2019 Economic Freedom Index report: PR sees rise in labor freedom, declines in tax health, etc

By The Star Staff

The Center for Economic Renewal, Growth and Excellence (CRECE by its Spanish acronym) on Monday unveiled the results of the 2019 Economic Freedom Index for Puerto Rico based on The Heritage Foundation methodology, which measures the effectiveness of public policy in promoting economic freedom and sustainable growth.

It was the third edition of the Economic Freedom Index for Puerto Rico. The study focuses on four aspects of the economic environment over which the government exercises public policy. These are: 1) rule of law; 2) government size; 3) regulatory efficiency; and 4) market opening. The study was performed by the local firm Economic Intelligence.

“The Economic Freedom Index for Puerto Rico is a valuable tool for outlining a path to prosperity and growth,” CRECE Executive Director Tere Nolla said. “The analysis allows us to study the degree of economic freedom in Puerto Rico, which we know promotes human dignity. People living in countries with greater economic freedom enjoy greater food security, higher incomes, better environmental quality, and better quality of life.”

For 2019, Puerto Rico ranked 69th out of 180 countries with a score of 64.4, representing an increase of 3.4 points vs. 2018. The level of economic freedom in Puerto Rico is moderate and comparable to that of countries such as Mexico (64.7) and Turkey (64.6). In the Latin American and Caribbean region, the United States, Colombia, Panama, Costa Rica, Barbados and Mexico outperform Puerto Rico in their ranking of economic freedom and ease of doing business.

This year’s report shows a slight improvement for Puerto Rico in the subcategory of Labor Freedom, which rose by two points from 2018 to 2019. This increase, although slight, can be attributed to the implementation of the 2017 Labor Reform, through which companies obtained greater flexibility to optimize their operations.

The report also indicates that score improvements in certain subcategories don’t respond to changes in local public policy, but rather to limitations in the data available for performing calculations using The Heritage Foundation methodology, after Puerto Rico was excluded from the World Competitiveness Report of the World Economic Forum. Due to the lack of data, other resources were used that particularly affected scores in the subcategories of Right to Property, Government Integrity and Judicial Effectiveness.

Meanwhile, the report emphasizes that scores in the subcategories of Monetary Freedom, Trade Freedom, Freedom to Invest and Financial Freedom for Puerto Rico are the same as in the United States, because federal public policy applies in these categories. Therefore, any fluctuations in these categories respond to actions taken by the federal government.

In 2019, Puerto Rico experienced decreases in government spending, tax health and business freedom scores. The drop in the subcategories of Government Spending and Fiscal Health are due to the increase in government spending for the recovery of Puerto Rico post-Hurricane Maria that respond to federal funds transfers for the reconstruction of Puerto Rico, but not in government revenue. In the Business Freedom category the score dropped 10.8 points between 2018 and 2019. This reduction is not due to local actions, but rather to assertive steps taken in other jurisdictions around the world that increased the international average. In other words, countries around the world are acting to improve their Economic Freedom Index and competitiveness, while Puerto Rico remains stagnant.

For the first time, this year’s report includes a comparison of economic freedom between Puerto Rico and the 50 states focusing on specific U.S. cities. The analysis was conducted using a study by Arizona State University called Doing Business in North America (DBNA), which measures the economic freedom of 115 cities in the U.S., Canada and Mexico based on the World Bank’s Doing Business report. In the DBNA report, the city with the highest score was Oklahoma City with 85.2, which would position it as the fifth largest economy in the world with the most ease of doing business. In this analysis, Puerto Rico ranks 57th among 66 cities in the United States, with an index of 70.1.

The analytical comparison between Puerto Rico and U.S. cities highlights the importance of expanding economic freedom to effectively compete with states and other countries. The analysis also emphasizes the reason why Puerto Ricans move to cities like Orlando, Fla. and Bridgeport, Conn., looking for greater opportunities and a better quality of life.

“Continuing to delay the adoption of public policy that promotes economic freedom and prolonging reliance on federal funding related to disasters puts us at a disadvantage compared to other jurisdictions,” said economist Gustavo Vélez, who was in charge of the study. “We have the opportunity to promote structural reforms that allow us to improve the business environment, expand economic freedom and place Puerto Rico in a more favorable competitive position.”

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