Economic Policies and Their Effects on Competitiveness and Prosperity: Puerto Rico and Singapore.

Author:Escobales-Jimenez, Lisa M.
 
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INTRODUCTION

Puerto Rico and Singapore are two countries located in strategic positions in the world. They have similar characteristics in terms of size, geography as islands and economic development through external sources. The difference is the economic performance of both countries. Puerto Rican competitiveness has been studied by different researchers and methodologies (Morales, 1994; Vega, 2004, 2008; Brooking Institution, 2006; Escobales, 2012). Singapore, among other countries, has been used as a benchmark and reference for Puerto Rican decision makers due to its economic success and competitiveness in the world. Some of their policy makers argue that they have used Puerto Rico as a model to launch a new economy (Collazo, 2009). The reality is that the economic policies of each country are different. However, detailed research has never been done to study how the economic policies of Puerto Rico and Singapore affect the competitiveness of each country. To summarize important factors that describe each country, see Table 1.

LITERATURE REVIEW

Economic policy is administered by the state (Colignatus, 2005). The state or the administration of the state, which is led by the government, is an element that impacts and influences the competitiveness of countries (WEF, 2009, 2010; Porter, 1990). The types of governments of Puerto Rico and Singapore are very different. Puerto Rico has a representative democracy and Singapore has a parliamentary republic.

The economic policies implemented by the governments pursue three general objectives: economic growth, efficient use of resources and economic stability (Marconi, 2004). The objectives of the economic policies could be short to long term, but are equally important (Balter, 2000). The implementation of economic policies, which is really the source of study for this research, requires four components: public and private subjects; defined values; objectives; instruments to obtain the results (Orduna, 1992).

Economic policies are one of the tools in the planning of public policies and have to follow a cycle in their implementation. As shown in figure 1, this cycle involves five stages: policy assessment and design; policy decision, program formulation; implementation program and program evaluation. The latter provides a qualitative and quantitative basis to return to the first phase of policy assessment. However, to implement economic policies, this cycle is not followed and usually reaches the implementation phase, obviating the evaluation (World Bank, 2010). More importantly, trying to understand how the economy works, it is necessary to verify the historical patterns in the data evidence and to understand the role of economic policy in the society. One must have a notion of cause and effect (Johnson & Ek, 2011).

Competitiveness will be defined in this study, at the macroeconomic level, as productivity, capacity to create welfare and ability to sell on external markets (Marginean, 2006). According to Marginean (2006), productivity is making better use of resources. The capacity to create welfare or prosperity means less unemployment and a higher gross domestic product per capita. The ability to sell in external markets is concerned with the economy's overall external balance on trade (Marginean, 2006).

Puerto Rico, a territory of the United States of America since 1898 with commonwealth status since 1952, experienced in the forties decade dramatic changes in its economy. From an agricultural economy based mostly on sugar cane and other minor crops, it changed to an industrial economy. After that, approximately in the nineties decade, Puerto Rico began to change from an industrial to a service economy.

The actual scenario is that Puerto Rico faces an unprecedented fiscal crisis. Since the mid-2000s, indicators of the coming crisis was observed, although, not until fiscal year 2006 was there a reduction in the level of real GNP (Economic Report of the Governor, 2014).Ten years later, Puerto Rico went into default for the first time in its history. The island is struggling with about $70 billion in total outstanding debt, and its economy is in recession (CNN, 2015). This recession implies an unemployment rate of 11.6% which represents 130.2 thousand of people unemployed (Bureau Labor of Statistic, 2015). All this has been reflected in the loss of competitiveness in the island.

One of the main reasons is that the economic policies of Puerto Rico have been changing every four years; every time that the government administration of the country changes. That has caused the implementation of certain economic policies that do not correspond to the objectives and realities facing the country and international markets. In the thirty-three years of the study, the government of Puerto Rico has had 32 repealed economic policies (Escobales, 2012).

Singapore, converted in a sovereign country in 1965, began in 1970 to experience sustainable economic growth and political stability. Previous to that, Singapore was an island of fishermen. The growth included cultural diversity, creation of financial institutions, exports of high technology products and the signature of commerce agreements with different countries around the world (OUN, 2011; Who we are: Singapore as a Glance, 2011; Ministry of Trade & Industry, 2010). Since its independence until 2008, Singapore has been governed under the administration of the People's Action Party (PAP), thus establishing an agenda with long-term goals (OUN, 2011; Escobales, 2012). In the thirty-three years included in the study, Singapore has only two laws repealed (Escobales, 2012). In 1983, the Singaporean government established the Revised Edition of the Laws Number 275. This enforced the agency that is responsible for reviewing all laws periodically between five to ten years, in order to analyze whether they correspond to reality and challenges facing Singapore and making amendments if necessary.

METHODOLOGY AND RESEARCH QUESTION

The three segments used to define competitiveness (Marginean, 2006) are the dependent variables for this study. The first one is productivity (PRODV). The second variable is capacity to create welfare represented by gross domestic product per capita (GDPPC) and labor participation rate (LPR). The third dependent variable is ability to sell in external markets represented by export rates (TEXP) and foreign direct investment (inward) (IDE). The most important independent variables in this study were the economic policies identified for each country. The economic policies were classified as shown in Table 2 with the codes used for statistical analysis. The decision criteria used, for statistical purposes, was a p-value of 0.05 or lower. Six segments of economic policies within fifteen categories were organized: finance; income tax; income over property; taxes and tariffs; incentives; economic development; development institutions; labor relations; employment development; bank; commerce; private corporations; education; public service; and public planning.

The study time frame is from 1976 to 2008, due to important changes in the government and the economies of both countries, especially in Puerto Rico which is the point of reference for the study. For that period, the most relevant economic policies for...

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