BOGOTÁ, Colombia -- Amid one of the worst economic crises in history, Puerto Rico's governor recently announced plans to eliminate 30,000 public sector jobs. The move shows that "Operation Bootstrap"-style policies, the series of radical free-market reforms implemented in the 1950s, remain alive and well on the island.
When asked about the origins of neoliberal policy-making in Latin America, most people point to Pinochet-era Chile. Augusto Pinochet overthrew socialist Salvador Allende in 1973, and began a radical free-market revolution in the country that would be copied by several autocratic regimes throughout the hemisphere.
But before Pinochet-era Chile, there was Puerto Rico. The economic reform plan was called "Operation Bootstrap," and it was a clear precursor to the package of free-market policies eventually introduced in Chile. Implemented in the 1950s, Bootstrap was supposed to spur the mass industrialization of the island through sweetheart tax breaks and other incentives aimed at encouraging companies to move their factories to the Boricua nation.
According to Puerto Rican researcher Rafael Bernabe, Bootstrap's incentives included "the nonapplication of U.S. minimum wage legislation, unrestricted access to the U.S. market for products manufactured in Puerto Rico, and exemption from federal and insular taxes." The result was an immediate flood of U.S. investment capital. Neoliberal reformers in other Latin American countries later sought to reproduce Puerto Rico's "miracle," so they liberalized trade and finance, cut corporate taxes, and reduced labor costs (mainly, by cutting benefits and wages). The reforms led to a decade of sluggish growth during the 1990s that some economists call Latin America's second "lost decade" -- the first being the 1980s debt crisis of convulsive economic contractions across the region.
Puerto Rico's current economic crisis can be partly traced to the Bootstrap era. The program helped raise living standards temporarily, but it failed to establish a solid economic foundation for the island. And the reforms were never able to put a dent in unemployment, especially once the 1970s economic crisis hit. Indeed, if emigration is any indication, Bootstrap masked severe economic problems on the island: Between 1950 and the 1970s, nearly 20 percent of the population left for U.S. cities.
Bernabe concluded, "Operation Bootstrap’s original goals—drastically reducing unemployment, freeing the island from reliance on U.S. relief funds (which had expanded during the Great Depression), and attaining living standards comparable to those in the U.S. mainland—had not, and still have not been achieved. Today, almost half the population (45 percent) lives under the federal poverty line, compared to 13 percent in the mainland United States."
With Bootstrap's last gasps merely propping up a lagging economy into the 1980s, the country slowly deindustrialized. In a last-ditch effort, U.S. Congress began a partial reversal of tax breaks in 1995, trying to help the local government get a share of dwindling corporate profits. With the incentives gone and a relatively costly labor force, companies began moving operations to cheaper areas. One attractive alternative was the Mexican border area, where corporations enjoyed Bootstrap-style benefits from the just-implemented NAFTA, along with the added incentive of being adjacent to the U.S. market.
For Puerto Ricans still on the island, the government public sector became one of the few stable sources of employment.
Puerto Rico Governor Luis Fortuño now plans to introduce a second-generation Bootstrap. "The government is too big and spends too much," he said in a televised announcement. Following the cue of neoliberal reformers in other Latin American countries that systematically dismantled the state-provided services in the 1980s and 1990s, Fortuño claimed, "Simply, the government has to be minimized."
According to the BBC, an estimated 218,000 Puerto Ricans (or 21 percent of the workforce) depend on government jobs. Despite an additional $5 billion on the way from Washington, as part of the Obama administration's stimulus package, Fortuño has decided to slash 30,000 of these jobs. He also announced that wages and benefits would be frozen for the next two years.
Fortuño, who was inaugurated in January, presents the job cuts as a necessary step toward saving a "bankrupt government." It's not the first time the Puerto Rican government is on the verge of collapse: it was forced to shut down for two weeks in 2006 because of a budget crisis. (The current budget deficit is an estimated $3.2 billion.)
But the real problem is that Puerto Rico has never put the final nail in Bootstrap's coffin. As part of his emergency plan, Fortuño said he would only temporarily suspend the huge local tax credits enjoyed for years by businesses, corporations—particularly, banks—and individuals that earn more than $100,000 a year.
It seems Puerto Rican workers are again getting the raw end of the deal. In response, the country's combative unions are planning demonstrations this Friday to protest the massive layoffs.
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