01 · Puerto Rico

Puerto Rico: Another case study in the failure of socialism

A sunlit cobblestone street of colorful colonial buildings in Old San Juan, Puerto Rico — Beautiful Old San Juan. The oldest city under the American flag since 1898.

I was born in Puerto Rico. I lived there, on and off, for 27 years. Most of my family still lives there, and I love it. I did well for myself. You still can’t ignore the stark economic difference between Puerto Rico and the mainland United States.

Americans take for granted that their property will rise in value over the medium term and the long term. In most of the world, that is not the case. Over the 20 years I invested in Puerto Rico, my properties rose substantially less than properties in the United States. The cause is a widespread sympathy for socialist values, and for the public policy that follows.

Socialism

Socialism is the government owning the means of production. In Puerto Rico, it owns the power plants and the grid, the water and sewer system, the ports, the airports, and the ferries. It runs the train in San Juan. It owns factory buildings that it leases, and about 85,000 cuerdas of farmland that it leases to farmers. It runs about 53,600 public-housing units, the second-largest stock in the United States. Workers’ compensation is a state monopoly. It also runs the compulsory insurance for injuries in car accidents.

Redistribution of wealth

Corporate income taxes reach 37.5%, nearly double the U.S. rate of 21%.
State income taxes in the United States range from 0% to 13%. In Puerto Rico they reach 33%.
The sales tax is 11.5%, higher than the sales tax in any U.S. state.

Then come the taxes most places do not charge at all.

A business tax on all assets and inventory.
A municipal tax on gross receipts.
A municipal tax on construction.

Tax businesses this heavily and the economy does not grow. Add income taxes that high, in an economy that is already shrinking, and people leave. Massachusetts and California are losing residents for the same reason. Puerto Rico has lost far more.

American taxpayers already send $40 billion a year to this island of 3.2 million people. That is $12,500 a person. About half is earned (Social Security, Medicare, and veterans’ benefits). Half is granted. Some still propose new welfare programs, which would take more taxes. At what point will people abandon these failed policies?

If socialism and redistribution worked, Puerto Rico would be a utopia. It is not.

Census Bureau, ACS and QuickFacts; Bureau of Labor Statistics; USDA Food and Nutrition Service; Pew Research Center.

Some Puerto Ricans do want free markets. CRECE and the Instituto de Libertad Económica are teaching it.

ILE CRECE

Socialism has been tried many times, it has never, ever, worked.

1917
Russia. The Bolsheviks took the state. Famine, the camps, and a collapse in 1991.
1919
Hungary. A soviet republic. It lasted 133 days.
1924
Mongolia. A Soviet copy until 1990. Poor the whole time.
1945
Eastern Europe. Poland, Czechoslovakia, and East Germany had it imposed on them. People fled, revolts were crushed, and it fell in 1989.
1946
Albania. Hoxha sealed the country. It was the poorest in Europe until 1991.
1948
North Korea. Still socialist. Famine, and a border guarded so people cannot leave.
1949
China. The Great Leap Forward starved tens of millions. Incomes rose only after markets were allowed back in.
1959
Cuba. Shortages from the start, and an exodus that has not stopped.
1962
Burma. The army nationalized the economy and closed the country. The policy was dropped in 1988, after decades of poverty.
1967
Tanzania. Villages were forced onto collective farms. Harvests fell, and the policy was dropped.
1970
Chile. Voters chose it. Shortages and inflation within three years.
1974
Ethiopia. The Derg. The Red Terror, then famine.
1975
Cambodia. The Khmer Rouge emptied the cities. More than a million people were dead in under four years.
1975
Laos. Still a one-party socialist state, and still poor.
1975
Vietnam. Victory, then the boat people. Living standards rose after the party let markets in.
1975
Angola. Oil in the ground. Civil war and poverty for the people living there.
1979
Nicaragua. Empty shelves. Voters threw it out in 1990.
1980
Zimbabwe. A regional breadbasket. The result was shortages, hyperinflation, and an exodus.
1999
Venezuela. Voters chose it. An oil-rich country got shortages, hyperinflation, and millions leaving.

Zero countries have tried socialism and been better off for it. Where life later improved, in China and in Vietnam, it improved after the government let markets back in.

What is especially scary about socialism is that you can vote your way in, but you have to shoot your way out.

Socialists always have excuses.

“Socialism has never been tried correctly.” “Our case is unique.” “We are an island.” “We are a territory.” Those are the excuses you hear in Puerto Rico. New Zealand and Singapore are islands. Hong Kong got rich as a British colony. They embraced capitalism, private property, and limited government. They prospered. I hope Puerto Rico one day does the same.

Singapore. Fraser economic freedom #3 in the world, out of 165. $90,700 GDP per person.
New Zealand. Fraser economic freedom #4 in the world, out of 165. $48,900 GDP per person.
Hong Kong. Fraser economic freedom #1 in the world, out of 165. $54,400 GDP per person.
Puerto Rico. Ranks #61 out of 93 in North America, not ranked internationally. $18,800 income per person.

Freedom ranks: Fraser Institute, Economic Freedom of the World 2026, 165 jurisdictions, except Puerto Rico, which Fraser scores in Economic Freedom of North America and does not rank internationally. Heritage still ranks Singapore first in the world. Income: World Bank GDP per person, 2024, except Puerto Rico’s figure, which is Census income per person. Puerto Rico’s GDP per person is about $39,000, because multinational profits are booked on the island. Residents do not earn that.

What about the Scandinavian countries?

People point to them as the proof that socialism works. However, they are not socialist. These are some of the freest, most capitalist countries in the world.

#7
Denmark
#8
Norway
#11
Sweden
#13
Finland
#16
Iceland
#22
United Statesfor reference

Heritage Foundation, 2026 Index of Economic Freedom, out of 184 countries.

They do have welfare programs, but these countries protect private business, secure property, open trade, and school choice. People produce the wealth first. The welfare state is a program on top of a capitalist economy. Several of them are cutting it back. Finland has reduced benefits. Sweden is capping social assistance. The bill got too large.

American Welfare

The majority of Puerto Ricans are good, humble, hardworking people. American welfare arrived in the 1930s, expanded in the 1950s, and blew up in the 1970s. It dramatically changed the work ethic and the culture. Federal benefits were set to mainland prices. The island’s cost of living was lower, so the welfare was even more generous. Great, right? Wrong.

Programs intended to provide a safety net have, in too many cases, become a source of long-term dependence and even a lifestyle choice. Today about 47 percent of households receive food or cash assistance, more than double the next U.S. jurisdiction.

To make matters worse, the largest employer is the government itself. One job in five is a public job. A minority in the private sector is paying for the large majority who collect a government check, whether it is welfare or an agency job.

The growing addiction to handouts does what it does everywhere. People lose their work ethic, their sense of purpose, and ultimately their morals. I have seen third-generation tenants occupying the same government housing units. The more forms you fill out, the more handouts.

Socialism does not merely fail the people it claims to help. It harms them. It creates dependence, kills motivation, and strips dignity.

“Welfare damages the souls of the people who receive it, and it impoverishes the working taxpayers who fund it.”

A yellow public-housing building in Puerto Rico, with barred balconies and a child in the courtyard — Public housing in Puerto Rico. The buildings outlast the promise.

One individual

I’ve seen welfare destroy people and families firsthand. I’ll tell the story of one of my best employees. We’ll call him Sergio. He was a young man who lived with his mother while he saved for a place of his own. He was always early. He worked hard. He took every extra shift he could get.

One day they fought, and a friend got him an apartment in a Section 8 building. He came to work ecstatic. He had his own place, and it was cheap.

Then he took fewer shifts. He did not need the money. At home he made friends with neighbors, many of whom did not work at all. He learned about more “free” programs: subsidized water, subsidized electricity, food stamps, a free cell phone, even Puerto Rico’s public health plan. He took fewer shifts still, and the attitude came next. He told me he did not need the job, and he stopped showing up.

Months later I found him in a parking lot, washing cars for cash, still bragging about the free stuff and explaining that the cash did not affect his benefits. He spoke openly of his new drug problem, and of how he no longer talked to his mother. It was heartbreaking.

I'll write you

If you subscribe, I'll use your info only to write you. I do not sell it.

Follow @serrapedro