Verve Opinion

Birth of a Nation: The Colony, The Territory, The State

“Incapable of self-government”


by Phillip Wong

    “Porto Rico differs radically from any other people for whom we have legislated previously . . . they have no experience which would qualify them for the great work of government with all the bureaus and departments needed by the people of Porto Rico.

Said Republican Senator Joseph B. Foraker in a speech before the United States Senate in 1900.

Uprooted Tree_11b6e
Photo: Edgardo Santana
Art installation in Santurce_1222b
Photo: Edgardo Santana

In another speech before Congress in 1900, Senator William B. Bates (D-TN) who had served in the Confederate Army said:


“ What is to become the Philippines and Porto Rico? Are they to become states with representation here from those countries, from that heterogeneous mass of mongrels that make up their citizenship? That is objectionable to the people of this country, as it ought to be, and they will call a halt to it before it is done.           Jefferson was the greatest expansionist. But neither his example nor his precedents affords any justification for expansion over territory in distant seas, over peoples incapable of self-government, over religions hostile to Christianity, and over savages addicted to head-hunting and cannibalism, as some of these islanders are.”

   These views made in the United States Congress, at Puerto Rico’s inclusion into the United States sphere of influence were the backdrop of how Puerto Rico would be governed by the United States Congress for the next 117 years.

   These were not unique or shocking views as the 1800s passed into another century in America. But they create a perspective to how our views shaped a nation, a foreign policy, politics and an economy that echoes through our society today.

   They neither affirm, nor excuse, how we look at problems today, an economy today, or the environment and in context of tomorrow. But we can neither continue, nor embrace, nor adjust our actions today to maintain these views in the future. 

The easiest thing to change in our world, is our minds. The hardest thing to change in our world, is our minds. It is up to us.

A New World


             The New World was explored and discovered from 1400 through 1900 by European explorers seeking gold, glory and a foothold for a Christian god. Asia and Africa were already known by traders and crusaders for centuries, but the sea was a possible new path. Portugal, Spain, France, the Netherlands and England were the sponsors of exploration, and their explorers claimed new lands for their sponsors.



                     Puerto Rico was considered to have been the land discovered by Columbus when he first landed in the New World. He claimed Puerto Rico for Spain in 1492 and for the next two centuries, Spain was a dominant nation in global exploration and development. When Columbus landed, the indigenous people of Puerto Rico were Taino, but they, like many native peoples, perished from European borne diseases, warfare and slavery. Puerto Rico remained a Spanish colony from 1492 until 1898.

Sugar cane production provided abundant jobs at untenable wages.

From Spain to the United States


          Following the end of the Spanish-American War, in the Treaty of Paris in 1898, Puerto Rico was transferred from a territory of Spain, to a territory of the United States.  Other Spanish territories involved in this transfer were Guam and Philippines. In the transfer, Puerto Ricans lost their Spanish citizenship but did not become American citizens.


              For the first 50 years, legislation created pertaining to Puerto Rico was written by the United States Congress and administered by appointed governors and officials to benefit American corporate interests. Following the creation of the Puerto Rico Federal Relations Act of 1950, Puerto Rico was able to elect its own governor, legislative and judicial bodies, but all was subject to approval by the United States Congress. And American disapproval could negate any Puerto Rican decision.


            In act after act of legislation, throughout Puerto Rico’s history, it becomes apparent from the timing and wording, which industries, which corporations and which country, and for which purposes, Congressional legislation was meant to benefit.

Territory, Commonwealth, Colony, Independence, State


                 For 100 years, Puerto Rico has remained in American limbo, as the decision on whether to be granted (and to accept) statehood, independence, commonwealth status has been debated and voted on both by Puerto Ricans and the American Congress.

                   Puerto Rico came into American hands believing it would be granted independence from Spanish rule. Cuba was struggling for independence when America entered into war with Spain on their behalf. Spain granted Cuba independence at the time of ceding Puerto Rico , Philippines and Guam to the United States. Puerto Rico had just elected a parliament (a right which Spain had granted to both Cuba and Puerto Rico) that was meeting the day America declared war on Spain.


               The perception of the American Congress, and American businesses to Puerto Rico, is vastly different than the perception of Puerto Ricans to America (and there is always a difference between people on the street and governing bodies). Americans have viewed Puerto Rico in a transactional prism – how can our businesses and economy benefit from this island while paying some of the bills? Puerto Rico’s government is largely funded by U.S. Congressional grants. They work for the United States Congress, less so, for the people of Puerto Rico, and people in Puerto Rico view their government as inherently corrupt. But as we examine the political history and the economic consequences of this anomaly, the Puerto Rican government has in a large way, acted as a Chamber of Commerce, rather than an independent three bodies (executive, legislative and judicial), serving the people of Puerto Rico.


              The people of Puerto Rico have largely seen themselves as Americans, but different. They see themselves as having the same rights and responsibilities as people on American soil, but unless they ARE on American soil, they don’t have American rights or protections. It is a nonsensical existence in a modern world.

A Land of Sugar, A Land of Labor


           From 1900 through the 1930s, American political rule and economic development was aimed at creating an American agricultural sugar industry on Puerto Rico.


            The first appointed governor was Charles Herbert Allen who was installed in 1900 and governed for 18 months before leaving for New York. On arrival in New York, he joined the Morgan bank and then starting the American Sugar Refining Company in 1901. In those initial 18 months, he set the stage for Puerto Rican dependency on the United States that continues today.


               In 1899, a year after Puerto Rico was ceded to the United States from Spain, Hurricane San Ciriaco struck and destroyed the island’s coffee crop. Puerto Rican farmers received no relief funds, instead the Hollander Act was passed by Congress with Allen’s guidance, to create a land tax on farmers who had no means to pay the tax. U.S. banks provided the loans to cover the taxes with usury rates. When Puerto Ricans couldn’t pay the loans and interest rates, the Sugar Trust (American Sugar Refining Company – now known as Domino Sugar), purchased the land by paying the banks.

Legislation by the United States Congress


                The Foraker Act of 1900, passed by the United States Congress, allowed for the governorship, Executive Council and Supreme Court all to be appointed by the United States president. Puerto Ricans could elect a lower house. But the purpose was to prohibit Puerto Rico from negotiating trade agreements with any foreign country. It prohibited tariffs or import/export regulations. By 1930, 94% of trade was with the United States, and with American goods sold in Puerto Rico roughly 15% higher than the same goods sold on American soil, a budgetary imbalance was created that exists today.



               In 1917, the Jones-Shafroth Act was passed authorizing a Puerto Rican government to collect taxes on property and internal revenue. Passed on March 02, 1917, it also made Puerto Ricans, American citizens. The passage of this act served multiple purposes: while it created a form of government similar to the United States, and allowed officials to be elected locally, it also any legislation passed by Puerto Ricans could be vetoed by the Governor and President of the United States and the United States Congress maintained control over all fiscal and economic matters. Congress exercised control over mail services, immigration, defense, foreign trade agreements and import/export. Essentially, it allowed Congressional members grant favors to their cronies to loot Puerto Rico if they so desired. Also, as newly minted American citizens, once America entered World War I a month later (April 6, 1917), it allowed Puerto Ricans to be drafted into the American military. They served in segregated military units.



            In 1920, the Merchant Marine Act (also known as the Jones Act, although, in relation to Puerto Rico is often confused with the Jones-Shafroth Act) was created to establish a Merchant Marine for the United States. But a Section 27, was included to deal with cabotage (the carrying of goods transported between U.S. ports). This section of the Jones bill, mandates that all goods transported between U.S. ports must be carried by American constructed, owned, operated, crewed ships. While this is not a problem for the transport of goods between Kansas and Missouri, Puerto Rico, Hawaii and Alaska are affected, and since much of America is continental, America does not have a large number of shipping companies that transport between “local” traffic areas.

Controlling Puerto Rico

                By 1920, the majority of Puerto Rican farmers had lost their lands and the Sugar Trust controlled 98% of the sugar refining capacity of the United States.



                  In 1922, the United States Supreme Court declared Puerto Rico a “territory,” not a “state,” and therefore, Puerto Ricans were denied worker’s rights, minimum wages or collective bargaining. Puerto Rico was denied Constitutional protections afforded to American citizens in any other state in the union. Ironically, Puerto Ricans who leave the island, are vested with the full rights of American citizenship, but not, as long as they reside in Puerto Rico.



               From the 1920s through 1950s, almost all Puerto Rican jobs were dependent on American corporations. (Most of Puerto Rico’s jobs are still from American corporations headquartered elsewhere.)  All non-agricultural products were imported from the United States. All appeals, protests, and attempts to organize for higher wages, better conditions were labeled “anarchist” and after 1917, “communist.” Attempts to organize workers were suppressed by FBI and National Guard troops working with the “insular” police.



                Most of the organizational attempts made in Puerto Rico were by political parties, rather than unions that were not recognized because Puerto Rico wasn’t a state. The Nationalist Party organized agricultural strikes in 1934 that doubled wages to twelve cents an hour. But that action put the Nationalist Party under scrutiny by the FBI and from the 1930s through 1960s, attempts to organize workers, increase wages and protections (keeping in mind that almost all employment in Puerto Rico was dependent on American corporate interests), were viewed as sedition against the United States.



              From the Rio Piedras Massacre in 1935, the Ponce Massacre in 1937, to the bombing of Utuado and Jayuya in 1950, incidents in Peñuelas, Arecibo and Mayagüez, and then a full fledged invasion of Puerto Rico in 1950. All discussion to grant Puerto Rico independence or statehood was muzzled.


                 In 1948, a bill, Ley 53, created a “gag law” passed by the Puerto Rican Senate and pushed through by Luis Muñoz Marín, who presided over the Senate and became Puerto Rico’s first elected governor soon after the law was enacted. The Gag Law made it illegal to display or own a Puerto Rican flag, sing a patriotic song, discuss or fight for independence. This Gag Law lasted until 1957 and could only exist because the United States Supreme Court had ruled that U.S. Constitutional protections, including Freedom of Speech, didn’t apply to the territory of Puerto Rico.

 Cheap Labor, Big Debt, No Taxes


                Sugar, coffee, fruit, nuts, and other agricultural products, needing cheap but labor intensive harvesting and planting, began as a major part of the colonial-style relationship between the United States and Latin American and Caribbean countries.  Puerto Rico was largely controlled until the 1950s by the Sugar Trust, which later became known as Domino Sugar.


               Dole and Chiquita brands both had huge holdings in Colombia, Honduras, Guatemala, Costa Rica, Ecuador and other lands surrounding the Caribbean.



                  A territory (as opposed to either a state or an independent country), Puerto Rico has not been able to choose leaders, policies, directions or international relationships without the approval of the United States Congress.  Without representation in Congress, Puerto Rico’s has had the lobbying of American banking, agricultural, corporate or military interests making decisions before Puerto Rican interests.

Trading a governor of their own for independence


                    Puerto Rico’s first elected governor, Luis Muñoz Marín, although elected by Puerto Rican residents, created the template of Puerto Rican politicians to follow from his election in 1948 to the present. When running for governor, he advocated eventual independence for Puerto Rico. Backed by the United States Congress and American corporate interests, he was elected and became an advocate of luring American businesses to Puerto Rico in exchange for acceptance of “commonwealth” status.



                 Governors of states are tasked with looking after the budget of a state and the well-being of citizens of that state. Puerto Rican governors following Marín, have acted more as presidents of Chamber of Commerce, to attract business interests to the island through tax incentives approved by the United States Congress.



               Marín created an Administration of Economic Development (now known as Puerto Rico Industrial Development Company (PRIDCO) in 1947 with the idea of moving Puerto Rico from an agricultural (single crop) industry to a more industrial economy. Working with the Puerto Rican legislatures and U.S. Congress, tax and financial incentives were created to attract American corporate industries to manufacture in Puerto Rico.



                  Based on the idea that Puerto Rico was a U.S. territory, but not an American state, American companies were exempted from local taxes, import taxes, corporate American taxes, while transferring profits back to American soil. American companies also benefited from labor costs in Puerto Rico that were a third the labor costs on continental United States. This combination of incentives aimed exclusively to American companies and with the aim of luring investment (but neither Puerto Rican ownership, nor a joint partnership with Puerto Ricans) to the island was known as “Operation Bootstrap (Operación Manos a la Obra),” Focusing on benefitting companies setting up manufacturing in Puerto Rico without either creating tangible benefit for Puerto Rico or her people, the jobs created existed only as long as the companies saw a tax value in remaining in Puerto Rico.



                  For thirty years, Puerto Ricans working in these American factories were paid less than workers in the United States, but more than Puerto Rican field workers. An unforeseen problem was that manufacturing jobs, were less in number than agricultural work, and as that disparity increased, Puerto Ricans left the island in record numbers to find work in America – primarily New York and Florida.

Nobody knows in America,
Puerto Rico's in America!                     
                  "America" from West Side Story, 
                                              lyrics by Neil Diamond


                 Prior to Operation Bootstrap, the annual migration of Puerto Ricans to mainland America was about 1800 per year. In the 1950s and 1960s, migration reached more than 50,000 per year.

           The Puerto Rico Federal Relations Act of 1950, revisited the Jones-Shafroth Act, to redefine the Puerto Rican government but made Puerto Rico even more dependent on the United States for governing, economy and military.


            Using Puerto Rico as a bulwark against the encroaching communist and socialist ideas that were spreading across Latin America, the United States put 13 military bases on Puerto Rico during the 1950s and 1960s, and was determined to create a capitalist bastion in the Caribbean. A part of the impetus of Operation Bootstrap was to make Puerto Rico an example of American capitalism, but instead Puerto Rico, became an example of lack of self-determination, governmental mismanagement and dependency.


                  Much internal discussion within Puerto Rico varied between Puerto Rico going forward as a commonwealth, an independent country or as a state in the United States. 


              While a movement grew for independence during the 1930s through 1960s, American fear of socialist (and Soviet) influence, led America to use every means to extinguish that interest. Operation Bootstrap, mass migration to mainland America and the creation of a Puerto Rican constitution were all part of this effort. Existing laws (like the 1920 Jones Act), served to prevent Puerto Rican trade with other Caribbean islands, Latin American countries or potentially disruptive (and influential) nations.


                   In 1950, Puerto Rico’s average wage was 28% of workers in the continental United States. Corporations could pay 25% of the wages of America, zero taxes and no importation tariffs. Puerto Rico would receive jobs which, when cheaper labor was found in Asia during the 1980s, disappeared as corporations found cheaper playgrounds,labor and greater tax incentives. Consumer manufacturers Playtex and Shick left. A petrochemical industry never materialized.


              In 1965, the United States Congress created special tax exemptions for the petrochemical industry. Phillips Petroleum, Union Carbide, Sun Oil were some of the companies that rushed to build and open facilities, but all left in 1973 when the OPEC oil embargo went into effect.

No taxation, No representation


                    Today, while interstate commerce doesn’t exist (because Puerto Rico isn’t a state), 76% of their exports are to the United States. Unlike Kansas or Massachusetts, the island doesn’t have the ability to transport via trucking or rail, but all their shipping is regulated by necessary American ships. Americans west coast, east coast and southern coasts all can receive foreign vessels. Puerto Rico has to get Congressional approval.



               Driven predominantly by a need to find work, from an island which they didn’t own property, had no means of creating businesses and a market heavily restricted in imports and exports to the United States, millions of Puerto Ricans have moved to New York, Chicago, Florida and the migration increased with decreased taxes for outside corporations and increased taxes for residents.  Puerto Ricans living in Puerto Rico, ironically, have less flexibility and rights on the island than they do in the continental United States.



                Several major American tax code and trade agreements had economic effect on a Puerto Rico that had no representative in Washington, D.C. during discussions to argue a Puerto Rican perspective.


                  In 1976, Congress passed a Tax Reform Act that held a Section 936. Section 936 encouraged United States corporations to set up manufacturing, offices, and hubs in Puerto Rico by allowing manufacturers to avoid corporate income tax on all profits made in U.S. Territories. Led by pharmaceutical companies, manufacturers flocked to Puerto Rico, increasing Puerto Rican employment, but decreasing the tax contributions of these companies. Section 936 and any other tax exemptions was the governing party of Puerto Rico’s greatest argument for remaining a U.S. Commonwealth instead of either independence or becoming the United States’ 51st state.

 Luring businesses but not planting roots     


                  The Congressional Act containing 26 US Code § 936, brought a flood of business investment to Puerto Rico. The pharmaceutical industry moved operations to Puerto Rico and Between 1980 to 1990, Johnson & Johnson, Smith-Kline Beecham, Merck & Co. , Bristol-Myers Squibb saved over $3.5 billion in taxes by manufacturing in Puerto Rico rather than the continental United States. In 1996, when Congress passed the Small Business Jobs Creation Act, criticism of 936, created a repeal of these tax breaks inserted in the Act over a ten year period. By 2006, all elements of this tax break had been repealed. Subsequently, the various American corporations and capital-intensive industries operating in Puerto Rico solely for the tax breaks, including pharmaceutical companies left Puerto Rico. By the time the repeal of incentives was complete, Puerto Rico’s financial recession was full-flrdged. Puerto Rico lost more than 100,000 jobs and has continued losing jobs without either a tax base that can support growth or sustain government, or an existing infrastructure that can offer a competitive argument for companies to choose working in Puerto Rico. The Puerto Rican government borrowed heavily to continue functioning creating debt of over $70 billion that ballooned to $123 billion by 2016.



            The creation of the North American Free Trade Agreement in 1994, opened up many of those same opportunities to companies expanding in Canada and Mexico, along with open borders for the transport of goods and services. This diluted the advantages Puerto Rico held for 18 years.

Debt. Running a business without an income?  Big surprise.


                     All of this is the backdrop of Puerto Rico’s current public debt, and financial issues. As businesses left Puerto Rico, and Puerto Rico was stuck borrowing money through bond creation to continuing to support their populace. Hedge funds and other investment companies moved in to buy those bonds, businesses and properties that were in distress. With public debt skyrocketing above $120 billion in 2016, Congress again stepped in to create the Puerto Rico Oversight, Management and Stability Act (PROMESA) in 2016. Through PROMESA, Congress established a Fiscal Control Board to outline a debt restructuring and create an austerity plan. The austerity plan cut into pensions, healthcare and education but only put a temporary hold on creditor repayment.



               PROMESA was enacted in May 2017 and Hurricane Irma swept past Puerto Rico on the Northeastern side on September 6, 2017. Hurricane Maria struck two weeks later.


               On September 20, 2017 Hurricane Maria made landfall on Puerto Rico. It struck on the southeastern coast and swept diagonally across the island to the northwestern coast. It swept across the entire island leaving few places untouched.


           While Hurricane Maria’s impact was devastating, the mismanagement of Puerto Rico’s budget and the resulting PROMESA, had cut the workforce of the power company. 80,000 still did not have power two weeks after Hurricane Irma, the water supply was considered below standard. On September 15, five days before Maria struck, Federal Emergency Management Agency Caribbean Distribution Center warehouse supplies had only 17% of supplies remaining after distribution in response to Irma. 90% of their water supply had already been distributed.



                  On October 3, 2017, Donald Trump visited San Juan and threw paper towels to a crowd while saying: “We’ve gone all out for Puerto Rico . . . it’s not only dangerous, but expensive.” And then saying, “I hate to tell you, Puerto Rico, but you are throwing our budget out of whack.” “We’ve spent a lot of money on Puerto Rico.” A year later, when the death toll was officially increased from 60 to 2,975 because of citizens who couldn’t get healthcare, rescue, food, water or electricity, he continued to give himself an “A+” rating, and say his response was “incredible” but “underappreciated” by Puerto Ricans.

Who US? Responsibility? We didn’t do nuthin’!



               Puerto Rico is stuck between a rock and a hard place. Without a properly supportive income base (tax or otherwise), and with a Congressional philosophy of “cutting taxes to spur growth,” Puerto Rico can neither pay previous debts, nor grow their economy, nor pull themselves out of poverty (45% of the population is below poverty level).

The United States has control over 14 territories and the federal District of Columbia. All of these areas are under the “exclusive” or “federal” jurisdiction of the United States Congress (but none of these districts or territories can elect, or otherwise compel Congress to act on their behalf). This is not an executive office decision, but a legislative decision.  And for almost two decades, the United States Congress seems determined not to pass legislation, not to create an income base, not to build infrastructure, not to deal with immigration pertinent to countries and certainly not to deal with Puerto Rico, which bobs along like a cork on an ocean of debt.


Besides the District of Columbia, the other territories are: American Samoa, Guam, Northern Mariana Islands, Puerto Rico, the U.S. Virgin Islands. The other territories are uninhabited islands.


           Most of the territories have relatively small populations, but the District of Columbia has a greater population than Wyoming, or Vermont. 

            Puerto Rico has a larger population (therefore greater needs) than 19 states (Alaska, Arkansas, Delaware, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Nebraska, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Utah, Vermont, West Virginia and Wyoming).


                Currently, one political party in America does not believe in government or governing. (As opposed to amassing “power.”) They believe that a “free market” will solve all problems so government should not regulate, pass laws, or formulate policies. Corporations should.


                But corporations have a responsibility to their shareholders, their employees and their customers – not strictly to their communities. When things get bad, they can, and do, pack up and leave. This is exactly the situation Puerto Rico is in, and Puerto Rico serves as an example of how this whole paradigm works. Corporations cannot be compelled to keep a plant open, increase production, stay on the island of Puerto Rico, or stay in Michigan or Ohio. Corporations cannot be compelled by their communities to serve a higher purpose. Corporations cannot be compelled to build their roads, construct electrical grids, information highways or ports.


Governments can. But Puerto Rico needs to decide on building a functional independent government, a functional state government, or continue begging for American corporate attention in a global community.