Sovereign Free Association: An Economic Risk for Puerto Ricans

A recent interview on the subject of Puerto Rico’s status suggested, with a startling degree of discourtesy, that Puerto Rico wants to be a state only “for the money.” In fact, Puerto Ricans who are in favor of statehood generally explain that they seek equal responsibilities as well as equal rights with other United States citizens.

It is well established that there would be economic benefits of statehood.  (Alaska and Hawaii offer good case studies.) It is important to point out, however, that these expected economic benefits are much broader than the sum of federal handouts.

We recently compared the average personal incomes over time of a state (Mississippi) with a territory (Puerto Rico), and concluded that the state had fared far better than the territory, even though they had a great deal in common during the time period we examined.

That still leaves another question, if we are thinking about the possible economic impacts of the status options offered by the ballot to be presented in Puerto Rico next month: could independence and sovereign free association be better for Puerto Rico than statehood?

Here we compare Puerto Rico and Micronesia with Mississippi (the poorest state) and the United States as a whole.

The chart above shows that Micronesia, an independent nation in free association with the United States since 1986,  had the lowest per capita income of the four in 2000 and in 2010. The four entities maintained their places in order of per capita income, with Micronesia lowest, then Puerto Rico, then Mississippi, then the United States national average.

The freely associated state of Micronesia had the lowest per capita income level in both 2000 and 2010 – by far.

Micronesia also had a lower rate of increase in per capita income than Puerto Rico.

The graph above shows that Micronesia experienced growth in average annual income over the decade 2000-2010 from $2200 to $2730, an increase of $530, or 24%.

During the same time, the per capita income of Puerto Rico, a territory of the United States, increased from $10,550 to $16,560, an increase of $6010, or 55%.