Economy / Operation Bootstrap (1947)
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Rice fields in the west valley in Puerto Rico
The 1947 industrial program known as Operación "Manos a la Obra," or Operation Bootstrapoperation Bootstrap: The name given in English to a program called "Manos a la Obra" in Spanish, an industrialization program begun in Puerto Rico in 1948. It is associated with the creation of the Economic Development Administration and government initiatives under the Popular Democratic Party directed by the governor, Luis Muñoz Marín., marked the beginning of a new stage of industrial planning based on external capital and tax exemptions. The origin of the program was the Ley de Incentivos Industriales (Industrial Incentives Actindustrial Incentives Act: legislation enacted in 1947 by the Puerto Rico Legislature with a view to initiating a by-invitation industrialization program. The Act, as amended, provides for tax, wage, and other incentives that the country would then offer to foreign investors.), passed that same year, based on exemption from the federal taxes that already existed in Puerto Rico under Article 9 of the Jones Act. In addition, Section 931 of the US Internal Revenue Code had already provided for exemption from federal taxes for corporations operating in US territories, such as Puerto Rico, until the time they repatriated their earnings to the States.

Puerto Rico entered into a period of rapid industrialization and strong economic growtheconomic growth: An increase in economic indicators during a period of time, usually a year, including variables such as the domestic product, domestic income, capital stock, and employment. If growth is maintained for several consecutive years then we refer to sustained growth.. This period of prosperity lasted for two decades, but it had adverse consequences. The changes produced by the dizzying pace of modernization also provoked unfavorable social effects, such as a drop in the size of the labor force, a decline in agriculture, and a rising wave of immigrationimmigration: Population movement consisting of the arrival of people to a country or region other than their homeland in order to establish themselves there.. The prosperity came to an end in the mid 1970s, and since then Puerto Rico has not been able to return to the strong economic growth it experienced in that period. This is a subject that is still pertinent today since our economy is still based on the principles established under Operation Bootstrap.

The background of Operation Bootstrap

The economic policy of the 1940s was for there to be "una industrialización criolla" (criollo or locally-based industrialization). The industrial plan of the period reflected the influence of the New DealNew Deal: The name given to the fiscal policy initiated in the United States in 1933 under the presidency of Franklin Delano Roosevelt. Roosevelt's administrative approach was based on the Keynesian paradigm and attempted to fight the poverty and unemployment brought on by the Great Depression through the creation of programs that required channeling federal government funds for those purposes. in the United States in its high degree of governmental intervention in the economy. That led to the creation of local enterprises to foster local production through a strategy of import substitutionimport substitution: An economic policy directed deliberately at local production of certain imported goods, whether consumer or capital goods.. The industrial plan of the 1940s was also to be seen in the agrarian reformagrarian reform: A process by which the government of a country redistributes agricultural land among the population for the purpose of having the families who live in rural areas and are engaged in farming become owners of the land they work on and from which they make a living. The Latin American and Caribbean experience with agrarian reform plans includes programs to increase productivity of the land, new agricultural techniques, new varieties of seed, direct assistance for the construction of housing, the construction of irrigation systems, and projects to improve the standard of living of rural families. that sought to break the control of the great agricultural corporations over the agriculture of Puerto Rico and put the land into the hands of local people. In general, the objectives of the plan reflected the populist policies of the Popular Democratic Party (PDP), then in power, since they emphasized growth and efficiency as well as social justice.

However, the implementation of Operation Bootstrap in 1947 produced a dramatic change in industrial strategy, from populist criollo industrialization to "laissez faire" capitalismcapitalism: Economic system based on the possession of the means of production and distribution which is compatible with any political regime. In some contexts, capitalism is used as synonym of democracy; this is historically incorrect and conceptually mistaken. Capitalism because of its needs and internal dynamic, tends to generate inequalities of income and class, and these inequalities have the effect of creating social tensions. Democracy, on the other hand, is preached on the concept of equality, and the inequalities that capitalism produces in practice decrease its effectiveness because it favors citizen with more resources over less fortunate ones., with an emphasis on investment from abroad. One important reason that explains the change in the economic policy was the end of World War II and its negative impact on the local economy. After growing sharply at rate of 17% annually from 1940 to 1945, Puerto Rico’s per capita income dropped in the postwar period. Per capita income fell from $270 in 1945 to $256 in 1948. An important factor in explaining the economic contraction was that the government could not continue to finance its populist policies. After the war, as the US liquor industry recovered, the government budget was affected due to the decrease in sales of Puerto Rican rum on the mainland. The tariffs on sales of rum on the mainland were an important part of the Puerto Rico budget.

Another reason for the change in direction of the industrial program was that the strategy of promoting criollo industrialization through the creation of state enterprises in the cement, bottling, brick and shoe industries was not successful, particularly when faced with the competition from US imports after the end of the war. The war had created an opportunity for these enterprises at a time when the normal flow of supplies from US competitors had been interrupted.

Other experts, such as James Dietz, hold a different view. Dietz argues that the reasons were more political than economic and were based on the fact that the PDP was under political pressure to sell such enterprises to avoid the uncomfortable position of being an employer and also supporting the new, private capital program. Given the large profits of the cement company, these enterprises were lucrative. Another political reason that could explain the change was that, in the United States, the populism of President Franklin D. Roosevelt was then looked upon with suspicion due to the Cold War with the Soviet Union. The change in Puerto Rico’s industrial policy could also be explained as a result of the opportunity that arose after the war: large amounts of capital had been accumulated in the US, and those funds were seeking attractive opportunities for investment. The government of Puerto Rico seized the opportunity and offered an attractive place to invest.

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Version: 06102003 Rev. 1
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