While the historical reasoning behind the Jones Act, also known as the Merchant Marine Act of 1920, might have been plausible as the smoke of World War I was clearing and America was contemplating alcohol prohibition, things are a little different in today's global marketplace.
At the time of its passage, proponents argued it was in our national interest to foster a strong domestic maritime industry, which if necessary, could be mobilized in time of war or national emergency. But in recent years, this antiquated law has done little more than stifle competition and raise prices.
As a result, rather than contributing to America's national security, the Jones Act has become a textbook example of a "concentrated benefits and diffuse cost" policy – lining the pockets of a handful of large shipping companies at the expense of American consumers.
The legislation requires four conditions for all goods transported between two U.S. ports. The goods must be transported by ships made in America, that are registered in America, are primarily owned by Americans, and whose crews include at least 75 percent American citizens or permanent residents. These mandates, which may sound reasonable at first glance, result in unnecessary inefficiencies, and create what is effectively a monopoly by shielding the American maritime industry from outside competition — substantially raising prices for American families and small businesses, particularly in regions of the country where folks depend on this type of transportation.
While the act harms all Americans, some consumers are more acutely affected — such as non-contiguous states like Alaska and Hawaii and American territories like Puerto Rico.
And the costs are significant.
For example, former Hawaii state Sen. Sam Slom (R) pointed out that shipping a 40-foot container from Los Angeles to Shanghai costs $790, while it costs $8,700 for the same container to ship from Los Angeles to Honolulu. That's hardly chump change.
As for Puerto Rico, the act is a one-two punch, putting the island at a competitive disadvantage with respect to producers from Mexico and other Caribbean islands, while curtailing its geographical competitive advantage as a would-be hub for transshipment operations. Additionally, the law significantly raises the cost of living for the island's beleaguered residents, still reeling from the financial crisis.
A report from the Federal Reserve Bank of New York estimated that the cost of shipping a 20-foot container from the East Coast of the U.S. to Puerto Rico was $3,063, whereas the same shipment cost just $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica). That just doesn't make sense.
Making matters worse, the regulatory net entangling the shipping industry is expanding. A recent article by the Mercatus Center at George Mason University illustrates the increasing rate of protectionist restrictions on the shipping industry. These restrictions have grown markedly in the last few decades — from more than 300 in 1970 to almost 8,000 in 2014, a staggering increase exceeding2,400 percent.
The latter trend should not be surprising. As the economic logic of concentrated benefits and diffuse cost would suggest, the agents receiving the benefits vigorously lobby to insulate themselves from competition – in this case leaving American consumers adrift in a sea of ever rising prices.
Nonetheless, in the unique case of Puerto Rico, the harm the Jones Act has inflicted to its competitiveness and to its economy are undeniable. The law is a significant contributor to the island's economic woes and a major obstacle to growth and opportunity.
With each passing day that Congress refuses to repeal or modernize the Jones Act, American consumers will continue subsidizing a handful of uncompetitive maritime unions and U.S. shipping magnates in a high-seas example of cronyism.
If they truly want to help Puerto Rico, politicians in Washington can take an immediate and easy step that would help right the economic ship in Puerto Rico — sinking this outdated law.
Martin Rodriguez is a policy analyst at Americans for Prosperity.
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