April 1982 RAIN Page 17 investment at a still higher price for local development. By now, seventy percent of the population was below the poverty line, and sixty percent were on Food Stamps. Inflation was up forty percent, and unemployment was about thirty-five percent. Fully twenty- five percent of the families earned less than $1,000 a year. Opposition leaders now spoke of using local capital rather than outside investment to develop the economy and worried about a revolution if the subsidized food program was ever terminated (Lens, 1977; Mounts, 1981; Hornblower, 1981). America's first "enterprise zone" was Puerto Rico. The experiment President Truman signed into law in 1950 was called Operation Bootstrap. According to Public Law 600, Puerto Rico became an "associated free state," thus creating a common market with the mainland. By this agreement, Puerto Rico was subject to all the same laws as American citizens and was eligible for federal program benefits, like Food Stamps. On the other hand. Bootstrap exempted corporations from mainland taxes, especially on profits. This experiment was supposed to produce a showplace for American capitalism. But, while economic growth was substantial, in terms of longterm development it was a failure. Operation Bootstrap's first enterprises were large sugar plantations which displaced the small farm economy. Prior to their development, fully ninety-three percent of the land was arable and the agricultural economy was moderately diversified. By 1977, however, only forty percent was still arable and Puerto Rico had become a net importer of $800 million in foodstuffs annually. The second industrial transfusion brought the textile and shoe industries to the island—but they began leaving when labor in Taiwan and Central America became cheaper. Next came the petrochemical industry, which created few jobs, and the pharmaceutical industry, which did not need much unskilled labor. Like an addict, the economy's next transfusion of investment rests on the recent discovery of nickel and copper deposits which will be extracted by the large oil corporations. This experiment was supposed to produce a showplace for American capitalism. But, while economic growth was substantial, in terms of long-term development it was a failure. Yes, there was economic growth, and the economy was transformed. But the economy is no longer self-reliant or diversified. Puerto Rico has a colonized economy, dependent on American investment and welfare for survival. In human development terms, not only have people left the island for jobs but, among those who remain, there are major drug addiction, alcoholism, and crime problems. Puerto Rico has not been revitalized—it has simply been made dependent. Operation Bootstrap did not produce long-term balanced development because the local economy became hostage to outside investors who did not reinvest in that economy. It is a classic case of economic growth without development. The inherent logic of a free market is that investors place their capital wherever they will receive the greatest short-term return. Firms, particularly larger multinational corporations, able to move large amounts of investment capital anywhere in the world on short notice, feel no special obligation to the local economy or population of a given community. They are free to move in and out as they please. The experience of Operation Bootstrap reminds us that the inability of a community to control or influence capital investment and job creation for the benefit of local residents leaves it vulnerable to a boom or bust, growth without development syndrome. Operation Bootstrap is particularly important because the EnterYes, there was economic growth ... but the economy is no longer self-reliant or diversified. prise Zone idea now proposed by the Heritage Foundation and others advances the free market model for rescuing distressed central city economies from both their economic and social problems, while some might argue that Puerto Rico is an underdeveloped island which is not comparable to our distressed cities, the reality is that inner-city economies share many of the same attributes as underdeveloped countries. They are geographically distinct areas where low-income and minority people live; they do not have the capital resources or local institutional capacity to revitalize their own economies. They are, in effect, "failed markets," experiencing high rates of unemployment, business failure, corporate and population out-migration, capital flight, and low levels of investment. The work force is usually unskiUed and relatively inexpensive to hire. The health, education, and human service problems are substantial. Welfare dependency is high. And their perceived or actual capacity to influence political decision-making is often limited. The only major difference between Puerto Rico and many of our inner cities is that, because it is an island, the effects of the free market approach to economic growth are much easier to track. The Puerto Rican experience and the Heritage Foundation successor raise a central question for the urban policy debate: What land of growth and development do we want to encourage in our distressed inner cities, and who should benefit from it? □□ Reprinted with permission from the Journal of Community Action copyrighted by the Center for Responsive Governance, 1981 Are the enterprise zones destined to become "shameless free enterprise" colonies? In true form with the trickle-down logic, the Administration's initial proposals focus solely on investment and capital growth. The need for an open and equitable community development process seems to have been discounted since there's no citizen participation provision for affected neighborhood residents. The Resource Group is currently working with state and local officials and citizen groups to design an alternative proposal. The key seems to be to require that every zone has a plan that provides a variety of assurances to the neighborhood-including resident protection from involuntary displacement, satisfying the need for neighborhood equity (e.g., investment potential), and the development of financial tools for the community such as a venture capital fund. Forynore information, contact the Resource Group for Community Development, 172 North Caroline Ave., S.E., Washirtg- ton, D.C. 20003, (202) 544-1826 -Steve Rudman
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