Puerto Rico’s economic reforms offer lessons for mainland

Governor Luis Fortuño of Puerto Rico.
(Courtesy of theblogmocracy.com.)

Puerto Rico rarely makes it onto the news in the United States, but with the Republican primary there this past Sunday, the island territory found itself in the spotlight; so was its governor, Luis Fortuño. Elected to the governorship as part of the New Progressive party (the island’s equivalent to the Republican party) in 2008, Fortuño promised to work with his party to provide necessary reforms to bring Puerto Rico out of its fiscal mess. Fortuño succeeded in his quest.

When Governor Fortuño came to office, Puerto Rico was headed for bankruptcy. The budget crisis was worse than that in any of the states on the mainland, and the recession was deep. Fortuño brought Puerto Rico back from the brink through actual cuts to government expenditures. This included cutting 17,000 government workers and cutting government spending by some 20 percent.

Fortuño also put into place reforms to improve the business climate in Puerto Rico. In contrast to the approach of the Obama administration with the Dodd-Frank bill that increased regulations, Fortuño reduced regulations to make it easier to operate a business. The corporate tax rate has been reduced in a three-step process, going from 41 percent to 30 percent and then 25 percent in 2014.

One of the most important reforms was to reduce the red-tape involved in opening a business, something many of the laid-off government workers have pursued. John Stossel from Fox Business Network spoke to a woman who created her own business and is now so happy about the whole experience that she called her company “‘Law 7’ — after the law that fired her.”

These reforms have made running businesses less costly and focused on production. The reforms have also been good for workers.

While the unemployment rate increased to a high of 16.6 percent in May 2010, a combination of the job cuts and the recession, the rate has dropped to 15.1 percent. It is important to remember that the Puerto Rican unemployment rate has been historically higher, in the double digits even during the better economic climate prior to 2008.

The unemployment rate is on its way down, without billions of dollars in government spending. The deficit-to-revenue ratio went from being higher than any state, to fifteenth in the nation — Puerto Rico’s debt was reduced from $3.3 trillion to $610 million in just three years.

The island’s economy is moving again. In addition to the unemployment rate starting to drop, the housing market on the island is recovering. Sales of new homes were up over 90 percent in 2011, and existing home sales are up to 35 percent. A five-year property tax holiday has helped this occur, while the deficit has still fallen.

The housing market remains a problem for the economy in the United States, with sales actually decreasing last year. The gains seen in the past few months are not even close to the gains Puerto Rico has seen in its recovery.

Governor Fortuño has presided over a more impressive recovery than we have seen in any of the states. He understands — unlike those in Washington — that if you provide a business-friendly climate and actually cut spending you can have economic growth and reduce a deficit.

Perhaps Governor Fortuño did this because he had no other choice. The need to reform was a necessity. Puerto Rico could not pay its bills, and could certainly not avoid bankruptcy. Fortuño’s popularity declined as a result of the reforms, and there were protests in the streets by the workers laid-off by the government. But Fortuño did what was right. And, with the economy improving, his reelection prospects have increased.

Governor Fortuño genuinely wanted to repair Puerto Rico. This is the type of leadership we need to display as conservatives going into the 2012 elections. We cannot sugarcoat the reality that the task ahead is difficult. Governor Fortuño decreased spending while stimulating the economy, while President Obama has increased spending and the economy has begun to recover slowly. Industries such as housing still pose major problems in the path to recovery.

We also have the deficit and debt to handle. President Obama did introduce liquidity into the market through stimulus, but he and the Democrats in Congress coupled this with overreaching regulatory reform and Obamacare.

It is going to take bold leadership to bring down the deficit. Bold leadership like Governor Fortuño offered in Puerto Rico. He adopted conservative policies even when he knew his popularity would decline. Cutting the workforce and dealing with low approval ratings is something nobody wants to endure.

We need to recognize our problems are great, and there is no way to fix those problems without someone willing to take the hit. The Republican primary is winding down, and former Massachusetts Governor Mitt Romney will be the Republican candidate for president. Romney and the party need to work together on a platform that is bold.

House Budget Committee Chairman Paul Ryan’s proposed budget released Tuesday is a step in the right direction. Now we just need the party to embrace a new vision for America — we need look no further than the “51st state” of Puerto Rico.

Tyler is a sophomore. You can reach him at tbecker1@swarthmore.edu.

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