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Puerto Rico, Economy

average individual income, Operation Bootstrap, Caribbean Basin Initiative, Caribe Hilton, subsistence crops

For its first 250 years as a Spanish colony, Puerto Rico was largely a military establishment fortified to protect the sea lanes between Spain and its American colonies. Most farms were small, and farmers raised subsistence crops, such as vegetables, rice, plantains, and corn. By the end of the 18th century, export crops began to play an important role in the economy. Puerto Ricans exported sugar, coffee, tobacco, and cotton, as well as meat, animal hides, and other items. The economy grew during the 19th century, but agriculture remained dominant. Coffee, tobacco, and sugar became the most valuable export crops during the 19th century. Puerto Rico traded mostly with Spain and other European nations.

When the United States gained control of the island following the Spanish-American War, it became the new market for the islandís coffee. However, U.S. residents were used to the weaker Brazilian coffee bean and did not appreciate the richer, stronger Puerto Rican variety. Puerto Rico was also struck by two hurricanes in 1899 and 1928, which decimated the islandís coffee crops. As a result, sugar replaced coffee as Puerto Ricoís main export crop after 1900. The U.S. government allowed the islandís sugar to enter the U.S. market tax-free. United States financiers invested heavily in Puerto Rican sugar estates. By 1930 the islandís sugar production had risen by a thousand percent, and almost all of it was exported to the United States. By 1940 the sugar industry employed 25 percent of the islandís labor force. As the sugar industry grew, corporations bought large tracts of land for sugar estates. Many of Puerto Ricoís independent, land-owning farmers went out of business because they could not compete with the corporations.

Puerto Rico transformed its economy after World War II (1939-1945). In an attempt to make the island less dependent upon agriculture and to increase employment opportunities, Puerto Ricoís leaders decided to emphasize industrial development. With the help of the U.S. federal government, in 1947 the Puerto Rican government established Operation Bootstrap, a program of governmental support for industry through tax breaks. The government hoped to attract industries that would import goods to the island to be finished for export. The Puerto Rican government also worked to develop the tourist industry. It invested directly in the construction of the Caribe Hilton, a large hotel in San Juan that received immediate international recognition. In addition to its economy, Puerto Rico worked to improve its health services, housing, education, and electric power.

Operation Bootstrap was a success. It brought many industrial companies to Puerto Rico and created thousands of jobs. Puerto Rico transformed from an underdeveloped island into an industrialized area and an important overseas markets for the United States. By 1965 Puerto Ricans enjoyed the highest per capita income (average individual income) in Latin America. Economic improvements were visible everywhere in the form of new housing, public buildings, and service facilities; new and improved roads and communications; modern factories; and the availability of a higher quantity and quality of food and clothing.

Puerto Ricoís economy experienced a downturn in the mid-1970s. A severe recession in the U.S. economy resulted in fewer U.S. purchases and investments and a decline in tourism on the island. At the same time, worldwide inflation made imported goods, especially oil, more expensive. Moreover, U.S. minimum wage laws and the islandís increased prosperity had resulted in a higher wage level. Higher wages made Puerto Rico less able to compete with other developing areas for labor-intensive, low-capital industries. After rising steadily for years, the gross domestic product (GDP, the total value of goods and services produced in Puerto Rico) and total employment declined in 1975. However, even during the boom years, unemployment remained high, generally ranging from 10 to 13 percent of the labor force. By the mid-1970s, the official unemployment rate had reached 20 percent.

In the late 1970s the economy made some progress, only to be buffeted by recession again in the early 1980s. By the mid-1980s, the islandís economy began to recover. It benefited when the United States increased its investment to the region through the Caribbean Basin Initiative, a program providing tax-free access to U.S. markets for certain products from the Caribbean region. However, in 1996 the U.S. Congress voted to eliminate over a ten-year period the tax incentives for American companies investing in businesses in Puerto Rico. In response, local officials sought to further develop the service industry, especially tourism. In 1997-1998, 76 percent of Puerto Ricoís labor force worked in the services, 22 percent worked in industry, and 2 percent worked in agriculture. In the GDP for the same time period, industry made up 79 percent, services made up 20 percent, and agriculture made up 1 percent.

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