The Economic Viability of a Puerto Rican State

Yesterday, a delegation of statehood supporters - led by Puerto Rico's Resident Commissioner and Congressional Representative, Jenniffer Gonzalez - submitted legislation proposing the acceptance of Puerto Rico as the 51st state of the United States. 

As our organization tends to focus on the promotion of investment opportunities and policies that benefit the long-run economic development of Puerto Rico, we thought it prudent to discuss the economics behind the push for Puerto Rico as the 51st state.

In the following, I lay out the argument that statehood will not only help to contribute to the island's economic growth, but will also be a net-positive contributor to the overall American economy:

" . . . While most believe that statehood will benefit Puerto Rico’s development, few realize the economic contributions it will return to the country as its newest member.  Under its current status as a territory with limited autonomy, high levels of economic and political risk continue to constrain investment and the island’s ability to contribute to its own well-being.  The recently formed fiscal oversight board (created by Congress’ PROMESA Act of 2016), in combination with the policies of one of the nation’s most fiscally conservative governors, is expected to lay the groundwork for fewer economic risks.

However, Puerto Rico’s uncertain political future still creates uneasiness in the eyes of investors.  Neither the status quo – which led to its recent fiscal crisis – nor independence (will it be more like Singapore or the next Cuba?) will evoke confidence that investors demand.  If Puerto Rico is allowed to become a state, political certainty will lead to an investment boom with implications for the entire U.S. economy.  With a growing economy, fewer transfer payments will flow from the Federal Government to Puerto Rico, while individual and corporate contributors will be less likely to leave the island for greener pastures on the mainland.

As investors gain new confidence in Puerto Rico’s future, the stifled economy will be able to remove a burden that has been building for decades, allowing the island to reach its full economic potential.  Even under the recent conditions of high debt combined with a shrinking economy, estimates suggest that corporate and individual taxpayers in the new state will contribute $6-10 billion more to the U.S. Treasury’s bottom line.  Further considering the market dynamism of an improved economic climate, and it is easy to see how many more billions of dollars of profits, individual income, and taxpayer revenue can be produced.  Combine increases in corporate and individual entrepreneur investment with Puerto Rico’s positive trade balance, the expectation of rapid growth in an already productive tourism sector (imagine a state as beautiful as Hawaii, but takes only one-fifth the time to get there from the East Coast), and an opportunity for improved intrastate commerce (sorry Miami, Puerto Rico is poised to take over as the gateway to the Americas), and the new state’s economic productivity will be a welcome addition to the U.S. economy. . . ."

Read the entire article here, or a more general discussion in The Hill here.

Justin Vélez-Hagan is the executive director of The National Puerto Rican Chamber of Commerce.  He is also the author of The Common Sense behind Basic Economics, as well as the upcoming The Paradox of Fiscal Austerity (Lexington Books, 2018). @JVelezHagan