The federal Chapter 9 bankruptcy declaration by the Puerto Rican (PR) government in May 2017 was the first time a US sovereign territory declared insolvency with $72 billion of debt. PR, over time, borrowed money for several government bond issues, bond payments were not timely made, ongoing inappropriate spending of taxpayer dollars, and not investing in upkeep of government-owned electricity and public water supply infrastructure. PR emerged from federal bankruptcy in March 2022, with total debt reduced by 80 percent and financial losses for PR bond holders. PR government leaders were not removed from their jobs after bankruptcy completion.
Socialism, defined as a noun, from dictionary.com is “a theory or system of social organization that advocates the ownership and control of the means of production and distribution, capital, land, etc., by the community as a whole, usually through a centralized government.” Some PR governing policies parallel Venezuela’s socialism. PR government utility ownership led to poor investment and maintenance in their property, everyday citizens suffered, and some governing elites were not impacted by their poor policy choices.
Puerto Rico
PR’s territory residents are US citizens, have no representatives or senators in Washington, DC, are subject to a territory income tax, must comply with most federal laws, can sue in federal courts, use the US dollar, and are eligible to vote in elections for governor, a legislative assembly, and local governing councils. Their governing actions lean toward socialism with examples of government-owned electricity generation and distribution and public water supply and treatment.
PR was hit by hurricanes Irma (category 5) and Maria (category 4) at landfall in September 2017, which devastated the electric grid, damaged water supply infrastructure with floods and landslides on rural roads. Island electricity restoration took several months. PR’s hilly terrain makes water supply a challenge where pumps need electricity to operate. The PR government hurricane disaster response showed great unpreparedness. Electric and water restoration difficulties lead many people to emigrate to the US mainland for better economic opportunities.
PR total government debt ballooned in the 21st century in the bar graph below.
Venezuela
Venezuela has more recoverable crude oil (crude) reserves than any country in the world. Their economy thrived in the 1970’s from exported crude revenue. The revenue jump resulted from crude price increases after the 1973 Organization of the Petroleum Exporting Countries oil embargo of several countries supporting Israel during the 1973 Yom Kippur War. Crude companies were nationalized by the Venezuelan government in 1975 creating Petroleos de Venezuela, S.A. (PDVSA) where it had a 60 percent ownership share of all crude projects. PDVSA has ownership of US crude refiner CITGO.
Hugo Chavez’s 1999 election as president led to the government using crude revenue to fund social welfare programs and economic subsidies. They chose not to reinvest much revenue into crude industry upkeep and operation. The socialist policies continued after his death in 2013 with his appointed successor, Nicolas Maduro.
Recent economic history showed daily crude production dropped, crude exports declined, government crude revenue plummeted, social welfare program funding contracted, and federal government corruption and economic mismanagement grew over time. World crude price drops in 2008 and 2014 aggravated the country’s crude revenue problem. The exchange rate percent change of the Venezuelan bolivar with the US dollar was about 1300 percent from 2014 to 2024 making one bolivar nearly worthless.
Venezuela’s economic socialism failures were not caused by one human action, but several human actions converging in 2014 to 2024. Approximately 7.7 million Venezuelans emigrated since 2015 or about 15 percent of their population, probably never to return.
Here are some parallels of PR and Venezuela’s economic and governing actions:
- PR declared bankruptcy and Venezuela is close to bankruptcy
- Excess government spending
- Government majority-owned or sole ownership of companies not incentivized to invest, maintain, and operate each one efficiently led to economic losses in revenue over time
- Little to no economic reforms to privatize each government majority- or solely-owned company
- Family and friends associated with government officials are positioned to benefit from government money, contracts and influence
- Citizens emigrating to pursue prosperous opportunities in other places
- Crude, electricity, and water infrastructure are poorly maintained
PR’s current and past governance and economic struggles like Venezuela’s serve as a warning that socialism—in its many forms, and its attendant bankruptcy—is on the US mainland doorstep.
