Facing Financial Crisis, Puerto Rican Government Lays Off 100,000: Union Response Is Divided

Over 100,000 workers in Puerto Rico were tossed off the job May 1 when their employer, the Puerto Rican Commonwealth’s government, shut down. Claiming that it could not afford to pay its employees’ salaries, the government closed up most of its operations, including all public schools.

To avert the shutdown, Puerto Rico’s governor, Anibal Acevedo Vilá of the Popular Democratic Party, had proposed a seven percent sales tax on all consumer goods—in essence, asking workers to fund their own salaries. The governor’s rivals in the Puerto Rican legislature, the New Progressive Party, advocated a four percent tax instead.

The politicians’ disagreement led to an impasse that sent 10 percent of Puerto Rico’s workforce home without pay on May Day.

PRIVATIZATION’S FAILURES

The fiscal crisis in Puerto Rico has deep roots in the government’s privatization policies. The administration elected in 1992 privatized Puerto Rico’s public industries—including telecommunications, shipping, and health care. The government also borrowed heavily, mostly in the form of bonds, to invest in public infrastructure projects.

This economic facelift was supposed to make the island more attractive to corporations. That hope fizzled: the private sector didn’t grow fast enough to compensate for the loss of manufacturing jobs.

The privatization makeover left the Puerto Rican government in massive debt and unable to meet its financial obligations. Wall Street took notice.

As the island’s financial crisis loomed, the powerhouse credit agencies Moody’s and Standard and Poor’s threatened to lower Puerto Rico’s credit rating. When the government shut down, Moody’s downgraded Puerto Rico’s bonds to junk and just-above-junk status. The agency publicly applauded the governor’s decision to lay off 100,000 workers.

DIVIDED RESPONSE

In response to the crisis, Puerto Rico’s unions mobilized hundreds of thousands of people to take to the streets. But their efforts were disorganized and divided.

A couple of unions called a protest against the legislature. Others pushed for demonstrations against banks.

A different group of unions wanted a rally against the governor. Yet another group announced a national strike, only to have part of its contingent decide not to participate. The unions’ infighting did nothing for the rank-and-file members whose jobs had been pulled out from beneath them.

The incoherence of the Puerto Rican labor movement’s response reflects deep political divisions between its four main camps: the AFL-CIO unions, the Change to Win unions, the Central Puertorriqueña de Trabajadores (CPT), and the Coordinadora Sindical.

The Coordinadora Sindical, headed by the electrical workers’ union, UTIER, and the teachers’ union, the Federación de Maestros (FMPR), united under the slogan, “Neither four percent nor seven percent! Let the rich pay for the crisis!” FMPR president Rafael Feliciano told the Puerto Rican daily El Nuevo Día, “We will do everything that is in our reach so that the profits of the rich are affected, because if we can’t have our salaries, they should not have their profits.”

SEIU, which represents school cafeteria employees and health care workers on the island, joined Puerto Rico’s Teamsters local and an independent union of truck drivers in backing the Coordinadora Sindical’s demands.

SOME UNIONS BACK TAX

SUPPORT LABOR NOTES

BECOME A MONTHLY DONOR

Give $10 a month or more and get our "Fight the Boss, Build the Union" T-shirt.

The Servidores Públicos Unidos (SPU) and the Puerto Rican locals of AFSCME, the United Auto Workers, and the United Food and Commercial Workers sided with the governor. Arguing that a seven percent sales tax would end the crisis and put workers back on the job, the group rallied, lobbied, and promised to put up an electoral fight: “Stop the abuse! Let’s resolve the stalemate! If they don’t respond, we’ll throw them out in 2008!”

AFSCME leader Ellie Ortiz criticized the Coordinadora Sindical’s strategy of demanding that large corporations pay the government’s debt, asserting in El Nuevo Día that “the solution is in the legislature. Engaging other sectors [the private sector] is out of context.” (Despite this, Ortiz’s AFSCME local also rallied against one of the island’s main banks, Banco Popular.)

The CPT unions and the AFL-CIO state federation of Puerto Rico waffled on the issue of the sales tax, first opposing and then supporting it.

After two weeks of marches and demonstrations led mainly by the unions, the governor appointed a commission to negotiate an end to the shutdown. Their solution? To impose a sales tax that will secure the government yet another loan--one that runs out in June 2006.

The bailout tax hits Puerto Rican workers at a time when their resources are already stretched thin. Gas prices have increased sharply, along with the cost of potable water, electricity, public transport, and other necessities that working families depend on.

ROOTS OF CRISIS

This fiscal crisis—which is far from over--has deep roots planted by Puerto Rico’s colonial business and political leaders who turned the island into a tax haven for capital and built a highly indebted government on workers’ back.

Since World War II, Puerto Rico has undergone two major economic shifts. The first occurred around 1947, when the governments of Puerto Rico and the U.S. brokered a deal to industrialize and modernize Puerto Rico. The economic development plan, known as Operation Bootstrap, intended to attract light manufacturing to the island (like the garment and apparel industries) through federal and local tax incentives and low wages for workers.

The project was successful in transforming Puerto Rico from an agriculturally-based economy to a manufacturing economy, but only after millions of surplus workers migrated to the U.S. in perhaps one of the largest migration waves of modern history.

However, by the late 1960s, the “Puerto Rican miracle” began showing signs of exhaustion. The world markets for commodities such as garments, one of Puerto Rico’s main exports, internationalized further and Puerto Rico began to lose its competitive edge.

The 1970s global economic crisis sent the Puerto Rican economy reeling. Consumer prices soared, wages stagnated, and unemployment levels reached over the 25 percent mark.

The 1970s crisis was temporarily solved by a rehash of the old Operations Bootstrap principles—such as new tax incentives for investors—and food stamps and similar anti-poverty measures. This medley of tax cuts and “factories and food stamps,” as coined by social scientist Robert Weiskoff, was further complemented by a large increase in local government employment. By the 1980s, the Puerto Rican government was employing about a third of Puerto Rico’s workforce.

A MOVEMENT DIVIDED

In the current crisis, where government employees were forced to pay for a crisis that they did not create, the labor movement was able to mobilize hundreds of thousands of people to take to the streets. However, it was also disorganized and divided.

Puerto Rico’s unions have proven their ability to get people marching in the streets. But to change the course of events on the island, they have to unite around a common solution--one that doesn’t ask workers to foot the bill.

César F. Rosado Marzán is a labor attorney and sociologist.