- 1960- 1970- 1960- 1970- 1960 - 1970 1963 1973 1963 1973 1963 1973 1963 1973 1963 1973 (1) (2) (3) (4) (5) . (6) (7) (8) (9) (10) (11)

Cuba* — 12^ 2^ la^ 19^ 21^^ 27^ 48^^ Dominican Republic 1.5 14 10 10 19 22 20 18 24 40 •44

Guyana — 12 19 20 20 52 56 50 60 102 116

— Haiti 1.6 — 7 8 19 13 20 17 39 30 Jamaica 3.8 10 13 19 23 36 " 35 37 42 73 77 Puerto Rico 5.9 13 18 21 25 45 45 62 64 107 109

Trinidad & Tobago — 11 12 27 22 65 58 63 58 129 116 USA % 3.3 19 19 17 18 5 4 7 7 12 11

Sources:. United Nations, Yearbook of National Account Statistics, 1975, Vol. III. col. 1; Calculated from Table 4A. col. 2-11: Calculated from Table 2A. For Trinidad and Tobago, cols. 3, 7, 9, 11 refer to 1966-68; col. 5 refers to 1965-67 averages. Cuba from Table 2B. , *Refers to net material product.

Government- final consumption expenditures. Material consumption in units of• nonmaterial .sphere serving the community ak a whole. c - Net fixed capital formation. ^Of goods and material services. 20

Caribbean economies (cols. 10-11).

Seen in terms of economic activities, Puerto Rico differs In degree In •

several respects (Table 6). Of all the Caribbean economies, Puerto Rico demonstrated the smallest and mining sectors, the largest manufacturing and the largest "other services" (including government). But Jamaica and

Trinidad also reveal reduced agrarian sectors, in strong contrast to Haiti

and the Dominican Republic which, like Puerto Rico, demonstrate only minor

mining activity. Puerto Rico leads the Caribbean in its share of manufacturing (26%), but the Dominican Republic (13%) and Trinidad (16%) have significant

enclaves as well, especially in contrast to Haiti, Guyana, and Jamaica "

(10-12% each).

During the decade, the most noticeable and widespread change is to be seen

in the.general declining share of agriculture, seen most dramatically in the-

case of Guyana and Puerto Rico, but also a trend in Jamaica and Trinidad (Table 7, cols. 1-2). Striking, however, is that only in Puerto Rico—and to*a lesser degree in Guyana and Jamaica—has public administration picked up so much of the slack, while that same role has been played by mining in Guyana

and Jamaica, manufacturing in Trinidad, and construction in the Dominican

Republic.

The uniqueness of; the Puerto Rican case lies not in. its change from agriculture to manufacturing, nor in the rise of services and government, (for other countries are pursuing that same route), but rather Puerto Rico's uniqueness lies in the absolute size of those sectors—agriculture being the smallest, and manufacturing and services, the largest in the Caribbean. It is with some irony that Puerto Rico, in terms of proportions, has taken on the profile of the economic structure of the United States (Table 6 and 7, bottom line). '» }•

Table 6: Cross Section of-Economic Activity as a Share of GDP, 1970-73 Averages

'

^ b' % %„ % 7o % ^ a other Caribbean Countries Agriculture Mining Manufacturing Construction Trade Transport (incl. govt.) (1) (2) (3) (4) (5) (6) (7)

Dominican Republic 27 3 18 6 28 8 ; 27 Guyana 17 15 11 7 10 5 23

Haiti • 47 3 • 10 3 10 2 23

Jamaica 8 13 . 12 11 17 7 25

Puerto Rico 3 3 26 8 21 • 5 36

Trinidad & Tobago 8 28 16 4 • — 21 Ni USA 3 4 25 5 18 — 37

Source: Calculated from United Nations, Yearbook of National Account Statistics, 1975, Vol. Ill , Table 3.

Includes communication. 'includes finance, insurance, real estate, business services, public administration, anddefense. Table 7: Time Series of Economic Activity as a Share of GDP, 1960-1963 & 1970-1973 Annual Averages.

• Other

1 % % t % % \ % (incl. Agriculture Mining Manufacturing Construction Trade Transport^ govt. )^ Caribbean 1960- 1970- 1960- 1970- 1960- 1970- 1960- 1970- 1960- 1970- 1960- 1970- 1960 - 1970- Countries 1963 1973 1963 1973 1963 1973 1963 1973 1963 1973 1963 1973 1963 1973 (1) (2) (3) (4) (5) . (6) (7) (8) (9) (10) (11) (12) (13) . (14)

Dom. Rep. 26 27 3 3 17 18 3 6 18 16 . 5 8 28 27

Guyana 24 17 12 15 11 11 7 7 12 10 7 5 19 23

Haiti 49 47 3 3 11 10 2 3 11 10 3 2 22 23 Jamaica 11 8 10 13 13 12 10 11 17 17 7 7 23 25

Puerto Rico 9 3 3 3 24 26 6 8 20 21 6 . 5 31 36 ro Trinidad & N3 11 8 32 28 12 16 5 4 13 — 14 — 19 21 Tobago

USA 4 3 5 4 28 25 4 5 17 18 6 — 35 37

Source: United Nations, Yearbook of National Account Statistics, 1975, Vol. Ill, Table 3.

Notes: cols. 2, 4, 6, 8, 14: Trinidad & Tobago refers to 1968 only. cols. 9, 11: Trinidad & Tobago refers to.1960-1962 only. ^Includes communication. ^Includes finance, insurance, real estate, business services, public administration, and defense. 1\

38 Demns has ar'gued that a nation's real dependence grov;s out of its reliance

on'a few trading partners and on the success of a few commodities. In these

terras, Puerto Rico leads the Caribbean in terms of the highest dependence on the U.S. for both exports and imports^but the rest of the Caribbean is not far

behind: in all cases, four partners account for from 64 to 79% of every country's

' -39 imports and,from 58 to 92%'of its exports (see Table 8, col. 1).

In terms of commodity concentration, Barbados, Belize, and Jamaica share

Puerto Rico's general diversification of imports, but none compares to the export

diversification, a reflection of the importance of her manufacturing sector.

Thus, only in the case of Puerto Rico does low export concentration by commodity

contrast with high import and export concentration by country.- In the rest of

the Caribbean, export-commodity concentration is coupled with country concentration.

But neither trade concentration nor the degree of "openness" by itself need

say anything about "dependence." Indeed, the arrangements under which, .trade is

carried-out, the general exchange of goods, the degree of stability or instability

that such trade brings, and the implied or overt constraints which lie" behind

such, arrangements—all these must be examined before any judgement about

"dependency" can be made.

There is one judgement that we should be allowed to venture in the case of. Puerto Rico, vis-^-vis, the rest of the Caribbean (see Table 9, col. 3):^^

• ^8 Demas (1965), n. 32, p. 32.

39The four-country concentration ratio is the share of a country's trade... with' its top four customers. The four-commodity concentration ratio is the, share of trade accounted for by the four major commodities. 40 ^ . Maintaining the "success story" of Puerto Rico has amounted to a subsidy of some $5.75 million per day for the 1975-77 calculated in current collars. The conclusion drawn from the history of the British West Indies in the i9th Century proves as true for the American West Indies in the 20th: , The use of general funds to subsidize the labor costs of priyate estates meant that everyone directly contributed to the profits of a few.... (Knight, 1973, p. 175). ', The-general costs of maintaining U.S. hegemony elsewhere, in the Caribbean are, as well as in. Puerto Rico^ borne through military expenditures. These are not included in the above figures. >'• '

Table 8:- Indicators of Dependence:-.Trade Concentration by Country and by Commodity, 1963.

4-Country 4-Cominodity

Barbados 64 84 23 95 120 sugar, riim, marg./lard, shellfish Belize 79 87 19 87 91 sugar, fruit pres., wood, chicle Cuba 74 58 32 97 38 sugar, nickel, tobacco, cigarette/cigar Dom. Rep. 71 87 29 82 42 sugar, coffee, cocoa, baux./alumina Guyana 75 80 . 28 99 . 110 sugar, bauxite, rice, fish

Haiti 72 69 — 83 34 coffee, bauxite, handicrafts, sisal Jamaica 71 92 23 82 72 bauxite, sugar, banana, fruit pres. Puerto Rico 92 98 21 50 110 clothing, sugar, petrol prod., cigar Trinidad & Tobago 74 65 56 93 124 petrol, prod., sugar, crude petrol, cocoa

Source: United Nations, Yearbook of Statistics, 1966, Vol. I,' II, Table 2-4. Commodity ratios-'were calculated by summing the four most important 3-digit SITC commodities. Haitian data from Institut Haitier-de Statistique, Guide Economigue de la Rep^blique D'Halti, • December, 1971, Table 13-1-1, 13-2-1, and 13-2-2. Puerto Rican data from Puerto Rico Planning Board, External Trade Statistics 1963, calculated and reclassified from Table 1, 3, 4, and 6. 25

That is has been no bargain for the U.S. taxpayer. Total foreign assistance to Puerto Rico, which here includes outright grants-in~aid and net transfers, far exceeds ^'formal** aid, anywhere else in the Caribbean. 26

, Table 9: Assistance to the Caribbean: Total and Per Capita, 1972-74

a/ Foreign- • Total-'' 1973 Foreign Assistance GDP/cap Assistance Per Capita US $ US $ US ^ (tiious. ) w Dominican Republic 529 20 5

Guyana 398 11 14

Haiti 141 9 2

Jamaica. 950 18 9

Puerto Rico 2,650 980 338

Puerto Rico 2,098-^ 723-^

Trinidad & Tobago 1,295 2 2 :

Fr. Guiana — 36 719

Guadeloupe 1,218 90 265

Martinique 1,444 103 303

* Neth. Antilles 2,070 29 124

a/ c/ — Annual average, 1972-74. Refers to gross product per capita for 1975-77 in current dollars. —^Refers to 1975-77 period.

Source Cbl, 1: UN, Yearbook of National Account Statistics, 1975, Table 3. Data for Puerto Rico, 1975-77, from Governor's Report, 1978, Table 1. Cols. 2-3: UN, Statistical Yearbook, 1975, Table 206, p. 830. Refers to total of bilateral and multilateral aid. Puerto Rico: from Governor's Report, 1978, Table 21, p. A-22, net balance of transfer payments from federal and state governments, plus Table 27, p. A-28, federal grants^in-aid to Commonwealth Government recurrent receipts. 27

PART C: Tl{E PUERTO RICAN ECONOMY

The profile of the Puerto Rican "miracle" during the past 27 years sheds further light on its shortcomings as well as its gains (see Table 10). Despite the trebling of real GDP per capita, the share of adults not working—for whatever reason—has risen from one-half to two-thirds of the adult population during the period of "economic growth" (line 6).

For those who did work, changes in the structure of employment reveal the demise of agriculture, a slight rise in manufacturing, the bloating of services, and the trebling of government employment.

Seen in retrospect, Caribbean models of developraent never intended to increase employment, but rather to raise the incomes of those who are employed. A 2

The Puerto Rican construction sector, once thought to be the alternative absorber of labor, doubled from 1950 to 1970-'-and collapsed by 1977. It remained, then, for services, not manufacturing, to pick up the "surplus" labor and for government to serve as the employer of last (or perhaps first) resort (Table 10, line 7d and 7e).

"41 Further declines are expected. The USDA-PRDOA Task Force Report (1978) nails the coffin shut on agriculture.

A2 Demas (1976) summarized the experience aptly: Most plans in underdeveloped countries are in fact aimed at increasing per capita income—even though lip service may be paid to other objectives, such as a more equal income distribu tion, employment creation, and greater national control of the economy...The fact is that employment is regarded as a by-product of general economic growth... Economic growth and employment creation are really two separate things... (p. 42). Demas cites Puerto Rico as evidence that: ...high investment does not necessarily lead to high employment; high wages paid to foreign-o^-med, capital intensive industries raise the supply price of labor and restrict absorption...(with the) exaggerated impact of the value of the "consumer society" depressing the savings rate, (P. 86.) This observation is often turned on its head, and the high wage rates to the few are then blamed for the limited spread of manufacturing I «> I,

Table 10: Summary Profile of Puerto Rico's "Success", 1950-1977

1950 1960 1970 1977

1. GDP/capita ($) 399 630 1,070 1,086 (1954 prices) 2. Population (thous.) 2,206 2,342 2,711 3,310

3. Rate of natural increase 29.0 25.8 18.7 17.4 (per 1,000) 4. Labor participation rate (%) 53.0 45.2 44.5 41.9

5, Unemployment rate (%) 12.9 13.1 10.3 20.1

6. Non-working adults (%) 53.8 60.7 60.0 66.5 (Non-particip. plus unemployment) 7. Employment structure (%) 100 100 100 100 Agriculture 36 23 10 6 Manufacturing 18 17 19 20 C3 Construction 5 8 11 6 Services 33 40 44 46 Government 8 12 15 23 8. Gross product Ratio: debt/gross — — 35(48)-^ 80 Sources: Puerto Rico Governor's Report, 1978, Appendix Table. lines 1&2: Table 1. 3: Table 24. 4&5: Table 25. 6: Calculated as (100 - labor particip. rate) + (l.p.r. x unempl. rate) = non-working adults. 7: Calculated from Table 26. Agrici^lture includes fishing and fo-restry. Manufacturing includes home needlework. Services includes trade, finance, transport, communications, pub. utilities, and other services. 8: Calculated from Tables 30 (gross debt) and 1 (GDP). a/- .. — Indicates rate in 1973. 2')

All during this period of "attracting" private funds to build industry,

the Commonwealth was also borrowing internationally to fuel its agencies and .

43 state corporations. ' From 1970 to 1977, this "public" debt rose from 35 to

80% of gross product (Table 10, line 8). With the economic base of the island eroding in the early seventies, Puerto Rico experienced its own version of • a !*balancG--of-payments" crisis: the temporary revoking of the Island's

"blue chip" credit rating, and the dispatching of a blue-ribbon commission to

44 study her finances.

Puerto Rico's "strategy of development," indeed,.of much of the Caribbean, may be summarized as a process characterized by "capital in, labor out," a reference to the enormous inflows of U.S. money of the past thirty years and to • the migrations which have changed both Puerto Rico and the urban scene in the

Eastern United States. But the situation is more complicated than that.

- The real motivation for "settling" the Caribbean, today as in earlier eras,, has lain in its ability to turn labor into profit, through the production, export, and sale of a product—sugar, coffee, tobacco—in the world market.

The area's voracious appetite for both capital and labor, and hence its .immense wealth, came not from the mining or looting of the mercantilists*' bullion but

• 43 The system of public credit, i.e., of national debts, whose ^^rigin we discover in Genoa and Venice as early as the middle ages,, took possession of Europe generally during the manufacturing - periods..national debts, i.e., the alientation of the state...marked with its stamp the capitalistic era. The only part of the so-called • national wealth that actually enters into the collection possessions of modern people is—their national debt...And with the rise of national debt-making, want of faith in the national debt takes the place of blasphemy against the Holy Ghost, which may not be forgiven, Marx (1867), p. 654.

44 Perhaps a less powerful analogue to recent IMF Missions to Jamaica and-Guyana. 30

through the sheer labor of slaves, coolies, free-holders, colonos, and -45 rural proletariat. That today's "staple" may be manufactured goods, and

tomorrow's may be copper or in the Puerto Rican case, makes a difference only in that labor is no longer needed in such great quantities. Now it is the United States and Western Europe which are in need of low-wage

labor.

The final tally is simply that during the past 27 years, $12 billion have been invested and $6 billion of profits earned, calculated in constant 195A prices (Table 11, lines 1 and 2, col. 1).^^ But another real question is not only the total earned, but the net put into . the island arid the net taken out. The net capital inflow into Puerto Rico plus public transfers, all calculated in constant 1954 prices, has accumulated to .some $14.1 billion over the 27 years, while profits remitted from Puerto Rico have amounted to some $7.4 billion (Table 11, lines 3-5). If, as Demas has indicated above, employment is but a by-product of economic growth, then unemployment and its consequence, migration, too must be regarded as its by-products. The present writer estimates conservatively that, the number of Puerto Rican migrants to the United States has amounted to 636,000 people during the perio'd 1950-77, 19% of the 1977 population or nearly 30% of the 1950.

population (see Table 11, line 6).

, 45We are reminded of the Demerara's planter's remark to Anthony Trollope, "Give me my heart's desire for coolies, and we will supply the world with sugar." Quoted in Beachley (1957), p. 99. 46^For a study which. attempts to "trace" the causes of employment and unemployment in Puerto Rico, see Weisskoff (1976). Not quite a sugar island of former centuries, but not bad by modern business standards. Table 11; Puerto Rico: A Final Record, 1950-1977 In Constant Dollars at 1954 Prices Accumulated 1950-77 1950-59 1960-69 1970-77 National Accounts Concept (1) (2) (3) (4) In Puerto Rico: 1. Gross Profits (millions) $11,999.6 $3,098 $4,446 $4,457 Income from property 2. Gross Investment (millions) 6,357.0 780 2,741 2,836 Gross fixed domestic invest Ratio: Profits/Inves tment 1.89 3.97 1.62 1.57 ment, private enterprises Net Inflows to Puerto Rico: 3. Net Capital Inflow (millions) 9,483.0 725 3,459 5,299 Net movements 4. Net Public Transfers total capital (millions) 4,595.7 744 977 2,875 Total net balance U.S. govt. Total Net Inflows: 14,078.7 1,469 4,436 8,174 transfers plus Fed. grants-in-aid Net Outflows from Pueto Rico: 5. Net Remitted (millions) Profits 7,414.7 534 2,013 4,868 Rest of the world: income Rat io: Pro f i ts/Cap i tal .78 .74 .58 .92 from property (-) Ratio: Profits/Total Inflows .45 .53 .36 .60 Ratio: Transfers/Profits 1.39 .59 .62 .49 6. Net Out-Migration 636 544 197 -107 Initial population, rate of (thous. people) natural increase, final population Notes: Refers to Governor's Report 1978. Procedures: lines 1-5: 1950-1969: Annualflows wereobtained by Cakingthe decadebenchmarkfigures fromche Governor s Report 1978, deflating them to 1954 prices, and then apply linear interpolation. Annual flows were then summed. 1970-1977: Annual flows given in the Governor's Report 1978 were deflated, then summed. Basic series for line 1 are from Table 6, row 3; line 2 from Table 12, row 7; line 3 from Table 15, row 23; line 4 from Table 21, row 21 and Table 27, row 34; line 5 from Table 6, row 30. Deflators for lines 2 and 3 are from "Total gross domestic investment," Table 22, p. A-23, row 9; for lines 1 and 4 are from "Gross product," Table 22, p. A-23, row 1. line 6: 1950-1970: Elate of natural increase per 1,000 population (NRI) for benchmark years was interpolated to obtain an annual NRI which was then applied decade population estimates to obtain an "adjusted" annual population. The difference between the "natural" and "observed" populations for 1960 and 1970 were then taken as an estimate of outmigration. 19_71;^197_7: Annual NRI were applied to each previous year's recorded population; the between Che "predicted" and "recorded" is taken as an estimate of outmigration. Basic series for NKI from Table 24, row 6 and Population from row 1. 32

To summarize, then, the inflows o£ capital from private U.S. and International business plus subsidies from the U.S taxpayer have been instrumental in generating two products; one expressed in value terras—profits—and one in human terms— people--and.with this, the Puerto Rican daisppra. 33

PARTsD: CONCLUDING REMARKS

' I have argued that Puerto Rico and the Caribbean economies fall within a class of the world's smallest, most open, most densely-populated countries.

Within the Caribbean itself, distinctions can be made on the basis of density, trade openness, income level., equality, rates of growth, and population characteristics. In Barbados, Trinidad, Jamaica, and Guyana trade is "open" and incomes are high and equally distributed, in contrast, for example, to the Dominican Republic and Haiti. The Caribbean countries are also characterized by either a large agricultural sector, as in Haiti and the Dominican Republic, or a large'mining sector, as in Jamaica or Trinidad, or both, as in Guyana. Only Puerto Rico has neither, having built and sustained a large manufacturing enclave.^® But all the countries of the Caribbean share a common trait: the dependence of "external trade"^^ with relatively few "partners" and, with the lone exception of Puerto Rico, a high dependence on a relatively few exported products.-

In all the Caribbean, the employment generated directly by the dynamic export sectors has hardly proved sufficient to put her people-to work, and this is .evident in the low participation rates observed throughout the Caribbean.

The .remaining labor-surplus and value-surplus is thus-divided between the service sector and the state (public administration). The most extreme case of this

"development" is Puerto Rico, in which the state and services are supported by public grants and transfers from the United States which have run on-the

^^See Weisskoff and Wolff (1977), esp. the methodology and conclusions. 49. We are reminded of John Stuart Mill's description of the West Indies as "the place where England finds it convenient to carry of the production of sugar, coffee, and a few other tropical commodities". To that list we must add bauxite, petroleum, and manufacturing. "The trade of the Wqst Indies is hardly to be . considered as external trade, but more resembles the traffic between town and country." Quoted from J. S. Mill, Principles., 1892, p. 454-5, in Demas (1965), p. 31. 3A order of $6 million per dny during the 1975-77 period.

In the developing world today, two types of "strategies" are held out In

the escape from economic backwardness. "Export promotion" is fashioned for the small economies with limited land or poor resources, like the Caribbean, in hope of following the Dutch, Danish, or Belgian examples. "Import substitu

tion", the classic Latin American path» is held out for the larger country with a wider national market and considerable hinterland.But by the end of the

1970's, countries which had pursued the import substitution path now speak of export promotion, for example, Brazil with her "non-traditional exports" and

Mexico with her success of branch plant manufacturing. In these countries, apparently an accommodation has been reached between the national bourgeoisie and labor, on the one hand,and the multi-national corporation, on the other.

Those countries which have pursued export promotion in the past now speak of the hopes of import substitution. They entertain thoughts of standardized products to consolidate a potentlally-"national" market. They speak of promoting local entrepreneurs, revitalizing agriculture and becoming "self-reliant" in local food production.They speak of production for use, not export, and on basing local taxes on "negative", not positive, value-added in order to promote local processing. But many new obstacles are encountered in departures from

the customary path.

Irrespective of the particular path, however, the labor-surplus model has

A small economy—the argument goes—cannot support a wide-enough home market; it has no capital goods industry; its propensity to save is too low and propensity to import too high. ^^"It is highly significant", footnotes Demas, "that during the Second World War, when links with the metropolis were severly reduced, domestic agriculture flourished." Demas (1971), n. 1, p. 8. 35 been univorsnlly npplLod. FormuLnted In terms of the marjjinnl. product'oF workers in the traditional sector, the mod^l has held out hope that the human potential released from agriculture and from households, or born fresh, would eventually be absorbed in the "modern" or highly-productive sector. Puerto

Rico, I have argued, has traveled the farthest on this path with the demise of agriculture, the growth of manufacturing, and the absorption by the service and state sectors. In the meantime, all the Caribbean countries share the difficulty of putting their adult population to work in any manner^ without even raising the question of the productivity or meaningfulness of that manner.

The failure of the. labor-surplus economy lies not in its economic performance, for both-paths—import substitution and export promotion—'have functioned well.

Rather, its failure lies in the explanation given by the model, the paradigm under which profits have been made inland resources extracted from^these economies.

The greatest irony of all is that the modern paradigm is couched in terms of labor and labor-surplus, while real events are best understood in terms of. value and value-surplus, That which Trinidad, the Dominican Republic, and ,

Puerto Rico have in common with each other—and with Brazil,. Chile, and Peru— is not only labor (and surplus-labor, at that), but value and surplus-yalue.

And it is to such models that further study must turn if the basic issues of

Caribbean development are to be understood.

Which is the appropriate—or likely—path of future economic development for the Caribbean? Is it the path of Puerto Rico or Cuba? I have argued here simply that Puerto Rico has traversed certain terrain with fewer reservations than most other countries. I would also argue now, in the light of the recent discoveries of copper-bearing ores and off-shore oil52, that it may be the rest of the Caribbean which can serve as well as a model for Puerto Rico.

"52 See Tanzer (1978) on possible oil agreements 36

Appendix Tables i i >1 « J

Table IB: • Income Distribution in the Caribbean

.Income Income Share of Share of GDP/cap. Type of Bottom Top Year US $ Unit#' Gini 10% 10% (1) (2) (3) (4) (5) (6)

Dominican Republic 1969 336 HH .49 1.6 38.6

Guyana 1955-56 312 HH .42 1.0 29.8 Jamaica 1958 405 HH .58 .6 43.8 Puerto Rico 1963 1032 HH .45 1.6 33.6

Venezuela 1962 871 HH .54 1.3 41.2

United States 1972 5631 HH .42 .8 28.1

Notes:, a. HH = household units. Source: Cols. 1, 3-6: Shall Jain, Size Distribution of Income. 1975. Tables 19, 31, 41, 59, 79, and 77. Cols. 2: UN,Yearbookof National Account Statistics, 1975. Vol. Ill, Table lA. GDP/cap.for Dominican Republic refers to 1970; Guyana and Jamaica for 1960*. Other years are as indicated. Table 2B: Cross Section of Socio-economic Characteristics .(cont.)

Natural r, 1 . b/ Economically Population Rate of Decline- Decline - GDP/capita Active Growth Population Crude infant- . US $ Population (%) Rate (%) Increase Live Birth Mortality 1973 1970 1970-75 (per 1000) Rates (%) Rates (1) (2) (3) (4) (5) (6) Other Territories Baliamas 41.3 3.6 14.2 16.5 8;8 38.3 1.6 9.9 11.5 7.7 Cayman Is. ^34.7 1.0 18.7 8.9 7.6

Fr. Guiana 38.3 , 20.5 3.8 -3.5 1218 36.2-' 1.6 20.7 11.7 7.6 Martinique 1444 29.9 3.5 15.6 7.9 17.7 Neth. Antilles 2070 34.1 1.7 19.8 13.9 -2.1 u> Turk & Calicos 554 28.5 2.1 23.9 -4.8 67.2 CO U.S. 6.7 7.9 22.5 Leeward and Windward Islands Antingua 428 32.3 1.4 11.4 19.3 Br. Virgin Islands 1190 2.4 17.0 20.8 -2.1 394 30.4 1.1 26.3 3.2 -4.4 413 30.9 .4 18.7 14.8 11.0 MonCserrat 715 34.8 1.6 13.8 6.2 -St. Kitts-Nev.-Ang. 340 29.1 .3 20.7 -10.614.1 13.3 St. Lucia 349 29.0 1.^ 31.6 -.8 -18.4 Sc. Vincent 258 27.3 99.6 15.3 -30.1

Sources: See Table 2A, a) 1974. , b) From 1956 to 1974, c) From 1965 to 1973, Table 3B: Time Series of Socio-Economic Characteristics

Rates per

Net o / Thousand^/ Reproduction Crude Live, Infant Mortality- Crude Crude

. Birth Rate— . Rates Birth Death 1973 1956' . 19-74 1965 - 1973 d) (2) (3) (4)' "(5) (6) (7) Other Territories

Bahamas — 34.6 18.1 41.0 32.2 18.1 3.9 Bermuda 1.18 27.8 16.3 30.5 22.8 16.3 6.4

Cayman Is. — 33.6 24.7 18.6 11.0 24.-7 6.0 Fr. Guiana 32.1 28.3 39.6 43.1 28.3 7.8 Guadeloupe 1.13 39.7 28.0 42.2 34.6 28.0 7.3 , Martinique 2.13 40.1 22.4 39.5 31.6 • 22.4 6.8

— Net. Antilles 33.9 20.0 17.6 19.7 20.0 4.8 U3 •w Turk & Calicos — 27.2 32.0 114.1 46.9 34.3 10.4 U.S. Virgin Islands .80 34.4 27.7 30.0 22.1 27.7. 5.2 Leeward and Windward Islands

— Antingua 37.6 18.3 45.3 — 18.3 6.9 Br. Virgin Islands — 45.3 24.5 41.7 43.8 24.5 7.5

Dominica — 41.7 38.5 53.9 58.3- 36.4 10.1

Grenada — 43.2 28.4 42.5 31,5 26.2 7.5

Montserrat — 30.5 24.3 54.8 40.7 24.3 10.5 -

St. Kitts-Nev.-Ang. — 44.8 24.1 59.1 69.6 24.1 10.8

St.,Lucia — •40.1 40.9 41.9 60.0 40.9 7.8

St. Vincent — 48.6 32.7 69.5 99.6- 34.4 10.0

Sources: Same as Table 3A. Notes: Same as Table 3A. Col. 3: Bahama-s,'1975; Fr. Guiana, Guadeloupe, Martinq.ue, Neth. Antilles, Turk, St. Vincent, 1973; St. Lucia, 1971. Col. 4: Cayman Is., 1969. • Col. -5:; Bermuda, Fr. Guiana, 'St. Kitts,-1972; Ca5niian Is., St. Lucia, 1970; Dominica, 1969; Grenada, U.S. Virgin Is., 1974. •. . AO

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