11 May 2015

Puerto Rico As A Natural Experiment

Puerto Rico provides a natural experiment for a variety of economic and immigration theories, because it has had a profoundly different legal history than the rest of Latin America in terms of its relationship with the United States for more than a century.

Republican Presidential candidate Jeb Bush has floated the idea of Puerto Rican statehood early in his campaign.


Puerto Rico is organized as a "Commonwealth" within the United States.  This means that, like other U.S. territories, it has democratic self-government, but it has no say in national elections, yet is subject to national laws except where Congress chooses to make an exception.

The U.S. acquired Puerto Rico during the Spanish-American War of 1898, and has retained a relationship with it similar to the status quo for this Commonwealth that now has 3.62 million people in the Caribbean since about 1900, when it was granted democratic self-government.  Puerto Rico retains a Spanish language as the dominant language and an associated Latin American culture.

Puerto Rico is in an immigration union with the United States and about 4.6 million people who identified as Puerto Ricans lived in the United States as of the 2010 census.  But, a little less than a third of that population was born in Puerto Rico.  Put another way, about two-thirds of the people born in Puerto Rico live there today, while a third have migrated to somewhere in the United States.  Growth in the existing Puerto Rican population of the United States (outside Puerto Rico), rather than migration from Puerto Rico, has accounted for most of the growth in the Puerto Rican population in the U.S. since at least 1980.

About a third of the people in the United States who identify as Puerto Rican live in the New York City metropolitan area.  About 1.5% of the U.S. outside Puerto Rico identifies as Puerto Rican, predominantly in the Northeast, Florida (4.5%), Hawaii (3.2%) and the Chicago and Cleveland metropolitan areas.  Puerto Ricans make up no more than 0.9% of the population of any state outside the Northeast, Florida, Hawaii and Illinois (1.4%) (which is highly concentrated in the Chicago, whose city proper is home to more than half of the Puerto Ricans in Illinois and where Puerto Ricans make up 3.8% of the total population).  Cleveland proper is 7.4% Puerto Rican and is home to more than 30% of the Puerto Ricans in Ohio (0.8%).

The non-U.S. born population of Puerto Rico in 2010 was 2.9%, less than all U.S. states except North Dakota, South Dakota, Montana, Wyoming, West Virginia, Kentucky, Missouri, Tennessee, Arkansas, Louisiana, Alabama, Mississippi, and New Orleans (South Carolina and Maine are tied).  This is despite the fact that Puerto Rico would naively, seem to be a natural destination for Latin American immigrants, since moving there involves far less cultural change.  States with large Puerto Rican populations almost all also have large percentages of foreign born persons.

Mexico is the dominant source of foreign born persons in many U.S. states (especially in the West, Midwest and South) but accounts for only 2.5% of the foreign born population of Puerto Rico.  In the year 2000, there were about 9 times as many foreign born Mexicans in the United States as there were Puerto Rican born Puerto Ricans in the United States.  Mexico has a population of about 120.29 million people (33 times as great as Puerto Rico).

Puerto Rico is largely free of U.S. federal income taxation, although they are part of the federal Social Security and Medicare system.  They do not receive many of the federally funded welfare benefits, however.  In the big picture, two of the main federal programs that Puerto Rico does not fund, but arguably benefits from, are national defense and interest of the national debt.

Essentially, Puerto Rico satisfies the converse of the "no taxation without representation" motto, not paying tax, but not receiving much representation either.  If federal income taxes were applied to Puerto Rico, however, it would generate little income and perhaps even a net bonus to Puerto Rico, because it is much less affluent than any U.S. state.  According to the 2015 World Almanac, Mississippi's per capita personal income is $34,478; Puerto Rico's is $14,905.

In a non-binding referendum in 2012, 46% of Puerto Ricans favored the status quo, and when asked what change they would like if the status quo was changed, statehood was twelve times more popular than independence (61% to 5%) while the balance favored greater autonomy within a Commonwealth-like structure.

Lessons Learned

1.  Echoing the experience of the immigration union in the European Union, substantial disparities in personal income (more than 2-1 compared to least affluent U.S. states) has not produced a tidal wave of migration to the U.S., although it has produced migration levels greater than in any country with limited immigration.  The rate of migration of Puerto Rican born persons to the U.S. is about 3.7 times the rate of migration of Mexican born persons to the U.S.  If the Puerto Rican model held true, free immigration between the U.S. and Mexico would result in about 24 million more Mexicans migrating to the U.S. than the current number.

Also, migration is something that is path dependent and builds upon historical patterns.  As a result, intranational migration and immigration has the least impact on places with the least history of migration.

2. Free immigration, massive tax subsidies, the stable U.S. currency, and the protection from political risk that comes from being subject to U.S. federal law and within the U.S. military's sphere of protection, have not completely equalized the per capital personal incomes of Puerto Rico and the rest of the United States over 117 years as a U.S. colony.  Local culture is at least as important as economic and legal policy in determining national wealth.

But, Puerto Rico does compare favorably to the rest of Latin America.  Puerto Rico has a per capita GDP (nominal) of about $28,000 compared to about $16,000 in Uruguay, the highest ranking Latin American country.  It is just $1,400 or so behind Spain, and is ahead of South Korea by $1,800, according to the World Bank (2013).  The CIA World Fact Book (2013) reports a low figure for Puerto Rico ($23,500), but still high enough to be the most prosperous Spanish speaking economy in the world other than Spain, and not too far behind Spain.  Mississippi, the U.S. state with the lowest per capita GPD (2012) is at about $29,000, a much smaller gap than the gap in personal income per capita.  And, since it joined the E.U. Spain hasn't been subject to higher federal economic decision making on monetary policy, trade, immigration and more, just as Puerto Rico has been.

3. Colonial lack of democratic representation at the national level may be unfair from a political theory perspective, but isn't that unpopular, so long as it doesn't come with a tax burden and there is considerable democratic autonomy.  Puerto Rico has been spared a great deal of political turmoil and non-democratic government found in almost all of its independent nation peers.  Economically and in terms of stability, Commonwealth status has been a good deal for Puerto Rico, compared to the likely alternatives if it were independent.

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