From the approval of the first industrial tax exemption law in 1947 to the demise of the federal tax exemption program in 2006, manufacturing has been the hallmark of Puerto Rico’s industrial development. During the past five years or so, we have seen numerous manufacturing firms leave the island. Puerto Rico has seen the loss of Colgate-Palmolive, most if not all of the metal canning industry, the tuna industry, and confectionary factories such as Life Savers, among others. More recently, the pharmaceutical giant Glaxo Smith Klein also departed. In this article we take a historic view of what this industry accomplished and propose some alternatives that might help to achieve a similar growth pattern.
During fiscal year 1961, the 148 new plants or expansions of existing facilities reflected Puerto Rico’s industrial growth potential. This activity was a direct result of private investments and confidence on the island’s ability to deliver results. It was estimated that these projects would add 10,600 new jobs with wages and salaries amounting to $1.5 million. With this investment, the number of factories operating in Puerto Rico since the beginning of the industrial program in 1947 exceeded 700, affording employment to 50,500 people with an annual payroll amounting to $100 million. Some of the companies that Puerto Rico Development Company, or PRIDCO, helped establish or expand their operations included: Bayuk Cigars, Baxter Travenol, Brunswick, California Packing, D-W-G Cigar, International Latex, International Shoe, Kayser-Roth, Kelvinator, Kimberly-Clark, Manhattan Shirt, and Van Raalte.
Also in 1961, PRIDCO completed construction of 56 factory buildings. That’s more than one factory every week of the year! PRIDCO also made improvements to 12 other sites. All told, PRIDCO provided 1,147,516 square feet of floor space to investors at a cost of $8.427 million. Among the businesses benefiting from PRIDCO’s investments were: Playtex Caribe in Dorado, Consolidated Cigar in Comerío and the Puerto Rico Meat Packing Company in Caguas. Other firms already established by this time included: General Electric, American Can, Carborundum, Spaulding and Maidenform.
Twenty years later, industrial promotion was still in full swing. Promotions for fiscal 1982, for example, committed 10,391 jobs. Of this total, 47 percent was provided by 55 projects involving the manufacture of electronic/electrical equipment, precision and scientific devices, and non-electrical machinery. Attraction of these high-technology projects was complemented by the promotion of traditional manufacturing, including 29 apparel manufacturers. PRIDCO’s results thus maintained the diversity of the island’s industrial mix.
Over half of PRIDCO’s promotions in 1982 constituted new industrial projects, including substantial investments by Fortune 500 companies such as: Intel, Beckton-Dickinson, DuPont, ITT and United Technologies. Large-scale projects by foreign investors included: Vetril Quimico (codfish processing), Portugal; Sartoruis GmbH (medical filters), West Germany; and Mitsubishi (tuna canning), Japan. Some half a billion dollars was announced or committed for investment during this period by prominent corporations such as: American Hospital Supply, Qume, Wang Laboratories, Skyles Datatronics, Atari, Merck, General Foods, Schering-Plough, Sterling Drug, Starkist, Union Carbide and Johnson and Johnson, among others.
Manufacturing in Puerto Rico remained the primary source of net income and net income growth despite prevailing negative trends throughout the world. Its net income surpassed $5.2 billion, accounting for 51.3 percent of the island’s total net income, while employing 150,000 people, as opposed to 55,500 in 1961. In order to achieve these goals, Puerto Rico had to shift its emphasis from basically low-wage operations, as these industries could not cope with the energy crisis of 1974-75 and the subsequent inflationary and recessionary trends in the world economy. In addition, these firms were unable to match the increased competition from low-cost Third World producers, especially with the lowering of U.S. tariffs. To offset this erosion of Puerto Rico’s manufacturing base, PRIDCO had to begin promoting sophisticated and innovative companies, accompanying these efforts with improved training programs to upgrade labor force skills.
Today, our challenges are somewhat different from those faced in 1982, yet the question remains: what to do to continue to grow our economy? Looking at successful economic models can provide a starting point. North Carolina, for example, was successful in adjusting a dwindling income model based on tobacco proceeds into one which promoted innovation and research in the health care industry. The famous Triangle, which encompasses the University of North Carolina at Chapel Hill and Duke University, is an example of what was achieved in this state. Is this the answer to Puerto Rico’s economic stagnation? Certainly, two things should be clear from these examples. The first is that the results of any economic model take time. The second is that innovation and creativity require an educational system second to none. It is here where Puerto Rico should start to allocate more of its resources.