Rebuilding Puerto Rico

Tragedy strikes


Puerto Rico is an unincorporated territory of the United States, located in the Northern Caribbean: more specifically, it is an archipelago that is part of the Greater Antilles. It is home to around 3.5 million people who experienced a tumultuous 30 years. The latest and greatest cataclysm is Hurricane Maria, a hurricane that landed on the archipelago in September 2017, causing untold damage to life and property.


Estimates places the property damage caused by the storm at just over $100 billion, whereas the loss of life is a different question entirely. The Puerto Rican government claims a death toll of 55. However, the storm itself would later prove to be the cause for only the minority of the deaths, whereas the ensuing power outages and lack of running water caused severe issues for the elderly population settled there. This data comes from the local funeral homes that report record high funeral processions: Hospitalized patients, sufferers of chronic disease and other incapacitated persons passed away en masse because of hospital equipment failure, extremely high temperatures and a combination of factors that did little to help the stricken. Puerto Rico’s office of vital statistics reports 2,747 death records to the Center for disease control, though the number of actual casualties may be even higher. Just over 900 bodies were cremated before the cadavers could be properly examined for cause of death, reports BuzzFeed.


Even before the hurricane, Puerto Rico was destitute. The Puerto Rican government has a sovereign debt of just over $70 billion, coupled with unfunded pension liabilities exceeding $50 billion. The extremely damaging effects of the hurricane were to be offset by a $94.4 billion care package from the U.S. federal government - $31 billion would go to housing assistance, $17.7 billion would go to rebuilding the island nation’s power grid and the last $14.9 billion would be used for healthcare purposes. This solution seems not only unlikely given the current government’s lack of fiscal conservatism (for example: a $300 million contract with a Montana-based power company for the rebuilding of the power grid fell through earlier this year), but might not even be the right way of going about this colossal and complex problem.


This is the crux of the issue: Puerto Rico would not need most of the aid that it is requesting if the populace were better off, had better infrastructure and governance to begin with. Simply fixing problems is not enough – they must be prevented when and where possible. It would be like using a band for a severed arm. When rebuilding the economy, the problems of governance which originally caused it must be addressed. When rebuilding from the storm, Puerto Rico must establish green infrastructure that will combat the very environmental degradation which led to the current catastrophe.


A different approach


The Startup Societies Foundation posits a solution that will appeal to few in the short term, as it doesn’t include helicoptering in funds from the mainland. SSF believes this problem can best be handled by rebuilding and preventing the failure of infrastructure. Additionally, the populace must be made wealthier in knowledge, skill and resources to better cope with future hardships environmental and financial. This, naturally, does not mean that SSF is against the idea of humanitarian aid – on the contrary. We maintain that it is through great humanitarian effort that Puerto Rico can be not just stood up to be knocked down again, but cured and bolstered against the maladies of freak environmental occurrences, indebtedness and economic stagnation.


SSF approaches Puerto Rico not from a problem-solution standpoint, just as a doctor does not treat the mere symptoms of a disease. Underlying Puerto Rico’s hardship is a fundamental flaw in quality government. As any avid SSF reader will attest: this is best achieved through government that is culpable, under competitive pressure and localized. As we’ve mentioned in previous articles, startup societies are the tool of slow but sustainable growth.


The issue of decentralizing Puerto Rico can be approached from a myriad of directions: Seasteading, special economic zones, eco-conscious societies and others all stand at the ready. Lack of electricity, running water and transport are the Island’s greatest short term obstacles. The long term issues are the sovereign debt, political and bureaucratic corruption, high unemployment and a superficially business-friendly environment that doesn’t actually reinvest into the surrounding community.


The short term solution is through the localization of all energy, water and transport infrastructure. The highways of Puerto Rico were washed away in the storm, power lines were brought down and water pipes burst. It is mostly the transmission systems of these infrastructural basics that failed, not production itself. 5% of PREPA (Puerto Rico Electric Power Authority) customers have electricity at the time employee Evans Castro Aponte made the statement, and we have few reasons to believe the number has increased by a meaningful margin. The central and eastern regions of the main island are unreached by electricity and even maintaining communication with these parts of the island proves difficult.



Image via CNN

Image via CNN


The issues Puerto Rico faces

Puerto Ricans will have to expend great labor and knowledge to bring their country back to the situation before the hurricane, let alone develop their island to a greater force in the future. The primary goals of Puerto Rico will be (in descending order of urgency):

1. Establishing local electrical energy networks and turning to renewable energy sources

2. Constructing infrastructure that will resist natural disasters and keep the population and existing structures safe – using decentralized networks of water and power infrastructure if possible

3. Establishing a stable, attractive business environment

4. Attaining fiscal freedom from accrued debts

Let’s analyze the possibilities for all 4 points, one by one.


1. Energy networks

Puerto Rico appears to be a promising ground for an experiment in decentralized, green electrical energy systems based on renewable energy sources. Several programs have already shown excellent results: Elon Musk’s Tesla has utilized its advanced battery technology and solar systems to provide electricity for San Juan Children’s Hospital, with many other similar plans in the works. The current energy infrastructure of PR is outdated and would be costly to repair in the image that existed previously.

A preferable alternative would be the establishing of systems that make individual structures (or even whole communities of them) energetically independent. These technologies in themselves are marvels of engineering, but the implementation of these often expensive and complicated systems may run into difficulties in the disaster-swept lands of PR.

The cost of implementation may be reduced through efforts such as those of Alphabet (Google’s parent company) - deploying temporary telecommunication balloons to establish basic telecom services such as SMS and web browsing. Communication is one of the most important short-term goals for the relief effort, as it makes all future endeavors exponentially simpler and less expensive to implement.

Puerto Rican green energy potentials remain untapped - in 2015, over 80 percent of Puerto Rico’s electric power came from non-renewable sources, reports find. The underutilized green potential comes in the forms of biomass, wave energy and solar power. Estimates place a date of possible 100% green energy functioning of the island at 2027 if present efforts continue.

Solar panels being implemented in the powering of San Juan children’s hospital; Image via Tesla’s twitter profile

Solar panels being implemented in the powering of San Juan children’s hospital; Image via Tesla’s twitter profile

We must not neglect the potential blockchain offers for the green development of the islands’ energetics. Blockchain startup SolarCoin offers incentives for the production of solar energy in the form of cryptocurrency, which can later be exchanged for energy or sold at market. This is not a silver bullet, but presents a step in the right direction in the establishment of a truly futuristic and sustainable energy network for Puerto Rico.


2. Green infrastructure

The failure of Puerto Rico in withstanding Hurricane Maria is in that the dikes, floodwalls and other flood defense infrastructure were inadequate. Future havoc can be prevented through engineering solutions that expect the worst - stilted structures, improved drainage systems, placing HVAC and electric systems in the upper echelons of structures etc.

SSF does not presume to wield sufficient knowledge about flood defense to lecture about engineering topics, but it is more than apparent that localized governments acting in the interests of their citizenry are more efficient in barrier construction than a centrally planned all-round effort.

The proposed startup societies of Puerto Rico will naturally require funding for the construction of this entire new infrastructure, which some claim should come from the federal U.S. budget. Fair enough, but as we will see in point 4, Puerto Rico is already indebted to ludicrous levels, and expecting more from the federal government (while doable) is not a step in creating a tougher, smarter Puerto Rico. A possibility for funding arises in the cryptocurrency world: through initial coin offerings, or ICOs.

An initial coin offering is the sale of a newly created crypto currency (or asset) at market, for a specified price. The way a startup society can fund development through this method is by issuing what can effectively be called a municipal bond in a digital format, in exchange for crypto currency, bank wire or other value. This gives the asset owner a right to a certain percentage of tax income from the local society until a maturity date and the startup society gains useful funds in the short term without adding to the sovereign debt. The issue arises with corruption and whether the funds will be utilized for flood defenses or if they will go down a bureaucratic sinkhole.


3. Business environment and corruption

The seemingly attractive low taxes of Puerto Rico should serve as a magnet for business, but no such development seems to be happening. Even before the hurricane, GDP growth in Puerto Rico was lackluster at best, often in the red. The natural resources of the land seem ample, the position and climate of the island adequate for trade and agriculture. What keeps going wrong for Puerto Rico?

Puerto Rico suffers from some of the worst rankings in quality government in the world: The crucial elements of economic governance were neglected. In the World Bank’s ranking for ease of doing business, Puerto Rico ranks 153rd for registering property, 113th for enforcing contracts, and 160th for paying taxes. It ranks so low that even states such as Somalia, Eritrea and Haiti succeed them in those metrics. External mis-governance also takes a toll on the Island. The Jones Act is United States federal statute that requires that all goods transported by water between U.S. ports be carried on U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents, which significantly raises the cost of shipping goods to Puerto Rico. If the Jones Act were lifted, coastal trade for not only Puerto Rico, but the entire U.S. would have less of a regulatory burden - making transport cheaper and goods move faster. Protectionism works for some, but as soon as a free market in governance rears its head, other limitations in market forces soon buckle. Further decentralization is required for increased development.

Puerto Rico is no stranger to experimenting in decentralized governance. In fact, despite not being widely known, Puerto Rico housed the world's first modern Special Economic Zone (even before the Shannon Airport). In 1948, The US government implemented “Operation Bootstrap”,a series of initiatives to jumpstart the Puerto Rican Economy, which included a Free Trade Zone, equipped with streamlined regulations for manufacturing. The SEZ industry has matured since then. Now, with effective governance, megacities can grow from nothing in a few decades like Shenzhen, Singapore, and Dubai. Likewise, due to it’s proximity to vital trade routes (USA and the Panama Canal), simply improving governance can generate new Puerto Rican cities, rivaling Hong Kong.


4. The debt

The not-so-aptly named "Rich Port" has had a significant outlying debt problem for the better part of 30 years now. Part of this is due to Puerto Rico's worryingly top-heavy age pyramid, and high unemployment leading to low tax collection and an ever-increasing unfunded liabilities tally.

Whether or not the new startup societies will remain under the currently existing debt obligations remains to be seen, but if one assumes an affirmative answer, our proposed solutions may have their work cut out for them. Merely staunching the deterioration of Puerto Rico's situation will be possible and quite probably best handled through localized startup societies. As for the issues created by Puerto Rico's current government's spending - we cannot say for certain.

We don't like the idea of retired citizens left without pensions, nor the carrying over of massive debts to future generations that never voted for such policies in the first place. In the organizational restructuring that is sure to come, this will have to be dealt with most seriously. Startup societies are a very effective way of removing the water flooding the settlements of Puerto Rico, but an invisible and much more insidious flood waits beyond the horizon. This hurricane won't crash onto the populace as Maria did, but will unyieldingly block roads, businesses and lives all the same.


Take away?

The common thread to all solutions listed above is the implementation of decentralized technology and jurisdiction to Puerto Rico in an effort to make all communities of the islands self-reliant. This does not mean limiting trade or cooperation between the new societies, but reinforcing it to the point that Puerto Rico can once again become a prominent trade hub, resistant to storms both economic and tropical.