From Yuca to High Tech

Caribbean Business 25th anniversary special editionTo mark its 25th anniversary in 2000, the Puerto Rico newsweekly Caribbean Business hired me to produce a different kind of history of the past thousand years, focusing on the economy of the island and how people earned a living over the centuries. While certainly not a comprehensive history, the resulting 30,000-word publication, which I wrote entirely, provides snapshots of Puerto Rico's development at selected moments in time.

1950

The turning point

Four and a half centuries after the Spaniards arrived in Puerto Rico, dramatic changes in life on the island were happening.

In a matter of years, Puerto Rico would experience changes that took place elsewhere over the course of decades. Incomes, stagnant for so long, would rise quickly. Absentee owners who had failed to improve the lot of the working class were being replaced quickly by new industrialists, wholesalers and retailers more responsive to workers' needs, with a lot of help from labor protections enacted by the government. A program of industrial incentives would make the island a "taxpayers' paradise" and grow a sector that would soon become Puerto Rico's new economic king: manufacturing.

A people who had never been allowed to run their own affairs would gain greater control of their destiny. Demographic upheavals would change the profile of PUerto Rican society, as waves of people moved from the country to the city and from the island to the states in unprecedented numbers.

In 1947, Congress gave Puerto Rico the right to elect its own governor, ending a half century of "colonial tutelege." The following year, Luis Muñoz Marín was overwhelmingly elected. It was an important shift. Now, the governor answered not to the president of the United States, but to the voters of Puerto Rico.

One of the longest-running sources of discontent among the populace, the ever-unpopular efforts of U.S. administrators to try to force island schools to teach in English instead of in Spanish, died a quick death now that Puerto Ricans were in charge of the government. English would be taught as a second language. It was just one of the most visible of many changes that took place.

Having seen the terms Congress was willing to offer the Philippines in exhange for independence, Muñoz Marín realized that Puerto Rico would lose free trade with the United States if it became sovereign. The result would be a massive disruption in the economy.

Muñoz quietly abandoned the goal of independence he had carried since his political career began. The Popular Democratic Party administration instead turned its attention to winning the right to draw up a constitution and decide its own governmental structure for the first time under U.S. rule.

By 1950, as the constitutional process was beginning, Pedro Albizu Campos was out of prison but still a firm believer in violent, revolutionary action. To try to stop the process, the Nationalists launched several attacks, attempting to take control of towns such as Jayuya and Utuado, as well as launching armed assaults on La Fortaleza and, later, on Blair House, where President Harry Truman was temporarily staying. Thirty-three people were killed in the violence, and Albizu was arrested again.

One afternoon at the Palace Hotel

In the 1930s, long before Luis Muñoz Marín became governor and Pedro Albizu Campos was imprisoned, Muñoz was having lunch at the Palace Hotel in San Juan one afternoon when he spotted Albizu.

Muñoz had heard Albizu speak once at a rally in Ponce and, like thousands of others, found him to be an interesting figure who drew attention. But he did not subscribe to Albizu's anti-American rhetoric, which was based on the thesis that only violent revolution and personal sacrifice would bring about Puerto Rico's independence. At that stage, Muñoz favored independence, too, but by different means, and he also had different priorities.

That day in the hotel, Muñoz Marín invited Albizu Campos to join him, and he did. The two talked. Years later, Muñoz summed up the conversation in his memoirs:

"I didn't deny his political thesis, and he didn't deny my social thesis; but clearly for Albizu the political, independence, sovereignty, were fundamental; be gone with the United States! For me: be gone with hunger!"

Muñoz would prevail, and the status debate in Puerto Rico remains to this day largely about economics, jobs, and the choice of the best path toward prosperity and development.

Such a friendly debate in the 1930s would be far different from another, less personal interaction between the two in 1950. Albizu, having served his federal prison term, was back on the island and again fomenting revolution. Muñoz, now governor, had won from Congress the right for Puerto Ricans to approve their own constitution. Albizu sought to stop him at all costs.

In 1950, the Nationalists launched their uprising, attacking the towns of Jayuya and Utuado. They also launched an armed attack on La Fortaleza itself. The gunmen were barely stopped from infiltrating the governor's mansion, where they presumably planned to kill Muñoz.

A day far different from a debate over lunch at the Palace Hotel.

The constitutional process was not to be stopped. The new constitution was easily approved by the voters in 1952, and with it dawned a new political era in Puerto Rico.

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Equally dramatic changes were about to occur in the economy, as well. Just as with politics, new approaches were being proposed to end Puerto Rico's lingering poverty and unemployment.

Among the key individuals was Teodoro Moscoso, the Ponce pharmacist who had met Muñoz Marín on his sickbed a decade earlier. Sometimes, when he met with U.S. officials to explain his plans, Moscoso would face doubts about his abilities. What did a pharmacist know about building an economy? But his outsider's view, along with his zeal for the job, led him to take on tasks others said were impossible.

It had long been accepted as fact that Puerto Rico could not industrialize, but must rely instead on agriculture. Moscoso looked at the numbers and realized agriculture could never provide the jobs the island needed. There were too many unemployed people and not enough land.

In the 1940s, while Rexford Tugwell was still governor and working hand-in-hand with the new Popular Democratic Party forces in the Legislature, Moscoso was appointed to head the Puerto Rico Industrial Development Company, commonly called Fomento for a shortened version of its Spanish name. He picked the name because he liked the sound of the title of Chile's "Corporación de Fomento de la Producción."

From the beginning, private business interests either questioned or outright opposed the agency's existence, fearing it would lead to the government competing with them. To overcome this resistance, the local Legislature also created the Government Development Bank to provide financing that would promote industry on the island.

During that decade, however, little was accomplished by Fomento. The war made materials scarce and shipping space limited. One of the first projects Moscoso and Fomento launched showed the pitfalls. At the time, though, it sounded like a good idea. Exports of rum were increasing because of lack of competition from Europe, but the empty bottles were imported from the states. Why take up valuable shipping space with empty bottles when Puerto Rico could make its own? A glass plant would create jobs and allow rum exporters to sell even more liquor.

From the beginning, the plant was beset by problems. Equipment arrived late and labor problems delayed production further, until 1945. By then, the war was nearly over. Quality problems also hurt the glass factory, and when regular shipping resumed, the rum companies, as wary of Fomento as were other business interests, were happy to go back to using imported bottles.

Other government-created companies making cardboard, clay tiles and bricks, and shoes were also started, with the shoe factory being the most immediately successful. In all four cases, the Fomento factories were meant to produce goods from local resources and replace imports while providing jobs. It was a common tactic throughout Latin America, and everywhere the state-owned companies quickly became inefficient and noncompetitive.

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In Puerto Rico, decades before privatization became a household term, the government saw the writing on the wall and did not waste much time before selling the public corporations to private interests.

But not before trying another development strategy to replace import substitution. Fomento, which had been given its current name, the Puerto Rico Industrial Development Company (PRIDCO), in 1945, had little to show for its efforts by the late 1940s. In 1947, it turned to a new tool to try to bring industry to the island: tax exemptions.

Since U.S. companies were already exempt from federal taxes in Puerto Rico, the local tax exemptions were a big incentive. A headline in the Wall Street Journal that year referred to the island as a "taxpayers' paradise."

Muñoz Marín, after being elected governor, took a look at the government in 1949 and saw chaos. A University of Puerto Rico study estimated there were about 100 government agencies, though nobody knew the exact number. As part of a government-wide reorganization, the Economic Development Administration was created in 1950, incorporating PRIDCO.

The structure was now in place, the tax exemptions had been approved and the entire effort had been given a name: "Operation Bootstrap." Puerto Rico was about to end centuries of languishing in the shade and was ready to emerge.

The slogan for the effort was "Battle for Production," and Moscoso's foot soldiers in the campaign were the employees who staffed Fomento offices in New York, Miami, Chicago and Los Angeles. These were the bright young graduates, many of them Puerto Ricans educated in stateside universities, who knocked on doors, getting blank stares or rejections more often than not when they extolled the benefits of doing business in Puerto Rico.

But they also found some takers: nine companies in 1947; 16 more the following year; 32 in 1949, and so on. Between 1947 and 1957, Puerto Rico added more than 20,000 manufacturing jobs, an increase of 41 percent.

At first, apparel manufacturers were the primary targets who answered the call. They were drawn to Puerto Rico not only by tax exemptions, but also by lower wages than they would have to pay in the states. The average hourly wage in Puerto Rico was 42 cents compared to $1.50 in the United States. For textile companies, which needed lots of employees, relatively low wages offered savings as big or bigger than the tax benefits.

Not all of the statistics portrayed a success story, however. Those 20,000-plus new manufacturing jobs amounted to a gain of more than 37,000 jobs in Fomento-promoted plants offset by a loss of more than 16,000 jobs in other plants. Also, the factories directly operated by PRIDCO — the four established by the agency plus the Puerto Rico Cement Co. it inherited — were not cost-effective.

All but the shoe factory were sold in 1950 to the Ferré family, already a force in business on the island through ownership of other companies. The purchase of Puerto Rican Cement, along with their Ponce Cement factory, gave the Ferrés a virtual monopoly on an important commodity.

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For all of Puerto Rico's efforts to promote industrial development, there was another factor in the 1950s that made a similarly lasting impact on the culture, adding thousands of chapters of sometimes sad, sometimes thrilling stories to the history of the Puerto Rican people. It was the decade in which people were on the move. Part of the move was the continuing flow from rural to urban areas. By 1950, 40.5 percent of the population was urban, up from 30.3 percent a decade earlier.

But the bigger move was the flow of emigrants from the island to the U.S., most of them to New York, leaving their familiar tropical island for a colder, far different world with only the hope of better times, or the vague promise from a relative who had already made the move that work could be found in the shops and factories of the city.

Net out-migration hit five figures in 1945, when the war ended, and peaked in 1953 at 76,603. That amounts to 209 more people leaving Puerto Rico than arriving each day that year. In the end, a total of 460,826 left the island during the decade, changing the landscape not only of Puerto Rico, but also of such cities as New York and Chicago.

Even as Puerto Rico was finally transforming itself, pulling itself up by its bootstraps — in the words chosen to appeal to sentiments such as Yankee self-reliance — more Puerto Ricans than ever were leaving.

For Puerto Rico, 1950 was a turning point. The political, economic and cultural changes shaking the island in that era would create a new and very different society.