Pulling Out of the Quagmire: Can Puerto Rico’s Labor Movement Survive the Island’s Debt Crisis?

Pulling Out of the Quagmire: Can Puerto Rico’s Labor Movement Survive the Island’s Debt Crisis?

Published on January 10, 2016

Jennifer Wolff
Programs and Communications Director

[1]“We are a country who has just discovered that Santa Claus doesn’t exist, a kid who catches Mom and Dad assembling gifts under the tree on Christmas Eve. It’s a shock.” Iram Ramírez is Senior International Representative and International Coordinator of Field Services for the Office and Professional Employees International Union (OPEIU /AFL-CIO) in San Juan. He is sitting in a Río Piedras panadería – part bakery, part criollo food cafeteria – trying to assess the effects of Puerto Rico’s deep fiscal and economic crisis on the island’s working sectors. The topic is quite thorny as the devastating effects of the economy’s slippery downward slide go beyond the immediate. “We all lived in a bubble,” he reflects. “We believed we were part of the First World and believed in the slogans. We now know that the world we thought we lived in no longer exists. [The problem is that] the country is not equipped to deal with the situation.”

The country he refers to is Puerto Rico, whose multiplicity of bynames (island, country, nation, “pueblo”, territory, colony, possession, Commonwealth, Free Associated State, potential state of the Union) reflects the multifaceted and at times elusive complexity both of its history and current situation. What is not elusive is the magnitude of its economic collapse. The economy has been contracting for almost a decade – Gross National Product (GNP) declined by an aggregate of 13% between fiscal years 2006 and 2014, gross fixed domestic investment decreased 24.5%, and bank assets plummeted by a whopping 41.8%.[2] If no measures are taken, the government’s projected financing gap (including the three public pension funds) could reach up to $ 63.4 billion by 2025,[3] a crushing burden considering the shrinking economy and the government’s inability to access the financial markets.[4] In theory, to achieve overall structural balance in FY2016 Puerto Rico’s government would need to reduce its expenses by up to 4.9% of the island’s GNP,[5] a gargantuan task for a society that has relied for decades on the government for employment, investment, contracts, purchases and tax exemptions. The outlook sounds like an amputation to a patient in the throes of agony.

The fiscal and economic predicament has had a devastating toll on the island’s working sectors. More than one in five jobs have been lost in the last decade: a decrease of 272,803 positions between April of 2006 and November of 2015.[6] The brutal implication of this number needs to be assessed in the particular context of the island’s fragile labor market. “Even in the best of times, employment [levels] in Puerto Rico have never been particularly good,” explains María Enchautegui, Senior Fellow at the Urban Institute in Washington D.C. “We have never been able to produce enough jobs for the people of Puerto Rico.”

The crisis has only made a grim reality worse. Unemployment stood at 12.5% in November 2015 while labor force participation was a dismally low 40.4%.[7] Median household income is $ 19,886 while the poverty level stands at 45.2%.[8] Only 10% of wage and salary workers belonged to some sort of organized labor group in October 2014, down from the 12.2% registered in October 2012. If affiliation to brotherhoods and associations is discounted and only affiliation to labor unions is considered, the number then stands at 6.2%.[9]

The fragile state of the economy, compounded by a spiral of tax increases and newly aggressive tax collection efforts by the government, is taking a toll on private sector unions and its members as existing companies either struggle to survive or push for cost reductions. “Most of the negotiations are now ‘give back negotiations’ to reduce benefits, a lot of restructuring negotiations,” says OPEIU’s Ramírez. “The bargaining agreement is literally put on the table and [the negotiation is] about sheer survival: either we restructure or we close shop.”

In the public sector, bulwark of the Puerto Rico labor movement, the situation is dramatic.[10] Two fiscal emergency laws – Law 7 enacted in 2009 by pro-statehood Governor Luis Fortuño and Law 66 approved in 2014 by pro-Commonwealth Governor Alejandro García Padilla – have curtailed the size of public employment by either decreeing outright downsizing (Law 7) or mandating hiring freezes in the central government (Law 66). As a result, one in four government jobs have disappeared in the last six years, a loss of 67,800 posts between June 2009 and October of 2015.[11] Those remaining in public employment have seen their compensation and benefit packages eroded. Since 2014 – as a result of Law 66 –  wages have been frozen and previously negotiated increases eliminated; while vacations, promotions, and bonuses have been reduced.  The cost to public sector employees, according to several union leaders, has been in the order of between $ 800 and $ 1,000 million in lost benefits in less than three years.[12]

Public sector unions have been deeply affected by the onslaught. “It has been dramatic. As a result of Law 7, in some [government agencies] there was up to a 50% reduction in the number of members we represented”, says Federico Torres Montalvo, Secretary General for the Central Unitaria de Trabajadores (CUTE), a network of public sector unions, when asked to review the consequences of seven years of austerity in the island’s labor organizations. The loss of membership (and thus, of economic capacity) has been seen across all public sector unions, although some have been able to partly compensate the erosion by focusing on new workshops. Roberto Pagán’s Sindicato Puertorriqueño de Trabajadores (SPT/SEIU), for example, succeeded in forging an agreement with San Juan Mayor Carmen Yulín Cruz to collectively represent the capital city’s municipal employees.

Nevertheless, public sector organizations have been noticeably shaken.  The SPT, for example, lost 500 of its 900 stewards in 2009. “[They were] the youngest workers, who were also the most active ones in the union”, reminisces SPT’s Pagán, stressing the cost austerity has had in terms of organizational structures and leadership. “We have recomposed our structures… but that has not necessarily been the case in all unions. There has been a general decrease in mobilization capacity because structures have been hit and workers are now afraid to protest.”

Despite the enormous toll it has already taken, the attrition has yet to reach an inflexion point. As options are debated in Washington D.C. and the local government wallows with no clear sense of direction, the island’s deteriorating situation seems to snowball further into a messier and deeper trough. With the local government failing to meet revenue targets and struggling to make debt service payments, pay suppliers, and maintain basic public services,[13] calls for further austerity and belt-tightening seem to gain momentum. In Washington D.C., three different proposals for a federally created Fiscal Control Board for Puerto Rico have been put forth; the idea has been embraced by Democrats and Republicans in both the Executive Branch and Congress. In San Juan, Puerto Rico Government Development Bank consultants have recommended that Puerto Rico be fully exempt from the $7.25 federal minimum wage, suggesting that a one-third the general mainland rate be considered as an alternative option. They have also recommended the island revise local labor laws enacting protections regarding overtime, paid vacation, bonuses, probationary period and just cause for lay-offs.[14]

The specter of further government downsizing as well as a fundamental restructuring in worker legislation then looms in labor’s immediate horizon. “It could be catastrophic,” says José de la Luz, Public Policy Director of the Civil Service Employees Association (CSEA/AFCSME) in New York, venturing to foresee the consequences on the labor movement of further austerity measures. “Unions in Puerto Rico basically exist within the public sector… We could be talking that an important institution in Puerto Rican society will cease to exist… The scenario is so dramatic that it is truly tragic.”

Yo voy a guerrear (I will wage war),” reacts Pedro Irene Maymí, President of the water utility’s Unión Independiente Auténtica de los Empleados de la Triple A (UIA“They want to take Puerto Rico back to the ‘30s and ‘40s. It is the responsibility of this country’s union leaders to stand up against it”, he says. Maymí is also President of the Central Puertorriqueña de Trabajadores (CPT), a federation that represents some 30 thousand public service employees. Days before our interview, UIA had staged a sit-in in front of the Puerto Rico Labor Department demanding the government pay water utility workers the stipulated Christmas bonus, a legally mandated benefit that is part of a local worker’s compensation package. In 2014, as part of the negotiations surrounding Law 66, public sector unions had accepted the bonus be reduced but now the water utility was refusing to pay even that. “The aim is to dismantle public service. Everything is being justified now using the debt crisis as an excuse,” he states.

Maymí sits in his Río Piedras office with several other leaders from independent public sector unions, that is, unions not affiliated to mainland or U.S. based unions or federations.[15] They reflect on the costs the crisis has had on local workers, on how proposals for continuing to downsize government have gained traction, and on how the labor movement should confront further austerity measures. Long-time CPT leader Víctor Villalba declares, “We can’t remain on the defensive anymore.  We need to take the offensive”.  The group concurs and discusses “como tomar la calle” – how to mobilize and take the streets – no easy task, concedes Maymí, who admits that “the country has lost its instinct to ‘fiscalizar’ (overview, confront) the government”.  Francisco Reyes Márquez, of the Unión de Empleados del Fondo del Seguro del Estado (UEFSE) states, “All unions agree that we need to retake the streets and wage whatever struggle needs to be waged. What we have not defined is how…Workers are screaming for something to be done…and [the common denominator] has be to defend…what little we have left that is about to be taken away from us.”  The group talks about plans to organize regional assemblies through out the island with the aim of “retaking the streets” and exercising pressure on local legislators.

But will people follow if unions lead?   CUTE’s Torres Montalvo, a long-time veteran from the heyday of independent union activism in the ‘70s and ‘80s, concedes that the current situation is highly complex. Organizations have been weakened by the government’s downsizing and public service employees have been demonized in public opinion as the ones responsible for the fiscal predicament. Furthermore, he admits, the labor movement stands divided. “We have been unable to articulate a united position,” he states.  “[Some] think we should give government space to recover…some believe we should take to the streets now.”

Underlying the discussion is a profound disenchantment with the administration’s stance towards labor. Public service unions had the expectation that they would be invited to collaborate in the development of policy. “We were too trustful that certain things would happen out of good faith but they failed us”, he states bitterly. “It is a perversity because dimos mucho grano de mi maíz (we gave a lot)… If they now try to go beyond [the negotiated concessions of] Law 66, yes, we could say we were duped because we thought [the concessions] were going to be enough until 2017”. The Coalición Sindical, for one, a 80,000 thousand coalition Torres Montalvo lead at one time, put forth a 24 page counter-proposal to the administration’s austerity program focused on the development of a sustainable and solidarity-based economy but never received acknowledgement of its proposals.[16]  Torres Montalvo feels the labor movement now needs to combine traditional street mobilization with “new styles”. In his case, this means trying to coalesce a broader anti-austerity agenda with wider sectors of society rallied around efforts to combat government corruption.

The move to seek alliances with other sectors and influence both the local and U.S. political agenda is a prominent item for many local unions. “It is necessary to prompt political change if living conditions for workers are going to be maintained or bettered”, says SPT’s Pagán.  The SPT is throwing its organizational resources behind Vamos, a political coalition movement that is seeking to break the hold that the two majority traditional political parties  – the pro-statehood Partido Nuevo Progresista and the pro-Commonwealth Partido Popular Democrático – have not only on the island’s electoral system but on government. Puerto Rico is a highly clientelistic society, with elections functioning as a winner-takes-all contest in which jobs, contracts and preferential legislation is parceled out to the winning political party. In this, the island resembles Latin America and its complex web of patronage networks.

The SPT’s strategy is a gamble, as Puerto Rico’s electoral law favors the two-party alternation that has dominated the life of the island since 1968 – electoral coalitions between political parties are expressly prohibited and minority collectivities end up being grossly under-represented in the final distribution of elected posts.  In past elections, independent movements like Movimiento Unión Soberanista (status-oriented) and the Partido del Pueblo Trabajador (worker-focused) have failed to garner even enough votes to remain inscribed in the Comisión Estatal de Elecciones, the local electoral board.

Pagán explains that for the 2016 electoral cycle Vamos will focus on endorsing legislative candidates from existing political parties that support the entity’s program. Vamos’ is seeking to counter the austerity-focused Plan de Ajuste Fiscal  (Fiscal Adjustment Plan) peddled by the government in its negotiations with bondholders with an alternative economic development program focused on increasing the local minimum salary; nurturing high-productivity indigenous companies; fostering community and municipal development; restructuring public debt while protecting public pensions; and revamping the island’s tax system in order to limit corporate exemptions and tax mega-stores. [17] “The most important day for Vamos will be November 9, the day after Election Day,” says Pagán, anticipating that the big political push will be for 2020. “We need to organize a new political force that can aspire to govern, and that, we know is a process that can take years”.

Labor’s outreach has extended to the mainland, as unions affiliated to U.S. based organizations have mobilized the “mollero político” (political muscle) of their parent entities to push Washington for a federal response to the island’s crisis. CSEA’s De la Luz highlights that mainland unions “are the ones putting on the fight to have the Democratic leadership approve the package [regarding Puerto Rico]…Without the strength of [mainland] labor unions such as AFCSME, UAW, SEIU and the AFL-CIO, Puerto Rico would have no chance of getting the package approved,” he contends. The statement is historically significant, as, in various instances of Puerto Rico’s complicated history, U.S. based unions have been accused of “labor colonialism”[18]. They now seem intent to use their powerful connections to become game-changers in Puerto Rico’s high-stakes game.

De la Luz stresses that while Puerto Rican diaspora groups in the U.S are limited in geographical reach (generally based in the Northeast), U.S. unions have been able to bring to the fore on behalf of the island nationwide mobilizing power, political acumen and (last but not least) lobbyists in Washington DC. Mainland labor groups are now looking at ways for inscribing no less than 200-thousand new voters among the Puerto Rican diaspora and ensuring that 7 out of 10 of these turn out to vote. According to De la Luz, the diaspora has become a “strategic axis” for the island. “The diaspora has become a determining factor in the future of Puerto Rico, because the diaspora, in conjunction with the labor unions, are the ones who will be putting Puerto Rico in the forefront of the Presidential election.” For an island which native-born writer Eduardo Lalo has described as un país invisible (an invisible country), the possibility of becoming visible to decision-making making circles is an attractive prospect.

The reasons for betting on Puerto Rico on the part of U.S. based organizations are multiple. They have to do with working-class solidarity, the possibility of creating a long-term wider progressive project, and labor’s sheer need to survive. Héctor Figueroa, President of 32BJ Service Employees International Union (SEIU) in New York, says that Puerto Rico’s crisis  “is a more acute manifestation – due to Puerto Rico’s economic and political relation with the U.S. – of the same problem that is affecting the lives of workers in the U.S”, where inequality has increased and speculative financial capital – with its “casino economy” – is harming working-class communities.  Figueroa states that 32BJ and SEIU have been active in generating public pressure on hedge funds that hold the island’s debt while forging ties with Puerto Rican diaspora elected officials and the most progressive sector within the Democratic Party.  The idea is two-fold: bring Puerto Rico to the forefront of the agenda in Washington – “where there is a political reality of indifference and neglect towards helping Puerto Rico”, he says – and mobilizing the Puerto Rican diaspora in favor of a larger progressive agenda. The idea, he states, is to “forge a coalition capable of changing the direction of the U.S.”.

But beyond attempting to counter short-term austerity measures in the island and trying to forge long-term progressive agendas in the U.S., will Puerto Rico unions be able to survive the climate of sheer economic desperation that exists in the island? As the government anxiously tries to spur economic activity using its outdated Cold-War era framework based on tax exemptions and corporate subsidies, the game for labor seems rigged. “[Puerto Rico] cannot continue with its low-wage discourse,” says OPEIU’s Ramírez. “We brought Lufthansa [Technik]… and the atrocity was that we gave them exemption to overtime laws… Puerto Rico’s bet has to be different”, he states.

And that, in the end, might be the crux of the matter. Puerto Rico needs a profound retooling of its productive and institutional apparatus and labor’s future depends on successfully placing itself at the center of this new equation. Deepak Lamba-Nieves, Research Director of the Center for a New Economy in San Juan says, “[Puerto Rico] should be thinking about a manufacturing sector that is aligned with the capacities of our labor force, which in the aggregate is more educated, has been pre-trained in specialized industries and has a level of bilingualism that helps it interact in the global economy.” According to Lamba-Nieves, this will entail many “tectonic” transformations: government will need to be rethought, its misalignments and coordination failures addressed; the private sector will need to transcend its rent-seeking behavior; and workers (and unions) will need to rethink their role in the workplace. “There are no innocents [in this crisis]… This has been a concatenation of problems and misaligned interests that have been intent on protecting their own territory,” he states, stressing that a completely new mind-set will need to be developed. “How do you start a new conversation? …Right now, [unions] talk about equity and justice, while the business sector talks about costs…How can we understand the symbiotic relationship…between the needs of the private sector and the claims for justice and solidarity?…It is essential to find a space to accommodate those two things, which are not mutually exclusive…Understanding that we need to do things differently because what is happening now is not beneficial to neither can be a first common understanding towards the future.”

[1] A revised version of this article appeared under the title “Debtors’ Island: How Puerto Rico Became a Hedge Fund Playground” in New Labor Forum (Vol. 23, Issue 2/Spring 2016).

[2] Sergio Marxuach, “Analysis of Puerto Rico’s Current Economic and Fiscal Situation”, Center for a New Economy, October 2015, pp. 4-6.  Retrieved from https://grupocne.org/2015/10/22/analysis-of-puerto-ricos-current-economic-and-fiscal-situation/

[3] Working Group for the Fiscal and Economic Recovery of Puerto Rico, “Puerto Rico Fiscal and Economic Growth Plan. Update Presentation”, January 18, 2016.  Retrieved from http://www.bgfpr.com/documents/PRFEGPUpdatePresentation1.18.16.pdf

[4] Risk premia on Puerto Rico’s general obligation and public enterprise bonds increased sharply at the end of 2013. Rating agencies downgraded the debt to below investment grade in early 2014. Anne O. Krueger, Ranjit Teja and Andrew Wolfe, “Puerto Rico – A Way Forward”, Government Development Bank of Puerto Rico, June 29, 2015, p.3.  Retrieved from http://www.bgfpr.com/documents/puertoricoawayforward.pdf

[5] This percentage is achieved using the $ 3.4 billion Financing Gap Before Measures estimated in January 2016 by the Working Group for FY 2016 as a proportion of a GNP of $ 69 billion.

[6] U.S. Bureau of Labor Statistics. “Local Area Unemployment Statistics/Puerto Rico”. Retrieved from http://data.bls.gov/timeseries/LASST720000000000006?data_tool=XGtable

[7] Ibid. Government Development Bank, Economic Indicators, “Labor Force Participation Rate. Retrieved from http://www.bgfpr.com/economy/pr-monthly-economic-indicators-time-series.html

[8] U.S. Census Bureau, American Fact Finder, “Puerto Rico/Selected Characteristics of the Native and Foreign-Born Populations”, S0501. Retrieved from http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_14_5YR_S0501&prodType=table

[9] Puerto Rico Bureau of Labor Statistics, “Affiliates Labor Union Statistics”, April 17, 2015.  Retrieved from http://www.trabajo.pr.gov/pdf/Estadisticas/2015/GT/LABOR%20UNION%20 AFFILIATES%20IN%20PUERTO%20RICO%20OCTOBER%202014.PDF

[10] Union density in the private manufacturing sector had dwindled to only 2% in 2000, down from 32% in 1965. César F. Rosado Marzán, Dependent Unionism: Resource Mobilization and Union Density in Puerto Rico, Ph. D. Dissertation, Department of Sociology, Princeton University, June 2005, p. 17.

[11] U.S. Bureau of Labor Statistics. “State and Area Employment/Puerto Rico/Government”. Retrieved from http://data.bls.gov/timeseries/SMS72000009000000001?data_tool=XGtable

[12] The loss-of-benefit estimates coincide and were provided by representatives from the Sindicato Puertorriqueño de Trabajadores, Servidores Públicos Unidos and Central Unitaria de Trabajadores.

[13] According to a Government Development Bank internal document, a total of $ 3,835 million must be forked out for debt service during the first half of 2016. The Working Group’s January Revised Plan estimated that Accounts payable as of June 2015 stood at  $ 1.7 billion and 99 days outstanding (p. 7).

[14] Krueger, Teja and Wolfe, p.17-18.

[15] The byname of “independent” has a double meaning in local labor parlance and refers to “independence” both from government control and control from U.S. unions.  On the one hand, in the 1950s the Partido Popular Democrático succeeded in creating a corporatist model that weakened the combative Central General de Trabajadores while incorporating many labor leaders into government.  On the other hand, the tension with mainland-based organizations has been a constant throughout Puerto Rico’s history. Since the early days in the 1900’s (when the AFL-CIO provided resources to help organize workers and eventually succeeded in neutralizing the most radical sectors among sugar cane and tobacco workers) up to the mid-1990’s (when mainland labor groups achieved the representation of employees in many public sector agencies and utilities), U.S. based unions have been alternately seen as powerful allies with vital organizing capabilities or as “colonialists” who undercut local unions. Gervasio L. García and A.G. Quintero Desafío y solidaridad:  breve historia del movimiento obrero puertorriqueño. Río Piedras: Ediciones Huracán, 1982. Miles Gavin, The Organized Labor Movement in Puerto Rico. New Jersey: Associated University Press, 1979. Ramón Arbona Martínez and Armindo Núñez Miranda. Pedro Grant. La vida una lucha, una lucha la vida: Memorias de un líder sindical. Río Piedras: Ediciones Callejón, 2005. Selected passages of César J. Ayala and Rafael Bernabe. Puerto Rico en el siglo americano:  su historia desde 1898. San Juan: Ediciones Callejón, 2011. César F. Rosado Marzán, Dependent Unionism: Resource Mobilization and Union Density in Puerto Rico, Ph. D. Dissertation, Department of Sociology, Princeton University, June 2005; and “Solidarity or colonialism? The polemic of ‘Labor Colonialism’ in Puerto Rico’, in Working USA: The Journal of Labor and Society (2007); and.

[16] “Propuestas de la Coalición Sindical ante la crisis económica, social y política”, October 5, 2014. Photocopy provided by Federico Torres Montalvo.

[17] “Plan alternativo para superar la crisis fiscal y promover el desarrollo económico”, photocopy provided by Roberto Pagán.

[18] See note 13.