With the end of World War II, the island began a period of industrialization in which the government of Puerto Rico became a facilitator of industrialization by building highways and bridges, expanding public services and offering economic stimulus and promotional campaigns in the United States. This differed from the early 1940s when the government created factories that used local resources and produced goods for the local market. As part of this new economic policy, state-owned industries were sold to private capital to encourage investors to establish industrial operations in Puerto Rico. From that time on, governmental policy focused on private investment, particularly by U.S. capital. As a result, the failure of the government industrialization program of the 1940s and the expansion of U.S. capital into world markets in the post-war era created the conditions for implementing a new economic policy.
As part of the new focus, the government of Puerto Rico, under the control of the Popular Democratic Party (PPD, for its Spanish acronym) and led by Luis Muñoz Marín, approved the Industrial Incentives Law in 1947 that authorized a 10-year exemption from income taxes and property taxes for new companies that established operations on the island. This began a concerted effort by the government to increase industrial production by attracting private capital, mainly from the United States. After 1950, this work was the focus of the recently created Economic Development Administration, which like the previous Development Company was under the direction Teodoro Moscoso and developed the plan for economic growth during the decade. This was a dependent model known in the United States as Operation Bootstrap (called Operación Manos a la Obra in Puerto Rico) that was based on tax exemptions and cheap, controlled labor to attract capital and thus industrialize the island’s production. In this way, the PPD sought to make Puerto Rico a more attractive location for foreign investors.
This industrialization program was divided into two markedly different phases. During the first stage, from 1947 to 1960, the businesses that established operations on the island were ones that required a lot of labor and needed relatively little capital to begin production. These companies were attractive to the Industrial Development Company, which had the immediate objective of relieving the high levels of poverty and unemployment. In 1963, 46% of Puerto Rican families still lived in poverty and unemployment remained above 10% hroughout 1947 to 1963.
Despite the obvious advantage that this kind of business could absorb a significant segment of the unskilled workers, many of whom had migrated from the country to the city in search of jobs and better wages, and despite the government’s efforts to ensure favorable and necessary conditions for attracting foreign investment, this model began to show weaknesses. Because the companies had invested little capital and used a lot of labor, they were very mobile, which meant they could liquidate their investments and leave the island if the tax exemption ended.
This also describes another fundamental quality of the businesses that the Industrial Development Company attracted to Puerto Rico in the early years of Operation Bootstrap, which was that the companies had few ties to the rest of the island’s economy. They were mostly separate from the local economy and in general were subsidiaries of vertically integrated companies based in the United States. Puerto Rico served as an assembly plant that imported raw materials and exported finished goods to the United States. The benefits to the island were limited mainly to the wages paid.
Thus in the early 1960s, some light industries began to abandon Puerto Rico in search of new markets with cheap labor. The cost of labor in Puerto Rico had increased notably as a result of the federal government’s policy of increasing wages to bring them closer to the minimum wage in the United States. In addition, the “Kennedy Rounds” opened the ports to textiles from Europe, which negatively affected Puerto Rico’s “free market” advantage.
These events, and the flight of light industry, led the government to change the focus of the development strategy that had been followed up to that time. That began the second phase of Operation Bootstrap, in which priority was given to attracting heavy industry and leading to greater integration of Puerto Rico into the U.S. market. The government expected these strategies to provide better wages and increase employment by stimulating secondary industries.
Unlike light industry, the new industries were characterized by intensive capital investment and the use of a smaller amount of skilled labor, but at higher wages. Despite the lower number of jobs provided by these industries, the architects of the island’s economic policy were convinced that the secondary effects that would be created in the so-called satellite industries around the heavy industries would make up for this. But something else happened instead, because the companies that established operations on the island were already integrated into the supply and distribution networks of other companies in the United States and other countries. Therefore, they did not try to build business ties within Puerto Rico. Also, the government did not try to motivate them to create ties through the incentives it offered. As a result, contrary to expectations, the impact on employment was minimal. The new industrial sector resembled the “export enclave” created years earlier by the promotion of light industry and wasn’t that much different from the sugar industry prior to the 1940s.
Meanwhile, the concentration of industry in urban areas had negative effects. Among these was the accelerated displacement of huge numbers of people from the rural areas to the new industrial centers because of the failure of agrarian reform and the crisis in the agricultural sector. This, in turn, unleashed demand for more public services, health care and schools that could not be easily met. In light of these circumstances, the island Legislature, dominated in 1963 by the Popular Democratic Party, approved a new Industrial Incentives Law, with the goal of alleviating the inequality that had been accentuated after the approval of the law of 1954. At the time it was passed, the 1954 law allowed companies to take a tax exemption for a period of ten years after beginning operations on the island, which helped make Puerto Rico attractive to potential investors and helped slow the rate of relocations that began in 1953 and 1954. The new Industrial Incentives Law, however, set various periods for the tax exemption, depending on where the new industry was located. Companies that established operations in areas labeled as “industrially underdeveloped,” generally in the interior of the island, obtained a total exemption for 17 years. Those that set up operation in an intermediate development area were given a total exemption for 12 years, and those that chose an area with a high industrial concentration, such as the metropolitan area, got an exemption for 10 years. Rafael Durand, administrator of the Industrial Development Company at the time, said the change was a response to, among other things, the fact that San Juan was reaching a point where no further tax exemptions should be given, except in special cases for industries that were tied to the facilities in the San Juan port zone, and that the government should resign itself to losing some businesses if it did not want San Juan to become a monstrous city. This way, the program of tax exemptions, which in the beginning was perceived by Puerto Rican technocrats as a temporary measure, came to be a permanent part of the development strategy. It also marked the moment when dependency on foreign capital and businesses officially became the basis for the long-term economic development of the island.
Along with the government’s desire to get companies to establish operations outside the metropolitan area, the trend toward hiring mostly women was also the source of deep concern. During the period from 1955 to 1962, industrial employment among men on the island rose from 34% to 49%. By comparison, among women industrial employment rose from 37.6% to 45.1%. Among businesses helped by the government, the trend was similar. Employment for men rose from 10.3% to 26.6%, while from women it rose from 18.9% to 39%.
The surge of women’s participation in production became obvious to the government, as well as the need to resolve the imbalance between employment of men and women in the industrialization program. This social phenomenon was not exclusive to Puerto Rico, as the integration of women into production, or the “feminization” of production, as historian Eric Hobsbawm described it, was occurring around the world. In 1960, socioeconomic conditions in the towns in the central region showed worrisome statistics in metrics such as demographic change, population growth, unemployment rates and the distribution of income, among other figures, in comparison to towns in the metropolitan area. The immediate causes of the socioeconomic changes that occurred in the towns in the central part of the island were the direct result of the transformation that took place in Puerto Rico beginning in the 1940s. The island went from being a predominantly agrarian and rural society to one that was urban and based on manufacturing. Sociologist Emilio Pantojas described the modernization project of the PPD in this transition phase as one that tried to rebuild capitalism on more sophisticated forms of exploitation. In other words, an agrarian capitalism based on the exploitation of what Marx called absolute surplus value, with long working hours and low pay, began a transition based on the exploitation of relative surplus value, with greater productivity that allowed workers to produce more in less time, making it possible to reduce the number of working hours and increase workers’ wages.
Invariably, this change meant the expansion of industrial production and a reduction in agriculture as the island’s dominant economic sector. Historian James Dietz said that “the defect in the development program was having gone too far with the premise that agriculture was too fragile a base for economic development.”
Puerto Rico’s transition to industrialization was achieved at the cost of agriculture, which caused huge impacts on the material situations of thousands of rural and agricultural workers. During this process, hundreds of thousands of workers were forced to move to the metropolitan area or migrate to the United States in search of “better” living conditions, because from 1945 to 1953, agrarian reform and agriculture received less attention from the government and agriculture was left to drift on its own. When the 1940s began with a development strategy by the PPD that was based on a process of socioeconomic reforms that was centered on agrarian reform and industrialization directly sponsored by the government, the objective was to “organically” develop agriculture and industry. With that strategy, the agricultural sector would serve as the capitalization base for industrial development. That was why one of the main objectives of agrarian reform was to acquire land from the sugar corporations and replace it with farms with “proportional” benefits, or sugar cane plantations set up as cooperatives but controlled and supervised by the government through the Lands Authority, a public corporation created in 1941. By creating individual farms and establishing “rehabilitation” and “diversification” measures for agriculture, agrarian reform sought to stimulate improvement and growth of small and medium farms in general, and the diversification projects brought new hope for coffee and tobacco producers, who had suffered huge crises in the previous decades.
In the measure that agrarian reform was never completed, however, the crisis and decline in the agricultural sector continued and therefore the demographic movement from the rural areas to urban areas that began in the 1940s, to the misfortune of those who suffered it, would persist in subsequent decades. Population statistics show that while the metropolitan area experienced a huge increase in population, other parts of the island, specifically the towns in the center, showed significant declines in population. Between 1960 and 1970, the urban population increased 51.6%, while the rural population fell 13.3%. By 1970, urban population surpassed rural population for the first time, reaching nearly 60%.
Population declines in the country are essentially explained by two closely related factors. One was the decline in the agricultural sector since the 1950s. The other was the location of new centers of construction, manufacturing and public administration jobs, promoted by the government, in urban areas. Since the region’s main source of jobs had been agriculture, in which work was often seasonal, the population felt the need to move to urban areas in search of new sources of “permanent” jobs. As a result, as sources of agricultural employment declined, population mobility toward the urban centers increased and the rural population declined. Additionally, the mass media, ever more integrated into the rural areas and cities, projected highly seductive images of urban life to the rural areas and encouraged, in the words of historian Francisco A. Scarano, a process that was simultaneously “hopeful” and “painful.”
Changes in the structure of work between 1950 and 1960 are an eloquent example of the transformation that was taking place in Puerto Rico. The percentage of people employed in agriculture, compared to the number of employees in other industries, shows a clear trend in the decline of agricultural activity and the growth of manufacturing. Employment in agriculture fell from 229,000 to 124,000 between 1940 and 1960. Similarly, agricultural production grew at a rate of 1% per year from 1950 to 1970. Given that the population grew at a faster rate, the reduction in per capita agricultural production was even more dramatic. There came a time, between 1960 and 1970, when the growth rate in agricultural production was negative 1.9%.
Despite this discouraging picture, the PPD government believed there was a great potential for agricultural development and improvement of living conditions in rural areas. But that potential depended on finding a way to get land that was owned by elderly farmers, who had nobody to work it, into the hands of farming families who could work it, who lived in the area and whose main source of employment was agriculture, but did not have the resources to buy and cultivate a plot of land. To achieve this, they believed it would be necessary to reexamine the patterns of organization, ownership and agricultural production, mainly in the mountainous part of Puerto Rico, which included all of the coffee region, with the goal of making changes that would avoid the deterioration of agriculture in the area, which they expected would have serious economic and social repercussions. One of these was the population exodus that was accelerating and that the government feared could reach a point where the land would be abandoned and there would be nobody left to cultivate it. This process of transformation, from an agrarian economy to an industrial one, took place in a period of less than 25 years, from the late 1940s to 1970. That is considered by James Dietz to be one of the most accelerated examples of economic transformation.
Author: Ed De Jesús Rivera
Published: September 02, 2014.
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