The first “public private partnership” between the US and Puerto Rico was the sugar cane industry.
The circumstances which forced it, the modus operandi of the US, and the tragic results for Puerto Rico are exactly the ones we see today.
The US “liberated” Puerto Rico from Spain in 1898. Later that same year, Hurricane San Ciriaco destroyed thousands of the island’s farms and nearly the entire year’s coffee crop. Of fifty million pounds, only five million were saved.
Destruction from Hurricane San Ciricao, 1899
American hurricane relief was bizarre. The US sent no money.
Instead, the following year it outlawed all Puerto Rican currency and declared the island’s peso, whose international value was equal to the US dollar, to be worth only sixty American cents. Every Puerto Rican lost 40% of his or her money overnight.
The very next year, in 1901, the US passed the Hollander Act, which raised the taxes on every farmer in Puerto Rico.
With higher taxes, crippled farms, and 40% less cash, the farmers had to borrow money from US banks. But with no usury law restrictions, interest rates were so high that within a decade, the farmers defaulted on their loans and the banks foreclosed on their land.
Charles Herbert Allen…the first P3 opportunist
Into this desperation and distress, dropped the first great American opportunist in Puerto Rico…the King of the Carpetbaggers…Charles Herbert Allen. As the first US civilian governor of Puerto Rico, Allen played the island like a fiddle.
First he appointed over 600 US expatriates into the Puerto Rican government bureaucracy.
Then he conducted soil sample studies all over the island, to identify the richest areas of production.
Then he resigned as governor, ran up to Wall Street, and built the largest sugar syndicate in the world. His hundreds of political employees provided him with land grants, tax subsidies, water rights, railroad easements, foreclosure sales, and favorable tariffs. This was the first public-private partnership, or P3, that Puerto Rico had ever seen.
Charles Herbert Allen
The profits for Allen were enormous. Within 15 years he became Treasurer, then President, then Chairman of the Board, of the American Sugar Refining Company.
Today this company is known as Domino Sugar.
The shocking success of Charles Herbert Allen created a land rush in Puerto Rico.
Carpetbaggers arrived by the boatload.
By the late 1920s, all of Puerto Rico’s sugar farms belonged to 41 banking syndicates. 80% of these were US-owned and the largest four syndicates – Central Guanica, South Puerto Rico, Fajardo Sugar and East Puerto Rico Sugar – were entirely US-owned and covered over half the island’s arable land.
All of these syndicates received preferential treatment from the colonial government. All of them were “public-private partnerships” or “P3s,” in which the public sector provided enormous subsidies, concessions and advantages to the private investor.
The only beneficiaries of this were the absentee private investors…who invested only a few pennies, for a full dollar’s worth of profits and dividends. In 1929, the American Mercury magazine noted, “The development of large absentee estates makes Porto Rico (sic) a land of beggars and millionaires, of flattering statistics and distressed realities. More and more it becomes a factory worked by peons, fought over by lawyers, bossed by absent industrialists, and clerked by politicians.”
Nearly one hundred years later, this is exactly what is happening on the island today.