US Territory

1899 – Present: Puerto Rico has struggled to form a stable economy under America's wing

Puerto Rico's flirtation with autonomy ended with the Spanish-American War when the territory was ceded to the United States. However, the states did not know what to do with a colony that was largely non-white and entirely Spanish-speaking. The 20th century was filled with the troubles of what to do with the island.

Island Politics

During the first 20 years of American control, two different governmental policies were established. In the Foraker Act of 1900, the United States modeled its governmental style after that of the British Crown Colonies.

The Act included the following provisions:

  • Islanders would be citizens of Puerto Rico but not the United States.

  • Beginning in 1902, there would be no tariffs on goods between Puerto Rico and the United States.

  • The U.S. President would be responsible for the appointment of the island governor and its Supreme Court.

  • The U.S. Congress would retain veto power over any laws in Puerto Rico.

  • There will be an 11-member Executive Council named by the governor.

  • The House of Delegates (35 members) would be elected by popular vote.

Few were pleased with the Foraker Act: Wealthy Americans called it undemocratic while Puerto Ricans called it neither statehood, independence, nor home rule. Finally, after the United States acquired the Virgin Islands, President Woodrow Wilson made some changes and signed the Jones Act in 1917. This act would be the basis of Puerto Rico's legal status until 1948. The provisions of the Jones Act are as follows:

  • Puerto Ricans could freely travel to the U.S. mainland.

  • Puerto Ricans became U.S. citizens.

  • Although Puerto Ricans could not vote in federal elections and were not taxed, they could be drafted during wartime.

  • The Senate and House on Puerto Rico were elected by universal male suffrage until 1929, when women's suffrage was granted.

  • Governor, Supreme Court, and top officials were to be appointed by the President.

The Jones Act was amended in 1947, granting Puerto Ricans the right to elect their own governor but kept the U.S. Congress as the source of Puerto Rico's rights. Luis Muñoz Marín began a campaign to become the island's first elected governor in 1948; his campaign platform was that Puerto Rico ought to become a commonwealth or free associated state.

Muñoz Marín's mandate by the people with 61 percent of the vote gave Congress the impetus it needed to move quickly, and in July of 1950 Public Law 600 was signed into law by President Truman. It allowed the people of Puerto Rico to draft their own constitution. It was granted commonwealth status on July 25, 1952.

This unique status means that Puerto Rico is self-governing on local matters, but it also pays federal taxes. It is not fully independent; when it comes to defense and foreign relations, the United States is in control. However, Puerto Ricans receive many benefits from their association with America, including social benefits like food stamps.

Puerto Rico has had multiple elections regarding its status. In 1967, an election found that 61 percent favored remaining a commonwealth, while about 39 percent voted for statehood, with less than 1 percent voting for independence. The 1993 and 1998 votes each showed much closer results, around 50 percent each, for commonwealth status and statehood, with votes for independence being negligible, but Puerto Rico has remained a commonwealth in all three votes.

Economic Changes

Before the United States acquired Puerto Rico, sugar was hardly an important industry. The United States had spent money on helping Cuba to develop its sugar industry, and, with its control of Puerto Rico, helped to develop the industry on this island as well. The lack of tariffs and the need to meet government quotas helped to encourage the industry's growth. The Foraker Act allowed American corporations the chance to create sugar mills (centrales) on Puerto Rican lands, but it limited their lands to 500 acres. This was less than enforceable during the earliest periods, and until the 1940s, lands for centrales were relatively unchecked.

Sugar became the island's top export (over coffee) before even 1925. America preferred South American coffee to Puerto Rican beans, so Europe remained the main importer of Puerto Rican coffee. Still, damaging hurricanes in 1899 and 1928 ruined crops, helping to bring the agricultural dominance of coffee to an end.

This did cause many workers to become landless laborers on the large sugar estates, and many suffered long periods of unemployment. American Samuel Gompers helped to form the Free Federation of Workers (FFW) in 1899, but only a few workers joined this Socialist Party-affiliated group.

Further American reforms helped improve the quality of the health services on the island, however, this caused other problems. When Puerto Rico's population doubled in fewer than 40 years, because of a lowered infant mortality rate and medicines to prevent diseases, problems such as unemployment became common. The great depression affected the island as well, and unemployment was high. The average income was approximately $122 per year in 1929, but it fell to $84 annually in 1933.

Making Reforms

Luis Muñoz Marín began a career in politics long before his election to the governorship. He began as a leader in the Senate and helped to work through a great deal of reform in both government and social planning. The enforcement of the 500-acre limit on centrales was his first important reform initiative, and the government bought a great deal of land for farms. Sugarcane was then grown on these government farms and colonos, family-run farms.

The Industrial Incentive Act of 1947 jump-started the economy of the island. Industries were granted direct and indirect subsidies and exemption from corporate, personal, and property taxes for between 10 and 30 years. This stimulated growth throughout the 1960s.

Tourism is another business that developed recently. In 1940, there were only 600 guest rooms on the island, but Puerto Rico's economic development plan included several government-built hotels, which in turn inspired outside investment. Tourism's growth coincided with the decline of agriculture, particularly sugar.

Troubled Times

After the 1960s, rising wage levels and a preference for unskilled labor in other countries found U.S. corporations looking elsewhere. Semi-skilled workers dominated the scene in the 1970s and 1980s as chemical, metal, and petroleum plants came to the forefront in Puerto Rico. Rising oil prices caused many companies to close and move to countries with lower wages.

By 1976, both U.S. corporations in Puerto Rico and the commonwealth government petitioned Congress for tax relief, at which point they were placed under Section 936 of the tax code. Section 936 allows corporations to avoid taxes on profits sent back to the United States.

Tax exemptions spurred almost all of Puerto Rico's economic progress. Manufacturing of electronics, pharmaceuticals, and precision instruments became important industries on Puerto Rico after 1976. This caused changes in the financial sector, as interest on island profits received tax exemptions as well, leading some corporations to deposit money into Puerto Rican banks.

Modern Issues

Despite the interest by U.S. corporations, Puerto Rico's economy faltered often during the 20th century. In fact, U.S. government assistance supports many of the islanders, whether through welfare or medical assistance. Many of Puerto Rico's jobs are also government positions.

For years, Puerto Ricans have compared themselves financially with the citizens of the U.S. mainland, even though they tend to be poorer than most Americans. However, the annual income for most Puerto Ricans is much higher than that of nearby islanders. The discrepancy in income between the island and the mainland, however, has driven a large number of Puerto Ricans to emigrate to the mainland in search of employment.

Those searching for employment on the mainland often settled in New York in the mid-1900s. These "Nuyoricans," as they called themselves, are the group that the musical West Side Story portrayed. Now, many Puerto Rican immigrants have settled in communities throughout the states.

Politically, a big change took place in 1964, when Muñoz Marín decided not to run for governor again. Although political rivalries began between the New Progressive Party (PNP) and Muñoz Marín's Popular Democratic Party (PPD), little forward progress was made.

In 1996, Puerto Rico was hard hit by one change: The loss of its Section 936 status. Companies already opening on the island would retain the exemption until 2005. Government companies were sold in an attempt to encourage U.S. business advancement.

In May of 2006, the government of Puerto Rico shut down schools and government offices for two weeks due to lack of funding. Almost half of all males of working age are not currently employed in Puerto Rico, and the island has struggled to borrow more money to restart its faltering government.

Although economic problems have plagued the island in recent years, new changes in government, in particular brought on by the 2006 troubles, may go a long way toward helping Puerto Rico find its footing in the future.

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