Do you like monopolies? That is sort of an unfair question because long stretches of your worthy life probably go by without thinking much about them. Startup guru, Steve Blank, thinks they are wonderful and that they should be every entrepreneur’s goal because having a monopoly is the best way to make the most money.
Fair enough but what if you are the monopolee and not the monopolor? Then it feels more like dealing with the cable company, which has a tendency to bring out the less worthy aspects of our personalities. We might even sound like Donald Trump in the formerly dignified setting of a nationally televised presidential debate.
Now take the question a step further and wallow in your last interaction with the Department of Motor Vehicles. Can you feel your blood pressure rising? Is the F-bomb forming at your lips? Yes, the DMV is also a monopoly; it just happens to be owned by your friendly government.
So let’s think about a problem we could solve if we would just allow ourselves to lose the monopoly of those permitted to solve it.
I can feel your excitement so maybe it is time to slip the real live problem into the conversation. Ready?
Puerto Rico is bankrupt. If there were measures of bankrupt-ness, Puerto Rico would be best in class. It owes $72 billion and it has less than 3.5 million people whose toil must pay it back. The economy has declined by 15% since 2005, and 10% of the people have left. Puerto Ricans are U.S. citizens so they are a $99 airfare from Orlando where they are entirely welcome to join 900,000 of their pals as Florida residents or hop a flight anywhere else in the United States to double the expat population to 7 million. When they leave the island they also get to vote in US presidential elections, but that might not be high on their list of reasons to bolt.
The monopolists in this case are the people trying to solve the problem. For some reason, we have entrusted this to governments including those of the United States and the Commonwealth of Puerto Rico. Neither has the tools available to fix the mess.
Democrats like municipal bankruptcy (for which Puerto Rico is not presently eligible), as this would require the bondholders to bear the cost of reducing the debt burden to manageable levels. Since the interest on the bonds is tax-free, rich people must hold them, and Democrats don’t much like rich people (especially in the voting part of election years; the fund raising part is different). But the interest on Puerto Rico bonds is so tax-free that not even states or cities can tax it. Puerto Rico bonds are held in every state bond fund in America and those investors are far from fat cats, so lots of them must be Democrats. Oops.
Republicans prefer a non-elected financial control board to take all of the decision making away from the feckless government officials who like to bribe the voters with debt-financed goodies, to say nothing of bribing themselves with squishy side deals and consulting arrangements. This saves the beloved bondholders and sticks it to the local government and the people, virtually all of whom are Democrats. But if the debt were repaid in full, there would be almost no money for anything else and even more people would leave for the US thus creating 3.5 million new Democrats to vote against the Republicans. Oops again.
Clearly government can’t solve this one except possibly with a whopping federal bailout, but we persist in giving it the only chance to try.
To solve the problem, let’s lose the monopoly on eligible problem solvers. What if private interests could simply buy Puerto Rico?
Big chunks of land have been bought before and we might prefer to have such a purchase take place in a properly carpeted Wall Street boardroom instead of all of that messy fighting in the Middle East. (Historical note: prior to purchases of countries, wars were the accredited method of acquiring them.)
In 1803, we bought the Louisiana territory for 2.8 cents an acre (inflates to 58 cents in 2016 dollars) and in 1819 (or 1821 it is a little confusing) we bought Florida for 11.88 cents per acre (inflates to $2.24 in 2016 dollars). Spain seems to have made a better deal than France and we even threw in some promises about Texas though we promptly broke those.
Puerto Rico has 2,249,600 acres. At the price we paid for Louisiana adjusted for 200 + years of inflation, Puerto Rico would cost $1,304,768. Easy peasy. Even if we paid what we paid for Florida, Puerto Rico would only cost $5,039,104. Surely the private sector can do far better than that.
Yes it can!
American corporations have $1.9 trillion overseas earning about 2% per year at best. They don’t bring the money back because we have such a screwed up tax code. They don’t use the money because they can’t bring it back. When the money isn’t used, no jobs are created. The only good part of that scenario is fueling up the political argument about who is responsible for the slow economic recovery.
Okay, I know big numbers are hard but $72 billion of debt is 3.789% of $1.9 trillion of useless cash. Heck double it for the land and improvements and the $144 billion would be about 29% of the $500 billion of idle cash held overseas by Google alone.
Let’s auction off the island and let the buyer form its own country and run the place like a business. Google Rico.
Any residents who don’t like it are free to leave because they have a fine place to go as citizens of the United States. None of this unpleasant walking from Syria to Germany with border guards imitating movie Nazis by saying “your papers are not in order.”
Anyone or any company that would like to come to Google Rico can see what kind of deal the new owner makes. If the new owner is clever, it might even recover its investment by selling the right to be there.
San Francisco is making life impossible for its tech workers so all startups that want to have capable software designers could immediately move to the island and offer their workers cheap housing and splendid surfing. A clever airline could provide convenient flights to ski country.
Corporate law firms hate what they have to pay new associates to live in New York so they could move to Puerto Rico to follow the corporate headquarters of their clients who relocated there to get their hands on their untaxed money.
The opportunities are limitless if we lose the monopoly on eligible problem solvers.