CONDA: The Economics Of Puerto Rico Statehood

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Cesar Conda Contributor
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The issue of statehood for Puerto Rico is in the news again with a House Natural Resources Committee hearing on the Commonwealth’s political status taking place on April 14, 2021, and the introduction of the bipartisan Puerto Rico Statehood Admission Act, H.R. 1522, by Rep. Darren Soto (D-FL).

The bill has a number of high-profile Republicans as cosponsors, including Reps. Elise Stefanik (R-NY), Pete Sessions (R-TX), Don Young (R-AK), Don Bacon (R-NE), Mario Díaz-Balart (R-Florida), Bill Posey (R-Florida) and the Republican from Puerto Rico Jenniffer Gonzalez Colon. One aspect of this debate that gets little discussion is the economic benefits of Puerto Rican statehood.

The economy of the United States would benefit greatly by granting statehood to Puerto Rico. The island’s development has been hampered by its de facto second-class status, but Congress can unleash prosperity by making Puerto Rico the 51st state. Such a change in status would benefit both the existing states and the commonwealth.

Puerto Rico’s status as an unincorporated territory has led to debt, ongoing dependency and limited economic growth. Since 1898, when the Treaty of Paris ceded the island to the United States following the Spanish-American War, Puerto Ricans have been American citizens. They pay taxes, serve in the military, and are part of the fabric of America, yet the 3.2 million residents on the island are treated unequally under many federal laws. The low economic performance of Puerto Rico coupled with the lower level of federal investment in the island has led to a low quality of life and systemic economic stagnation.

Because Puerto Rico is not a state, it is denied full integration into the U.S. economy. According to the Puerto Rico Herald, statehood and full integration of Puerto Rico would nearly double economic growth from the current level of around 3.5 percent to as much as 6 percent. Although Puerto Rico does enjoy inclusion in U.S. trade agreements with foreign nations and access to U.S. markets, the federal government’s lack of full integration and rights for citizens in the commonwealth causes reluctance by mainland firms and investors to do business there. Many in the U.S. hesitate to invest because they fear that lack of movement on statehood is leading to a push towards independence that would destroy their business models and put investments in jeopardy. Statehood would grant full federal representation in a way that would provide some security for a full integration of the Puerto Rican and mainland economy.

One of the issues holding back Washington lawmakers on statehood is the Puerto Rican debt crisis. According to Foreign Affairs, since becoming a territory, “Puerto Rico has been neither granted sovereignty nor fully integrated into the United States,” leaving it “simultaneously a part of, yet apart from, the rest of the country.” This uneven status provides incentives for deficit and debt, insufficient demand because of people leaving the island for the mainland, and a lack of economic growth needed to effectively tackle the debt crisis. These lingering economic issues won’t be fixed until statehood is granted.

The transition to statehood would lead to massive growth for the Puerto Rican economy if Alaska and Hawaii are any example. Hawaii experienced double the growth of the U.S. rate in the decade after admission and Alaska experienced growth by as much as 25 percent. The status quo is preventing the island from integrating fully with the U.S. economy and creating a failed territory. The historically proven method of statehood is the best way to tackle the island’s debt.

One great benefit of statehood for residents of the U.S. mainland is the increased economic activity from the tens of billions of dollars in interstate commerce. Puerto Rico’s full economic integration under statehood would significantly boost consumer demand and interstate commerce between the island and other states. This would aid in debt restructuring, because stability of federal policy would lead to increased aggregate demand, tax incentives for employment, and liquidity and the velocity of money in the local economy.

On an international level, Puerto Rico would be an important bridge to Latin America and the Caribbean for trade. Statehood would allow the island to serve as a conduit for American commerce and trade with other countries in Latin America and the Caribbean, largely because of its culturally integrated and bilingual workforce. Further, Puerto Rico’s geographic proximity to the region can serve as one of America’s most valuable commercial launchpads to Latin America.

While much of the debate surrounding statehood for Puerto Rico and why its case may be more valid than that of the District of Columbia, for example, are important, leaders in Washington would be well served to focus on the island itself. The untapped economic potential of Puerto Rico is vast, and a clear-eyed approach to statehood could be the key to unlocking the island’s prosperity.

Cesar Conda, formerly chief of staff to U.S. Sen. Marco Rubio, Florida Republican, and chief domestic policy adviser to Vice President Dick Cheney, is a principal at Navigators Global LLC.