News broke Monday that the FBI is investigating what appears to be a suspect deal between Puerto Rico’s state-owned power company, Prepa, and a small Montana-based company called Whitefish Energy Holdings LLC. Under the terms of the $300 million contract, Whitefish was to assist in the rebuilding of the U.S. territory’s infrastructure ravaged by Hurricane Maria. It’s unclear why a small, two-year-old company in a remote location was tapped for the deal, but its location in the district of former Rep. Ryan Zinke—currently the secretary of Interior—may have grabbed the attention of investigators.
If the deal is half as dubious as it appears to be, it’s only the latest in a long series of bad policies and poor decision-making that keeps Puerto Rico in a permanent state of economic debilitation.
Seventy percent of the island is still without power from a storm that hit the island over a month ago. Unemployment remains well above 10 percent, the territory loses around 2 percent of its population every year, and the government’s nearly $75 billion in debt can only be repaid by raising taxes—which only encourages more Puerto Ricans to flee the island for better prospects on the mainland.
In March of this year the Puerto Rican government proposed an economic turnaround plan (eventually approved by the U.S. federal board that oversees the territory) consisting of budget cuts and various other austerity measures. These are necessary, but they won’t by themselves produce the economic growth that will keep the island’s best and brightest from emigrating.
One fine way to encourage growth is to abolish one of the most egregiously counterproductive protectionist laws on the federal books: the Merchant Marine Act of 1920. The Jones Act, as it’s known (named for Rep. Wesley Jones of Washington), requires that all coastwise trade, or trade between American ports, be carried out by U.S. registered ships. Not only that. Ships taking goods from one American port to another must be made in the U.S., owned by American citizens, and manned by crews that are at least 75 percent U.S. citizens.
Some policymakers began calling for the abolition or waiver of the Jones Act in the aftermath of Hurricane Maria, transporting food food and material for disaster relief proved absurdly difficult for the most powerful country on earth. The Act was waived on September 28, but only for 10 days. It’s now back in effect.
Like all such protectionist laws, the Jones Act is cherished by one small group—in this case, U.S. shipbuilders and maritime transport companies—because it keeps prices high and foreign competition to a minimum. These companies and their allied trade association have lobbied Congress for years to keep the Act basically intact and argue that eliminating the law would injure the U.S. shipping industry.
Of course it would. That’s always the danger in passing protectionist laws. But shielding domestic firms from the necessity of adapting is not a sufficient reason to keep prices artificially high in struggling economies like Puerto Rico’s. Repeal of the Act would likely generate some job loss as companies adjust to new competition, but allowing a host of new firms with diverse capabilities and services would in the long term create precisely the kind of sustained economic growth Puerto Rico needs and, under the Jones Act, probably can’t achieve.
Back in July, well before Hurricane Maria proved them right, Sen. John McCain (R-Ariz.), a longtime critic of the Act, introduced a bill that would abolish the Merchant Marine Act. The legislation still hasn’t yet received a vote in the Committee on Commerce, Science, and Transportation. We assume that members have heard plenty from lobbyists of the maritime industry. Perhaps they’ll also consider those Puerto Rican Americans whose economy was the victim of U.S. protectionist laws even before it was destroyed by a hurricane.
