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You Are Here: Home > Essay Topics > Business Essays and Research Papers > Economic Development  > Research Paper on Operation Bootstrap

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Research Paper on Operation Bootstrap

Operation Bootstrap was a development policy implemented in Puerto Rico after World War II (1939-1945) that achieved rapid industrialization of the island's economic structure. Critics, though, contend that the policy brought about steep agricultural decline and dislocation, large-scale emigration, and increased economic dependency.

Puerto Rico, a colony that the United States took from Spain during the 1898 Spanish-American War, had until World War II an agricultural economy plagued with severe unemployment and poverty. Teodoro Moscoso (1910-1992), the first director of Puerto Rico's Economic Development Administration (popularly known as Fomento), and Luis Munoz Marin (1898-1980), Puerto Rico's first elected governor, concluded that the best solution to the island's development problems was to promote industrial investments from the United States.

They proposed using tax exemptions, approved by Puerto Rico's legislature in 1947, to entice American corporations to set up factories on the island. Further attractive conditions for corporate investment were low labor costs, laws allowing products to enter the United States duty free, and the security of operating in an American-controlled territory.

Munoz Marin first used the name Operation Bootstrap in 1949 in testimony before the U.S. House of Representatives Committee on Public Lands. "We are trying to lift ourselves by our own bootstraps," he stated. The name, though, was a disingenuous misnomer, in that it metaphorically implied endogenous development when the plan in reality relied upon foreign investment. The more accurate translation for the program's name in Spanish, manos a la obra, is "let's get to work."

In order to further its campaign to attract U.S. industrial investments, Fomento employed American advertising agencies, including one headed by David Ogilvy (1911-1999), to create a positive image of Puerto Rico and the idea that the island was undergoing a renaissance. American corporations responded quickly. In its first phase, which lasted up to the 1960s, Operation Bootstrap attracted low-wage, labor-intensive industries, particularly in textiles and clothing. The subsequent second phase attracted more capital-intensive industries in petrochemicals, oil refinement, and pharmaceuticals.

At the high point of Operation Bootstrap's tax-exemption policy in the 1960s, U.S. corporations could operate on the island completely exempt from all federal and local taxes and could repatriate profits tax-free to the mainland. In addition, they were exempt from federal minimum-wage requirements. Both of those conditions have since been modified. Federal minimum-wage requirements were instated on the island in 1976, and in 1996 the U.S. Congress began a ten-year phaseout of Section 936 of the Internal Revenue Code, which gave corporations credits for federal taxes paid on profits gained in Puerto Rico. Thereafter, Operation Bootstrap could only offer corporations exemption from local taxes.

Many officials saw Operation Bootstrap as transforming Puerto Rico into a showcase for what American development policy could do for Latin American countries and therefore as a model or prototype that other Latin American countries should adopt as well. Bootstrap's importance as a model for other countries became evident in the Cold War 1960s when nearby Cuba adopted an alternative socialist development model. Operation Bootstrap, by sticking to a capitalist strategy that relied upon private investment from the United States, directly countered the Cuban socialist strategy, which relied on state investment and sought independence from traditional American economic domination. That Teodoro Moscoso became the first director of John F. Kennedy's (1917-1963) Alliance for Progress, which was established in 1961 in large part to counter Cuban influence, underscores Bootstrap's importance as an early model for American development policy for Latin America.

Operation Bootstrap's basic proposals of relying on foreign, particularly American, investment and opening up economies to free trade were components of the Caribbean Basin Initiative promoted by the Ronald Reagan (1911-2004) administration in the 1980s as an answer to the 1979 Sandinista revolution in Nicaragua and revolutionary movements in El Salvador and Guatemala. They also became basic principles of the 1994 North American Free Trade Agreement (NAFTA) and attempts to develop a free trade agreement for the Americas.

More than a half century's experience, however, indicates that Operation Bootstrap has had mixed results for Puerto Rico. There is no question that within decades the profile of its labor force changed to approximate that of the United States and other developed countries with proportionately few workers remaining in agriculture, many more in industry, and the majority in services. There is also no question that Puerto Rico's living conditions improved, though they are still far from being at a par with those in the United States.

But Operation Bootstrap also increased the economic dependence of Puerto Rico on the United States, undercutting development of a self-sustaining economy and economic sovereignty. One of the policy's political consequences may well have been to undercut support for political independence, with substantial numbers of Puerto Rican voters believing that the island absolutely needed continued U.S. control for economic survival.

Operation Bootstrap never accomplished one of its promised objectives: to reduce unemployment to tolerable limits. Official unemployment figures remain much higher on the island than in the United States. Because Puerto Rico's labor-force participation rate is comparatively low, hidden unemployment is even higher. Support for the island's unemployed population requires significant transfer payments in the form of food stamps and other welfare aid from the United States. The seeming progress Bootstrap made in lowering official unemployment figures required exporting great numbers of the unemployed to the mainland United States.

As Bootstrap-stimulated industrial investments increased, labor-intensive agriculture declined. Because of improvements in transportation technologies, including air freight, brought on by World War II necessities, it became easier for American farmers to export their surpluses to the island, sell them at low prices, and thereby take markets away from Puerto Rican farmers.

The decline of Puerto Rican farming swelled the ranks of the already large unemployed population, and the growth of unemployment outpaced the creation of Operation Bootstrap's new industrial jobs. A significant proportion of the unemployed then migrated to the United States in search of work. In 1940, before the advent of Operation Bootstrap, 96 percent of all Puerto Ricans lived on the island. That percentage declined steadily as Operation Bootstrap-induced industrialization and agricultural decline progressed. By 1960, it had fallen to 72 percent; by 1980 to 61 percent; and in 2004 the line was crossed with a majority of Puerto Ricans living off the island, the vast majority in the mainland United States. The architects of Operation Bootstrap believed that the island was absolutely overpopulated and actively encouraged this emigration as a safety valve to keep unemployment from being higher than it otherwise would be. For the migrants though, life in the United States has proved to be problematic. Despite having on average higher incomes and less poverty than their island counterparts, their economic conditions remain among the lowest of ethnic groups in the United States, in large part owing to considerable discrimination and ethnic and racial prejudice.

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