Is this 1917 law suffocating Puerto Rico’s economy?

SAN JUAN, PUERTO RICO - JULY 01:  A for sale sign is seen hanging from a balcony next to a Puerto Rican flag in Old San Juan as the island's residents deal with the government's $72 billion debt on July 1, 2015 in San Juan, Puerto Rico. Governor of Puerto Rico Alejandro García Padilla said in a speech recently that the people of Puerto Rico will have to make sacrifices and share the responsibilities to help pull the island out of debt. (Photo by Joe Raedle/Getty Images)

The Jones Act, which requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew, limits business owners and jacks up prices. Photo by Joe Raedle/Getty Images

Puerto Rico is in an interesting predicament. Deep in a 10-year recession, it is now $72 billion in debt.

The island territory of the U.S. has mass unemployment and a poverty rate twice that of America’s poorest state. And after Puerto Rico’s governor announced it would not be able to pay back its debt in June, the territory government raised taxes to 11.5 percent in an effort to help pay back debts.

Its status as a territory does not help its economic woes. While Puerto Ricans are American citizens, they can’t vote. Nor does the island territory receive the same federal funds as states. The Jones Act, which requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew, limits business owners and jacks up prices.

PBS NewsHour correspondent Chris Bury went to Puerto Rico to understand how citizens are coping with the economic crisis. He spoke to Joel Franqui, owner of a fair-trade store in Puerto Rico, about the taxes and how the Jones Act affects his business. Bury’s conversation with Franqui has been edited and condensed for clarity and length below. Watch tonight’s Making Sen$e for more on Puerto Rico’s debt crisis.

Kristen Doerer, Making Sen$e Editor

Chris Bury: The Jones Act requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew. What does that do to your costs?

Joel Franqui: It is limiting. I try buying from different counties, but things are so expensive that I then actually have to go through U.S. distributors to be able to get products that are affordable for the economy here. So it is very difficult. I don’t know enough of the politics to know why it hasn’t changed, since it’s such an old law. And most of the states that are affected by that law are against it. But for us, being an island, it’s even worse, because everything has to go through the United States, even the things that we produce here for U.S.-owned businesses or industries. Usually they’re made here and bottled in the United States, and we have to ship them back and actually buy them from the states, not from us.

Chris Bury: And you have to pay that extra cost?

Joel Franqui: Of course. Usually islands are more expensive in general, but I believe Puerto Rico is even more expensive because of that. Other islands in the Caribbean don’t have that limitation, and it might be part of what is making the economy unstable, or the crisis, but I don’t know. It will help if it’s changed, but I don’t think that’s the main cause of the crisis. We have to look at other things to solve the economy, and that might be ones of the things to do, but not the only thing to do.

Chris Bury: To me, as an outsider, it is amazing that even a very small business like this has got to pay for goods coming in on a U.S. flag ship. And not only a U.S. flag ship, but a ship that was actually built in a U.S. shipyard.

Joel Franqui: It’s just silly.

Chris Bury: And there aren’t that many shipyards left.

Joel Franqui: It’s the 21st century, I mean.

Chris Bury: And in the last few months, the government has raised the sales tax to 11.5 percent.

Joel Franqui: It is a big jump, yes.

Chris Bury: What has that meant?

Joel Franqui: We have had to rearrange some of the products that we bring in into a way that we know we’re going to be able to sell them. However, so far, I don’t think things are more expensive so people have been buying as usual. They were smart, because they did it through during the summer when everyone’s on the beach or travelling. So now come August, we’re going to see how’s that going to affect the customers and how that’s going to affect our business.

Chris Bury: What are your concerns?

Joel Franqui: Most of the time, the main concern is that people will start being afraid. And that’s what actually stops the economy and stops them from buying things. Because for me, the crisis is a government crisis. Outside the government, we should be doing things as usual. But people don’t understand that, and the news and even the politicians confuse people into thinking that the crisis is for everyone. And it’s mostly the government. Of course it touches everyone else. But it shouldn’t — at least that’s how I understand it.

Chris Bury: So you’re more worried about the anxiety?

Joel Franqui: Yes, because we were here when they actually started the first sales tax, and people were just crazy — “Oh my god, things are going to be so expensive.” They were all up in arms, and then a few months later everyone is buying as usual. So I believe that’s what’s going to happen this time. However, this time there’s going to be nine months in between the start of the raised sales tax until something else happens, and since we don’t know what that something else is, that’s what — at least for me — worrisome. Not knowing what’s going to happen.

Chris Bury: You say it’s a government crisis, but you walk around here, and you see dozens of stores that are closed. The recession is clearly severe.

Joel Franqui: It is, and it has been going through for a long time, but the debt crisis from the government is something more recent than the actual economic crisis or depression or recession that we’ve been going through. I see it as two different things.

Chris Bury: Do you think though, in terms of timing, that the crisis couldn’t come at a worse time? I mean, you have austerity measures coming in like this sales tax, when the island is still in this recession.

Joel Franqui: Yeah, sadly, that’s basically how this government has worked in general. Either of the main political parties were very similar in that direction, they do things with other priorities than the rest of the people.

Chris Bury: What do you think needs to be done?

Joel Franqui: That’s a good question. I don’t know. Since I’m a small business, I don’t play in those other levels where people have more to gain or to lose.

Chris Bury: You just want to run your business.

Joel Franqui: I run my business, and I do the best I can with the resources I have. I try to make the best of it.

Chris Bury: Some economists say well, the U.S. minimum wage, $7.25 an hour, is too high for Puerto Rico. Others say no, it’s important and fair. What do you think as a merchant?

Joel Franqui: In general, people here cannot live with the minimum wage. So it has to be raised. The bigger companies believe that they’re not going to be earning as much if they actually raise the minimum wage. Yes, it will be hard to be able to pay a higher minimum wage. Right now I don’t sell enough to be able to hire my employees full time, but on the other side, I understand, my employees cannot live with what I give them.