I spend some of my business time in Puerto Rico, so I have followed with interest the debt crisis that has been looming for awhile.
My take has always been about reduction; reducing the size and scope of government is a major key part of getting Puerto Rico back on track. Puerto Rico’s debt crisis is the result of years of government mismanagement. Dozens of agencies and publicly owned corporations have run deficits year after year, making up the difference by borrowing from bond markets.
There was a brief respite from 2009-2013 when the electorate had the good sense to vote in Governor Luis Fortuño, who promised a responsible fiscal direction. But after 4 years of movement toward a balanced budget, the people actually threw Fortuno out – falling for the spending promises and fiscal irresponsibility of new Governor Alejandro Padilla. After now almost 4 years of Governor Padilla, the financial mess is worse than ever.
The current fiscal mess has several key features:
1) A mere 40% Labor Force Participation rate (the percentage of the population actually working). This is ridiculously low and unsustainable for a viable economy. Even after seven years of President Obama crumbling the work ethic in the US (with his raised welfare and food stamps, higher taxes, burdens on hiring and keeping employees, Obamacare, Dodd Frank, anti business rhetoric, etc), the US Labor Force Participation rate has only gone down from 70% to 63%.
2) Retirement pensions are out of control, far in excess of any viable way of paying them.
3) The government has far too many employees, who are not only wasteful but also redundant in trying to prove their necessity in order to save their own jobs. This in turn makes the government more convoluted and bigger than it needs to be. Government must be reduced, starting with the people who create artificial justification for their working existence.
4) It’s well know that because of job protection, many of the employees do not diligently do their work. The was probably the biggest problem of the Fortuno administration; when he tried to cut the size of government, he was unable to affect any real change with regard to who needed to be fired. Hopefully the new control board, as part of the reform package, can make the necessary change.
5) The economy is burdened by politically motivated provisions dictated under US law that severely hurts Puerto Rico’s ability to grow. Chief among these are a) forcing US minimum wage and overtime rules on Puerto Rico, when their much lower wage and cost structure makes these rules unworkable, and b) the Jones Act that makes any business involving shipping between Puerto Rico and the mainland impossible.
Puerto Rico residents must accept serious responsibility for selecting to discontinue the tough but responsible leadership of Fortuño who worked to put Puerto Rico onto a path to solvency. By choosing to discontinue the rational, solvent course he had carved out and subsequently electing a leader that instead promised the unaffordable, Puerto Ricans must now face tough reforms and cutbacks help Puerto Rico thrive once again.