How Puerto Rico Can Rebuild And Become The Hong Kong Of The West

Tyler Durden's picture

Authored by Benjamin Dierker via The Foundation for Economic Education,

The establishment of an Economic Freedom Zone, would set off an explosion of growth.

After a particularly devastating hurricane season, Puerto Rico has an uncertain future. Already mismanaged and saddled with debt, the island territory now faces the virtually insurmountable task of rebuilding its infrastructure and economy. But amidst the rubble and heartache lies one of the greatest opportunities in the modern era not just to rebuild, but to reimagine the possibilities for economic and political freedom.

Two simple but powerful steps taken by Congress could hasten recovery and redefine the trajectory of the island’s future.

First, the United States should assume all of Puerto Rico’s outstanding bond debt.

 

Second, in exchange for debt assumption, the federal government should establish the island as an Economic Freedom Zone.

Within a year, these reforms would help rebuild Puerto Rico; within a decade, they could rebuild our conception of the free market in the Western Hemisphere.

It is important to note that hurricane destruction has not created economic gain by boosting demand for construction. This broken-window view fundamentally misunderstands the nature of this potential. Nor should this plan come at the expense of traditional disaster relief. Before infrastructure can be rebuilt, urgent human needs must be met with outside aid.

But rather than pursue traditional recovery with an eye toward returning to business as usual, this proposal seeks to fundamentally remake Puerto Rico into a modern and dynamic economy built to match and surpass any on earth.

Puerto Rico's Debt

The first step would wipe the slate clean to rebuild from a neutral position. The assumption of Puerto Rico’s debt would be both a relief effort aimed at freeing the local government’s limited resources and a signal to the world of our intentions to further the cause of freedom. Partly borne of mismanagement and partly of miscalculated federal policies, the territory’s debt can at least partially be attributed to the ambiguity of its relationship to the United States. Despite the political challenge of assuming the debt with a $20 trillion debt already on our books, absorbing the $74 billion debt would pay immediate dividends. Puerto Ricans, our fellow American citizens, would have immediate relief, and the freed cash flow would allow them to focus solely on rebuilding the island's infrastructure.

The federal government’s assumption of a constituent government's debt would follow historical precedent. As part of his First Report on the Public Credit, and later codified by the Funding Act of 1790, Alexander Hamilton proposed the assumption of state debts in order to both strengthen the financial position of the union and that of the individual states – allowing them each to lower their taxes and establish themselves on equal footing at the outset of our nationhood.

Our fledgling nation took on debt equal to 10 percent of our entire domestic product – a massive undertaking brought forth by visionary leaders. This set up the new federal government to be an instantly credible player on the world stage and made the phrase “backed by the full faith and credit of the United States” the closest thing to a guarantee as can be found in global finance more that 200 years later.

By comparison, assumption of Puerto Rico’s debt by the U.S. in 2017 would be a mere 0.4 percent of our more than $19 trillion economy, a greater political consideration than fiscal. As with the states in 18th century America, 21st century Puerto Rico would be in position to lower its taxes and the U.S. would strengthen its ability to back the reborn Puerto Rico.

Economic Freedom

The second step of the proposal is the establishment of an Economic Freedom Zone, which would set off an explosion of growth. The zone would flatten or suspend numerous taxes and regulations, prompting an immediate increase in productivity. The less restricted environment with more available resources would open the doors to investment and real estate development. Velocity of money would increase at the same time as new money is infused and invested into the economy, as relatively wealthier locals combining with aide workers, construction crews, and business investors spend on the island economy.

Suspending or streamlining environmental regulations would allow expedited construction on essential infrastructure projects, and needless economic hindrances like the Jones Act would finally be dissolved. Serving as a case study on microeconomics, the federal minimum wage would be suspended to allow private actors to negotiate their wages during the rebuilding effort. The government would no longer rob the worker of his bargaining power by mandating a price floor on labor.

Taking inspiration from Hong Kong and Singapore, governance from a lean, honest, and efficient local government, combined with openness to international investment and trade, will allow Puerto Rico to capture business that would be regulated away in the States – if they were allowed to get off the ground at all.

Proximity to the mainland provides access to wealth and high skill, while the separation and economic autonomy make it a distinctly productive business zone. The island is situated in the Caribbean Sea with access to multiple markets including developed and emerging economies and established trade routes. Starting from scratch, it could build a high tech integrated electrical grid and modernized ports, and with low taxes and regulations, attract highly skilled technical workers. At every level, innovation would dominate as free enterprise sets the agenda. Puerto Rico would essentially be liberated from the U.S. tax and regulatory burdens but protected by its legal system to secure property rights and thwart corruption, fraud, and cronyism.

With government taking a backseat, free markets would liberate the people of Puerto Rico, restoring dignity alongside material wealth. Allowing local government to make local decisions rather than being subject rules from Washington, D.C. would give control to those who know the island best. Favoring economic freedom to government regulation, resources would go to their highest valued use.

Political Support

This proposal would gather support from both sides of the aisle in Congress. To begin, there is a bipartisan desire to help our fellow citizens in Puerto Rico after the destruction of their economy and infrastructure. Democrats in Congress would rally around debt assumption as relief, while Republicans would be eager to tap the potential of free market reforms. Wrapped up as a hurricane recovery package, the timing is right.

On the mainland, we value the freedom of federalism, which allows different states to have wildly different policies and experiences. Just as states are the laboratories of democracy, Puerto Rico is poised to be a laboratory of both democracy and economic vitality. As the federal government has increasingly encroached on areas that were once the province of the states, much of the policy in America has become homogenized. Reestablishing the primacy of federalism to allow Puerto Rico to pursue low-regulation, fast-growth policies would provide a small-scale proving ground for the county to relearn what made America so successful.

In foreign policy terms, this would extend American exceptionalism and economics toward the Latin American world. With so much misguided focus on socialism and government control, the time has never been more critical to demonstrate the power of the free market and the value of freedom.

Rather than focusing on statehood or representation, this proposal frames Puerto Rico as an economic arena with the only priority being the prosperity of its people. In time, the politics that govern classification can be settled. The autonomy gained from the Economic Freedom Zone would simultaneously allow Puerto Ricans to forge a political identity and remain protected as U.S. citizens. The reforms will lift the citizens out of poverty, help reconcile pension obligations, provide a path for sustainable growth, and encourage local government stewardship that will render many of the statehood challenges moot.

Puerto Rico Could Be the Hong Kong of the West

Puerto Rico would become a magnet for investment with money pouring in from around the globe. As an Economic Freedom Zone, the local workforce would see a drastic rise in standard of living, while highly skilled and competitive human capital would expand economic potential. The unrestrained economic power of these reforms would bolster the political freedom of the island. Not only would Puerto Ricans be free from their current destitution, but they would get a taste of genuine political and economic freedom to truly engage with the world.

Having an economic power center so close to our shores would be a boon to our economy and would make theirs the envy of the world. Tourism, technology, luxury, and more would redefine Puerto Rico.

Puerto Rico is needlessly impoverished, and we have a unique opportunity to reverse course, improving the lives of its residents while also broadcasting the appeal of economic liberty to the world.

By restoring power to its people and unleashing the unbridled force of free market entrepreneurial capitalism, Puerto Rico will become a beacon of freedom and prosperity unparalleled in the Western Hemisphere. The invisible hand is knocking at the door. All it will take is for the federal government to open the door and get out of the way.

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The Duke of New York A No.1's picture

P.R. bond holders to be made whole ...

 

https://www.youtube.com/watch?v=qc7jblpaPdM

 

 

 

hedgeless_horseman's picture

 

You'll need to swap out all of the lazy and ignorant Puerto Ricans for hard working and industrious Chinese.

Paul Kersey's picture

Average IQ in Puerto Rico 84
Average IQ in Hong Kong 108

Yeah, transforming the next Puerto Rico into the next Hong Kong should be a piece of cake.

J S Bach's picture

Um, sorry to tell you this, but you'd have to get rid of the minorities, too.  I suppose if you made Detroit an "Economic Free Zone", it'd blossom into the next economic nirvana as well.  Uh, yeah.

Tallest Skil's picture

Why there hasn’t been a push for whites to populate Puerto Rico since its annexation I will never understand. If the fucking treasonous TELLER AMENDMENT hadn’t been passed, you can be damn sure that the US state of Cuba would be full of WASPs by now, as would have Puerto Rico. It’s extremely confusing that we wouldn’t have tried to build the island toward eventual statehood from the beginning.

Uchtdorf's picture

Hurricanes may mess with PR again, but the Caymans, another center of economic activty, recovered from Ivan. Wealth must be created first to have the money to spend on recovery. It's hard to rebuild when 99% are poor.

Mtnrunnr's picture

the premise of this article is absolute bull

Oracle of Kypseli's picture

Economic freedom zones only work near countries that have 25% VAT. The us has the cheapest designer items. Have you seen Americans shopping at the duty free shops? Well maybe some non-clear thinking ones who will buy rum at $15 a bottle on a cruise boat duty free only to find out thtat it is made in Miami and costs $8. 

Orlando is now the place to shop for Britts who hit the designer outlets and upgrade their threads and resale some as well in the UK - Free winter trip. 

chumbawamba's picture

The main problem with this nice fantasy is: Yeah RIGHT!

Like the venal US government is going to let an entire people have an economic free zone right off its coast that will outshine every over-regulated US state and become a shining beacon of prosperity amidst the piles of trainwrecks that is the landscape of the US economy.  No fucking way.  PR would be overwhelmed by mainland Americans within a year.  Real estate there would shoot through the roof.  There would be such a rush of wealth and talent the wake from all the boats getting people there would cause tsunamis along the entire Carribean coastline.

It's a nice idea but as everyone else has pointed out, it's riddled with "issues".

The main reason why PR has its status is because its a convenient territory of the USG that is used as the headquarters for a certain federal tax collecting agency.  The IRS has incorporation papers, and the domicile of the corporation is ... Puerto Rico.

http://mystrangemind.com/2006/08/irs-exposed-irs-is-privately-owned.html

I am Chumbawamba.

Richard Chesler's picture

I have a better idea,..

First, let the greedy jew banksters eat their losses on all of Puerto Rico’s outstanding bond debt.

Second, establish the island as an Economic Freedom Zone.

BennyBoy's picture

 

"Alexander Hamilton proposed the assumption of state debts"

Another idiotic Hamilton idea.

Griffin's picture

The US should absolutely not assume PR state debt. There is no reason to bail out those who own that debt.

The way i see it, the hurricanes blew away a hopeless dream of getting all this debt paid.

I guess it would be reasonable to expect 20 cents on the dollar. 

Itinerant's picture

Great plan. What about the Portoricans, amid a flush of real estate development and highly skilled workers? They will obviously need to emigrate.

Lifting environmental regulations will bring about economic activity? Yeah, economic activity where profits are taken before fixing the costs imposed on posterity.

And they would be profiting from the US legal system's protections against fraud and cronyism? That's rich...

What a bunch of idealogue BS: a give away for the forces of exploitation.

vato poco's picture

even more than the obvious racial & cultural differences, which could - in theory - be overcome with a crapload of honest hard work (not damn likely in PR), hong kong's meteoric post WW2 growth/success can be treaced to one guy: John Cowperthwaite. 

he ran the shitty little pesthole backwater for HMG. his big thing was laissez faire; to the point of refusing to let his economic minions collect business/population/econ data because "if I let them do that, they'd use it to make policies and regulations". 

and here's why PR won't become the next HK: AFAICT, there isn't one single bureaucrat on the face of this earth who would want to stay the hell out of the people's way. that's no way to maintain & grow one's own little administrative fiefdom!

bonin006's picture

It wasn't all John's doing. The locals had to do the work, but John did do something unprecedented before or after: he stopped the politicians from fucking it up.

lew1024's picture

Very meaningless statistics. 'Average IQ' is by definition 100. The IQ test for every group must be re-calibrated again every year to make this so. 

The fact that the kind of information that is known and needs to be known changes with every generation + that recalibration is why you are a genius if you use your grandparent's IQ test and a moron if you take the one for your grandchild. Our information stream is more abstract than theirs, but it doesn't make us smarter in any way except IQ tests and academics.

Watch Flynn on the Flynn Effect to understand why there can never be a culturally-independent IQ test, it is a ridiculous idea, a conceptual oxymoron.

https://www.youtube.com/watch?v=9vpqilhW9uI

 

Paul Kersey's picture

I am totally conversant with the Flynn Effect, and re-calibrating IQ tests on a yearly basis makes little to no sense. It takes decades to generations for most meaningful IQ score increases. Those IQ scores I posted are relevant, because, theoretically, they are benchmarks, and the Flynn Effect should show commensurate rises in both sets of IQ scores. However, the gap between them should also rise commensurately, and consequently, never narrow.

 

By the way, the book, "The Bell Curve", doesn't dispute the Flynn Effect, but, none the less, highlights the differences in racial and ethnic IQ scores. In other words, the Flynn Effect does little or nothing to invalidate IQ differences between races and ethnic groups.

Europe is presently experiencing the Flynn Effect in reverse, which pretty much invalidates you whole premise:

"Due to more desirable living conditions and better education, IQ scores in the Western world have largely increased since the 1930s. This is known as the Flynn Effect. This trend, however, has not only plateaued in recent years, it’s actually reversed. In France, a study was carried out by Edward Dutton and Richard Lynn in 2015 which concluded that IQ score levels are currently dropping by around 4 points per decade. Similar results have been echoed across Europe as academics from Brussels, Amsterdam and Ireland found similar results in a 2013 study, and tests carried out in Denmark and the UK have anticipated the same.

 

Dutton and Lynn put this change down to “biological causes”, namely; replacement migration and the dysgenic effect of intelligent people having fewer children."

lew1024's picture

Obviously not  'totally conversant' if re-calibrating IQ tests on a yearly basis makes little or no sense.

Your comment makes it clear that you think IQ is something that differs genetically. There is damn little evidence for that at the genetic level, the biggest effects are likely from genes that control how the brain controls infection. It isn't a simple story even between families, but is hopeless across cultures as there cannot be cross-cultural comparisons of IQ unless there is some culture-independent IQ test.

There can't be, the point of the Flynn effect. If we can't measure our grandparents and grandchildren with the same IQ test, we can't even compare them. Clearly we can't, because our grandparents were not morons and our grandchildren not geniuses, even tho the IQ tests say so.

Watch Flynn. What you think is Flynn isn't.

TBT or not TBT's picture

It's the electrolytes in the Brawndo. 

Paul Kersey's picture

"Your comment makes it clear that you think IQ is something that differs genetically."

No shit. It you won't agree that traits, like IQ, athletic ability and impulsivity, differ genetically, then there is no basis for rational discussion.

Omen IV's picture

get a life - no matter what the criteria for the test - the African derivative nations are the bottom so the carribean has no choice

 

economic free zone everyone wants -- in every state and nation............................ its called arbitrarge  - of the majority with the overhead - such bullshit

IrateNate's picture

If you want Puerto Rico to become the "Hong Kong of the West", they better start importing Chinese quick!

Arnold's picture

Because the Island is just not corrupt enough?
What did I win, Alex?

williambanzai7's picture

Thousands of them running away from communist China.

Drater's picture

I was going to post the same thing...there's a reason Asia has many thriving megacites in comparsion to Latin America

lew1024's picture

Your comment makes the implicit claim that Spanish-laws vs Asian laws are not the difference.

Among many other differences, I would point out the fact that the CIA has been assassinating people to control social and political movements and replacing governments in SAmerica for several generations, whereas we have not managed to inflict that level of stupid on China.

MozartIII's picture

Would also have to get rid of the Marxist idiots that run the joint!

lasvegaspersona's picture

So we should set the example for every other entity that way out spent (out stole) their tax base....Then give them a reward?

I say no.

Why not make South Carolina such a zone?...why not make the whole country one?

lasvegaspersona's picture

So we should set the example for every other entity that way out spent (out stole) their tax base....Then give them a reward?

I say no.

Why not make South Carolina such a zone?...why not make the whole country one?

TeraByte's picture

One minor problem with Argentina too, very favourable natural conditions to economic growth, but the main activity for the population remains stealing from each other.

lew1024's picture

The 'lean and honest' government will be a problem.

cheech_wizard's picture

I was going to say aside from that, how much of Puerto Rico is actually owned by the natives?

 

Rapunzal's picture

This is not decided from bottom to top, all those financial hubs are decided from top to bottom. Like in any organized crime syndicate the parasitic elite will not allow any competition. There are enough tax evasion hubs, they don't need one more. People have to start to understand nothing is a coincidence or thought out by a genius. It's all forced upon us by the few parasitic elites. You ever wonder why people die if the invent things that could set humans free ? Ask Tesla and others like him. But again we are forced to admire Edison.

garypaul's picture

Is it going to be just Shelbyville? Springfield can have it too!

MONORAIL!!!

SHEEPFUKKER's picture

So, just rack up stupid unpayable debt, get ravaged by a hurricane, displace millions of people, then start over? Brilliant, but with whose $$, or should they just go back into debt again and start the whole charade again?

BlackChicken's picture

What money? We don't use money, we use fractional reserve legal tender.

That tender is created out of thin air with virtually zero cost. In fact there is hardly any physical tender, most of it is electronic; I'll send them a 9 volt battery and they can keep the change.

Fucking madness, I'm living in the Twilight Zone.

Omen IV's picture

PR was a HAARP setup - no more no less

Omen IV's picture

PR was a HAARP setup - no more no less

Omen IV's picture

PR was a HAARP setup - no more no less

debtor of last resort's picture

Coconut bonds. Yeah, i'll invest.

johand inmywallet's picture

Until the next Cat 5 comes along!

Also, who then governs PR, kick out the wombat mayor and the high mountain governor and a landowner needs to be installed.