Statehood and Business

Puerto Rico continues to try to rebuild from Hurricane Maria’s devastation, but the Island needs money. And where is that money to come from? Plenty of people are hoping that the federal government will take care of Puerto Rico, and some are claiming that the territory has enough money to take care of itself, but bringing in capital in the form of business investments will probably be essential if Puerto Rico is to move forward. In fact, statehood and business go hand in hand.

Puerto Rico’s status must be resolved.

As it stands, Puerto Rico is an unincorporated territory which belongs to the United States. This is not a permanent status.

It’s not permanent because it can be changed at any time. A territory of the United States can become a state — that’s what usually happens. A territory can also become an independent nation, as the Philippines did. As long as a territory continues as a territory, its future is uncertain.

This means that Puerto Rico’s status can’t be ignored until the economy improves. The natural order of things is the other way around. Congress has to resolve Puerto Rico’s status so that the economy can improve.

What makes people invest?

It is possible to lure investors with tax incentives. U.S. states, counties, and cities routinely woo new businesses with temporary tax incentives. New Jersey reportedly offered Amazon $7 billion in tax perks to bring its headquarters to Newark. Why are tax breaks temporary? Because ongoing tax incentives don’t lead to long-term benefits. They’re like a cents-off coupon designed to bring new customers in the door.

If you know that your company can get tax incentives without providing jobs or really investing in the community you’ll be building in, you have no reason to make a serious investment. You can, as many major corporations did in Puerto Rico, wash your income through the tax shelter without building much. In fact, it’s in your best interests to make as small an investment as you can.

If you want to build your business in a community and stay for the long haul, you’ll look at other factors:

• Logistics is often the top priority for manufacturing concerns. If you can’t build an efficient supply chain, you can’t make money with your products. You must have reliable roads, ports, airports, and warehousing. You also must have reliable internet connections to use modern supply chain technology.
• Available workforce is top of mind for nearly all companies. Not only will you want to be able to hire qualified local people, but you’ll also have to be sure that your executive level team members will be willing to relocate to your company’s new home. Having universities on hand is important — and so are good schools for children, comfortable homes, cultural opportunities and even good restaurants.
• Business-supportive climate is another key factor. If it’s hard to get permits or municipal governments are tough to work with, your community will struggle to get major companies to move in. If you’re in a territory and therefore have little voice in the legislature — and could become an independent nation at any time, your community will not be appealing to investors. There’s just too much uncertainty.

Amazon plans to invest $5 billion in the city where they build their second headquarters and to provide 50,000 jobs. This company is definitely a plum. Will they choose to build in a town with unreliable electricity and water, uncertain roads, and a shrinking workforce? Probably not. Unless they decide to choose San Juan for the sake of the good PR it can provide for Amazon, they will probably build in one of the 50 states.

Other companies might be willing and able to build in Puerto Rico. But only if the Island can offer the level of stability a state can offer.

A New York Times report on the annual investors’ meeting made it clear that Puerto Rico is not currently able to compete for business investment.

Statehood is good for business.

Puerto Rico still has some advantages for business. Average wages are lower than in any state, while education levels have historically been just as high. There are many opportunities for the use of renewable energy. Real estate should be at bargain prices for some time.

But companies with the resources to help rebuild Puerto Rico may not want to take the risk of the territory’s instability. Statehood will give Puerto Rico a permanent status. Laws will be more uniform. A voice in the legislature will let corporations know that they will have senators and congresspeople to support their interests. Federal funds will be equal to those provided in the 50 states, providing equality in things like roads, healthcare, and education.

These things will benefit individuals and small businesses as well as major corporations.