Why Congress Should Care About Puerto Rico

by Salim Furth, Daily Signal, February 10, 2016

Puerto Rican legislators and lobbyists have flooded Capitol Hill this year asking Congress to intervene on the debt-ridden island’s behalf. Sadly, the bailouts and bankruptcy law changes that Puerto Rico’s lobbyists seek would benefit Puerto Rico’s government without creating jobs or wage growth for most Puerto Ricans.

Although most congressmen were not elected with Puerto Rico in mind, they were sent to Washington to tame the deficit, to enable job creation, and to protect prosperity. Addressing federal policies that have held Puerto Rico’s economy back will help Congress meet those priorities.

If Puerto Rico does not find a path to prosperity, more Puerto Ricans will give up looking for work and accept welfare or disability benefits, adding to the federal deficit. And without job opportunities at home, more will move to the mainland to look for work. In the hardest-hit congressional districts, where residents have struggled to find work since the end of the recession, adding new job-seekers could extend the slow recovery.

In some ways, Puerto Rico is well integrated into the U.S. economy, buying goods and services from producers all around the U.S. But the maritime Jones Act has severed Puerto Rico from U.S. energy markets. While Puerto Rico is allowed to import natural gas, coal, and oil from Trinidad and Tobago, Colombia, and Venezuela, for example, the Jones Act—which requires that all goods shipped between two U.S. locations be transported on a U.S-built, U.S.-flagged, and 75 percent U.S.-crewed ship—makes imports from Pennsylvania, Wyoming, or Texas untenable. In fact, no tanker routinely supplies Puerto Rico with U.S. energy.

Heritage Foundation research found that job-creating manufacturing has proven untenable in Puerto Rico, due to artificially high prices of energy, shipping, and labor. Without federal legislation that allows those prices to fall to market-determined levels, Puerto Rico will not find its way to robust, job-creating growth.

Bailouts, bankruptcy, and even beneficial fiscal reforms are not going to overcome the basic math: Why do business in Puerto Rico when the costs are higher than anywhere else?

Exempting Puerto Rico from the Jones Act—a privilege already granted to the U.S. Virgin Islands—is the single most important step Congress can take toward enabling economic growth in Puerto Rico. With the Jones Act waived, Puerto Rico’s power companies would be able to replace foreign-sourced oil with cheaper, cleaner, U.S.-sourced natural gas.

Manufacturers in Puerto Rico would no longer be at a cost disadvantage relative to Asia and other Latin American countries when shipping goods to the U.S. And the cost of living in Puerto Rico would fall, allowing residents to stretch their wages further.

Another valuable policy reform would be for Congress to give Puerto Rico the authority to set its own minimum wage. Median wages in Puerto Rico are much lower than in any mainland state, but Puerto Rican employers must pay $7.25 an hour, the federal minimum. As a result, fewer jobs are available, and many Puerto Ricans work off the books for low wages, and without legal protections, and without earning a stake in Social Security and Medicare benefits.

A lower minimum wage, set by Puerto Rico’s own government, would bring some of those workers out of the shadows, enable economic growth, broaden the tax base, and decrease net migration to the mainland.

Congress cannot afford to ignore U.S. citizens whose ability to make a living has been stifled by the Jones Act and a one-size-fits-all minimum wage. The fiscal crisis Puerto Rico faces is really an economic crisis, and a narrow focus on the Commonwealth’s deficits and debt will not overcome the policy barriers to growth that federal policy has erected.

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