A week after being devastated by Hurricane Maria, the citizens of Puerto Rico are as CNN points out, “suffering in primitive conditions without power, water or enough fuel.” Unfortunately, the recovery efforts are being impeded further by a nearly 100-year-old crony capitalist law.
Crony capitalism or cronyism is a general term for the range of activities in which particular individuals or businesses in a market economy receive government-granted privileges over their customers and/or competitors. One of the most common—and nefarious—types of cronyism is protectionism, the practice of shielding a country’s domestic industries from foreign competition.
A prime example of protectionism that is harming Puerto Rico is the Merchant Marine Act of 1920, known as the Jones Act, a protectionist law that shields American merchant marine ships. One of the requirements of the law is that all goods transported by water between U.S. ports must be carried on U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents.
Ironically, the Jones Act has the opposite effect of what was intended. The law has caused shipping goods by water to become so expensive that some ranchers in Hawaii fly their cattle to the mainland in a 747 every week because it’s cheaper than Jones Act shipping. And rather than expand the American fleet, the law shrunk it to almost nothing. Currently, there are only 93 Jones Act-eligible ships.
Such a law is absurd and harmful in the best of times, since it increases the transportation costs on many foreign and American-made goods—a cost that is passed on to the consumer. (The U.S. International Trade Commission has estimated that reform or repeal of the Jones Act could yield an annual economic gain of between $5 and $15 billion.) But it is unacceptably harmful to have such a law in place when it impedes disaster relief efforts.
The law allows for waivers, and the Department of Homeland Security issued a 7-day waiver of the Jones Act to aid the recovery efforts after Hurricanes Harvey and Irma. But the Trump administration is refusing to issue the same waiver for Puerto Rico, even though the territory is, unlike Texas and Florida, completely cut off from overland transportation. As Salim Firth notes, “This is grossly unfair, particularly as the nearby U.S. Virgin Islands received a permanent exemption from the Jones Act after being hammered by Hurricane Maria.”
[UPDATE 1: Yesterday President Trump said he was considering a waiver: “We’re thinking about that but we have a lot of shippers and a lot of people… who work in the shipping industry that don’t want the Jones Act lifted. And we have a lot of ships out there right now.” This morning, though, the White House announced Puerto Rico would get the waiver, effective immediately.]
The refusal to issue a waiver is a bizarrely cruel decision for the Trump administration. It’s no exaggeration to say that many citizens of Puerto Rico may die while they wait for one of the 93 approved ships to bring them necessary aid.
Recovery efforts on the island will also be hindered by this heartless application of the law. Puerto Rico already has to buy their oil imports from the socialist Venezuela because the Jones Act makes natural gas imports from Pennsylvania and Texas too expensive.
“Given the scale of the damage to Puerto Rico and the multiyear rebuilding effort to come,” says Firth, “Trump should issue a blanket waiver from the Jones Act for Puerto Rico for as long as the territory continues to use federal aid dollars in its rebuilding. And in order to enable a migration from foreign oil to American natural gas, Congress should grant a permanent exemption from the Jones Act for all fuel tankers.”
That would be a helpful start. Yet the long-term solution to the problem is a complete repeals of the protectionist polices under the Jones Act. Unfortunately, that isn’t likely to happen when our president openly campaigns on promoting cronyism and limiting economic freedom. But the situation in Puerto Rico may awaken the American people to the reality that the effects of protectionism can be deadly.
UPDATE 2: John McCain calls on Congress to repeal the Jones Act.
— John McCain (@SenJohnMcCain) September 28, 2017