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A Page from History: Operation Bootstrap [1]
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Date: 2024-08-26 10:19:57+00:00
In the 20th century, Operation Bootstrap helped change Puerto Rico’s economy from an agricultural base to an industrial one. The initiative was a series of federal economic reforms, launched in the mid-1940s in response to economic crisis on the Island. It was a joint effort between the U.S. federal government and the Puerto Rican government, led by Governor Luis Muñoz Marín.
Industrialization
Operation Bootstrap aimed to attract U.S. businesses to set up factories in Puerto Rico by offering tax breaks and other incentives. This new policy contributed to a shift in focus of the Island economy away from agriculture, particularly sugar production. Sugar production fell by more than 50% in the 20th century as Operation Bootstrap took hold; the change in Puerto Rico’s economic direction was also impacted by hurricanes and territorial government policies that included an intentional shift away from agriculture that led to labor shortages.
Tax breaks were part of the plan from the beginning. Initially, federal tax rates were cut and companies paid taxes to Puerto Rico. The Industrial Incentives Act of 1947 exempted businesses from territorial corporate taxes and other levies to encourage investment.
The goal was to create an export-driven economy, with goods produced in Puerto Rico being shipped to the U.S. mainland. The idea was that the local market was too small for an industrial economy — but the result was that Puerto Rico, having shipped out most of its production, became reliant on imports for the needs of the local people.
U.S. Investment in Puerto Rico
Operation Bootstrap also included federal investments in education, infrastructure, and healthcare. The Puerto Rico Reconstruction Administration was established in 1935 and therefore predated Operation Bootstrap, but its efforts through 1955 brought modern plumbing, electricity, agricultural cooperatives, roads and highways, schools, and public health facilities to the Island. Without these investments, it would have been difficult to persuade companies from the mainland to build factories and offices in Puerto Rico.
The Gross Domestic Product, per capita income, and foreign investment all increased by leaps and bounds. Puerto Rico was intended to provide a Cold War example of successful industrialization.
Benefits to U.S. Corporations
Promoting industrialization was not a question of encouraging local entrepreneurs to automate their facilities, but of luring large companies from the mainland. The program thereby encouraged dependence on outside investment. “In trying to be attractive to U.S. firms, Puerto Rico instead became indentured to them,” as Reuters put it, “pledging tax breaks and cheap labor for ultimately transient economic benefits.”
Ultimately, the tax incentives allowed mainland companies to wash profits through Puerto Rico to avoid paying taxes on those profits, while spending money in states where there would be tax benefits for doing so. The companies were rewarded not for creating jobs in Puerto Rico but for making transfer payments that moved money from the Island to the mainland. Puerto Rico looked more prosperous on paper, but the actual benefits went to the corporations. Local businesses did not prosper from the federal policy.
By reducing local agriculture, Operation Bootstrap also led to a reliance on imports for food. Today, Puerto Rico still imports about 85% of the food people eat. Not only does this increase food prices and limit access to fresh food, it also creates supply chain disruptions in times of disaster.
The home needlework industry collapsed as Operation Bootstrap emphasized factory production. While some scholars lament the loss of the needlework jobs, the pay for embroidering at home was just 15 cents an hour; these jobs couldn’t compete with the new jobs in the factories. But Puerto Rico now imports most of its clothing as well as its food. Only 30,000 workers are employed in the clothing industry in Puerto Rico now.
Operation Bootstrap is also often blamed for the high levels of migration from Puerto Rico to the United States. Before World War II, many agricultural workers traveled to the states for work, but they returned to Puerto Rico in the winter. Permanent migration increased after World War II and Operation Bootstrap, but the connection between the two is uncertain. However, “In 1971, the U.S. Civil Rights Commission concluded that the failure of Operation Bootstrap to reduce unemployment ‘was at the very basis’ of Puerto Rican migration to the United States,” according to the North American Congress on Latin America. Brown University‘s Juan Ruiz Toro suggests that it was the result of the integration of the two economies, while others suggest that increased awareness of the states as a land of opportunity caused the outmigration.
Whatever the impetus, the movement of people from Puerto Rico to the states has continued, with the Puerto Rican population in the states now about double that on the Island. As it is often stated, the people of Puerto Rico continue to vote for the benefits of statehood with their feet.
Photo courtesy of Julie Olsen
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