Last updated: August 20, 2019
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has been significant discussion about the massive 72-billion-dollar debt
accrued by the island of Puerto Rico. This debt is the result of several factors
including the commonwealth status of the island relative to the United States,
the structure of the Puerto Rican healthcare system and bad investments.
However, the economic and public policy issues plaguing Puerto Rico may be
better understood by examining them through the lens of path dependent
processes and historical institutionalism. The purpose of this paper is to use
the concepts of path dependence and historical institutionalism to examine the
decline in the Puerto Rican economy as it relates to social programs in Puerto
Rico, namely Medicaid. In doing so, I will explore the political status of
Puerto Rico, the structure and background of the Puerto Rican economy, and how the
Puerto Rican Medicaid system is different from that of the mainland United

Path Dependence and
Historical Institutionalism

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discussing the situation in Puerto Rico, it is crucial to understand what is
meant by path dependent processes and historical institutionalism. Path
dependence is discussed most often as a series of “self-reinforcing” feedback
processes (Pierson 2000).  In the most
general terms, path dependence means that what happens next depends on both the
current context and events that have occurred in the past. Phrased even more
simply, history matters. Historical
institutionalism refers to this same concept but can be thought of as a more
complex framework through which institutions can be understood or researched
further. Pierson and Skocpol assert that historical institutionalism is focused
on “substantive
agendas, temporal arguments, and attention to contexts and configurations” (Pierson
and Skocpol 2002). What this means is that rather than just broadly
understanding that history matters, those who employ a historical
institutionalist approach ask substantive questions that seek to answer why
certain outcomes happened in one place but did not happen in other similar
locales, or why certain institutions developed in the manner that they did as
opposed to other methods or avenues of development, and so on, placing a
greater emphasis on context. Historical institutionalists consider the temporal
contexts and consider interactions among or between institutions and other
processes. This is significant, especially as it relates to political science
because there tends to be a greater focus on developing and testing theories
that are largely specific to individual institutions rather than considering that
in a real-world context what occurs within any institution does not happen in a
vacuum. Rather, there are a frequently factors completely outside of the
individual processes that occur within institutions that can impact what will
occur in the future. Historical institutionalism effectively takes this into

            Something else fundamental to the
historical institutionalist perspective is the concept of critical
junctures.  Critical
junctures are periods of abrupt change that result in a number of decisions
that will impact the decisions made in the future by closing off alternative
options and leading to the establishment of institutions that “generate
self-reinforcing path-dependent processes which are then very difficult to
alter” (Capoccia and Kelemen 2007). Critical junctures are the starting point
or catalyst for path dependent processes.

            It would be remiss to not at least
briefly address the critiques of a historical institutionalist approach because
the aim of this paper is to demonstrate the impact of path dependent processes,
triggered by decisions made during critical junctures in Puerto Rican history
that have resulted in the current economic and health crisis on the island.

There are other social scientists,
many within the field of political science, who are critical of this approach
because they do not see potential for deeper analysis or conclusions to be
drawn aside from that history can have an impact on the future. More substantial
criticism results from some assertions that historical institutionalism views
public policymaking as institutionalism conceives of
public policymaking and political change as a discrete process that places
excessive emphasis on incrementalism (Peters, Pierre and King 2005). The opponents of this approach
claim that historical institutionalism functions on
an assumption that policymaking systems tend to be conservative and find ways
of defending existing patterns of policy, as well as the organizations that
make and deliver those policies. Further, there are also those who take issue
with the notion that policy can become locked in. Hacker, quoting Pierson, who
has written extensively on path dependence and path dependent processes, says
that “policies frequently ‘provide incentives that encourage individuals to act
in ways that lock in a particular path of policy development'” (Hacker 2002).  The critique lies within the notion that
historical institutionalism has no way of dealing with more gradual
transformations away from a path. This critique though, is not well-founded.
The critical juncture element of the literature allows for these diversions.
Also, it is important to consider what the goal of this approach is. Hacker
states that his own research places emphasis on “the political institutions
within which policy decisions are made and the diverse feedback effects that
those decisions have on subsequent political struggles (Hacker 2002). It could
be argued that this also in many ways accounts for gradual transformations.

regard to Puerto Rico, historical intuitionalism is a useful approach to better
understand the negative economic plight of the island and the limitations on
differentiation in public policymaking there because of critical junctures in
Puerto Rican history that effectively placed it on that path. Even with regard
to just the last decade or so, it can be demonstrated that the history of
Puerto Rico, especially relative to its political status as a United States
Territory has created a narrow direction for public policy to follow. In the
case of Puerto Rico, there is not substantial room for autonomy or complete
self-determination as it relates to public policy.

Political Status

In order to have a full grasp of the
context in which Puerto Rico exists vis a vis the United States, it is useful
to think of three specific periods that have created the political limbo in
which the island stands. First, is necessary to think about the 1900 Foraker
Act passed shortly following Puerto Rico’s cession to the U.S. from Spain, the
1917 Jones Act, and its commonwealth status which came to fruition in 1953.

Foraker Act

current status of Puerto Rico was established by the 1900 Foraker Act. Puerto
Rico was ceded to the United States government in 1898 from the Spanish
following the Spanish American War (Cabranes 1978). In 1900, the Foraker Act, a
civil law that established a civilian government in Puerto Rico was signed by
President William McKinley. This act established a new government. The
government consisted of a governor and an executive council that was appointed
by the President of the United States. It also established a House of
Representatives with 35 elected members, a judicial system including a Supreme
Court, and a non-voting representative in Congress. Additionally, the act meant
that all federal laws of the United States would be applicable to Puerto Rico.  Right after this, in 1901, in what are known
as the Insular Cases, the U.S. Supreme Court were faced with deciding what should
be done with all of the territories acquired following the 1898
Spanish-American War. It was determined that Puerto Rico was an “unincorporated
territory” which meant that instead of possessing full constitutional rights,
Puerto Rico only had “basic protections from the Constitution such as the writ
of habeas corpus, prohibition against cruel and unusual punishment, and
protections against unreasonable searches and seizures (Rezvani 2007). This
moment foreshadowed frustrations that would build regarding Puerto Rico’s
political status because there were citizens of the island who had hoped for
autonomy and sovereignty. This decision was made with no consultation with the
people of Puerto Rico (Fernos-Isern 1953). The government that was established
came to be based on the interests of the United States.

Jones Act

1917, the passed the Jones Act was passed. This legislation was a crucial point
in Puerto Rican history because it granted U.S. citizenship to Puerto Ricans.
However, it must be noted that it did not provide the Puerto Rican government
any real decision-making powers. Issues of importance were still decided upon
by the U.S government. The U.S. government was responsible for major central
government appointments on the island, such as the governor, the attorney
general, the auditor, and the commission of education, who were under the
influence of the U.S. Department of the Interior. Thinking about what the
historical intuitionalist literature discusses relative to critical junctures
that spawn path dependent processes, the Jones Act can be seen through this
lens. It continues to have major implications even in present Puerto Rican

of the first examples of the limitations placed on Puerto Rico by the Jones Act
were when Puerto Rico’s assembly voted to allocate funds to help earthquake
victims and to establish scholarships to encourage education. The attorney general
canceled the allocations as violations of the Jones Act and those violations
were upheld. As will be discussed further in a future section of this paper, the
United States did make some efforts to address the widespread poverty and
destitution on the island, however, it paled in comparison to any assistance
given to actual states.


1950 and 1952, a number of events culminated in the establishment of the
Commonwealth of Puerto Rico. In 1950, a bill was signed by President Harry
Truman that allowed Puerto Ricans the ability to draft their own constitution establishing
the commonwealth. In 1951, Puerto Rico was given the ability to govern
themselves to some measure. In 1952, Puerto Rico was officially granted
commonwealth status when all sections of the 1900 Foraker Act were repealed. At
this point, Puerto Rico was able to self-govern to the degree that the key
positions would no longer be appointed by the US government. The change came
about as the result of a compact between the people of Puerto Rico and the
Congress due to growing frustrations within Puerto Rico and calls for full

it still must be noted that Puerto Rico still remains subject to the Jones Act.
It is also of note that Puerto Rico cannot set its own monetary policy and must
abide by many US economic statutes. Further, Puerto Rico has no real
representation in Congress. Instead, Puerto has a resident commissioner who can
raise concerns and participate in debates over legislation in the House of
Representatives, but has absolutely no voting rights (Fontencilla 2017). This
can be a source of frustration because citizens have no say in matters relating
to their own rights nor a viable manner in which to argue for specific rights
and protections.

of these factors provide context for better understanding the economic
structure and healthcare system that exists in Puerto Rico. All of the
decisions that have been made on the behalf of the United States regarding
Puerto Rico have played a role in its current political status and the manner
in which the island can or cannot respond to important matters. This becomes
more evident as underlying causes of the massive debt owed by Puerto Rico are
further explored.


economy of Puerto Rico is the largest
economy in all of Latin America. The primary industries driving the economy within
Puerto Rico are manufacturing and tourism. The small size of Puerto Rico, the
lack of raw materials, and control by the United States relative to foreign
policy and trade restrictions have impacted its direction significantly.
As Pierson notes, “Placing politics in time – systematically situating
particular moments (including the present) in a temporal sequence of events and
processes – can greatly enrich our understanding of complex social dynamics”
(Pierson 2000). Puerto Rico, as referenced earlier, has had a historically
complicated political status relative to the United States that has had
economic and social implications. 

Dependent Processes in the Puerto Rican Economy

There are two significant historical
events that can be argued to have initiated path dependent processes that have
resulted in the current state of the Puerto Rican economy, namely, an
initiative based on collaborations with the Puerto Rican government and the
United States to industrialize and build up the Puerto Rican economy called
Operation Bootstrap, and provisions written into the tax code in the 1960s,
effectively making the island a tax haven.


Operation Bootstrap began in earnest
in the early 1950s. As aforementioned, it was an initiative made possible
through investments made by the United States to shift the economy in Puerto
Rico from one that was primarily based on sugarcane plantations to an
industrialized economy. It should be noted that in the period immediately
following the implementation of Operation Bootstrap in the 1950s and 1960s was
accompanied by social stability and relatively peaceful labor relations, which
were essential for a program that was dependent upon foreign investments. This
was because in the 1950s and 1960s the economy experienced relatively sustained
growth as firms were able to compete effectively against mainland manufacturers
of low-cost manufactured wage goods ((Caban 1989). Puerto Rico attracted small
business firms by offering low wages, tax exemptions and subsidies. However,
after this, other less developed countries provided similar incentives for
foreign capital to manufacture the same products. This point is important
because it repeated itself more than once, severely impacting the economy each

principal aspects of Operation Bootstrap that impacted the Puerto Rican economy
moving forward was that it transformed the island from a poverty stricken
agricultural economy to a comparably healthier industrialized economy, and
further entrenched the dependence on United States investments to stabilize the

Tax Code and Puerto Rico

For roughly a century, federal tax
legislation has provided U.S. companies with incentives to invest and operate
in Puerto Rico. Following Operation Bootstrap, in 1976, Congress gave a tax
break to U.S. companies that established subsidiaries in Puerto Rico which
hugely incentivized pharmaceutical corporations flock to there. This program “led to increased
employment in the short run but did not alter the fundamental economic
problems” (Schwartz et. al 2008). In 2006, this part of the tax code, section
936, fully expired. This section was a vital part of the economy of the island
because it established tax exemptions for corporations from the United States that settled
in Puerto Rico and also allowed its subsidiaries operating in the island to
send their earnings tax free to the parent corporation at any time.
Following the expiration of this statute, pharmaceutical companies began
pulling money out of the island in droves triggering an economic depression
from which it has never recovered.

and tax incentives have undoubtedly shaped the direction of the Puerto Rican
economy to the present day. Understanding this armed with knowledge of Puerto
Rico’s political status, it becomes clear that all of this together has defined
the path to economic instability where the island currently lies.

Puerto Rican Debt

expiration of section 936 of the tax code could be considered the catalyst of
the current debt crisis in Puerto Rico. While the economy of the island has had
many ebbs and flows and has reckoned with moderate to high unemployment
throughout its history, since 2006, the economy has continued to falter,
causing many Puerto Ricans to migrate to mainland United States. In 2015,
Puerto Rico partially defaulted on a $58 million debt payment, the first time
that has ever occurred in its history. This has had many implications on Puerto
Rican society.

Heath Crisis

Puerto Rico receives
less federal funding for healthcare than the other 50 states and the District
of Columbia even though Puerto Ricans pay social security and Medicare taxes
(Roman 2015). In recent years, a number of funds have been in jeopardy of being
cut. This is of extreme importance in relation to Puerto Rico’s economic
outlook because the dearth of support for the healthcare system is responsible
for over a third of Puerto Rico’s $72 billion debt. Further, there is
widespread belief that the healthcare system is on the brink of collapse. A
crucial factor in all of this is that healthcare makes up 20% of the Puerto
Rican economy, resulting in a direct effect on” reimbursement rates for
physicians while promoting the disintegration of the island’s healthcare
infrastructure” (Roman 2015).

            Pierson and Skopcol assert that
utilizing a historical institutionalist approach to the social sciences
requires the belief that “the patterns of resources and
relationships in which individuals find themselves have powerful channeling and
delimiting effects (Pierson and Skocpol 2002). According to this perspective,
it is not surprising to understand why Puerto Rico finds itself in this current
economic state, and also the compounding of additional problems stemming from
this crisis.


Just to touch on the implications
for social policy in Puerto Rico, as well as, further discuss how intertwined
the economic crisis there is related to the healthcare system, it is important
to have greater clarity on what differentiates Medicaid in Puerto Rico from
Medicaid in the United States. At this point, it has been established that
Puerto Rico operates within a unique space relative to the United States.
Although Puerto Ricans on the island are not eligible for the full range of
programs available in the US, Puerto Ricans have access to Medicaid.

The Medicaid program in Puerto Rico differs from
United States Medicaid programs in several important ways. First, it operates
within a larger, centrally administered health care delivery system.   Approximately half of Puerto Rican citizens
are poor and depend upon the public health system for their medical care.
Second, recipients are not free to choose their own provider, but are referred
to the proper level of care by public health care system professionals.
Additionally, federal financial participation has been
capped by the United States government since 1968 (Pagán-Berlucchi and Muse
1986). In comparison, states receive a guaranteed federal matching rate based
on what they spend. Poorer states, receive a larger percentage of their Medicaid
costs matched.  In Puerto Rico, the U.S. government’s overall cap
through the block grant received by Puerto Rico has meant an effective matching
rate of 15 to 20 (Center on Budget and Policy Priorities 2016).

Affordable Care Act

            It has been demonstrated that Puerto
Rico is greatly impacted by decisions made by the United States. Something else
of note is that this is also true relative to public policy decisions. Although
Puerto Rico has no voting representative in Congress, it is still subject to
legislation passed in the US. 

            The Affordable Care Act (ACA) has
been controversial since its passing in 2010 and continuous pushes to repeal
it. At the same time, the ACA has helped expand coverage in Puerto Rico.
Further, about 1.6 million Puerto Ricans enroll in Medicaid and temporary funds
allocated through the Affordable Care Act cover up to 900,000 of those people (Luthi
The ACA authorized an additional $925 million for Puerto Rico in place of the
exchange subsidies offered to the 50 states and DC. Puerto Rico exhausted this
money in 2017 (“Puerto Rico Medicaid” 2016).

            While historical institutionalism
absolutely refers to the notion that history matters, as an approach it also
places great emphasis on not just history as context, but as a catalyst for
specific path dependent processes. Many criticisms of this approach take issue
with the notion of processes as “locked-in”. However, as has been observed by
examining the history of Puerto Rico, taking note of its political status
relative to the United States and the structure of the economy and healthcare
system, it does seem to demonstrate that decisions and the historical context
in which they were made have a tremendous effect on subsequent and future

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