The term competitiveness refers to productive efficiency, or getting the most output from available resources. For Puerto Rico, being competitive means that its workforce and capital stock are fully utilized and allocated to their most productive uses. In a more dynamic sense, being competitive implies that conditions and policies are in place to support business development and innovation. Increasingly, competitiveness also encompasses the capacity to adapt quickly and efficiently to the many changes taking place in the global economy. This latter dimension is particularly important for Puerto Rico, because as a small island economy, it faces stiff competition from a variety of alternative locations.
On several measures, Puerto Rico has features that make it a strong—and potentially a highly competitive—economy:
- The literacy rates and educational attainment of Puerto Rico’s adult population compare favorably with those of most economies in the region, and have nearly caught up with those on the U.S. mainland.
- The labor force is largely bilingual.
- The economy is open and is favorably located, occupying a central position in the Caribbean and providing a gateway between the the U.S. mainland and Latin America.
- The Island has extensive experience as a host to a variety of major U.S. multinational corporations.
The Island also benefits from close ties to the U.S. mainland economy: The residents are U.S. citizens with unrestricted access to the mainland, the dollar is the official currency, the legal system affords the protections of the U.S. constitution, and Federal grants support a number of programs available to U.S. mainland residents, particularly in the areas of health and education.
However, after making considerable economic progress during the early part of the twentieth century, Puerto Rico since the 1970s has seen that progress stall. The Island has been operating below its potential and the competitiveness of the economy has been deteriorating. Of particular concern is the scant progress made in addressing the Island’s long-standing high unemployment and strikingly low rate of labor force participation. Compounding this long-term economic stagnation, the current cyclical downturn on the Island has been deeper and more protracted than that on the U.S. mainland, and activity has yet to show strong signs of recovery.