Friday, October 23, 2020

Mano a Mano: Hernández Colón vs. Rosselló

By on February 25, 2016

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Surpassing the Sovereign State

Oxford University Press last year published Prof. David Rezvani’s book titled, “Surpassing the Sovereign State,” a study of 45 partially independent states (PITs)—Puerto Rico included—and their relationships with the core state. These PITs serve as solutions for some of the world’s most intractable nationalistic disputes and provide important capabilities to both their population and the core states. As a rule, the PITs optimize the capabilities of their population in wealth, security and self-determination. In the globalized world we live in, the PITs have capitalized their range of sovereign powers and the synergies of partial integration with a larger sovereign state to become significant factors in international affairs. They are also adding to the diversity of polities within the international system as they increasingly proliferate at a rate that exceeds the emergence of sovereign states.

Puerto Rico’s relationship to the U.S., as a PIT under Rezvani’s definition, not only makes it possible to achieve economic development, but also optimizes our capabilities to attain it when we compare this arrangement with that of independence or statehood. The sovereign powers that we would gain through independence—full control over our economic variables, currency, foreign trade, etc.—are no substitute for the $22 billion annual flow of funds from the federal government, for the privileges, rights and immunities of American citizenship, or for our position as a regional economy within the broader market of the U.S.

Under statehood, the present economic structural relationship with the U.S. would remain the same except for an increase of around 12% in the flow of federal funds for social purposes—not for economic development—and a devastating decrease in our capabilities for self-government by the fiscal presence of the federal government, which would suffocate our taxpayers through the outflow to the federal government of 70% of the tax dollars we now utilize to provide for the commonwealth’s budget. In addition, it would cripple and disable the tax incentives we now provide to induce economic development.

Statehood is not an option for Puerto Rico’s economic development. It is an illusion, a fantasy that ignores the far-reaching structural variance in the level of economic development between the island and the mainland [U.S.]. Statehood economics is an exercise in denial at best, and in self-destruction at worse.

Statehood fundamentalism brought about the demise of Section 936 under the Pedro Rosselló administration. Instead of defending it against the habitual challenge from the U.S. Treasury, it chose to join the crowd of ideological naysayers rather than stand against them as my administration did successfully in 1985. More than 100,000 direct and indirect jobs were lost in Puerto Rico over the 10-year period under which the section was phased out. At the end of that period—2006—a recession set in. It has not abated.

The PIT arrangement with the U.S. provides the constitutional flexibility that statehood lacks. It allows Congress to redress its unreasoned repeal of Section 936 by providing Puerto Rico with the measures that once again will get Puerto Rico’s economy moving.

Rafael Hernández Colón is a three-term (12-year) former governor of Puerto Rico (1973-1976 and 1985-1992). He served as Justice secretary (1965-1967) and Senate president (1969-1972). He was president of the Popular Democratic Party for 19 years.

David Rezvani, author of “Surpassing the Sovereign State: the Wealth, Self-Rule & Security Advantages of Partially-Independent Territories,” posits the concept of the partially independent territory (PIT) as one that has a distinct national identity but shares some sovereign powers with a sovereign core state. Two former governors—pro-commonwealth Rafael Hernández Colón and pro-statehood Pedro Rosselló—debate the legitimacy of the PIT and ponder the implications of status in Puerto Rico’s economic development.
—The Editors

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Is Economic Development Possible in a Partially Independent Territory?

To answer this question, we must first define our terms. A partially independent territory (PIT) is defined by author David Rezvani as a jurisdiction that has a distinct national identity but shares some of its sovereign powers with a sovereign core state. Based on this definition, I must state unequivocally that this does not describe the current political status of Puerto Rico: the so-called Commonwealth (Estado Libre Asociado).

Puerto Rico’s status, both under national and international concepts, is a classic colony (or an unincorporated territory in the federal lingo). Our island is now, and has always been, a colony, one that has remained subject to the plenary powers of the two metropolises that have ruled over us for more than 500 years: Spain and the United States of America. Currently, under accepted constitutional doctrines, Puerto Rico is a possession, belonging to, but not a part of the United States. A colony by any other name is still a colony. Indeed, Puerto Rico represents the last enclave of modern colonialism remaining in the 21st century.

Therefore, if the question posed is whether economic development in our current dependent territory is possible in the long run, the answer is a resounding NO. The overwhelming evidence is dramatically obvious as we currently experience the fiscal, economic and social bankruptcy of the colonial reality. Our colonial condition has created a limiting asymmetrical playing field regarding other states and citizens of the U.S. federation.

Rezvani’s description involving a “jurisdiction” that shares sovereign powers with a “sovereign core state” could more aptly be applied to the definition under international law of free association (república asociada). This is a valid option. But the answer to the question of whether economic development under this arrangement is possible remains uncertain. Certainly, there is no evidence in practice that this arrangement permits vigorous economic development when we examine the experiences of this relationship between the U.S. and the Republic of Palau, the Federated States of Micronesia and the Republic of the Marshall Islands.

So, if the question becomes under which options can significant development potentially occur, the body of evidence points to two models: an independent state or a federated state of the U.S. union. Which is better for the socioeconomic progress of our people? That is the question!

Dr. Pedro Rosselló is a two-term former governor of Puerto Rico (1992-2000). He was president of the New Progressive Party for 12 years. He holds a Master’s degree in Public Health, a Doctorate in Medicine, plus a Doctorate in Education, and is currently a lecturer and scholar at Universidad del Turabo.

David Rezvani, author of “Surpassing the Sovereign State: the Wealth, Self-Rule & Security Advantages of Partially-Independent Territories,” posits the concept of the partially independent territory (PIT) as one that has a distinct national identity but shares some sovereign powers with a sovereign core state. Two former governors—pro-commonwealth Rafael Hernández Colón and pro-statehood Pedro Rosselló—debate the legitimacy of the PIT and ponder the implications of status in Puerto Rico’s economic development.
—The Editors

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Rafael Hernández Colón’s View

Interview Conducted by Ismael Torres

CB: Some supporters of statehood posit that Puerto Rico is not a partially independent territory. Would you say that Puerto Rico is a partially independent territory and that economic development is possible under the commonwealth status?
RHC: David Rezvani developed the concept of partially independent territories in order to encompass the wide variety of associations that distinct peoples have with core countries throughout the world. Puerto Rico is one of the 45 countries he studied that met his criteria; this being Rezvani’s concept, we must abide by his determination. There is no doubt that commonwealth—with its self-government, fiscal autonomy, free trade with the U.S., plus American citizenship by birth—makes possible economic development under this status.

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CB: Under Rezvani’s theorem, a core state with a larger economy, population and military surrenders sovereignty to a nationalistically distinct people. Now that the Navy has exited Puerto Rico, has the island lost its geopolitical value to the core state?
RHC: The geopolitical value of Puerto Rico to the United States stands from the geographical location of the island at the heart of the Caribbean, inhabited by almost four million Puerto Ricans who are culturally part of Latin America, but politically are citizens of the United States. The Navy’s exit does not change that situation.

CB: Economic development was possible under Operation Bootstrap and sustainable economic development was also achieved under your tenures as governor—how was this possible?
RHC: Economic development was possible during Operation Bootstrap and my various administrations because economic development was the top priority during that time in order to generate the wealth necessary for education, social justice and the general welfare. Given that priority—totally distinct from the statehood priority of the opposing party—competent administrators such as Teodoro Moscoso vigorously and creatively used the tools such as Sections 931 and 936 of the Internal Revenue Code to promote industrial development in Puerto Rico. The results of these untiring efforts day in and day out over time yielded dramatic results.

CB: Some observers point to Section 936 as a key driver of economic development made possible precisely because of the territorial status. Do you see any drivers of economic development possible under the current status?
RHC: Territorial status is an ambiguous, politically disparaging concept used by the opponents of commonwealth. In order to avoid ambiguity, I will refer to Puerto Rico by the name it bears in our Constitution: Estado Libre Asociado, which in English has been translated to “commonwealth.”
The drivers of economic development, as pertains to the Puerto Rican economy, are investments. Consumer demand can stimulate growth to move mature economies out of a recession, but this is not the answer to economic development in Puerto Rico, which is a regional part of the mature U.S. economy. The answer for economic development in our economy, with its 39% labor-force participation rate and 12% rate of unemployment, is major investments in productive activities that can create thousands of jobs. Such investments must come from corporate America. The current status is the only one that provides the location-based advantages necessary for these corporations to establish in Puerto Rico because of the flexibility commonwealth provides under the U.S. Constitution.

CB: Is it essential to have a change in status to achieve economic development or can it be obtained by making amendments that would provide essential mechanisms in the U.S. Congress that would lead to economic development?
RHC: This question, as to the need for a change of status to statehood or independence in order to resolve a current problem, demonstrates the dysfunction of our political system. For more than a century, the statehood and independence parties have urged this argument upon us with no positive results. The only consequences have been to sink our politics into the quagmire of sterile debate.

Our fiscal, financial and economic problems are real and immediate. Fantasizing about a change of status in order to solve these problems belongs to Gabriel García Márquez’s Macondo [in reference to the small town in the magical realist novel “One Hundred Years of Solitude.”] Strategic daydreaming under such premises will only sink us deeper into the swamp of our predicament.

Neither statehood nor independence provides better structural environments in our economic development. But this matter is not even worth debating because these options are unreal. Independence lacks meaningful political support in Puerto Rico, so this option is unreal. Statehood is also unreal because it is gridlocked with commonwealth when it comes to political support, and the economic and cultural differences between Puerto Rico and the states will command and prolong an uncertain process in Congress that makes a change to statehood not only improbable, but also impossible as a solution to our present problems.

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Dr. Pedro Rosselló’s View

Interview Conducted by Philipe Schoene Roura

CB: You posit in your column that Puerto Rico is not a partially independent territory [PIT]. Commonwealth supporters posit that it is and that economic development is possible as a PIT. What do you say to that notion?
PR: I think it is time that we realize that so-called autonomy is an illusion. The relationship of Puerto Rico with the United States is clearly defined in Public Law 600, which essentially is a delegation of powers that reside in Congress—that Congress can delegate. On the other hand, Congress giveth, but also Congress may take away. This was noted in the proposal made by Sen. [Orrin] Hatch and other senators to the effect of establishing a control board in Puerto Rico, which would have definitely taken away some of the powers that Congress has delegated. So, essentially, I think we have to recognize that people are laboring under a longstanding illusion that there is something about intrinsic powers to the territory, which is not correct. And not the reality.

CB: Under Rezvani’s theorem, you have a core state with a larger economy, population, military surrendering sovereignty to a nationalistically distinct people. Now that the Navy has exited Puerto Rico, has the island lost its geopolitical value to the core state?
PR: That is a theme that I tried to develop extensively in my book—“The Last Enclave of Colonialism.” Among a very definite element that a metropolis seeks in its colony is the advantage—military and geopolitical—that a colony can provide. That was the overriding importance of Puerto Rico when the United States acquired the island from Spain. That has changed, as has the geopolitical importance of Puerto Rico. At one point, there was a significant military establishment here in Puerto Rico because it was important to have that as a base of operations. But I must say that the nature of conflicts and war has changed dramatically. Some of the things that were practiced here in Puerto Rico were the amphibious landings, which were last implemented in Korea. Today, war is not the same. So now we have the drones and we have the conflicts through the terrorists who are embedded in the civilian population. It is a completely different thing—the military importance of Puerto Rico for the metropolis, for the United States, has diminished remarkably. Also the geopolitical importance. Puerto Rico during the height of the Cold War had an important role in this chessboard of geopolitics. That has also been greatly diminished with the implosion of the Soviet Union, with the triumph of the ideal of capitalism over the ideal of communism. So again, that factor has been diminished in Puerto Rico. There is no doubt, therefore, that the colony as such, as a territory, is less valuable from the standpoint of those two factors—in addition to other factors, such as the fact that the colony is not as economically profitable as it used to be and that it is in the midst of a crisis of governability.
So, all elements that were important in maintaining a colonial relationship for the metropolis have been diminished and therefore it [the metropolis] is less valuable under the current status of a colony.

CB: Even if Puerto Rico were not a partially independent territory, as you posit—economic development was possible under Operation Bootstrap and we had sustainable economic development under your tenure. How do you explain that?
PR: Well, because the world at that time was very different from the world currently. The current scenario is one of globalization. In the previous scenario—in the mid-20th century—the model that was established with us as a colony had some components that gave us an advantage. Under that model, that world, which still had very high barriers to international trade, made attractive Puerto Rico’s access to the very large U.S. market. Products made here in Puerto Rico could have entrance into a very large market. That has essentially been erased by the free-trade agreements—starting with Nafta [the North American Free Trade Agreement] at one point, which gave the same opening to others. A second factor was low wages, which were a significant factor in production. Now, even though Puerto Rico has lower wages and there is not an abysmal gap, the competitive advantage of low labor costs is also being erased. Finally, there were also some federal tax concessions—most importantly, the Section 936 tax dispositions, which basically were instituted only for possessions.

CB: During the many interviews we have done across the years, you told me that you had originally supported Section 936—40% of the money in Puerto Rico’s banks was from Section 936 funds—but it became untenable for you to defend it.
PR: Well, it becomes untenable when the benefits are great for the banks, the benefits were great for the pharmaceuticals, but not for the people. So, if you are coming from the perspective of the banks—sure it is great. If you are coming from the perspective of the large multinational corporations, who would argue against it. And, in fact, they were the major resistance to the change in political status of Puerto Rico.

CB: It wouldn’t be possible to have Section 936 if we were a state.
PR: Because it only applies to possessions. In other words, if you are independent, it doesn’t apply; if you are a state, it doesn’t apply. It only applies to territories, and that is why there was such a strong sector supporting Section 936 because of the extraordinary benefits that they received.

CB: Wouldn’t it have made sense not to throw out the baby with the bathwater, because you were trying to obtain Section 30-A wage credits to replace Section 936 or parity under Hillarycare as a quid pro quo, but we got neither?
PR: First of all, the last point that you bring up, the healthcare reform under former President Clinton, never occurred. It never happened. It was way before the midterms. In addition to that, the other point that you make—we tried to get some benefits that were for the people. Section 936 was based on the concept of a tax credit against your earnings—your earnings would be tax-free. We tried to change the definition of those credits so they would be based on the costs of labor—of the salaries that they provided; that benefit would have gone to the workers directly, not to the corporations. That was one of the benefits we were trying to tie the benefits to. So it was different from Section 936. The other element that we tried to tie down was the element of research and innovation and that there would be credits for whatever research and innovation was conducted here in Puerto Rico.

So 30-A was an attempt to redefine what the credits were granted for. Before, with Section 936, it was open benefits based on whatever earnings you made. We sought to tie it to salaries, labor costs, to training of the labor force and to research and development.

CB: Do you see any drivers of economic development under the current status through congressional amendments that would offer a vehicle similar to Section 936, or is there a categorical impediment to growth under the current status?
PR: It is impossible to labor under the premise that under a political relationship where you are submitted, where the power equation is asymmetrical, that you will have the ability or the possibility to have sustained economic development. So, therefore, the current territorial status is an impediment to any hope of economic development under the current status. We have been building Puerto Rico solely as a tax haven. Puerto Rico’s only worth is tax breaks. We had Section 936, but the benefits did not trickle down to the general population. We now have [Acts] 20 and 22; they are a morphing of those tax havens, which leave very little trickle down of tax benefits to the people.

This new definition of Puerto Rico as a tax haven posits that our only worth is to give tax breaks. I suggest we are doing things upside down. We have to invest in people first—in their education, in training, in health. And once we do that, and we develop a society that is well-educated, that is healthy, where law and order is respected, then economic progress will follow. Under the current situation, under the current model—as we have seen today with this full-blown crisis—you can have no hope that you can achieve significant economic development.

CB: Is it essential to have a change of status to achieve economic development then?
PR: Absolutely, the colonial model is irretrievably flawed; it limits the potential, and those who don’t believe it must only look at some of the solutions presented to deal with the crisis—parity in Medicaid, parity in Medicare, equal treatment in federal government programs. All of these are constitutional and legal determinants and apply to all states. So the solution is very simple—if that is what you want and those are the powers that we seek, then statehood provides those powers because they apply by law and not by concession of Congress.

One Comment

  1. rtryon

    February 26, 2016 at 10:33 pm

    Both Governors are unable to compute that the U.S. can fail to benefit either choice that each espouses. The why and how is simple: It manages to suicide faster than PR by falling into the socialist bect trap trying to prove that each can do what the Russians tried and failed to accomplish, not because of WWII or the Cold War but because their system of leadership can’t be allowed to be free of dictators.

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