CHAPTER THREE

A SYSTEMS APPROACH TO THE DESCRIPTION OF ECONOMIC-ENVIRONMENTAL RELATIONS IN PUERTO RICO

    Literature on sustainable development points to the need to develop indicators for its description (Kuik and Verbruggen 1991). Although there are various interpretations of what sustainable development is, and of the ways to approach it, there is a common awareness of the need for new paradigms and methodologies. Clearly the application of sustainable development principles requires the ability to integrate information and data from different aspects of a system. Sustainability as one objective of development at the national scale, requires the coordination of the system components toward common goals and objectives. Therefore the orchestration of processes at a regional or national level requires the development of mechanisms to describe relationships at a comprehensive scale.

    This chapter introduces a model that I developed to describe  relations between industrialization policies and their social and environmental factors in Puerto Rico. The first part presents a diagrammatic representation of the overall economic-environmental system of PR that emphasizes the components and relations considered of most relevance for this analysis. Next in this chapter is a description of two of these components which I consider major growth-inducing factors in developing economic systems: the manufacturing sector and population growth.

Development of diagrammatic model

    A diagrammatic representation is developed with the objective of presenting the system as an integrated whole. It serves the purpose of describing integrated economic, human and natural relations among components of the system that will be analyzed independently in later parts of this and following chapters.

    In the second section of this chapter, I describe population growth and population related variables such as employment demand. It has the objective of characterizing population as a growth-demanding factor, since it creates a need for basic goods and services and hence generates employment opportunities. I use unemployment as an indicator of the social impact of economic development strategies.

    The last part of this chapter is a description and characterization of some relations for the manufacturing sector. The density of industrial activity in Puerto Rico makes indispensable its characterization and assessment when describing the environmental and impact on natural resources of development strategies.

    The general goal of this chapter is to approach the analysis of the Puerto Rican development case from a system's perspective. This format will serve as basis of analysis in the following chapters. Because their description as growth inducing factors, their demand of environmental services and resources defines a limit that, to some extend, conditions the sustainable character of the Puerto Rican development model.

MODEL STRUCTURE: PUERTO RICO AS AN ECONOMIC-ENVIRONMENTAL SYSTEM

    A region can be described based on the interactions among its major social, economic and environmental components. The objective of approaching a system from this perspective is the description of interactions that help clarify the system's dependence on natural factors for its sustenance. In this section the Puerto Rico region is portrayed as a spatial unit linked to external units through input-output of energy and materials.

    I have characterized the most important components of Puerto Rico's economic-environmental relation at a large scale as state variables and characteristic flows within and out of the system (Figure 3.1). Since Puerto Rico's economy is strongly export oriented in the manufacturing sector, the diagram depicts the system as dependent on imports to satisfy the demand for consumption goods, food, fossil fuels, and raw materials for the major manufacturing activities. The value of shipments exported by the manufacturing sector generates value added and profits on investments. Capital investments come, mostly, from external sources. The export-oriented manufacturing operations do not use local materials and maintains few linkages to other sectors of the local economy except that it uses local labor. The main local benefit derived from export oriented manufacturing activity in Puerto Rico is employment and the secondary economic activity generated.

    The diagram represents Puerto Rico as a socioeconomic and ecological unit. Boundaries of the system are represented by the dashed line. Four components are characterized as state variables: the infrastructure of the manufacturing sector, the structure of the natural system, the human population, and quantity of stored waste. Flows in and out of the system are represented by arrows. Major inflows are external capital investments to the manufacturing sector, fossil fuel imports to all sectors, raw materials imported to the manufacturing sector, consumer goods imported to satisfy human demand, and imported food. Another category of inflows is the natural energy assimilated through agricultural production and other primary productivity. The main outflows are export-oriented production, and profits or interests on capital investments, and exported waste. There are also in- and outflows caused by human migration.

    In this diagram the island is represented as a single unit, a nation-regional system. In reality, because of the political and economic relationship it maintains with the US, it functions in some aspects as part of that greater system. System in- and out-flows are represented by arrows crossing the line that surrounds the major components of the diagram. Internal flows are represented as arrowhead-lines for matter, energy, and labor, and dashed arrowhead-lines for money. The boundaries represent a geographical barrier that coincides, as in many island systems, with cultural, social, political, and economic attributes (Figure 3.2).
 

FIGURE 3.1  DIAGRAMMATIC REPRESENTATION OF THE SYSTEM

    Symbols in Figures 3.2 and 3.3 are based on the energy circuit language use by Odum's school in the analysis, synthesis and simulation of ecological systems (Odum 1983, 1989)1.  The use of these symbols help us represent the open thermodynamic features of the system (Odum 1989). Through these we can describe the system's dependence on resources. Waste is represented as a by-product.

    A more detailed diagram identifies and describes relations such as: dependence on imports for fossil fuel and materials in the manufacturing sector, export of manufactured value added, external capital investments, food import, and other consumer goods imports, outflow of profits as payments on external investments and interests, and use of labor by the manufacturing and agricultural sectors. It also presents agriculture as a mechanism for the capture of natural energies for human use purpose (Figure 3.3).
 

FIGURE 3.2  A DETAILED REPRESENTATION OF THE PUERTO RICAN SYSTEM INCLUDING SUBDIVISIONS


 

FIGURE 3.3  SOME VALUES FOR STATE VARIABLES AND FLOWS IN PR


 

Sources: Soil Conservation Service 1982; USDC 1984; Office of Energy 1984, 1988; Solid Waste Authority 1989;  PRPB 1988a; PRPB 1988b; EPA 1991

STRUCTURE OF THE REPRESENTATION

    The system has been divided in five major components (sets of state variables), the population sector, a manufacturing sector, an agricultural sector, a land resource sector and a waste sector (Figure 3.3). Three of these can be considered growth inducing factors: the population sector and the productive sectors (agriculture and manufacturing). The population sector provides a source of labor for the manufacturing system and is a growth inducing factor because of its demands for food products, land, energy, employment opportunities, and income.

    The manufacturing sector is a productive and consumptive sector. This sector is responsible on the island for inputs of fossil fuel energy, raw materials, and capital investments. It is also responsible for absorbing a significant amount of labor. As a producer it adds value in products that, in the case of Puerto Rico are mostly exported. It also releases significant amounts of toxic waste as a by-product.

    The agricultural sector is dependent on local natural resources, such as land and solar energy, imported resources such as fossil fuel derived inputs (fertilizers and pesticides), and labor. Of the two productive sectors included, agriculture and manufacturing, the first is a mechanism for the assimilation of natural energies into the system. There is no other major economic activity on the island that inputs natural energies into the system.

    I assigned estimated values for state variables and flows represented on the system's diagram (Figure 3.3). Fossil fuel inputs to Puerto Rico are distributed into three major types of uses: electricity production (40%), direct consumption by industry and commercial sectors (22%), and terrestrial transportation (32.5%). The industrial sector uses about 32 percent of the total energy consumed on the island in 1988. That is without including energy used by terrestrial transportation. Residential electricity use accounted for 13.6 percent of the total fossil fuel derived energy.

    Labor demands by the two main productive sectors, manufacturing and agriculture, equaled 22 to 23 percent of the working force employed between 1985 and 1988 (around 18 percent of the total potential working force). The ratio of value added per employee is an indicator of the labor intensiveness of the industries. This ratio appears significantly higher in manufacturing than in agriculture. In the agricultural sector there was a ratio of 12,216 dollars generated per person employed in 1987, while in the manufacturing sector it was 60,087 dollars of value added per employee. This ratio for value added of production per employee is about five times higher in manufacturing than in agriculture.

    The waste sector describes the amount of solid waste generated and toxic waste that was released by industry during that year. Flows from the waste sector characterizes two of the potential paths.

    The land use box, characterizes the "not-permanently developed" land uses and establishes the relationship to developed land. In the case of Puerto Rico the major demand for land from residential development. Here developed land refers to land that is neither in farmland nor forest. I assume that this land under permanent uses, wether built or not, cannot be returned to agricultural use or forest.

    Flows within the geographical boundaries are: energy, labor, land area, products, and waste. To help describe interactions between subsystems, I quantified one or more of these flows. Based on this description we can describe the effect of changes of one subsystem in the others through simulation. The process of trying to describe the system interactions in a logical way improves the understanding of the system and provides a basis for future policy making and planning activities.

POPULATION SECTOR

    Puerto Rico had in 1988 an estimated population of 3,293,500 people in an area of about 8,890 square kilometers (3,500 sq. mi.). This is a high population density (370 persons/sq km) when compared with other countries, some of these island-nations (Table 3.1). The significance of high population density is illustrated better by the ratio of people to arable land, since it describes where most of the economic activity occurs, particularly in modern less industrialized societies. This ratio describes a relationship between population numbers and the land resources on which most economic activity depends. This ratio is also high for Puerto Rico (1,126 people/km2) when compared with other island-nations of the Caribbean such as the Dominican Republic, Jamaica, Costa Rica, or Trinidad and Tobago.

    Birth rates on the island declined in the second half of the 1980s to one-half of the 1970 rate. The population growth rate decreased further in the 1980s due to emigration. Between 1970 and 1980 the annual population growth rate was 1.6 percent. It decreased to 0.3 percent between 1980 and 1988. The outward migratory flows of the 1950s and 1960s, reversed in the 1970s. The flow reversed again in the 1980s and had the impact of reducing the population growth rate. Migratory patterns have responded to variations in the island's economic situation (Dietz 1986), but its erratic patterns are hard to predict.

TABLE 3.1  COMPARISON OF POPULATION DENSITIES AND ARABLE LAND IN SELECTED COUNTRIES AND ISLANDS
 

COUNTRY
TOTAL POPa
AREAb
POP/AREA
ARABLE LANDc
POP PER SQ 
KM OF 
ARABLE LAND
Japan
116,807
369,660
316
60,462
1,932
Taiwan
17,788
35,960
495
10,295
1,728
Haiti
5,473
27,750
197
3,700
1,479
Puerto Rico
3,206
8,897
360
2,846
1,126

Jamaica
2,229
11,450
194
2,247
992
Trinidad Tobago
1,056
5,130
205
1,750
603
Dominican Republic
5,757
48,734
118
10,674
539
Costa Rica
2,307
50,700
45
5,451
423
USA
227,757
9,363,353
24
1,509,060
151

Sources: Kunar 1973; Jamison 1989
a in thousands
b in square kilometers
c estimates made by Kunar (1973) for 1960
 

FIGURE 3.4  POPULATION GROWTH, 1940-88

Sources: PRPB 1988a

     Because migration is a dynamic and significant factor in population variation in the island, it is essential to include it when predicting population changes. Although it affects all age groups, migration is more common among young adult men who are prone to migrate when economic conditions on the island worsen. Since the 1940s, migration has had a role in controlling population growth on the island.

    Based on historical patterns of population change, I projected population growth to the year 2015 in a FORTRAN program. The program uses 1980 as base year, (Table 3.2 and Figure 3.5). This forecasting model uses rates and coefficients estimated by the Puerto Rico Planning Board (PRPB 1986). The program uses survival and migration rates and fertility coefficients of sixteen five-year age groups divided by sex. The program code and the forecasting model results appear in Appendix IV.

    A factor related to population growth which has played an important role in the development strategies followed in Puerto Rico is employment. The need for employment opportunities is closely linked to the patterns of population growth. The next section considers the relationship between population and employment on the island.

TABLE 3.2  FORECAST OF POPULATION GROWTH FOR SELECTED YEARS BETWEEN 1980 AND 2015


                                                                            Projected Population a               Anual Population b

1985
3,314,316.
3,283,000
1990
3,442,730.
3,522,037
1995
3,549,483.
-
2000
3,649,381.
-
2005
3,752,002.
-
2010
3,869,325.
-
2015
3,972,521.
-


 Source: Population Forecasting Model, Appendix II
a Model Appendix IV
b Reported by PRPB 1988a for 1985, and USDC 1990 for 1990.
 

FIGURE 3.5  ACTUAL POPULATION AND GROWTH FORECAST, 1980 TO 2015

Sources: PRPB 1988a; Appendix II

Employment

    High unemployment has been a chronic socioeconomic problem in PR for the last 50 years that development programs have not solved even today. This problem has been related to the economic structure that evolved as a result of the priorities set over the last 50 years of economic development programs (Dietz 1986). These priorities resulted in a drastic shift from an agriculture-based economy with low unemployment, to a manufacturing-oriented economy, with a net loss in job opportunities (Figure 3.6).

    As described in Chapter Two, the major manufacturing activities attracted during the first years of Operation Bootstrap were labor intensive, and unemployment decreased to reach a low of 10 percent in 1969. Yet, with changes in minimum wage laws and the post World War II competition with other countries to attract investment, energy and capital were used increasingly to replace labor. Other indicators of economic activity grew at a faster rate than labor demand. Unemployment remained high throughout the seventies. It increased in the beginning of the eighties to 23.4 percent of the labor force, and decreased to 16 percent in 1988. This is still high when compared with the averages in the United States and other developed countries.

    These rates hide the true dimension of the unemployment problem since participation decreased from 53 percent in 1950 to an average of 43 percent in the late 1970s and 1980s (Table 3.3). It decreased by more than 10 percent after the 1960s.
 

FIGURE 3.6  EMPLOYMENT BY MAIN SECTORS

Sources: PRPB 1988a

TABLE 3.3  LABOR FORCE, PARTICIPATION RATE AND RATE OF UNEMPLOYMENT FOR SELECTED YEARS 1940-1988
 

Potential
Labor Force
Actual 
Labor Force
Participation Rate (%)
Unemployment % 
of Labor Force
1940
1,154
602
52.2
15.0
1950
1,289
684
53.1
12.9
1960
1,379
646
45.4
13.3
1970
1,718
625
44.5
10.3
1972
1,853
837
45.1
11.9
1976
2,138
890
41.6
19.0
1978
2,146
961
44.8
18.8
1980
2,093
907
43.3
16.8
1982
2,192
918
41.8
21.8
1986
2,303
977
42.4
20.5
1988
2,321
1039
44.8
15.9


Source: PRPB, 1988a

    This data shows a pattern of increase in unemployment and decrease in participation rates after the 1970s. In absolute terms unemployment increased to 21.8 percent in 1982 and decreased again to its lowest rate in 1988 to 15.9. The periods of time with higher unemployment rates coincides with the decades when the development policies emphasize the attraction of the island for high technology, high capital, low labor industrial activities. Most of these activities were also in the manufacturing sectors, which are considered highly polluting.

    Using population growth estimates and other employment trends observed, I projected working population, participation rates, and demand for employment opportunities to the year 2015. These appear in Chapter Five and serve to forecast demands for employment in different sectors, and other types of demands (imported goods, food, toxic waste generation) assuming that current patterns of industrial development continue. I emphasize in this analyses employment in the manufacturing sector because of its significance within the PR economy and the environmental implications of its characteristic sectorial structure.

ECOLOGY OF THE MANUFACTURING SECTOR IN PUERTO RICO

    Ecology was defined by Eugene Odum (1962) as the study of the structure and function of ecosystems. In biological systems, structure refers to the composition of the community, the quantities and distribution of the non-living materials, and the range or gradient of existing physical and chemical conditions. By function Odum refers mainly to the rate of energy flow through the ecosystem and the work processes that the energy is used for. Energy flow is used to describe rates of production, consumption, and waste generation. This description of structure and function of an ecosystem also can be used for the evaluation of complex socioeconomic systems (Hall et al 1986).

    The flow of energy in a system, either natural or socioeconomic, is an aggregated indicator of the intensity of activity within that system. It serves as an aggregated index of productivity and impact of economic activities on the environment. The extent by which this impact is assimilated partly a function of the nature of the effluents, partly a natural property of the system and partly the result of developing that capacity. That is an extension of the systems natural carrying capacity.

    We can approach the ecology of the manufacturing sector processes and relations analogous to the study of natural processes in nature. In this section I use these framework to describe the ecology of the manufacturing sector in Puerto Rico. I use variables such as: energy use, employment, toxic waste generation, and aggregated measurements of production, as value added and value of sales, to describe the manufacturing sector activities in Puerto Rico (Figure 3.7). The main characteristics of the system are presented through a schematic diagram, compiled data and the description of some relations such as: toxic waste per value added, toxic waste per employee, energy used per unit of value added, energy used per employee, and value added per employee.

FIGURE 3.7  DIAGRAM OF THE MANUFACTURING SECTOR

Sources: USDC 1984; Office of Energy 1984, 1988; EPA 1991; PRPB 1988a; PRPB 1988b

     The schematic representation of the system depicts the main features of the manufacturing system as follows:

1. System inputs (forcing functions)
 a. Capital goods2  (investment in the manufacturing sector,  Federal Government transfers)
 b. Energy (fossil fuel imports)
 c. Materials (imported food, raw materials for  manufacturing)
2. Stocks (state of the manufacturing sector)
 a. Major manufacturing activities based on value added  (1982)
  1. Chemical and allied products (SIC 28)
  2. Electric and electronic equipment (SIC 36)
  3. Food and kindred products (SIC 20)
  4. Instruments and related products (SIC 38)
  5. Machinery, except electrical (SIC 35)
  6. Apparel and other textile products (SIC 23)
 b. Labor demand
3. Major outputs
a. Production
1.  Value added, locally sold (14.6%)
2.  Value added, exported (85.4%)
b. Waste (toxic)
c. Wages
d. Profits on investment
1. imported
2. local


    The manufacturing sector is characterized using data for energy, materials, employment, and toxic waste released is presented for each of the major manufacturing sectors divided as inputs and outputs (Table 3.4 and 3.5). The major manufacturing sector, based on their share of GDP, are all export-oriented activities.

TABLE 3.4  SUMMARY OF MANUFACTURING INDUSTRY INPUTS, 1982
 

 
Cost of Materials($1,000)
Cost of Energy($1,000)
Labor 
Wages($1,000)
Chemical (28a)
1,568,819
109,161
17,225
287,432
Electric (36) 
812,338
39,667
21,682
248,071
Food (20)
1,395,872
64,790
18,621
213,827
Instruments (38)
313,357
10,865
130,148
Machinery (35)
417,878
14,386
6,722
87,270
Apparel (23)
442,858
17,320
31,764
229,651

Total
7,198,725
429,450
143,218
1,573,023


 Sources: USDC 1984

TABLE 3.5  SUMMARY OF MAIN MANUFACTURING SECTOR OUTPUTS, 1982
 

Value Added($1,000)
Value of Shipments($1,000) 
Exports (%)a
Toxic Waste Released b
Chemical (28a) 
3,713,928
5,287,126
96.6
16,993,272
Electronic (36)
1,139,568
1,985,982
98.2
937,637
Food (20)
965,463
2,383,097
66.7
3,246,646
Instruments (38)
616,440
925,761
 
1,091,633
Machinery (35)
542,244
974,986
99.3
512,600
Apparel (23)
510,075
964,391
94.7
20,099

Total c
8,605,601
15,457,195
85.4
31,189,519


 Sources: USDC 1984; EPA 1991
a Percent of value of shipments that is exported
b in pounds for 1988
c total for the manufacturing sector

    These manufacturing activities export from 66 to 99 percent of their total production. They are also responsible of 73 percent of the total toxic waste releases reported by manufacturing activities on the island in 1988 (EPA 1991). The Chemical and Allied Products' sector is the major producer on the island, responsible for 51.6 of the total value added by the manufacturing industry. It had the highest costs of materials, released the largest toxic waste volume, and had the largest consumption of fossil fuels and energy. It is, however, the fourth manufacturing sector employer.

    The Food and Kindred Products' sector, the third major manufacturer of PR, had the second largest energy consumption and is the second generator of industrial waste. This sector also had the third highest employment. The Apparel sector, the sixth largest producer on the island, had the higher employment rates and the lowest toxic waste releases.

    I calculated the following ratios: waste generation to employment, energy consumption to employment, and value added to employment. This ratios serve as indicators to describe the manufacturing sector based on the demand of resource, aggregated impact on the quality of the environment and some impacts on society (Table 3.6). Of the major manufacturing sectors in Puerto Rico, the Chemical and Allied Products' sector releases the highest quantity of toxic waste per dollar of value added. It is also, by far, the major toxic waste generator per employee and the manufacturing activity with the highest value added per employee.
 

TABLE 3.6  ENERGY USE, TOXIC WASTE RELEASE, VALUE ADDED RATIOS FOR MANUFACTURING SECTOR, 1987
 
 

Toxic Waste/ Value Added a(10-3)
Toxic Waste/ Employee b
Energy/ Value Added c
Energy/ 
Employee d 
Value Added/ Employee e
Chemical (28)
2.88
775.9
0.018
4,887.6
269.4
Electric (36)
0.53
50.9
0.025
2,377.5
95.8
Food (20)
1.67
141.0
0.023
1,920.1
84.3
Instruments (38)
1.77
172.9
   
56.7
Machinery (35)
0.67
55.1
0.019
1,577.5
82.4
Apparel (23)
0.70
21.6
0.029
893.1
29.3

All sectors
2.27
208.0
0.049
2,880.6
91.4


Sources: USDC 1988; EPA 1991
a pounds per dollar of value added
b pounds per employee
c dollars of energy cost (electricity + fossil fuels) per dollar of value added
d dollars of energy cost per employee
e 1000 dollars of value added per employee
- not available

    The rate of toxic waste release per person employed by the Chemical and Allied Products sector appears significantly higher than the next sector in this category, the Instruments and Related Products' sector (SIC 38). This is also the case of value added per employee and energy consumption per employee (when total fossil fuel and electricity cost is used as an indicator of energy use).

    These rates show the energy intensity and labor saving character of the main manufacturing activities on the island. They also confirm the suggestion that the export oriented manufacturing sector that resulted from the economic development strategies on the island are highly polluting, and low labor consuming. Four export oriented manufacturing activities, exporting more than 95 percent of their total production, accounted in 1987 for 70 percent of the total value added, and released 63 percent of the total toxic waste released on the island.

SUMMARY AND CONCLUSIONS

    In this chapter I made a general description of the more relevant components of the Puerto Rican system and characterized, the population change and the manufacturing sector activities as growth-inducing factors. Population growth estimates and employment statistics were used to evaluate the effectiveness of the heavy industry development strategies to solve the chronic unemployment problem. This analysis shows that growth in the manufacturing sector has not been effective in reducing high unemployment rates. Other ratios indicate that emphasis on specific manufacturing sectors  such as: pharmaceutical, chemical, and instruments have to be assessed in relation to potential impacts due to high rates of toxic waste release.

    In the population projection we observe a tendency towards the reduction of population growth rates. However, population does not stabilizes. There will be an increase in job demand created by population growth together with an increase in the demand for food, other consumer goods and energy. This will increase dependency on imports if development policies are not reoriented towards the production of goods for local consumption.

    The results of this analysis of the manufacturing sector shows the significance of its impact on other parameters such as employment or toxic waste release and the relation to its sectorial composition. The pharmaceutical and chemical sectors are by far the major releasers of toxic chemicals into the environment. At the same time it is the sector with a lowest labor intensity and the highest energy consumption per employee. The food processing sector, also an export-oriented industry, is the third releaser of toxic substances into the environment per value added.

    The apparel sector releases the lowest volume of waste per employee, has the smallest energy consumption per employee and also the lowest value added per employee. It is therefore the most labor intensive activity of the six major manufacturing activities analyzed. This suggest that diversification in the  manufacturing sector into activities such as apparel should be explored as an alternative to encouraging a high toxic waste release, high energy demanding, low labor demanding economic structure.

    If we assume that employment figures are an indicator of patterns of distributional equity in modernized societies, social benefit derived from employment opportunities created must be against impacts of those activities. This will provide an indication of how economic activities can extend carrying capacity. However, it also shows that the extension of carrying capacity by industrialization has its limits. In Chapter Five, I analyze some aspects of the environmental impact of the job creation strategies. For this purpose I use toxic waste releases and energy use by the manufacturing sector as aggregated indicators. Before making this relation I proceed in Chapter Four to describe three parameters: land use, energy demand, and toxic waste releases. These are used as indicators to describe the character of development patterns in Puerto Rico.

    In Chapter Five I evaluate the effect of the emphasis placed by development policies in the manufacturing sectors described as a solution to the chronic unemployment problem. I will project employment by the manufacturing sector against toxic waste release, as an indicator of environmental impact, to evaluate the impact of manufacturing activities on the long term capacity of the region to sustain human and activity.


1    These are not always used here with the rigourous kinetic and energetic meaning.
2      Capital goods imported in 1987 had a total cost of $927.2 millions. This figure cannot be dissagregated because of lack of available data
 

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