In order to cover the cost of those subsidies the state owned enterprises would have to either forego new investments or charge its’ paying customers higher rates. Instead, they borrowed to make up the difference. Creditors were easy to find because Puerto Rico’s bonds are tax-exempt at all levels of government. This allowed whichever party was in power to pursue industrial policies that favored particular firms or industries without paying for them. It didn’t help that both parties used the public corporations for patronage appointments. Not surprisingly, many of them are highly inefficient.
Puerto Rico’s public corporations create other problems as well. As the source of much government employment—25 percent of the labor force works for the government— they are the base of the island’s labor movement. Organized labor is a formidable force in Puerto Rico and can be counted upon to oppose any effort to privatize the public corporations or to reform the labor market. Like the vicious cycles created by public sector unions elsewhere, in Puerto Rico the unions lobby politicians, who assist the public corporations, whose workers then underwrite the unions.
Consequently, public corporations have been vehicles for political manipulation and financial shenanigans. In the coming years, privatizing many of these state owned enterprises will be one of the biggest challenges confronting the island’s political leaders. In fact, it is such a political conundrum that some believe only an unelected financial control board could take such a controversial step.