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NACIMIENTO DEL CAPITALISMO PUERTORRIQUEÑO DE LA POST GUERRA 

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Introducción

En los 1940s, cuando el Gobernador de Puerto Rico era aún designado por el Presidente de EEUU, se construyó un gran sector público empresarial. Más tarde, en 1948-1950, el primer gobierno electo de la isla privatizó esas empresas. Este trabajo documenta la creación de empresas públicas y su privatización en Puerto Rico, y analiza el papel desempeñado en la privatización por la ideología, los intereses políticos y las motivaciones económicas. Mientras que factores ideológicos pudieron ser importantes en la creación del sector público empresarial, en la privatización jugaron un papel clave factores económicos como la superior eficiencia de la empresa privada competidora en el sector de cemento, y las continuas pérdidas experimentadas en el resto de empresas manufactureras públicas.

GERMÀ BEL Universitat de Barcelona (GiM-IREA) & Barcelona Graduate School of Economics a (Forthcoming in Journal of Iberian and Latin American Economic History)

* Acknowledgements: This research received financial support from the Spanish Government (SEJ2006- 04985 & ECO2009-06946), the Government of Catalonia (SGR2009-1066), and ICREA-Academia. Most of this work was done while I was Visiting Scholar at Universidad de Puerto Rico (UPR). I have benefited from open access to the Colección Puertorriqueña in the UPR Library, and the Historical Archive of the Fundación Luis Muñoz Marín. María E. Ordóñez Mercado (CP-Library UPR) and Julio Quirós (Fundación LMM) were extremely helpful. I am particularly indebted to Silvia Álvarez Curbielo, who first directed my attention to privatization in Puerto Rico. I have benefited from comments and suggestions from Ricardo Alegría, Francisco Catalá, Fernando Fernández, Manuel Gonzalez, Mariluz Jiménez, Ana Matanzo, Efrén Rivera, and two anonymous referees. a Departament de Política i Estructura Econòmica Mundial, Universitat de Barcelona, Avd. Diagonal 690, 08034 Barcelona, Spain, e-mail: gbel@ub.edu

Sigue en inglés documento original:

THE FIRST PRIVATIZATION POLICY IN LATIN AMERICA: SELLING STATEOWNED ENTERPRISES IN 1948-1950 PUERTO RICO 

ABSTRACT 

In the 1940s, when the Governor of Puerto Rico was still appointed by the US President, a large state-owned enterprise (SOE) sector was established. Later, in 1948-1950, the island’s first elected government privatized these SOEs. This paper documents both the creation of the SOE sector and its privatization, and analyzes the role played by ideology, political interests, and economic concerns in the decision to privatize. Whereas ideological factors might have played a significant role in the building of the SOE sector, the privatization process was driven by economic factors. In the cement sector, the competing private firm was more efficient, and the SOEs in other sectors with no private competitors in the island showed permanent losses.

Most Economics and Public Policy scholars consider the privatizations in Chile (1970searly 1980s) and the United Kingdom (1980s-early 1990s) to be the first privatization policies in modern history.1 Others argue that the first privatization operation was the denationalization of steel in the UK in 1953,2 and a few scholars see the partial sales of stateowned enterprises in Germany under Adenauer’s government (late 1950s-early 1960s) as the first large-scale privatization program.3 However, recently published works have documented and analyzed a large-scale privatization policy between 1934 and 1937 in Germany, under Hitler’s government (Bel, 2006; Bel, 2010).4. Another recent study has examined a large-scale privatization under Mussolini’s first government in Fascist Italy, between 1922 and 1925.5 

 

Contemporary economic analyses of privatization have so far neglected an important, early case of large-scale privatization: the one carried out by the first democratically elected Governor of Puerto Rico in the late 1940s, which appears to have been the first large-scale privatization policy implemented in a democratic regime.6 A number of studies of industrial and administrative policy in Puerto Rico in the 1950s7 and 1960s8 noted the sale of stateowned enterprises between 1948 and 1950.9 However, none of these works provided an analysis on the privatization policy implemented; neither on the process, nor on the objectives. Indeed providing an analysis of the process and the objectives is the main contribution of this work. 

Within two years of the first democratic gubernatorial election in Puerto Rico in 1948, the government of the Partido Popular Democrático (Democratic Popular Party) had privatized all the state-owned manufacturing firms. These firms belonged to a wide range of sectors: cement, glass, shoes, paper and chalkboard, and clay products. The enterprises that were transferred to the private sector had been created during the 1940s in an attempt to promote industrialization, and had been managed by the island’s government. The nationalization of existing public services companies (such as water, transport and energy) and the creation of state-owned enterprise sectors was an important policy in Puerto Rico in the early 1940s. 

Nationalization and the expansion of the SOE sector were common in other countries in the World during the decade, but Puerto Rico was alone in reversing the trend and developing a policy of privatization of the state-owned firms in the late 1940s. In fact, in the post-war period no other country in the world engaged in such a policy until 1959, when Germany embarked on a privatization program.10 Hence, a central question remains to be answered: Why did the Puerto Rican government depart from the mainstream policies regarding State ownership in the post-World War II era, by privatizing state-owned firms?

Answering these questions requires an analysis of the objectives of the country’s privatization scheme. This paper intends to fill a gap in the economic literature by tracing the course of privatization in 1948-1950 Puerto Rico through a study of: (1) Muñoz Marín’s personal archive (accessible after the Fundación Luis Muñoz Marín was created in 1980);11 and (2) the documentation of the Puerto Rico Industrial Development Company, which only became available after they were donated to the Fundación Luis Muñoz Marín in December 2008. The analysis of privatization in Puerto Rico suggests that the objectives pursued by the island government were mostly related to economic concerns. One key factor was the poor performance of the manufacturing SOEs; another was the desire to enhance Puerto Rico’s ability to attract private capital (particularly from continental US) to invest in industries. In contrast, fiscal objectives do not seem to have been an important issue in the decision to privatize, nor did strong ideological or political motivations play a significant role. 

The rest of the paper is organized as follows. First, I document the building of the Puerto Rican SOE sector. Next, I examine the privatization process and its results. After this, I analyze the objectives of the privatization policy. Finally, the main conclusions are drawn. 

2. THE BUILDING OF THE STATE-OWNED ENTERPRISE SECTOR 

In September 1941, Rexford G. Tugwell was appointed Governor of Puerto Rico. A former professor at Columbia University, Tugwell had served as Undersecretary in the Department of Agriculture in Roosevelt’s first New Deal government. At that time, he had visited Puerto Rico, and on his return, in April 1934, he prepared a report for President Roosevelt. Tugwell’s view of the transformation of Puerto Rico was that industrialization would not occur unless the government took the initiative. This continued to be his approach when he became Governor in 1941. Throughout his tenure, he made concerted efforts to promote a policy of government-induced industrialization.12 Tugwell made his intentions very clear in his earliest speeches to the Puerto Rican Legislature.13 

On November 18, 1941, Tugwell appointed Teodoro Moscoso as coordinator of the island’s affairs. Moscoso was to play a crucial role in the industrialization program soon to begin. To improve Tugwell’s relationship with the Puerto Rican Legislature, he forged an alliance with Luis Muñoz Marín,14 who had obtained the powerful position of President of the Senate (the highest post that a Puerto Rican politician could hold) after the November 1940 election. In the 1940 electoral campaign, Muñoz Marín’s Partido Popular Democrático (PPD) had pledged to place primary emphasis on issues related to economic reform, instead of the traditional discussion of the island’s political status. A majority in the Legislature was in favor of economic reform,15 and Tugwell was able to pass the legislation required to create the legal framework for the government-led industrialization policy. The key step was the approval by Act No. 188 (May 11, 1942) of the Law of the Development Company, according to which «wide authorization to go into business was provided.» 16  

The Puerto Rico Development Company (PRDC henceforth; in 1946 it was renamed the Puerto Rico Industrial Development Company, PRIDCO thereafter) was organized along the lines of the Chilean Development Company, which had been created several years before.17 Moscoso was appointed general manager of PRDC on September 30, 1942, and the company began operating in October. Its first (and most important) factory was Cementos de Puerto Rico (the Puerto Rico Cement Company), with assets of around US$2,000,000. 18 The government’s common stock participation of in this venture19 was transferred to PRDC in 1943, 20 and thereafter the federal participation was paid in full out of the profits.21 

Besides PRDC, two other key agencies for the development program were created in 1942: the Puerto Rico Planning Board, and the Government Development Bank. Other sectorrelated agencies were created between 1941 and 1945: 22 The Water Resources Authority, the Transportation Authority, the Communications Authority, the Insular Sewerage Service, and the Puerto Rico Aqueduct Service.23 This put in place the institutional framework needed to develop the policy of government-led industrialization. 

All public enterprises were organized as independent public corporations; they were legally incorporated (thus, placed outside the bureaucracy), intended to be financially selfsufficient.24 In line with this modern approach to public management of commercial firms, Moscoso worked hard to make PRDC’s operations profitable, and soon demanded that services that were provided free should be separated from the company’s general services.25 

In the following years, the newly created agencies took over several privately owned utilities. In January 1944 the Puerto Rico Water Resource Authority took over the Puerto Rico Railway Light and Power Company and the Mayagüez Light Power and Ice Company, bringing all electric power utilities in Puerto Rico under its control.26 Later the Transportation Authority took over the urban transport system in San Juan. This policy closely resembled the ones applied in many US states and municipalities in the late nineteenth and early twentieth centuries, a period characterized by a progressively greater involvement of governments in the delivery of local services.27 

What was exceptional in the Puerto Rican policy of the 1940s was the fact that the PRDC created new manufacturing plants, which were built and run by the following government corporations: 

* The Puerto Rico Glass Corporation (PR Glass, henceforth) was incorporated on February 24, 1943.28 The construction of the factory began in May 1943, and glass production began in January 1945, but production stopped due a strike between February and June 25, 1945.29 Production was resumed after the strike.  

* The Puerto Rico Pulp and Paper Corporation (PR Pulp and Paper, henceforth) was organized on April 23, 1944.30 Construction began in May 1944 and the production of paperboard began on May 6, 1946.31 

* The Puerto Rico Clay Products Corporation (PR Clay Products, henceforth) was created on November 6 1944;32 the preliminary work for building the clay products factory was completed by June 1945. The first kiln was completed in May 1947 and production of brick and hollow tile began in August 1947.  

* The Puerto Rico Shoe and Leather Corporation (PR Shoe and Leather, henceforth) was incorporated in January 1946. The plant opened (although construction was still incomplete) on July 1, 1946, and commercial operations began in February 1947.  

* Telares de Puerto Rico, inc. (PR Telares, henceforth) was incorporated in 1946, and work was scheduled to start before the end of 1946.33 But the plant was never built to be managed by PR Telares; this subsidiary was dissolved in June 1951.34 

 

Table 1 provides details of PRIDCO’s six subsidiary corporations. In most cases, actual investment was much higher than had initially been expected. According to Descartes (1950: 31), total direct investment of PRIDCO in the subsidiary plants until June 30, 1949 was US$11.1 million (133.1 million in 2010 US$), a large financial commitment. Table 2 displays information on the production and work force of the subsidiaries in the final years of the 1940s, when all plants (but PR Telares) had begun commercial operations. 

PRIDCO plants required large investments, but they employed relatively few workers: in June 1948, when all plants were in operation, the total work force was only 992 employees.35 In fact, the creation of the manufacturing state-owned sector seems to have had a minimal effect on industrial employment, far below what an effective industrialization policy for the island might have been expected to achieve. Because most PRIDCO plants were capital intensive, their work force represented only 1.6 per cent of the island’s employment in manufacturing.36 

3. PRIVATIZATION OF THE STATE-OWNED MANUFACTURING FIRMS

On February 12, 1946, Tugwell delivered his last Governor’s Message to the Legislature. Tugwell (1947: p. 49) concluded as follows: 

“It is with some emotion that I tell you at the opening of this regular session of my approaching departure….I have already noted some of the credits, the largest being the program for economic rehabilitation which has been begun. And next, perhaps, the public ownership and operation of public utilities." 

The 46th Annual Report (1945-46) was the last one delivered by Tugwell, who was replaced shortly afterwards by Jesús T. Piñero, the first native Governor of Puerto Rico. 

Piñero was the last governor to be appointed by the US President. Interestingly, Muñoz Marín – then still President of the Senate – had been offered the governorship, but he preferred to wait until the first gubernatorial election, scheduled for November 1948. Following Muñoz Marín’s suggestion, Piñero, a PPD member, was appointed to the office. In any case, thereafter Muñoz Marín held total command of the executive power in Puerto Rico, adding this to the full control the PPD had obtained over the Legislature. Whereas the PPD had won the 1940 election to the Legislature by a very narrow margin, the 1944 election had produced the largest victory in the history of Puerto Rico: the PPD took all seven Senatorial districts and 34 of the 35 Representative districts, thus gaining full control of the Legislature. 

Together with these institutional changes, the economic environment had dramatically changed as well after the end of World War II. Maritime transportation and trade in the Caribbean Sea progressively returned to normal, thus increasing the competition facing the commercial products manufactured in the island. This change was of great importance. The decision to establish a state-owned manufacturing sector had been taken within the pre-war and wartime context, when the growing tension and subsequent hostilities profoundly affected maritime transportation and commerce in the Caribbean, particularly between 1942 and 1944. Hence, most government-owned manufacturing firms had been designed to supply the local market;37 by the time all five subsidiaries were finally in full commercial operation in 1947, the market conditions on the island had changed dramatically. Besides, technical and commercial problems had seriously affected the performance of some of the subsidiaries, especially the PR Pulp and Paper Co., and the PR Shoe and Leather Co.38 

The Puerto Rican government followed these developments closely, and expressed its official views in the Annual Reports to the Legislature (see table 3). Tugwell’s Reports (1941- 1946) had supported the increasing role of the government in manufacturing. Projects were expanding each year, and emphasis was put on the development of the factories. The Reports also mentioned the difficulties caused by labor conflicts and extra costs of investments.

Please continue reading the full PDF document tables & footnotes:

http://www.ub.edu/graap/JILAH_PuertoRicoPaper_Def%20June%2019.pdf