Study: Natural disasters provoke ‘unprecedented’ socioeconomic changes
Puerto Rico’s bankruptcy, coupled with the recent natural disasters that the island has faced caused “unprecedented” social and economic changes, among which are an increase in poverty, inequality, and job losses for some sectors, according to two investigations by José Caraballo-Cueto, a professor from the Graduate School of Business Administration of the University of Puerto Rico, Río Piedras Campus.
“Before Hurricane María, Puerto Rico was undergoing several crises: debt, social, and economic. The landfall of María exacerbated those crises, especially in terms of poverty, inequality, and fiscal priorities,” said Caraballo-Cueto, who is also a regular researcher in the Institute for Interdisciplinary Research at the UPR in Cayey.
Although his research focuses on the impact of Hurricane María on the economy and employment, he stated that the string of earthquakes in 2020 and the COVID-19 pandemic reaffirm the impact that every crisis causes at the socioeconomic level.
“I think one of the lessons from these studies is that every time a natural disaster strikes, the socioeconomic environment changes, it is never the same. It is not as if the disaster occurred, there was a recovery, and everything was the same as before… There are some sectors that are going to be better off and others that are going to be worse off after that natural disaster,” he said, adding that the communities that were disadvantaged prior to the disaster are usually the ones that get hit the hardest in the aftermath.
He also stressed that sensitive public policies are needed to address the needs of these disadvantaged populations.
In his research entitled “The economy of disasters? Puerto Rico before and after Hurricane María,” Caraballo-Cueto presented a number of suggestions for the local and federal governments to reduce the negative socioeconomic impact left by natural disasters such as the 2017 hurricane.
In terms of policy recommendations, Caraballo-Cueto suggests that US government take seriously its shared responsibility for the unfolding crises in its territories.
“Economic development tools such as repealing the Jones Act, including Puerto Rico in the Guam-Northern Mariana Island Visa Waiver program, or establishing a Brady Plan for the island are strong policies that could significantly help Puerto Rico without affecting US taxpayers,” he said.
The local government, on the other hand, should:
- Find the debt sustainability levels to avoid second rounds of restructuring;
- Diversify the destinations of exports beyond the United States and substitute imports;
- Implement a local tax reform that eliminates rent-seeking behavior and requires the creation of jobs in the granting of subsidies;
- Provide free counseling to local companies to improve their businesses and options to expand;
- Allocate reconstruction spending (both private and public) for local businesses to increase the multiplier effect of the initial investment;
- Reestablish fringe benefits for part-timers;
- Audit the debt (there could be debt issued in violation of constitutional limits or fraudulently);
- Formalize informal businesses;
- [romote organic agriculture and the addition of value to agricultural products (e.g., agroindustry); and,
- Move government agencies outside of the San Juan metropolitan area to reduce the spatial inequality observed among counties, among others.
“The time is right for deep government reengineering. By reducing wasteful processes, savings are achieved while improving public services. An austerity program limited to only budget cuts to government agencies, something that has been included in almost all fiscal plans, is an easier task than reengineering, but it will not reap the best result for this society,” he said.
On the other hand, the study revealed some socioeconomic benefits after the hurricane, among which are community organization with its own development plans, greater support for solar energy, a stronger connection between island residents and citizens in the diaspora, and a change in the focus of public universities toward research.
However, it makes it clear that Hurricane María caused economic losses that fluctuate between $43 billion and $159 billion, making it the costliest hurricane for Puerto Rico and the third costliest for the United States.