Javier Hernandez wrote a piece for The Hill titled “Puerto Rico doesn’t need reshoring — it needs independence” which presents a vision of independence for Puerto Rico. Hernandez, who is a well-known advocate for independence, spends most of the article attacking the idea that reshoring — bringing manufacturing back to the United States and Puerto Rico in particular — would be good for Puerto Rico’s economy.
Pros and cons of reshoring for Puerto Rico
The central point of the essay is not that reshoring would not benefit Puerto Rico, but that Puerto Rico can’t do it. “Puerto Rico today is ill-equipped to serve as a reliable reshoring hub for the pharmaceutical industry,” says Hernandez, “and promoting it as such risks repeating costly mistakes of the past.” Hernandez points to the instability of the electrical grid, the poverty of the people, and the existence of the Fiscal Oversight and Management Board.
These are certainly problems. Statehood is the obvious solution, but that is not part of the narrative for this piece. Instead, Hernandez goes with, “These factors create a business environment marked by instability and risk, not innovation and growth.” In other words, “Times are hard in Puerto Rico, so we should not encourage manufacturing on the Island.” Manufacturing actually provides well-paying jobs and encourages prosperity in communities. Bringing in jobs would help to decrease poverty, and manufacturers would improve the infrastructure, just as they do when they build factories in the states.
Next, Hernandez claims that tax incentives are the center of the new impetus toward reshoring in Puerto Rico. “Today’s calls for reshoring amount to a modern repackaging of the failed Section 936 model,” he says. In fact, the problem with Section 936 was that it allowed mainland companies to evade taxes without bringing jobs to Puerto Rico. The new tax incentive proposals are founded on jobs, not transfer payments.
States and counties in the states routinely offer tax incentives to corporations building new factories in their neighborhoods. Typically, these incentives help the corporations with infrastructure investments such as building roads, upgrading utilities, and partnering with or otherwise supporting local schools. These tax incentives are not equivalent to federal tax incentives or the kinds of tax dodges and deals Puerto Rico has struggled with over the years. Nonetheless, they show that tax incentives can, when planned and structured well, bring investments to the communities that support them. These kinds of investments are one of the main reasons — along with job creation — that stateside communities woo manufacturers.
Finally, Hernandez claims that reshoring “is not a strategy of growth. It is a strategy of survival. Puerto Rico, as a colony or a state, cannot set long-term industrial policy. It cannot negotiate trade agreements or invest in infrastructure at the scale needed for real development.” We agree that Puerto Rico as a colony is severely hampered by its political status. But saying that a state cannot set long-term industrial policy is ridiculous. States always do this. Connecticut is currently working out an interstate trade agreement with Puerto Rico. And obviously states invest in infrastructure. With federal help, typically, but it is once again a silly claim to make.
California is the fourth largest economy in the world. It recently surpassed Japan to reach this point. California is a state of the union. Texas, New York, Florida, Illinois, and Pennsylvania all have economies topping one trillion dollars. Coincidentally, they also all have significant Puerto Rican populations.
Independence vs. reshoring
The actual choice for Puerto Rico’s political status comes down to independence vs. statehood: statehood or nationhood. These are the only real possibilities. Independence is not actually an alternative to reshoring. Hernandez appears to think it is. Instead of encouraging manufacturers who want to pursue reshoring to consider Puerto Rico as a location, he suggests that “Puerto Rico needs the power and tools to build a competitive national economy.”
Right now, many pharmaceutical companies are thinking seriously about whether it would be possible for them to produce their medications and devices in the United States. Avoiding punishing tariffs, shortening their supply chains, and reducing dependence on foreign suppliers are all real goals for medical manufacturers in the United States, as well as for the federal government.
How would a new nation of Puerto Rico fit into this picture? Would the electrical grid be more reliable? Would there be less instability and risk for manufacturers? Would factories in a new nation of Puerto Rico be able to avoid tariffs or reduce dependence on foreign suppliers — of whom they would immediately become one? Of course not.
Instead, Hernandez links the words “national economy” to his own economic plan, which centers on “a Puerto Rico Transition Fund financed by the U.S. federal government, either through annual $36 billion disbursements over 20 years or a one-time $489 billion lump sum.” Under this highly unlikely plan, there would be industrial growth by year 6, following five years of infrastructure and energy building.
Reshoring, which takes advantage of the strengths of Puerto Rico right now, could give a serious boost to the economy of Puerto Rico and build on the benefits of belonging to the United States. The independence fantasy being promoted in the opinion piece in The Hill builds on the fantasy of being supported by the United States (which receives nothing in return in this scenario, but loses Puerto Rico) for twenty years while trying to create self-sufficiency.
The “economic plan” doesn’t actually include many details beyond the amount of money the United States government would provide. However, it does list industries that could help Puerto Rico become self-sufficient — beginning with pharmaceuticals, biotech, and manufacturing. That is, exactly the industries which could benefit right now from reshoring to Puerto Rico.
Let’s put aside the fantasy of independence and support the very real opportunities of reshoring for U.S. companies. Puerto Rico already exports more pharmaceuticals than any state and has dozens of FDA-approved factories as well as workers accustomed to the stringent requirements of biotech and medical manufacturing. This is an opportunity to seize, not a fantasy.
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