PUERTO RICO: THE DEVELOPMENT MODEL AND THE ENVIRONMENT
We have evidently exceeded the population level that can be adequately attended to in Puerto Rico, not only in economic terms, but in social, physical, and human terms as well. The projected growth in population and economic activity surpasses the absorption capacity of the Puerto Rican economy and geographical extension, and it is incompatible with the goal of maintaining and improving the quality of life. 1
Puerto Rico (PR), is the fourth largest island of the Caribbean West Indies (3,475 sq. mi., 8,897 sq. km.), and the most eastward of the Greater Antilles. Its population in 1989 was approximately 3.4 million, with a population density of 382 persons per km2, (980 persons/mi.2), one of the highest of Latin America and of the developing world (Higgins 1982). The island maintains a political relationship with the United States officially known as the Commonwealth of Puerto Rico: Estado Libre Asociado de Puerto Rico.
Since the 1940s, PR's economy has evolved from being based on agriculture to a manufacturing industry based, with the service and government sectors also playing a larger role. Capital investments in new factories, mainly from the US, was stimulated by tax exemptions and other incentives, low-wage skilled labor, and development finance programs. Local governments mostly financed the required infrastructure expansion and modernization. The island's economy is very dependent on and integrated with the US economy. During 1988, for example, approximately 83 percent of PR's exports were to the United States, which in turn was the source of 66 percent of the island's imports.
PR has characteristics of both developed and underdeveloped economies. Domestic savings were never an important source of capital formation, and the economy relied heavily on imports for consumption and raw materials (Weisskoff 1985). The economy has been characterized as a fragile one due to the uncertainty of the factors (such as oil) on which it is based (Heine 1983). In the struggle to keep pace with popular post-WWII models of growth and development of industrial countries, PR followed strategies that jeopardized the quality of the environment and the availability of its natural resource base.
This chapter will present a discussion of the development
model followed in PR in the last 50 years, emphasizing its economic and
environmental aspects. The main goal is to describe the linkages
between the economic structure and industrialization patterns that evolved
from a model of development oriented primarily to rapid growth, and the
patterns of environmental degradation.
DEVELOPMENT IN PUERTO RICO
For 25 years (late 1940s to early 1970s), publicists and academics acclaimed the Commonwealth of PR development model as a showcase of successful development (Mayne 1961; Dietz 1986; Langdon 1987). Though PR's political relationship to the United States is unique, the popularization of its model of development in the 1950s and 1960s, the internationalization of the economy, and, more recently, the new Caribbean Basin Initiative (CBI) makes this a relevant case study not only locally but to other developing nations.2
Examination of PR's model of development shows that
environmental policy and planning on the island, and also the analyses
for development policy and planning, occurred within an institutional framework
where rapid economic growth was the primary objective. In PR, the institutional
framework for development conformed to the already-stated goal of industrializing
the island, which transformed planning into an instrument of economic growth.
This happened within the context of an open and highly dependent economy3
characterized by Weisskoff as a "prototype industrial colony, the archetypal
case of the highest stage of development toward which many other Third
World economies are moving" (Weisskoff 1985). PR's mode of development
displays a dependency pattern that has been described for other parts of
Latin America (Arroyo 1986; Dietz 1986; Sunkel 1980).
A Summary of Puerto Rico's Last 50 Years of Development
A Spanish colony until 1898, the island of PR became an US territory, ceded by Spain in the Hispanic-American War. During the first half of the century, the president of the US appointed the island's governments. In the 1940s, PR parties began to take control of local politics, and in 1947, a Puerto Rican became governor. In 1948 the first local elections took place. During the first years of local political control, the new government embarked on a development program that focussed on the nationalization of various utilities and investment in publicly owned manufacturing plants; it initiated agrarian reform and established a Planning Board (Arroyo 1986).
In the early 1940s, Governor Rexford Tugwell, considered the father of PR's planning system, founded the Planning Board. The PR Planning Board (PRPB) was created to give direction to the development process. Its goal was to guide physical, social, economic, and cultural development. As governor of the island, Tugwell, with some local leaders such as Luis Muñoz Marín, set the basic philosophical framework of the planning system, which López-Pumarejo (1978) summarizes in five points:
In 1952, a new status formula and a constitution were approved. The new status, known as the Commonwealth of PR, became the new form of relation between PR and the United States. The commonwealth status provided an atmosphere of political stability appropriate for promoting economic growth through the attraction of foreign investment.
It is possible to differentiate three periods in
the last 50 years of development in PR. These are characterized by shifts
in emphasis regarding the type of industries attracted to the island and/or
the responses to events in the world economic system. They were shaped
by variations in institutions' capacity to attract capital investments
based on manufacturers' cost advantage. In spite of the changes, the export-oriented
manufacturing base of the economy and the foreign investment-dependent
developmental approach remained the same during these 50 years.
Operation Bootstrap and the Take-Off
The industrialization strategy in the early 1940s was based on government ownership and operation of utilities and factories, and it stressed the utilization of local natural resources (López-Pumarejo 1978). Plants established for the manufacture of paperboard, glass, cement, and clay products from locally available raw materials such as sand, limestone, waste-paper, and clay. After 1945, PR's administration adopted the philosophy that the only way to develop and improve people's quality of life was to accelerate economic growth through industrialization. The island administration under the direction of Governor Rexford Tugwell and local leader Luis Muñoz Marín began to promote increased economic growth led by export industrialization. To achieve this, strategies were developed to increase the inflow of US capital geared toward an increase in activity in the export sectors of the economy (Arroyo 1986).
In 1947, an industrialization program, known as "Operation Bootstrap" was launched. It was to provide the means to reduce unemployment and, to improve the quality of life of inhabitants of the island. The program's first task was to attract US capital investments to spark growth. Through the creation of many boards and agencies, the new administration started to create an appropriate atmosphere to attract those capital investments. It also developed the capability to monitor economic trends and to play an instrumental role in expediting growth.
Because Operation Bootstrap was founded on a series of incentives to attract US capital investments, the process is known as "industrialization by invitation" (Heine 1983). This aphorism describes the practice of providing full or partial Federal, state, and local tax exemption to capital investments. These incentives included long-term government loans, the availability of cheap labor, government-provided infrastructure, and technical assistance. The first years of this period were characterized by the establishment of labor-intensive, environmentally "clean," light industries and the promotion of export-led industrialization mainly on the garment sector.
During this time, the government embarked on programs that shifted the orientation of the economy from agriculture based to export-oriented manufacturing industry. Promotion and development of manufacturing industries took precedence over all other programs and absorbed the bulk of government resources (López-Pumarejo 1978). Although not very different from the export-oriented patterns followed by pre-1950s agriculture, the structure of the economy and its openness to US markets promoted the dislocation of local production and supply (Dietz 1986).
Nieves-Falcón (1985), argues that on this period, the diversified nature of PR's economy disappeared. Consequently, it began to serve as an extended consumer market for excess goods from the United States. Critics of the PR development scheme allege that it was during this time when the dependent mode of development was institutionalized.4
During the first 20 years of intensive economic growth,
policies induced a shift in the type of productive activities and resulted
on diminishing share of agriculture to the island's net income and employment.
Table 2.1 presents the pattern of change in the major economic sectors
for selected years. In 1950, agriculture was responsible for 17.5 percent
of GNP, and 35.9 percent of total employment. This already represented
a change from 44% of employment in 1940. GNP by industrial manufacturing
activities was 15.9 percent of total in 1950.
TABLE 2.1 GNP BY SECTORS FOR SELECTED YEARS
BETWEEN 1950 AND 1987
|Agriculture||132.1 17.5||160.9 3.4||402.3 2.4|
|Manufacturing||119.7 15.9||1190. 25.4||9532. 56.0|
|Services||44.7 5.9||512.2 10.9||2178. 12.8|
|Constructionb||30.4 4.0||379.1 8.1||408.6 2.4|
|Transportationc||61.2 8.1||439.3 9.4||1877. 11.0|
|Financed||74.5 9.9||613.8 13.1||3011. 17.7|
|Trade||144.3 19.1||898.3 19.2||3464. 20.3|
|Government||75.1 10.0||609.9 13.0||2678. 15.7|
|Externale||30.6 4.1||-347. (7.4)||-6677. (39.2)|
Sources: PRPB 1988b, PRPB 1988a, PRPB 1980
a Net income in million dollars
b Includes mining
c Includes other public utilities
d Includes insurance and real estate
e This is the difference between income from external sources and income generated on the island but paid to external recipients as in payments of profits, interest, and dividends. A negative figure represents an outflow.
By 1960, these percentages declined in agriculture to 9.8 and 22.8 respectively, by 1980 to 3.6 and 5.3, and even further to 2.4 and 4.4 in 1987. On the other hand, manufacturing amounted to 56 percent of the total in 1987. Despite the growth in GNP, employment in manufacturing increased only from 11 to 18.2 percent (PRPB 1980; PRPB 1988a).
Agriculture popularly became a symbol of obsolescence and outdated practices, the antithesis of progress and modernization. While other recently created government agencies, like the Economic Development Administration and the Planning Board, established to design and shape the development process, grew, the Agricultural Development Company created in 1945 never played a prominent role in the development program and disappeared in 1947.
This transformation from an agricultural- to a manufacturing-based economy was an important cause for the migration from rural areas to city slums and to the US Northeastern metropolises in the 1940s, and 1950s. Because of the impossibility of displaced farm workers to find employment in the urban centers, around 581,000 Puerto Ricans migrated to the United States between 1940 and 1960 (de Galiñanes 1977). This migration was expedited by the granting of US citizenship to Puerto Ricans by the Congress with the Jones Act of 1917. To many, some under conditions of extreme poverty, emigration offered new opportunities and challenges. It has also been considered a release valve to social pressures that otherwise could have led to social revolt (Nieves-Falcón 1985).
In the first 20 years of planned industrialization and economic growth PR's government did significant improvements in aggregated indicators of standard of living and equity. Systematic efforts of the public sector, particularly in the urban areas, provided basic services that had been lacking or not extensively available. Progress was made particularly in public health, education, public housing, and infrastructure. Massive infrastructure and housing construction projects were evident during the 1950s and 1960s.
The Petrochemical Refining Era
By the mid-1960s, the Federal government mandated increases in PR's minimum wage. This decreased the labor cost advantage of PR over other developing countries. Structural changes in the world economy also weakened the advantageous position of the island relative to other Latin American and Asian countries (Heine 1983).5 Countries such as Hong Kong, Korea, Taiwan, and the Philippines attracted labor-intensive operations. Divestment of US capital began to occur transforming government spending in the mid-1960s in the prime source of economic growth. This shift led to a heavier dependence on Federal funds.
The local administration changed its main target from labor-intensive to energy- and capital-intensive types of manufacturing. A promotional policy was designed to attract heavy industries. Some of these such as: petroleum refineries, chemical, pharmaceutical and electronics producers are highly pollutant. In theory, the establishment of refineries would provide raw materials and create the basis for the expansion of other industrial operations or "downstream" activities (Isard 1975). These included, among others, plastic manufacturing and related products, and fertilizers. Of these, only the production of fertilizers was oriented mainly to satisfaction of local markets. In 1966, the first large scale oil refining complex was inaugurated. This was expedited by the availability of cheap oil from Venezuela and United States, and the island's strategic geographical location.
The location on the island of petrochemical refining was expected to diversify manufacturing operations. Downstream operations were to provide employment opportunities even when the primary activity, oil refining, was not a labor-intensive one. Also, many of the relatively few employees required by the primary activity were skilled technicians that were brought from United States, while educational programs developed to satisfy the demand with local personnel (Isard 1975).
In this period, greater attention was placed also on the public sector as a creator of employment opportunities. It expanded its employment-generating function to prevent increases in the already-high unemployment rate. The public sector employed more labor than did the manufacturing sector during the 1970's and after.
High economic growth rates were achieved, and in
1969-70, unemployment reached its lowest point of 10.3 percent. New jobs
in manufacturing and associated services, however, could not keep up with
the reductions in employment in agriculture and home needlework. Unemployment
remained high despite the increased migration to the United States.
Federal expenditures in PR in the form of individual transfers, grants to municipalities, and state government and other disbursements began to increase rapidly, escalating from $839.1 million in 1970 to nearly $5.4 billion in fiscal year 1987 (PRPB 1988a). More than fifty percent of that still goes to families for nutritional assistance.
Because of the dependence on oil imports and the export orientation of the economy, the energy crisis of the 1970s and the resulting increase in oil prices had a particularly negative impact on PR's economy. The total dependence on the US market and the slowdown in the US economy resulted in a reduction in economic activity in PR and a decline in GNP for the first time in 30 years. This induced the Puerto Rican government to intensify its efforts to attract US capital investment.
The Economic and Environmental Crisis, Mid-1970s-90s
The third period of the last 50 years of PR's economic
development is characterized by several analysts (Dietz 1983; Heine 1983;
Weisskoff 1985) as a time of crisis for the development model. In this
period (1970s-90s), PR's economy registered for the first time since the
forties negative GNP growth rates because of the high dependency on oil
exports, the price increases caused by the oil shocks of the 1970s and
the consequent slowdown of the world economic activity. The trend observed
in the second half of the 1960s toward an increase in the capital and energy
dependence of the island's economy intensified in the 1970s and 1980s (Figure
FIGURE 2.1 CHANGE IN ENERGY CONSUMPTION 1968-88
Source: Energy Office of Puerto Rico (1984)
Promotion of manufacturing industries continued as the main foundation of PR's development program. Although some oil refineries established during the 1960s and 70s closed down. The manufacturing of chemical products, pharmaceuticals, electronics, and medical machinery, increased significantly. Chemical products manufacturing, including pharmaceutical, increased threefold. Because of that change in the structure of the manufacturing sector, involving a shift to capital intensive operations, unemployment more than doubled from 10.3 percent in 1970 to 23 percent in 1983, according to official figures (PRPB 1988b).
The promotion of pharmaceutical, chemical, and electronic products manufacturing in PR can be understood as a function of many factors, including the difference in wages between the island and US, changes in federal and local tax legislation, and other incentives.6 These incentives expedited a transition from light manufacturing to the capital-intensive type of heavy manufacturing that had dominated the economy for the last 30 years.
At the same time that PR's government offered valuable incentives to attract capital investments, new environmental laws and regulations at the federal level (in the US) intensified and were more stringently enforced. This provoked an exodus of capital investments in the more polluting sectors of manufacturing. Even though PR had to adopt the environmental protection model instituted in the United States in the 1970s, local governments often did not enforce it because of economic constraints. Evidence of the laxity of the Puerto Rican government toward enforcement of environmental regulations was their petition in 1975 to the US Congress for an exemption of Federal environmental regulations to maintain its industrial base (López-Montañez et al. 1986). US federal environmental regulations and standards were always stronger than the island's.
Pollution control capital expenditures have increased
since the 1970s.7 These increases
in pollution control expenditures were an important (but not sole) factor
in attracting manufacturing operations to PR after the 1970s. This became
particularly significant after the mid-1970s when PR's government was facing
the challenge of increases in the rate of unemployment and decreases in
the annual rate of change in GNP after 30 years of continuous growth. Local
government bodies avoided enforcing environmental laws and regulations.
This, however, does not negate the significance of tax exemptions and other
incentives offered indiscriminately to manufacturing activities.
DEVELOPMENT AND PATTERNS OF SOCIOECONOMIC CHANGE
The objective of PR's development strategies in the fifties was to industrialize through diversification, placing special weight on export sectors. The government had already attracted some factories, mainly labor-intensive garment manufacturing operations. The government sought to expand manufacturing operations to avoid the instability and vulnerability that a one-industry economy is subjected to. Such diversification, however, was not geared to local consumption needs but was export-oriented, based on external market demands and the availability of foreign funds. In this process, the diversity, ingenuity, and self-sufficiency of the traditional local economy eroded. It also had an impact on the physical base on which future development would depend. These changes had a direct influence on the lifestyle and the ideology of the population.
The first decades of PR path to industrialization are characteristic of the take-off stage of economic development for developing economies (Isard 1975; Dietz 1986).8 In the fifties and sixties, regional development policy sought to spark a take-off through a basic industry. Petroleum refining activities sparked an economic growth machine. This main pole of the economic development process was foreign to the island's economic history, natural characteristics, and its people's cultural baggage and priorities. In this context no major, effective effort was designed to integrate the new structure with local needs and idiosyncrasies, thus resulting in what Dietz (1986) calls an inappropriate and fragmented structure of production. The consequence is a system that produces what it does not consume and consumes what it does not produce so it imports a significant amount of consumer goods, including those required to satisfy basic needs.
The criteria that guided the industrialization process in PR emphasized external markets. It involved large capital investments that increased dependency on US private businesses. These industrial activities had to operate at greater profit on the island than on the mainland.
A sophisticated cost-benefit analysis performed by Isard and his associates served as a base for attracting multinational capital investors to the island (Isard 1975). The methodology used by the Economic Development Administration to analyze PR's options for attracting foreign investments, as described by Isard (1975), did not considered physical or social impacts nor did it integrated the availability of native resources besides that of cheap needlework labor. They assumed that there were no indigenous natural resources worth using. The result of such omissions was a totally dislocated industrialization pattern foreign to the basic cultural needs and values of the society. Puerto Rico's development programs was structured within narrow economic growth schemes and relied on market mechanisms and the initiatives of investing firms rather than on an integrated and comprehensive long-term strategy designed to satisfy the needs of the people in the future. This dislocation of economic and cultural realities caused, according to Nieves-Falcón (1986), a socio-pathological condition expressed in feelings of instability and inadequacy.
The absence of normative planning characterizes Puerto Rico's industrialization strategies and growth patterns. Development planning relied on the hypothesis that growth would result in a trickle down process that would benefit all aspects of society. Puerto Rico is not an exception of the pattern of underdeveloped areas that suffered economic transformation, from following the standards of industrialized models.
Dietz (1983), among others, questions the validity of the "trickle down" hypothesis in PR's development and the evidence presented by the persistently high unemployment, dependence on federal transfers, grants and the growing expatriation of profits, evidenced by the growing divergence between GNP and GDP (Table 2.2).
TABLE 2.2 DIVERGENCE BETWEEN GNP AND GDP, 1950-88
||755 724||-31 --c||
||1,676 1,692||16 .95||
||4,687 5,035||348 7.4||
||7,556 8,996||1,440 19.1||
||8,994 11,172||2,178 24.2||
||11,074 14,480||3,406 30.8||
||12,627 16,415||3,788 30.0||
||14,010 18,622||4,612 32.9||
||15,829 21,270||5,441 34.4||
||18,631 25,567||6,936 37.2||
Sources: PRPB 1988a, PRPB 1980, PRPB 1988a
a In million dollars at current prices
b When positive it reflects that income created in PR was paid to external recipients primarily as profits, interests, and dividends
c Not available
The divergence between GDP and GNP is related to the changes observed in Puerto Rico in the last 40 years in the structure of the economy and represents a significant factor when evaluating the impact on environmental quality and resource use of production. This is particularly relevant due to PR's manufacturing sector structure, its geographic and demographic characteristics. Before 1963, the total income received on the island was greater than the outflow of funds. Since then, particularly after 1980, GDP increased at a more rapid rate than GNP because of profit and interest payments on foreign capital investments. The expatriation of profits induced by the high dependence on capital intensive and externally-owned firms is exacerbated by the lack of linkages to the rest of the economy (Dietz 1983). The absolute difference in GNP and GDP numbers does not reflect the real flow of profits due to federal transfers (Table 2.2). Dietz (1986) argues that federal transfers hide the flow of profits when comparing the differences between GNP and GDP. Indeed, these transfers, exempt from federal taxes, have function as subsidies to private US capital investments (Costas-Elena 1989; Campos et al. 1982). Dietz (1986) uses this relationship, to describe the dislocation of production and consumption activities.
Unemployment was a persistent problem even in the economic boom years of the mid- and late 1960s (Figures 2.2 and 2.3). According to official figures it dropped to around 10 percent in 1969 but increased again to 20 percent by the end of the 1970s to reach the highest level (24 percent) in 1982-83 (PRPB 1988a). Dietz (1983) suggests that the real rate of unemployment is higher because of underemployment and an undetermined number of discouraged workers.
The persistently high unemployment rate reflects the failure of development strategies to satisfy one of their basic goals. The shift of manufacturing from a labor-intensive, low-skilled sector, to a capital-intensive high-skilled one, and the limited intersectorial activity, have both aggravated the unemployment situation. This shift also had an undesirable impact on the social structure because these industrial operations and related services hired few workers at higher salaries than the average.
The tendency observed in the 1960s toward increasing concentration of income in the upper-income groups was reversed after the 1970s due to subsidies and welfare programs that increased significantly. Weisskoff (1986) points out that the tendency toward income concentration observed in the 1960s is still observed when these subsidies, which represent the bulk of the poor's income, are subtracted.
Since low wages were an essential part of the group of incentives that the PR government offered to prospective investors, wage increases caused by factors such as the demand of a skilled workforce and the application of the minimum wage by federal mandate were critical in shifting the manufacturing sector from labor-intensive to capital and energy intensive.
FIGURE 2.2 EMPLOYMENT BY MAIN SECTORS 1940-88
Source: PRPB 1988a; PRPB 1988b.
FIGURE 2.3 PARTICIPATION RATES AND UNEMPLOYMENT,
Source: PRPB 1988a; PRPB 1988b
In the 1950s a large number of factories located in the San Juan metropolitan area and other urban areas. Many people moved from the rural to urban zones looking for jobs, social improvements, and new opportunities expected from modernization. Agriculture suffered a rapid decay. This situation resulted in larger discrepancies in income and social welfare opportunities between the rural and urban areas. The imbalance in the distribution of the urban-rural population induced the administration to make efforts to attract new industrial plants to small towns.
Poverty and Inequality
Nieves-Falcón (1985), reports that in the early 1980s, 60 percent of the population in PR had incomes below the poverty level. About 63 percent of poor families' income originates from US federal government transfer payments. Around 70 percent of Puerto Rican families are eligible to participate in food assistance programs, compared to the average 6 percent of families in the Continental United States. Actual poverty must be even higher since the cost of living on the island is higher than the average in the United States.
The underlying causes of poverty are the unequal distribution of income and the persistently high unemployment rate. The distributional gap worsened with industrialization due to the declining level of employment available. The illiteracy rate is around 11 percent, compared to 2 percent on the continental United States.
Quality of Life
A significant successful feature of the PR model of development was the improvement in some aspects that enhance the quality of life (according to western values and morals). There were real improvements in public services, especially medical and educational. There were also significant changes in the availability of appropriate housing.
Heine (1983) highlights efforts in public health
that were the most successful in improving living conditions. In the 1940s
health conditions of the population were poor, and there were a large variety
of major infectious diseases. These were eradicated, in large part,
and life expectancy, 46 years in 1946, increased to 74 years by 1970. Infant
mortality decreased from 11 percent in 1940 to 1.5 percent in 1985 (PRPB
Lifestyles and Consumption Rates
A major socioeconomic problem in PR is the high rate
of consumption of imported goods. What used to be a subsistence economy
at the beginning of the century and a capitalist agricultural economy by
the 1940s, became a capitalist export-oriented industrial economy by the
1960s. The change in lifestyle that resulted from economic development
and modernization in PR, brought an increase in demand for types of services
and goods that needed to be imported. In 1980 the island imported 80 percent
of its local food consumption. Total imports reached $11.8 billions in
1988, of which approximately 35 percent was for consumer goods (PRPB 1988a)
(Table 2.3). That is approximately $1,215 per capita for imported consumer
goods in a country with a net per capita income of $4,600.
TABLE 2.3 COEFFICIENTS OF IMPORT AND EXPORT
Source: Dietz 1986:271
a Ratio of value of merchandise imports to GDP
b Ratio of value of merchandise exports to GDP
Other signs of the cultural and social implications of rapid economic growth permeate Puerto Rican daily life. Some that have a more direct environmental impact are: uncontrolled urban sprawl, increase commercialization, rapid increase in the use of automobiles, traffic congestion, a huge solid waste stream, among others. Some of these will be considered in the next section.
Feelings of economic vulnerability and dependency
result from the dependency on transfer payments as a major source of personal
income for the Puerto Rican population. These feelings arise from the fear
that a significant part of these funds could be withdrawn any time. This
situation has played an important role in local politics, particularly
after 1971 when the Food Stamp Act of 1964 was amended to include Guam,
Puerto Rico, and the Virgin Islands as beneficiaries.
DEVELOPMENT AND PATTERNS OF ENVIRONMENTAL DEGRADATION
The economic development strategies followed in PR relate in many ways to the patterns of environmental degradation. Early institutionalization of physical and economic planning was not effective in integrating environmental concerns with economic development planning due to the conflict with the growth objective.
The high costs of pollution abatement in already developed regions compared to the lower cost in the more lenient political conditions, together with other factors, helped PR and other underdeveloped areas attract the more contaminating phases of industrial production. In PR, this was eased by the political and economic structure. However, in the process these ignored the high costs and consequences of environmental degradation. In the following section I identify and describe some relationships and interactions between the socio-economic structure, resource base, and pollution problems on the island.
The economic development strategies in PR were based on the assumption that the island had no natural resources on which it could structure an economic development program. Isard, evaluating outcomes of the first 20 years of the development programs, describes this in retrospective (Isard 1975). Characterizing the case of PR as an example of regional science in practice, he describes the dilemma faced by his group during the design of a strategy to spark basic industrialization: "In short, there were no resources --land, mineral, venture capital, labor-- except for the cheap needlework labor. It was in this discouraging context that we began our work some 25 years ago" (Isard 1975).
In contrast with the main objective of the development
program --to achieve development through industrialization-- was
this doomed scenario. In his retrospective evaluation, Isard points out
that then (1950s) the pollution-absorption capacity of the environment
was considered "almost infinite, way beyond the foreseeable reach
of man" (Isard 1975).
The perception of the region as scarce in resources promoted the structuring of an export manufacturing sector, that is basically a "point of production," where value is added to imported raw materials to end up with an export product. This resulted in export-oriented manufacturing operations largely unconnected to other local firms or industries.9 Export manufacturing in PR are production or assembly plants disconnected to other phases of local economic activity.
High import dependence increased as a result of the demand for raw materials and fossil fuel-derived energy. Since productive forces focused on the export-oriented operations, a high dependence on imports to satisfy the demand for consumer goods developed. Dependence on food imports can be attributed partially to the industrialization strategy and to the marginalization and external production orientation of the island's agriculture.
Deterioration of the environment, natural and cultural,
serves as evidence that environmental quality, natural resource base, and
conservation were not decision factors in the design of PR's development
programs. Some patterns of environmental degradation evolved either as
indirect results of the structure of the economy or as direct consequence
of industrialization strategies.
The way that the Puerto Rican economy is structure is diagrammed conceptually in Figure 2.4.
FIGURE 2.4 SIMPLE DIAGRAMMATIC REPRESENTATION OF PUERTO RICO'S ECONOMIC STRUCTURE
The intensity of economic activity in PR related directly to the structure of the system. Externally focused manufacturing demands importation of raw materials and semi-finished goods to which value is added for export. These processes required vast imports of capital and technology, mainly from the United States, together with very high rates of energy use.
As an island-region dependent on imports for raw materials and consumption goods, with an intensive export-oriented manufacturing industrial structure and high fossil fuel energy consumption, PR has a major waste stream. The waste stream is determined by the type and quantity of raw materials imported and the energy consumed.
Since it was assumed that there were no significant
natural resources, the manufacturing sector grew dependent on imports of
raw materials including energy. Industrial development was financed with
foreign capital investments. A significant part of the profits generated
by the productive sectors do not stay on the island. This is evidenced
by the discrepancy between GNP and GDP. Local share of profits is small,
and due to the manufacturing sector shift toward energy and capital intensiveness
after the 1970s, impact on the PR economy is dependent on reinvestments
and increase in the density of economic activity (Table 2.4). Yet, due
to the island's size, growth in economic activity should be carefully evaluated
as a function of its impact.
TABLE 2.4 TOTAL AND NET CONTRIBUTION TO
GNP FROM MANUFACTURING, 1950-82
|Total Contribution of Manufacturing to GNPa||
|Profits and Dividends Paid to Nonresidentsa||
|Percent of Manufacturing GNP Paid to Nonresidents||
|Net Contribution to GNPa||
|Percentage of net contribution to GNP||
Source: Dietz 1986:257
a in million dollars
Another category of environmental impacts related to the change in structure of the economy is the shift in land use patterns. Lack of effective planning resulted in the use of most of the best agricultural land for urban, commercial, and industrial development. Approximately 100,000 acres of agricultural land (near 5 percent of total land area) were transformed to urban, commercial and industrial uses, diminishing the island's capacity to feed its population in the future.10
Because of agglomeration economics manufacturing activities concentrated in urban areas, located mostly on the coastal plains. Migration from rural areas, due to the marginalization of agriculture and the incentives of modernization, caused a tremendous increase in residential developments on these coastal plains. Around one-third of the population of the island lives in the metropolitan area of San Juan, and 60 percent in all urban areas. Large expanses of wetlands, around 75 percent of the original area, were filled to meet the demand of low-cost land for residential, industrial, and commercial use. This pattern of change in land use had a permanent effect on the island's potential food productive capacity. Fertile land with agricultural potential as well as rich estuaries and wetlands, continue to be replaced by residential and other types of permanent development.
These large residential projects increased housing
availability. However, because of poor planning, they have created problems
such as flooding in urban areas, erosion, traffic jams, and pollution related-health
Industrialization Strategy -- Environmental Exemption as an Incentive
Evidence of environmental disruption caused by export-oriented industrialization lead some critics to argue that environmental exemption must have been granted along with the package of incentives and tax exemptions offered by the PR government to attract capital investments. In 1974, the PR government solicited an exemption from federal environmental laws and regulations from the US Congress (López-Montañez et al. 1986).11
Among the incentives and services offered, there were some designed to avoid environmental protection-related requirements and costs. These included: softening environmental regulatory standards, assistance with procedural requirements, assistance in the preparation of the required environmental impact statements (EIS), pollution abatement cost financing, and waste treatment infrastructure. In some cases infrastructure, such as wastewater treatment facilities, was offered to industries as an incentive. In many of these cases it was not available at the time plants were to start operations. To circumvent this situation, manufacturers would receive permits to discharge their effluents as non-point sources directly into streams or the ocean.
One evidence of the neglect of environmental factors by formal planning agencies is the frequent sitting of manufacturing industry in environmentally or socially sensitive places. For example, the area where the Sun Oil Refining Complex in Yabucoa was constructed (a zone that was classified as recreational) was reclassified industrial without review. The decision did not follow previous Planning Board recommendations not to build on the site because of the hazards it represented to the nearest town population, and to the ecology of the surrounding areas (Parrilla 1977).
Three decades of incentives attracted a large number of manufacturing activities with high polluting potential and low labor demands. Their distribution on the island responded to conditions for production and transportation costs advantage. Locational patterns of industrial development left clusters of contaminated sites that have recently been identified (Capó 1990; Villafañe 1990) (Figure 2.5).
FIGURE 2.5 POLLUTION CLUSTERING INDICATED
BY SUPERFUND NATIONAL PRIORITY LIST SITES AND CANDIDATES
* Indicates Superfund Site
. Indicates Potential Superfund Site
The contaminated clusters on the island correlate to the distribution of manufacturing activities, and they also relate to the lack of infrastructure for the treatment and disposal of wastes. The package of industrialization incentives offered by the PR government provided some infrastructure (buildings, roads, telephones, water, and power). However, facilities to dispose of hazardous waste were not always included on time. Pressure by Federal environmental agencies is forcing local governments to provide infrastructure for waste treatment when accepting industrial waste. Yet, the local capacity for treating waste is insufficient and ineffective, as reflected in recent Environmental Protection Agency (EPA) actions.
The government of PR has been negligent in developing infrastructure for the treatment of wastewater and sewage effluents to keep pace with industrial development and residential growth. The latest Federal monitoring (August 1990) of the island's sewage treatment plants show this. Of 52 plants inspected, only 23 passed inspection with satisfactory or marginally satisfactory ratings. Since 1985, the Aqueduct and Sewer Authority, a government owned-corporation, was fined $2.9 millions for violating a US district court order to comply with the Clean Water Act (Capó 1990).
Because of the lack of infrastructure to deal with industrial and commercial waste generated, and of effective mechanisms to enforce laws and regulations, land and water resources have been polluted extensively throughout the island. The problems created by the disposal and land treatment of wastes by industry, the bad location of landfills, and the lack of planning to protect water resources has caused the closing of public water supply wells and the high number of Superfund sites. By July 1990 there were 191 sites listed as potential candidates for the Superfund National Priority List under the Comprehensive Environmental Response, Compensation, and Liability Act (EPA 1990). Nine sites have been included as Superfund National Priority Sites. Of the 191 sites identified by name, 68 are landfills or solid disposal sites managed by municipalities, 58 are manufacturing operations, and 10 are military installations.
Concern about the critical problem of solid waste led to the creation of the Authority for the Management of Solid Waste in 1970. It was not until the end of the 1980s that this Authority took an active role in the planning and management of the solid waste generation and disposal systems.
Landfills and solid waste disposal sites receive
sludge from industrial and water treatment plants. This aggravates the
already-critical problem of inappropriate locations and bad design of landfill
systems. Santos Rohena (cited by de la Torre 1989), president of the Environmental
Quality Board (EQB), declared that out of 68 municipal landfills "we've
found only 2 that are working fine. Another six to nine are operating sort
of OK. The others are a complete disaster." Most of the landfills with
problems are located close to groundwater or surface water sources. These
represents 89 percent of the landfills serving the island. In seven years
between 1982 and 1989, 28 contaminated wells --about 9 percent of PR's
public wells-- were closed by the Health Department, according to EPA officials
in San Juan (See Appendix I).
Institutional Framework and the Environment
Dietz, in his book on the economic history of Puerto Rico, (1986), argues that new perspectives on development recognize the need for state intervention and planning. Formal planning, on the island, manifested as a short term objective, and narrowly focused activity serving principally economic growth and outside interests. It was responsive to the objective of rapid economic growth through industrialization, playing the instrumental role described by Albretch (1985) as characteristic of the last few decades of institutional planning.
Puerto Rico's government was not effective in integrating environmental protection into the development agenda. This circumstance is not unique to the island, because economic growth and reactive planning have dominated most aspects of social life in Western societies particularly in the last two centuries (Nieves-Falcón 1985). Industry received concessions as an incentive to reduce unemployment, as exemplified by many cases involving Sun Oil, Monsanto, and DuPont (Parrilla 1977; Díaz 1980).
Concessions involved permits for the disposal of
wastewater to the sea, land or water bodies without treatment.
Under pressure of Federal legislation (López-Pumarejo 1978), environmental, and natural resource management and protection were institutionalized in one state department and one board, within the Governor's Office. During the 1970s the government created the Natural Resources Department and the Environmental Quality Board.
The Puerto Rico Planning Board, created in 1942 followed the new regional model established by the Tennessee Valley Authority. The Planning Board, however, never played the role of a predictive or corrective mechanism. From the beginning it operated under the umbrella of the governmental Economic Development Administration, "Fomento" (Mayda 1968). Fomento followed the ideology of economic growth and industrialization as progress, and imposed that ideology on the rest of government processes.12 The Planning Board was instrumental in achieving Fomento's objectives.
López-Pumarejo (1978) argues that the opening of the Puerto Rican economy to foreign investment marked the transfer of the planning function from the Planning Board to the Economic Development Administration and the subsequent fragmentation of that function among several agencies responding to specific projects. The Planning Board neglected the fundamental roles for which it was created.
Thus, government and Fomento's development policy limited PRPB in its performance through the emphasis on economic objectives. In 1968, Mayda alleged that the position of the Planning Board in relation to the Economic Development Administration in the scheme of decision making supported the overpowering predominance of the economic developers. This situation transformed formal planning into an instrument for the institutions in charge of promoting growth.
Trying to define the need to protect the island's natural resources, Mayda makes an analogy between the Economic Development Administration and the development of the Commonwealth:
The restoration and preventive maintenance of our resource complex is the single biggest job of the government as a whole. It requires not some limited legislation and programs, but a new dimension in policy making, planning and administration, in short a change in style comparable at least in quantity to the creation of the Fomento and the Commonwealth (Mayda 1968).In the 1970s the government created the Department of Natural Resources and the Environmental Quality Board with a direct mandate to protect the environment and resources. The Environmental Quality Board (EQB), a state environmental agency, was created as a normative organization to coordinate, regulate, and plan. It is the PR's environmental regulatory and enforcement agency. The Department of Natural Resources (DNR) plays a similar role with respect to natural resources. These agencies are, however, generally perceived as being more sympathetic to companies compliance problems than the EPA (López-Montañez et al. 1986).
Santiago (1987) studied the impact of foreign investment
on the export structure in PR. He found that higher profits, the main reason
for US-based firms on the island, result from a combination of several
factors, not only cheaper labor, as commonly believed. Although he did
not include in his analysis the cost of complying (or not) with environmental
regulations, it seems reasonable to assume that lower cost commitment to
pollution abatement would result in increased profits. The impact of pollution
abatement on production cost is hard to define with the available data,
but an indication is given by the following facts.
In a survey developed by the National Wildlife Federation in 1979, PR ranked 47th of the 54 US States and territories, for programs to manage toxic waste. The report considered this alarming since the island is home to many chemical and pharmaceutical companies. Langdon (1987) reports that there are 84 pharmaceutical plants in PR, which produce 7 percent of the pharmaceuticals consumed in the world.
In 1980, the PR government faced the need for a new
development model that would reduce its vulnerability to exogenous forces
and enable it to make better use of its human and natural resources while
protecting its resource base and environmental quality. Yet, recessionary
periods, high unemployment and increased dependence on Federal welfare
programs combined to divert PR's government from enforcing environmental
regulations. The political pressures that arise from the chronic unemployment
reinforce the trend away from environmental concerns.13
Capital and Energy Substitution
Puerto Rico's government strategies for industrial development exhibited, in the last 20 years, a tendency to attract capital- and energy- intensive operations. This pattern demanded new technologies financed with foreign capital investments. Although the economy of the island benefited from these investments, they have not been effective in reducing chronic unemployment (24 percent in 1983, 16.8 percent in 1990), the original objective of the industrial development project. In addition this development model ignored the environmental and social costs of the process on an island with a labor surplus, a high population density, fossil fuel and other mineral shortages of vital scarce resources such as land and water. Failure to reduce unemployment was in part a result of the limitations on substitution caused by an unbalanced industrial structure.14 The development of this type of unbalanced industrial structure is becoming common in developing countries. In some cases there are few linkages to the local economies, particularly in countries where population size or the standard of living cannot allow for a profitable market to develop. Thus, these regions become increasingly dependent on imported petroleum and derivatives (Alameda and Mann 1984) and sometimes irreversibly sacrifice their natural productive capacity and the health of their citizens. In PR, imported fossil fuels supply 95 percent of its domestic energy demand.
Santiago (1987) describes, with the help of empirical evidence, the nature of foreign capital investments' impact on the export structure and employment generation on the island. He uses in his analysis three digit SIC (Standard Industrial Code) industries in PR in 1979. The export sector consists mainly of US-based firms. Use of labor on the island, according to his analysis, lags behind that of comparable countries due to the capital-intensive nature of its principal exports. Santiago's findings suggests that the size and structure of the PR's export sector is determined in large part by foreign direct investment and therefore influenced by those variables that affect foreign investment decisions.
In the same way that macroindicators serve to show economic change, environmental macroindicators can be used in development analysis. Sánchez-Cardona et al. (1975), and Morales (1989), suggested energy-density measurement as a macroindicator of the impact of economic growth on PR's environmental and human health (Table 2.5).
TABLE 2.5 ENERGY USE DENSITY IN THE 12 COUNTRIES
OF HIGHER ENERGY USE DENSITY AND THE UNITED STATES IN 1986
|Rep of Korea||
|Dem. Rep. Korea||
Source: Morales 1989:20
a Energy in metric ton equivalent of carbon by sq km of active land.
Morales does a comparative analysis of energy densities
for 13 countries including Puerto Rico. The energy use density describes
the relationship between pollution hazards because most of the population
lives on land actively used, where most of the energy is consumed. According
to Morales (1989), energy density is a better indicator of the impact of
energy consumption than energy per capita since it offers an idea of the
potential distribution of the used energy through the land.
PUERTO RICO AS A CASE STUDY
The island of Puerto Rico can be considered an independent natural resource and planning unit. It is a region open to trade, subject to in- and out- migration, culturally homogeneous, and reliant on decisions and events taking place both within and outside of its geographical borders. Although it is closely linked politically and economically to the United States, physical boundaries offer the opportunity to illustrate and evaluate the close interdependence between the natural environment and the human resources within a defined and functional socio-environmental system. Though its economy is closely linked to that of the US, it functions as an economic unit. It is highly dependent on imports to satisfy consumption demands, also capital investments15 and energy. Puerto Rico is heavily influenced by the industrialized countries' modernization patterns, particularly in technology, production systems, education, consumption patterns, and lifestyles.
Rapid industrialization and economic growth, makes it a valuable case for evaluating potential for sustainability of development, not only with respect to environmental and economic aspects but also to social, and cultural dimensions of the system. The assessment and better understanding of PR's pattern of development improves our understanding of the process in other developing countries, particularly in the Caribbean, under comparable conditions.16
Social and environmental trade-offs came with economic change. There is conflict within the objective of development that is economically successful but destructive environmentally, particularly in countries that are trying to satisfy basic needs. Puerto Rico's development programs were not successful in creating mechanisms to protect its environmental and natural resource base and the social and cultural fiber. This failure is a result of the nonrecognition of these resources and the neglect of the previously existing local economies.
Besides other social and economic considerations, the political agenda presents the challenge of protecting the remaining environment and resources to sustain social and economic activities. Effective assessment of environmental impacts of industrialization and economic processes is necessary. To face this challenge significant philosophical and structural changes must be built into the development programs.
Puerto Rico's development has been studied and showcased in the Caribbean and the developing world as a model of modernization and progress. Its analysis as a case study is relevant, not only to the island but to other regions that followed similar development programs. It is especially relevant to other countries in the Caribbean that participate in the CBI Plans. CBI's explicit objective is to promote development in the Caribbean through the attraction of foreign capital for export-oriented manufacturing production based on cost incentives. These manufacturing operations depend on energy, raw and intermediary material imports. In this context, PR becomes an intermediary between the metropolis and the periphery. Puerto Rico's experience can be used to evaluate potential impacts of this kind of development on these countries.
The next chapter is a systematic description of the role of environmental factors as limits to the sustainable development and carrying capacity of the region. The analysis focus on the relationships between population and labor; environmental factors represented in the dynamics of land use and change, energy use and demand, and waste generation.
2 Dietz (1986) argues that the CBI reproduces some of the characteristics of the PR development model that can result in an inappropriate and locally disjointed structure of production. "The CBI, enacted by Congress in 1983, encourages other Caribbean nations to emulate the Puerto Rican strategy....judging from what has happened in PR since 1947, what is most likely to happen is an increase in the structural dependence of the countries involved on the US and on external investment and a movement away from an internal growth dynamic" (p.309).
3 Weisskoff (1985) describes the Puerto Rican economy as open to imports and exports and dependent on flows of foreign capital, government aid, and intangibles such as technology, consumption styles, and wage levels.
4 Dietz (1986) describes the development process in Puerto Rico as "dependent, conditional and externally articulated." He alleges that the system's vitality resides in forces largely outside the power of the island to affect. "Economic crisis as well as economic progress can only be passively accepted" (p.281).
5 Heine (1983) mentions, for example the Kennedy Round that cut US tariffs considerably, making it easier for foreign competitors to break into the US market. This led US manufacturing companies to search for low-labor cost countries from which to export to the United States.
6 Section 936 of the 1976 Federal Tax Reform Act allows subsidiaries of US firms operating in PR and other possessions to remit their profits to the parent corporation at any time without paying federal corporate income taxes. Previously only at the end of the exemption period could US companies repatriate profits tax-free (Dietz 1986).
7 The 12th Annual McGraw Hill Survey of Pollution Control Capital Expenditures estimated costs of $549 millions in 1979. At that time it was estimated thes would increase to $762 millions by 1980. Expenditures increased even more than the estimate because of the more stringent regulations that followed.
8 Rostow's phases of economic development included a take-off phase in which economic growth, perceived as a mechanical and continuous process, would start (Rostow 1960).
9 The vertical integrated structure of the companies that have located on the island has prevented any substantial growth of domestic linkages with supplying firms (Dietz 1986).
10 This is an estimate based on data for the US Caribbean Islands in the National Resource Inventory of the Soil Conservation Service of the Department of Agriculture, to my knowledge there are no chronological land use data available for the island.
11 In 1974 Governor Hernández
Colón presented the following testimony before an Ad Hoc Committee
in Congress to express the island's opposition to the imposition of the
Federal legislation of the 1970s:
There are numerous Federal statutes which have been enacted by Congress under its Commerce Clause powers and extended to Puerto Rico without an adequate examination as to whether the activities regulated on the Island have more than a minimal impact on the continental United States.
The Federal environmental laws, such
as the Clean Air and the Water Pollution Control Acts, are a good example.
I firmly support the goals of these laws; and the agencies implementing
them are doing a fine job, but in fact, we in Puerto Rico have legislated
in the environmental field almost as extensively as the Federal Government.
I fail to see the substantial impact which the air and water of Puerto
Rico can possibly have on the continental United Sates. The need for Federal
intervention in the states is clear, given the interstate nature of environmental
problems. In Puerto Rico, however, separated from the United States by
a thousand miles of ocean, there is no clear Federal interest in exerting
...I would like to stress, as emphatically as possible, that our request for exclusive jurisdiction in fields such as environmental protection is not based on any desire, on our part, to slacken the attack on pollutants. Within the necessities of continued economic development and the constraints of limited financial and technological resources, we are as committed to the preservation and enhancement of our environment as is the Federal government. The important point is that the redistribution of jurisdiction between the United States and Puerto Rico cannot and should not be based on the abilities of the two jurisdictions to do a particular job. Rather, it should be built on the distribution of power and authority between two political bodies based on agreed-upon principles of association. Once it is determined that a particular area is properly a matter of Commonwealth concern with insubstantial impact in the continental United States, the kind of activity taking place in Puerto Rico should cease to be a matter of concern to the latter jurisdiction (cited by López-Pumarejo 1978).
12 Describing the function of the Planning Agencies in relation to the Economic Development Administration, Mayda said: "It could have but did not act as a balance wheel. In fact it followed the narrow gauge economic track and added its own share to the environmental decadence surrounding us" (Mayda 1968:169).
13 In an interesting research report by Business International Inc. of the problems that manufacturing industries sometimes face when trying to relocate to the island, the Monsanto, DuPont, and the tuna-canning plants on the west of the island were examined. These cases "attracted the most publicity but are far from the exception" (Díaz 1980), and they help to understand the conflict between employment and environment in the PR context.
Monsanto planned a $70 million herbicide
manufacturing facility to be constructed on the southwest part of the island.
Environmental groups opposed the location of the operation and received
support from the mayor of the town. Later, probably under pressure
by the island's government, the mayor approved the location but the plant
was never built. It was going to employ only 88 people, but the temporary
benefits of the employment during the construction time were highly praised
In 1976, the EPA filed a suit against the tuna-canning plants of Del Monte, Star Kist, and Neptune for pouring millions of gallons of waste directly into the Mayaguez Bay. These tuna-canning operations had also failed to follow a timetable set by EPA for the construction of waste treatment plants.
Another example of the conflicting interests in PR industrial development is the DuPont case. In 1975, DuPont opened a $70-million dye plant in Manatí that was to employ around 350 people. The government has, in the negotiations, guaranteed that the company would be able to hook up with a planned municipal water treatment plant to dispose of its waste effluent. Three years later the treatment plant was not yet ready, so the company obtained a permit from the EQB, and the EPA to discharge the wastes directly into the already-polluted Manatí River. DuPont's discharge levels violated EQB standards, which are usually lower than the federal standards. EPA, however, also granted the permit in contravention of federal environmental laws requiring water quality standards to be met before an EPA permit is issued. The PR administration strongly supported the permit issuance as a trade-off between jobs and environment to keep the plant open. Two years later, in 1979, DuPont announced that it would close its operations in Manatí due to a decrease in demand for its products.
14 "Reduced substitution potential may be derived from among others: The adoption of a production function which exhibits low or zero substitutability" (Alameda and Mann 1984). This was partly the result of foreign control of the means of production and the need for a competitive edge to attract foreign investment.
15 Dietz (1986:262) argues that to speak of "foreign" rather than "external" ownership and control in Puerto Rico is a misnomer. Because most of the investments in PR are of US origin and Puerto Ricans are US citizens and PR is a US territory, "these funds are hardly foreign in the usual sense of the term". He asserts, however, that this does not mean "that PR is for questions of capital flows the same as any state in the US and thus that any dichotomy between external and internal financing is meaningless. One of the main differences is that PR does calculate a balance of payments account like independent countries and different from US states.
16 Some characteristics
of the Puerto Rican style of development are common throughout the developing
world. Weisskoff (1985) mentions among these high growth of per capita
income, high consumption levels, import dependence, and heavy reliance
on external borrowing.