When Hurricane María struck Puerto Rico in late 2017, an island-wide multi-faceted crisis ensued. Homes were decimated, tropical forests were shaven clean, and the failure of Puerto Rico’s electrical grid caused an energy emergency that proved to be as equally devastating as the hurricane itself. To make matters worse, Puerto Rico received disproportionately less aid from the United States government than other impacted areas on the United States mainland, such as Houston and Florida.[1] As a result of Hurricane María more than 500,000 Puerto Ricans — or almost one eighth of the island’s pre-hurricane population — has migrated into mainland United States.[2]
In order to prevent a future island-wide energy disaster similar to that following Hurricane María, Puerto Rico needs to create a reliable up-to-date energy grid that can withstand future hurricanes. Additionally, Puerto Rico needs to find a way to create a steady supply of jobs to counteract the exodus of the young and educated from the island. A solution lies in Puerto Rico’s potential as a technology hub. If the Puerto Rican government capitalizes on the favorable tax incentives that made it a haven for the pharmaceutical industry, it could forge similar relationships with technology companies — creating a sustainable and reliable electrical grid and generating job opportunities on the island.
Restructuring the Grid
The first focus of Puerto Rico should be to create a reliable, efficient, and environmentally sustainable electrical grid. To achieve this, Puerto Rico should capitalize on its existing collaboration with Tesla and offer itself as a testing ground for new energy technologies.
Following the storm in early October of 2017, Tesla’s founder Elon Musk offered his services to help restore power to Puerto Rico.[3] This offer follows Musk’s personal donation of $250,000 and shipment of hundreds of Powerwall rechargeable battery packs to the island. By the end of October, Musk and Tesla successfully returned the island’s largest children’s hospital to full power through a combination of Powerwall packs and solar power technology.[4] Although these are temporary solutions that run only regional electricity networks, Tesla has even submitted a plan to build an island-wide conglomeration of these microgrids to implement a new power network for the island. In an October 2017 tweet, Musk stated that Tesla had completed a similar post-storm reconstruction of Ta’u, an island in the pacific nation of Tonga.[5]
The Puerto Rican Power Authority (PERPA) is still without a primary contractor as it cut ties with Montana-based firm Whitefish in early April and Fluor completed its contracted work later that month. Even before Hurricane María struck, Puerto Rico’s power system was severely outdated. Since then, the authorities in charge of the grid’s restoration process have been subpar at best. PERPA has been extremely inefficient. Insufficient progress and a costly energy substation explosion that caused a complete blackout in the northern half of the island forced the head of PREPA to resign in March.[6] PERPA has only provided so-called “band-aid” solutions and have failed to pay Puerto Rican-based contractors a penny of the 26 million dollars they were owed, and, as late as April 2018, Puerto Rico still suffered from island-wide blackouts.[7]
With the next hurricane season already upon us, Puerto Rico needs to find a fast, efficient, and reliable power grid not only to help continue the recovery process from the last hurricane, but simply to help Puerto Ricans carry on with their lives. Puerto Rico’s existing power lines are located above ground; they were easily blown away by Hurricane María’s 200 mile per hour winds. When the Puerto Rican and United States governments eventually reconstruct the power network on the island, they must make the system underground and make it innovative.[8] Although the cooperation of Tesla and similar companies is somewhat idealistic and would also require the cooperation of various levels of government, if it worked, it could place Puerto Rico in a strong position regionally to be a tech center.
Becoming a Technology Hub
Puerto Rico has potential to become an emerging global center in both the technology and cryptocurrency industries. To realize this potential, Puerto Rico should look to both its own past as a pharmaceutical manufacturing giant and to the rise of Ireland as a technology powerhouse within the European Union.
In the 1950’s, the United States government decided to implement tax policy that would help evolve Puerto Rico’s primarily agrarian economy into a more diverse one with manufacturing at the forefront.[9] This plan, known as “Operation Bootstrap,” increased the island’s GDP to more than ten times its original size.[10] One key incentive provided by “Operation Bootstrap” promised no corporate income tax on profit earned in the United States territories.[11] This incentive, which was implemented in 1976, attracted manufacturers in great numbers. 20 years later, in 1996, then President Bill Clinton eliminated this tax break, and it was to be completely phased out by 2006.[12] The removal of the tax break hurt both corporations and Puerto Ricans alike. Many companies closed their plants and the island went into a deep recession, forcing Puerto Rico to borrow heavily from the United States federal government, leading to a sharp population decline and a massive debt that currently sits around 70 billion dollars.[13]
In order to revitalize the economy, Puerto Rico could once again push for favorable corporate tax incentives that would attract tech industry firms to the island and protect local firms as well. To accompany this, Puerto Rico would have to look to investment from abroad, a process that helped Ireland become a major player in the global tech industry. Ireland’s rise was largely facilitated by its tax incentives, cheaper labor sources, stability, and proximity to the European market – attributes that Puerto Rico could mirror.[14] For instance, Ireland’s small population and relatively lower labor costs allowed it to reduce corporate taxes at a rate that would be unsustainable for a larger country within the European Union.[15] In a similar way, Puerto Rico can leverage its political status as an unincorporated territory of the United States to attract tech firms to the island.
Many multinational companies such as Google, Tesla, and Microsoft already have outposts in the territory, which perform functions ranging from manufacturing to software development.[16] Further, investors have held various summits in Puerto Rico since the hurricane to brainstorm ways in which American and foreign investment can both earn a profit and help revitalize Puerto Rico’s economy.
Additionally, cryptocurrency is been one of the technology industry sub-sectors that could be developed. Entrepreneurs have been flocking to the island since early 2018 citing Puerto Rico’s lack of a capital gains tax and political status as part of the United States as reasons for the move.[17] Additionally, the island sits at an advantageous position in the region – and could become a central node in the overall global Internet infrastructure.[18] However, there still are some concerns to exploiting the island’s comparative advantage as a tax haven. Many local Puerto Rican businesses are not fond of the tax exemptions because they cannot compete with the sheer size and resources that the American companies possess.[19] One such cryptocurrency entrepreneur has expressed a desire to make it a focus to employ talented Puerto Ricans in his operations.[20] This is a sentiment that must be developed and promoted in order to ensure the success of both the industry and Puerto Rico.
Implications
A way to resolve this lies in creating a stronger entrepreneurial environment that encourages innovation and business development. As part of this, Puerto Rico could partner with Tesla to build a modern electrical grid that would be more resilient to hurricanes.
Additionally, the Puerto Rican government should stop impeding the development of homegrown businesses through removing or lessening unnecessary business taxes. These taxes hardly affect larger multinational corporations, but hinder the success of homegrown Puerto Rican entrepreneurs.[21]
Puerto Rico should invest more in education for the entrepreneurship and technology sectors. David Bogaty, the president of the Puerto Rican-based firm WorldNet believes that these skills should be encouraged and developed among the Puerto Rican youth so that they could potentially reap great rewards. Bogaty believes that the funding the development of these skills, especially at the University of Puerto Rico, Puerto Rico could cultivate a generation of innovators that would create a booming economy for the island.[22]
Idealistic as Bogaty’s recommendations sound, they could be worth a shot. The island’s population has been in decline since 2004, dropping from almost four million during the early 2000’s to just under 3.5 million today. Additionally, almost 140 thousand Puerto Ricans have left the island since the hurricane. If the exodus from the islands maintains its current rate, the island will drop to just two million by 2050.[23] Puerto Rico needs to take drastic steps to not only revitalize its economy but also retain its population. Attracting multinational companies to the island and promoting and cultivating entrepreneurship among native Puerto Ricans could help mitigate these problems and drastically improve Puerto Rico’s economy.
With a business-friendly atmosphere and an integration of that atmosphere with the future of Puerto Rico, the island will have a more sustainable and reliable electrical system, with an increasingly diversified economy to help provide a sustainable future, both electrically and economically for Puerto Rico.
Sources
[1] Vinik, Danny “How Trump favored Texas over Puerto Rico” Politico (2018). https://www.cnn.com/2018/02/21/us/puerto-rico-migration-data-invs/index.html
[2] Sutter, John et el “Exodus from Puerto Rico: A Visual Guide” CNN (2018). https://www.cnn.com/2018/02/21/us/puerto-rico-migration-data-invs/index.html
[3] Langlois, Shawn “Elon Musk says that, if given the green light, he can power Puerto Rico” MarketWatch (2017). https://www.marketwatch.com/story/elon-musk-says-that-if-given-the-green-light-he-can-power-puerto-rico-2017-10-05
[4] Gallucci, Maria “Rebuilding Puerto Rico’s Power Grid: The Inside Story” IEE Spectrum (2018). https://spectrum.ieee.org/energy/policy/rebuilding-puerto-ricos-power-grid-the-inside-story
[5] Langlois, Shawn (2017).
[6] Russell, Pam et. al., “Puerto Rico Recovery Inches On” Engineering News Record (2018). https://www.enr.com/articles/44243-six-months-later-puerto-rico-recovery-inches-on
[7] Russell, Pam et. al., (2018).
[8] Langlois, Shawn (2017).
[9] Schoen, John W. “Here’s how an obscure tax break sank Puerto Rico’s economy” CNBC (2017). https://www.cnbc.com/2017/09/26/heres-how-an-obscure-tax-change-sank-puerto-ricos-economy.html
[10] Schoen, John W. (2017)
[11] Ibid.
[12] Ibid.
[13] Ibid.
[14] Anderson et. al., “The Next Data Tigers” University of Washington, (2018).
[15] Ibid.
[16] Marvin, Rob “After the Hurricanes, Puerto Rico Eyes a Future as a Tech Hub” 2018. https://www.pcmag.com/news/359393/after-the-hurricanes-puerto-rico-eyes-a-future-as-a-tech-hu
[17] Marvin, Rob, (2018).
[18] Internet Exchange Map (2018). https://www.internetexchangemap.com
[19] Bowles, Nelly “Making a Crypto Utopia in Puerto Rico” New York Times (2018). https://www.nytimes.com/2018/02/02/technology/cryptocurrency-puerto-rico.html
[20]“The Land of Promise for Foreign Investors” Telesur (2018). https://www.telesurtv.net/english/news/Puerto-Rico-The-Land-of-Promise-for-Foreign-Investors-20180213-0030.html
[21] Bogaty, David “Reviving the American Dream in Puerto Rico Through Entrepreneurship” CNBC (2017). https://www.cnbc.com/2017/04/12/3-keys-to-building-success-over-70-billion-puerto-rico-debt-disaster.html
[22] Bogaty, David, (2017).
[23] Sutter, John et. al., (2018).
