Will Puerto Rico be the Greece of the United States?

José La Luz

By José Gutiérrez 

In late June, the governor of Puerto Rico, Alejandro Garcia Padilla, announced that Puerto Rico would not incur any more indebtedness and would not be able to meet its current debt obligations.  The crisis has been compared to that of Greece, but the analogy is not correct.  For background and ideas about how activists can become involved, I spoke with José La Luz, a DSA vice chair and veteran trade unionist, worker educator, and human rights activist. The interview has been condensed and edited for clarity. As Democratic Left went to press, the situation remained fluid.

Gutiérrez: The current situation of Puerto Rico has been compared to that of Greece by some people, by others it has been compared to Detroit. What can you tell us about how you perceive the current economic crisis in Puerto Rico?

La Luz: Nobel Prize-winning economist Joseph Stiglitz has said that Puerto Rico is the Greece of the Caribbean. The only problem with that is that PR is not a sovereign country. PR is in fact the Greece of the United States, and that is what I want to get across to progressives in the United States. Puerto Rico being its largest territory, the United States bears some responsibility for this debt that has grown to more than 70 billion dollars. It is one of the highest per-capita debts in the world, even higher per capita than Greece.

 Gutiérrez: Could you say something about how it got this way? The United States has a big debt, what does Puerto Rico’s debt relate to?

La Luz: The increase in the debt of Puerto Rico is a result of the decline of the Puerto Rican economy. The manufacturing sector of Puerto Rico, which to this day is around 46% of the island’s gross domestic product, has been adversely affected by U.S. trade policy and by the decision by Congress to phase out tax incentives that applied to Puerto Rico until December 2005. Like New York City in the 1970s and Detroit today, a decline in the manufacturing sector has led to lower revenues, a loss of jobs, and residents leaving the island. This decline in the economy has increased the need for social spending at the same time that revenues are decreasing. The increased debt has led to a decline in the credit rating of Puerto Rico, which before the crisis was positive. This has limited the ability of Puerto Rico to borrow money to counteract the decline in the private sector. It’s a vicious cycle that had started just before the recession.

Two more factors have adversely affected the Puerto Rican economy. Under the Merchant Marine Act of 1920, Puerto Rico has to ship goods using the U.S. merchant marine, which  increases the cost of importing and exporting goods to the island. This law applies to Puerto Rico but not to other U.S. territories, such as the U.S. Virgin Islands. This bill  affects the cost of living in Puerto Rico and should be phased out. Second, the cost of energy is high because most the island’s electricity comes from petroleum. The island passed Law 82 in 2010 mandating increased use of renewable energy but it can’t spend or borrow enough money to implement the mandate.

This debt has a direct impact on social spending. Programs that help the neediest are severely cut. It results in massive cuts in public services. The administration of Governor Luis Fortuño laid off more than 15,000 workers. In terms of the politics of austerity, it compares to Detroit in the sense that Detroit went bankrupt. The fiscal and budget crises there had a devastating impact on poor and working families. Yes, there are comparisons, but the fundamental difference is that Greece is a sovereign country and as such has some tools that it can use, including restructuring of the debt, which is not an option that Puerto Rico has by virtue of being a territory of the United States. Neither does it have the tools that Detroit has to declare bankruptcy.

There is a broad coalition of nongovernmental organizations and unions and even the business community that hopes to persuade the federal government that Puerto Rico should have the ability to renegotiate its debt with the Wall Street banks and the hedge funds. Former Governor Anibal Acevedo Vila; Professor José Nicolás Medina, a well-known constitutional attorney; and labor leader Roberto Pagán, one of the top leaders of one of the SEIU affiliate in the island, argue that the federal government has a legal and constitutional obligation to resolve this crisis. The Obama administration has said that it will not intervene. Progressives in the United States must be involved in figuring out what can be done to find a solution to this crisis.

A group of led by the Service Employees International Union in New York City and other parts of the mainland in the Puerto Rican communities is rallying some support to pressure the Obama administration. My view is that the administration doesn’t have the political will and certainly not the political capital to engage in this fight. This has to become an issue for the presidential election. It’s far more important at this point than thinking about solutions to the whole question of the relationship of the island to the United States, which as you know, is a perennial debate in Puerto Rico.

Gutiérrez: In the long term, though, isn’t some resolution of the relationship between the United States and Puerto Rico part of the answer to the problems of Puerto Rico? Puerto Rico, with a population of 3.5 million people, has the same federal representation as the District of Columbia, which is to say, none. Puerto Rico, as you mentioned is not a sovereign country, it’s subject to federal law, which limits what it can do.

La Luz: No question about it. It would be irresponsible if I didn’t say that. It is something that has taken and will take a long time to resolve one way or the other.

Meanwhile, Puerto Ricans no longer migrate to the northeast and Chicago as in the past. The explosive growth of the Puerto Rican vote in central Florida could be the decisive vote in terms of who becomes the next president of the United States. That was certainly the case in 2012 where the percentage of Puerto Ricans in Florida who voted for Obama was 73%. Arguably it was one of the main factors that led to Obama winning Florida in 2012. If that happens again and that votes supports a Democratic nominee, it could decide the election. But that vote shouldn’t be given for free. It should be part of a commitment to find solutions to the fiscal and economic crisis in the island.

Gutiérrez: I understand that the Fortuño administration, the previous administration, had suspended several collective agreements but then at the end of his term many of those agreements were restored.

La Luz:  I was intimately involved. I was dispatched to organize the campaign to restore collective bargaining.  In effect, what happened is that Law #7, signed in March of 2009, abolished collective bargaining. So we had to get a law enacted to restore bargaining rights and allow us to renegotiate the contracts that had been frozen. Once again, a coalition effort led by unions and allies in the religious community and community organizations fought to restore bargaining rights, and that’s why the contracts were renegotiated. But most likely what’s going to happen now will be massive layoffs and freezing the contracts because the government has no capacity to pay, and that will be disastrous.

Gutiérrez: Would you say that the Garcia Padilla administration has been better on labor rights than the Fortuño administration?

La Luz: They all have to operate within the confines of the government’s ability to pay. The Garcia Padilla administration, despite the fiscal and economic constraints, has abided by the terms of the collective agreements. Even though it hasn’t paid the full wage increases that have been negotiated, it has tried for the most part to do so. It has complied with contractual obligations. That may not be an option now, if the finances of the government collapse totally.

This crisis is so imminent that all progressive forces in the United States and in Puerto Rico have to work together to address this emergency. The Obama administration needs to take action now and it has to become an issue on which candidates for the nomination of the Democratic Party take a position.

José Gutiérrez is a member of DSA’s national political committee, and a member of Metro DC DSA. Like José La Luz, he is from Puerto Rico. The DSA National Political Committee’s statement on the crisis in Puerto Rico is on the DSA website.

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