Tax Breaks, Tom Foolery, Big Pharma to the Rescue

Here’s a crash course in what philosophers call Greed and what politicians call Capitalism. Profit: Good. More Profit: Better. Less Profit: Not so good. Loss: Unthinkable unless the loss leads to More Profit down the road. Spreadsheet: A computer-based, computational vehicle whereby you can forecast maximum profitability by manipulating dependent variables and make decisions based on quantifiable objectives. Workforce: a dependent variable. The Welfare of the Workforce: Huh? Well maybe if you improved the welfare of your workforce it might lead to increased productivity. By how much? Well I can’t rightly say but it stands to reason. That’s not particularly quantifiable is it?

So how do you attract industry to an erstwhile agrarian island? Luis Muñoz Marin, first duly elected governor of Puerto Rico, came up with a plan called Operation Bootstrap. First, you make the island attractive to manufacturing by building roads and an electric grid that will support the voracious needs of manufacturing. How do you fund those expensive infrastructure improvements? By selling tax-free municipal bonds, of course. And how do you make those bonds attractive to buyers? You throw in a clause that says bond holders get paid first. Luis Muñoz Marin had a college education.

Next, you show prospective manufacturing corporations a pliable, underpaid workforce whose cultural zeitgeist revolves around pleasing the overlord. Finally, you offer the prospects incentives in the form of tax breaks that compensate for the added cost of importing raw goods and shipping out the finished product. Voila! You’ve transformed a bucolic paradise into an urban ghetto. Well, not quite but you get the idea.

The government offered tax breaks to manufacturers and the manufacturers, particularly Big Pharma, went wild. They packed up their factories and hurried on down to set up shop. But here’s the funny thing about tax incentives. The government giveth and the government taketh away. When the workforce up north saw what was happening, they hollered foul! And the government expired those nifty tax incentives over a ten-year period beginning in 1996, to level the playing field you might say.

Puerto Rican government officials weren’t unduly concerned. The reasoning was once the corporations had spent all that time and money relocating their factories to the enchanted island, they’d be reluctant to pull up stakes and abandon their plants. Ah, but the government hadn’t counted on the nefarious power of the Spreadsheet.

The corporations cranked the numbers and discovered that if you ponied up the money to build new factories up north (or in a more profitable clime) you could beef up the assembly lines with more automation and less workforce. Machines are fat dumb and happy as long as they’re well-oiled and regularly maintained, unlike that pesky workforce who eventually insist on equal representation and social benefits. Damn the ghost of Eugene V. Debs. During the decade from 1996 to 2006 Puerto Rico lost nearly forty percent of its manufacturing job base.

Here’s another problem. The workforce figured out Spreadsheets too. They discovered the workforce up north was being paid twice as much as the workforce on the island. Consequently, they packed their bags and headed north. From 2004 to 2014 the population of Puerto Rico declined by eleven percent, from 3.9 million to 3.4 million. Meanwhile the government was nearly $70 billion in debt, had an unemployment rate twice as high as the U.S. average, a forty-five percent poverty rate, nearly insolvent pension systems (see bond holders get paid first discussion above) and a chronically underfunded Medicaid insurance program for the poor. They shoulda renamed the plan from Operation Bootstrap to Operation Rat Trap.

Back in 1886 Leo Tolstoy wrote a short story entitled “How Much Land Does a Man Need?” The gist of the story is this. A peasant is promised a plot of land equal to the amount of acreage he can walk around in a single day, sunrise to sunset. The deal is he must return to the starting point before sunset or he’ll forfeit everything. He marks the boundaries of his estate with a shovel as he travels. Each time he starts to turn and head for home he sees another plot of land he can’t possibly live without. Finally, the sun is sinking lower in the west. The peasant panics. He flings away his spade and starts to run. He collapses and dies just before he hits the finish line. The moral of the story? Question: how much land does a man need? Answer: a plot six feet deep and exactly wide enough to accommodate a coffin. Tolstoy evidently wasn’t an ardent devotee of Capitalism.

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