2 The building of the SOE sector

In September 1941, Rexford G. Tugwell was appointed governor of Puerto Rico. A former professor at Columbia University, Tugwell had served as undersecretary in the Department of Agriculture in Roosevelt's first New Deal government. At that time, he had visited Puerto Rico, and on his return, in April 1934, he prepared a report for President Roosevelt. Tugwell's view of the transformation of Puerto Rico was that industrialisation would not occur unless the government took the initiative. This continued to be his approach when he became governor in 1941. Throughout his tenure, he made concerted efforts to promote a policy of government-induced industrialisation (Tugwell Reference Tugwell1953, p. 147). Tugwell made his intentions very clear in his earliest speeches to the Puerto Rican Legislature (Tugwell 1942, p. 58).

On 18 November 1941, Tugwell appointed Teodoro Moscoso as coordinator of the island's affairs. Moscoso was to play a crucial role in the industrialisation programme soon to begin. To improve Tugwell's relationship with the Puerto Rican Legislature, he forged an alliance with Luis Muñoz Marín (Maldonado Reference Maldonado1965, p. 3; Goldsmith et al. Reference Goldsmith, Clavel and Roth1974, p. 144; Carr Reference Carr1984, pp. 65-66), who had obtained the powerful position of president of the Senate (the highest post that a Puerto Rican politician could hold) after the November 1940 election. In the 1940 electoral campaign, Muñoz Marín's PPD had pledged to place primary emphasis on issues related to economic reform, instead of the traditional discussion of the island's political status. A majority in the Legislature was in favour of economic reformFootnote 5 and Tugwell was able to pass the legislation required to create the legal framework for the government-led industrialisation policy. The key step was the approval by Act no. 188 (11 May 1942) of the Law of the Development Company, according to which «wide authorization to go into business was provided» (Tugwell Reference Tugwell1947, p. 263).

The Puerto Rico Development Company (PRDC henceforth; in 1946, it was renamed the Puerto Rico Industrial Development Company, PRIDCO thereafter) was organised along the lines of the Chilean Development Company, which had been created several years before (Moscoso Reference Moscoso1953, p. 60). Moscoso was appointed general manager of PRDC on 30 September 1942, and the company began operating in October. Its first (and most important) factory was Cementos de Puerto Rico (the Puerto Rico Cement Company), with assets of around U.S.$2,000,000 (PRDC 1944, p. 30). The government's common stock participation in this ventureFootnote 6 was transferred to PRDC in 1943 (Descartes Reference Descartes1950, p. 4), and thereafter the federal participation was paid in full out of the profits (Moscoso Reference Moscoso1953, p. 60).

In addition to PRDC, two other key agencies for the development programme were created in 1942: the Puerto Rico Planning Board and the Government Development Bank. Other sector-related agencies were created between 1941 and 1945 (Baer Reference Baer1959, p. 647): The Water Resources Authority, the Transportation Authority, the Communications Authority, the Insular Sewerage Service and the Puerto Rico Aqueduct ServiceFootnote 7. This put in place the institutional framework needed to develop the policy of government-led industrialisation.

All public enterprises were organised as independent public corporations; they were legally incorporated (thus placed outside the bureaucracy) and intended to be financially self-sufficient (Goodsell Reference Goodsell1965, p. 183). In line with this modern approach to public management of commercial firms, Moscoso worked hard to make PRDC's operations profitable, and soon demanded that services that were provided free should be separated from the company's general servicesFootnote 8.

In the following years, the newly created agencies took over several privately owned utilities. In January 1944, the Puerto Rico Water Resource Authority took over the Puerto Rico Railway Light and Power Company and the Mayagüez Light Power and Ice Company, bringing all electric power utilities in Puerto Rico under its control (Richardson Reference Richardson1947, p. 113). Later, the Transportation Authority took over the urban transport system in San Juan. This policy closely resembled those applied in many U.S. states and municipalities in the late 19^th and early 20^th centuries, a period characterised by a progressively greater involvement of governments in the delivery of local services (Gómez-Ibáñez Reference Gómez-Ibáñez2003).

What was exceptional in the Puerto Rican policy of the 1940s was the fact that the PRDC created new manufacturing plants, which were built and run by the following government corporations:

• • The Puerto Rico Glass Corporation (PR Glass, henceforth) was incorporated on 24 February 1943 (PRDC 1944, p. 13). The construction of the factory began in May 1943 and glass production began in January 1945, but stopped because of a strike between 25 February and 25 June 1945 (PR Government 1945, p. 30). Production resumed after the strike.

• • The Puerto Rico Pulp and Paper Corporation (PR Pulp and Paper, henceforth) was organised on 23 April 1944 (PRDC 1944, p. 13). Construction began in May 1944 and the production of paperboard began on 6 May 1946 (PR Government 1946, p. 39).

• • The Puerto Rico Clay Products Corporation (PR Clay Products, henceforth) was created on 6 November 1944 (PRDC 1944, p. 13); the preliminary work for building the clay products factory was completed by June 1945. The first kiln was completed in May 1947 and production of brick and hollow tiles began in August 1947.

• • The Puerto Rico Shoe and Leather Corporation (PR Shoe and Leather, henceforth) was incorporated in January 1946. The plant opened (although construction was still incomplete) on 1 July 1946 and commercial operations began in February 1947.

• • Telares de Puerto Rico, inc. (PR Telares, henceforth) was incorporated in 1946 and work was scheduled to start before the end of 1946 (PR Government 1946, p. 38). However, the plant to be managed by PR Telares was never built, and this subsidiary was dissolved in June 1951Footnote 9.

Table 1 provides details of PRIDCO's six subsidiary corporations. In most cases, actual investment was much higher than had initially been expected. According to Descartes (Reference Descartes1950, p. 31), total direct investment of PRIDCO in the subsidiary plants until 30 June 1949 was U.S.$11.1 million (133.1 million in 2010 U.S.$), a large financial commitment. Table 2 displays information on the production and workforce of the subsidiaries in the final years of the 1940s, when all plants (but PR Telares) had begun commercial operations.

Table 1 PRIDCO MANUFACTURING CORPORATIONS: ORGANISATION, OPERATIONS AND INITIAL INVESTMENT

n.a.: not available.

Notes: ^aThe Cement plant was acquired by PRDC in 1943, with assets close to U.S.$2,000,000.

^bThe amount for Telares de Puerto Rico Inc. is the deficit accumulated by 30 June 1951.

Sources: Author's own data, based on: (a) PRDC (1944); (b) PRIDCO (1947 and 1951); (c) PR government (1945 and 1946). U.S.$ 2010: author's computation based on CIP indexes of Bureau of Labor Statistics (U.S. Department of Labor).

Table 2 PRIDCO MANUFACTURING CORPORATIONS: PRODUCTION (JULY-JUNE) AND WORKFORCE

Notes: ^aProduction of shoes began in February 1947.

^bProduction of clay products began in August 1947. Given the heterogeneity of the corporation's outputs, it is not possible to provide an overall figure for annual production.

Sources: Author's own data, based on PRIDCO (1947, 1948, 1949). Workforce: Moscoso, Letter to Luis Muñoz Marín, 24 June 1948.

PRIDCO plants required large investments, but they employed relatively few workers: in June 1948, when all plants were in operation, the total workforce was only 992 employeesFootnote 10. In fact, the creation of the manufacturing state-owned sector seems to have had a minimal effect on industrial employment, far below what an effective industrialisation policy for the island might have been expected to achieve. Because most PRIDCO plants were capital intensive, their workforce represented only 1.6 per cent of the island's employment in manufacturingFootnote 11.

3 Privatisation of the state-owned manufacturing firms

On 12 February 1946, Tugwell delivered his last governor's message to the Legislature. Tugwell (Reference Tugwell1947, p. 49) concluded as follows:

The 46^th annual report (1945-1946) was the last one delivered by Tugwell, who was replaced shortly afterwards by Jesús T. Piñero, the first native governor of Puerto Rico.

Piñero was the last governor to be appointed by the U.S. president. Interestingly, Muñoz Marín — still president of the Senate at the time — had been offered the governorship, but he preferred to wait until the first gubernatorial election, scheduled for November 1948. Following Muñoz Marín's suggestion, Piñero, a PPD member, was appointed to the office. In any case, thereafter Muñoz Marín held total command of the executive power in Puerto Rico, adding this to the full control the PPD had obtained over the Legislature. Whereas the PPD had won the 1940 election to the Legislature by a very narrow margin, the 1944 election had produced the largest victory in the history of Puerto Rico: the PPD took all seven Senatorial districts and thirty-four of the thirty-five Representative districts, thus gaining full control of the Legislature.

Together with these institutional changes, the economic environment had also changed dramatically after the end of the World War II. Maritime transportation and trade in the Caribbean Sea progressively returned to normal, thus increasing the competition facing the commercial products manufactured in the island. This change was of great importance. The decision to establish a state-owned manufacturing sector had been taken within the pre-war and wartime context, when the growing tension and subsequent hostilities profoundly affected maritime transportation and commerce in the Caribbean, particularly between 1942 and 1944. Hence, most government-owned manufacturing firms had been designed to supply the local market (Moscoso Reference Moscoso1953, p. 61); by the time all five subsidiaries were finally in full commercial operation in 1947, the market conditions on the island had changed dramatically. In addition, technical and commercial problems had seriously affected the performance of some of the subsidiaries, especially the PR Pulp and Paper Co., and the PR Shoe and Leather CoFootnote 12.

The Puerto Rican government followed these developments closely, and expressed its official views in the annual reports to the Legislature (see Table 3). Tugwell's reports (1941-1946) had supported the increasing role of the government in manufacturing. Projects were expanding each year, and emphasis was placed on the development of the factories. The reports also mentioned the difficulties caused by labour conflicts and the extra costs of investments.

Table 3 THE SOE SECTOR IN PUERTO RICAN GOVERNORS’ AR

SOE: state-owned enterprise; AR: annual reports; PRDC: Puerto Rico Development Company; PRIDCO: Puerto Rico Industrial Development Company.

Note: Fiscal years: 1 July-30 June.

Source: Author's own data, based on PR government reports (1943, p. 47; 1944, p. 31; 1945, pp. 30-31; 1946, pp. 38-39; 1947, pp. 93-97; 1948, p. 60; 1949, pp. 60-65; 1950, pp. 88-90).

The 47^th report (1946-1947), delivered by Piñero, differed little from the last one presented by Tugwell. However, the following report (that of 1947-1948) explicitly stated that PRIDCO had turned its attention to two important aspects of the long-term programme: encouragement of private industrial enterprise, and the development of tourism as a source of income for the island. Publicly managed manufacturing firms received much less attention in the report, thus providing a clear signal that a reorientation of the development policy was underway.

Interestingly, the 49^th report (1948-1949), the first delivered by Muñoz Marín, openly admitted that selling the PR Pulp and Paper Co. to private interests could be a solution for its problems. In his second governor's report (50^th, 1949-1950), Muñoz Marín emphasised that the PR Shoe and Leather Co. had been privatised, that most PRIDCO plants were operating at a loss and that profits were falling in the only profitable firm, the PR Cement Co. The question of privatisation had irreversibly entered the fray.

Although contemporary studies claimed that 1948 was the year in which the decision to sell the subsidiaries was first made (Ross Reference Ross1966, p. 111), the possibility of privatisation was already being discussed by PRIDCO in mid-1947. At a meeting of the PRIDCO Planning and Executive Committees held on 30 May 1947, Moscoso reported on negotiations held during a recent trip to the United States regarding the transfer of the shoe factory to a private firm:

In fact, the shoe and leather factory was sold to Joyce of California in October 1949. However, more negotiations were needed before the privatisation policy could finally proceed.

As early as May 1948Footnote 14, PRIDCO received an offer to buy all its five operating subsidiaries, from a group headed by Royal Little, president of Textron. This proposal divided the subsidiaries into two groups –– one formed by the cement plant, and the other formed by the remaining four. The proposal included: (1) payments in cash for prepaid items and inventories; (2) the payment of U.S.$3,000,000 in cash for the cement plant (or alternatively a lease for 6 years at a rental of U.S.$500,000 per year, and U.S.$100,000 per year thereafter for 93 years); and (3) the payment of the depreciated value of the four other plants over 10 years with 3 per cent interest payable quarterlyFootnote 15. This proposal would have resulted in a payment well below the net investment made by PRIDCO in the subsidiaries, which had been set as the minimum sum to be met for the approval of any sale, and accordingly it was turned down.

Even though the Puerto Rican government would not make any official statement on its willingness to privatise PRIDCO subsidiaries before the gubernatorial election of November 1948, the question of privatisation was debated publicly. In early July 1948, Luis Ferré, one of the leaders of the Statehood Party (and a member of the Ferré Group, a family industrial holding that would be crucial later in the sale of the subsidiaries) made a public statement asking that the firms be sold at auction, in which Puerto Rican firms should participateFootnote 16.

New proposals for the acquisition of the subsidiaries were soon forthcoming. Following a conversation held with Moscoso on 1 February 1949, David G. Baird (vice-president of Marsh & McLennan Inc.) sent PRIDCO a formal bid to buy the cement, glass, paper and clay product companiesFootnote 17. One week later, on 7 February 1949, Moscoso sent Baird's letters to PRIDCO's board of directors, together with a memorandum stating his opinion that

No agreement was reached between PRIDCO and Baird, but the subsidiaries would soon be privatised. In October 1949, PRIDCO sold the PR Shoe and Leather Co. to Joyce de Puerto Rico Inc., a subsidiary of Joyce of California. Joyce purchased the machinery for U.S.$35,000Footnote 19. More importantly, at the end of 1949 the New York businessman Karl F. Landegger showed an interest in acquiring the paper plant. In July 1950, he submitted a formal bid for the acquisition of all four subsidiaries still under PRIDCO ownership (cement, glass, paper, clay products). The nominal price he offered was U.S.$10,000,000, to be paid in 10 years. However, Landegger offered only U.S.$2,000,000 as a down payment and an interest-free mortgageFootnote 20. Although the total amount offered was close to the book value of the plants, the interest-free mortgage made the proposal far less attractive, and PRIDCO did not accept it.

The final step was in late September 1950, when the Puerto Rican Ferré Group unexpectedlyFootnote 21 offered U.S.$10,500,000, to be paid as follows: a down payment of U.S.$2,000,000, 3.5 per cent preferred stock of another U.S.$2,000,000, and a 4 per cent first mortgage of U.S.$6,500,000Footnote 22. This proposal was the first to meet PRIDCO's demands in full, and an agreement was reached less than 1 week after intense negotiations between the technical teams of PRIDCO and the Ferré Group to work out the detailsFootnote 23. On 3 October, the official agreement to sell the cement, glass, paper and clay products companies to the Ferré Group was publicly announcedFootnote 24.

The total amount agreed for the sale, U.S.$10,500,000, was slightly above the book value of PRIDCO's subsidiariesFootnote 25. The quantitative significance of the sale can hardly be understated. Proceeds from privatisation amounted to 9.3 per cent of fiscal receipts for the island's government purposes, and to 1.4 per cent of Puerto Rico's total gross product in 1950Footnote 26. PRIDCO saw the operation as a «commercial deal that, from the point of view of valuations and economic consequences involved, may be classified among the most important ever made in the history of Puerto Rico»Footnote 27. Indeed, the relevance of proceeds from privatisation with respect to fiscal receipts (9.3 per cent) was much higher than that obtained between 1934 and 1937 in Nazi Germany, which averaged 1.4 per cent per year (Bel Reference Bel2010), and in Fascist Italy between 1922 and 1925 (Bel forthcoming). In the same way, the relevance of proceeds from privatisation with respect to fiscal receipts in Puerto Rico was higher than in most EU-15 countries during Europe's most intense period of privatisation (1997-2000)Footnote 28.

4 Analysis of the objectives of privatisation in Puerto Rico

Contemporary authors paid little attention to the reasons why Puerto Rico's government privatised the manufacturing firms under its ownership. In 1954, a few years after privatisation had been implemented, Ojuda (Reference Ojuda1954, pp. 161-162) emphasised the economic and technical difficulties faced by most subsidiaries in undertaking successful operations (such as the market dimension and changes in the economic environment with the resumption of trade) as drivers of the sale. However, in an article published in 1955, Lewis (Reference Lewis1955, pp. 625-627) stressed managerial incapacity as one of the reasons for the sale, as well as the view that government-owned firms would produce a dangerous increase in the island's wage structure because they paid higher wages than private firms. Two years later, in 1957, Ross (Reference Ross1957, pp. 88-89; Reference Ross1966, pp. 108-117) refuted Lewis's views by emphasising that managerial incapacity was not an issue in the sale; Ross's reasoning was more in line with Ojuda's view that the sale of the subsidiaries was due to problems related to the dimension of the local market and to the economic environment.

Some of the contemporary analyses written in the 1960s are valuable, but the authors of these studies lacked the theories, concepts and tools supplied by recent literature. Theoretical developments have provided valuable hypotheses on the motivations of politicians choosing between public ownership and privatisation (Shleifer and Vishny Reference Shleifer and Vishny1994; Boycko et al. Reference Boycko, Shleifer and Vishny1996; Bel and Calzada Reference Bel and Calzada2009), and have identified different objectives linked to privatisation policies (Vickers and Yarrow Reference Vickers and Yarrow1988, Reference Vickers and Yarrow1991). On the one hand, both the theoretical and the empirical literature have provided interesting results regarding the use of privatisation to obtain political support (Perotti Reference Perotti1995; Biais and Perotti Reference Biais and Perotti2002; Bortolotti et al. Reference Bortolotti, Fantini and Siniscalco2003; Bel and Fageda Reference Bel and Fageda2009). On the other, international evidence shows that financial motivations have also been a key factor in recent privatisations (Yarrow Reference Yarrow1999; Bortolotti and Milella Reference Bortolotti and Milella2008).

In all, the analyses of more recent privatisation experiences in the fields of economics and public policy have shown that privatisation policies may pursue a multiplicity of objectives, among which three types stand out: ideological motivations, political interests and economic objectives (either financial or efficiency-related). By using these concepts and tools, a deeper and systematic analysis of the objectives of privatisation in Puerto Rico can be undertaken.

4.3 Economic Objectives

Given that ideological biases and partisan political interests did not play a relevant role in privatisation in Puerto Rico, the island's government appears to have privatised in order to advance its economic policy. Even so, it is not as if the Treasury was under great financial pressure (a key factor in most decisions to privatise). The government's public debt had fallen steadily throughout the 1940s, from U.S.$27.2 million in 1940 to U.S.$12.8 million in 1949 (this last figure being 47 per cent of the 1940 level)Footnote 38. Interestingly, the lowest level of public debt was reached in 1947 (37 per cent of the 1940 figure), the year in which the first negotiations for privatising PR Shoe and Leather began.

As for industrial policy –– the core of Puerto Rican economic policy –– promoting industrialisation was a primary objective. However, taking into account the large investment in the PRIDCO subsidiaries and the small number of manufacturing jobs created (see Table 2), the amount of capital required to build government factories able to increase production and jobs to the level needed «vastly exceeded the amount available to the government», according to Ross (Reference Ross1957, p. 90). In addition, it should be noted that there were competing demands for public debt, because very large new bond and long-term issues of the public corporations were made in 1949-1950, most of which consisted of obligations of the Water Resources Authority and the Aqueduct and Sewer Authority. Moreover, other government policies that provided subsidies to private firms for establishing industries were much more effective for industrial job creation: «While the government-operated plants employ about 900 persons, they, with the fifty-two privately operated industries started under the Aid Program, are expected to employ a total of around 8,000 persons when their initial development and training programs are completed» (PRIDCO 1949, p. 4).

Another important economic policy objective was to attract foreign capital for the industrialisation process, particularly from the continental United States (Perloff Reference Perloff1950, Reference Perloff1953, p. 51). In this respect, Lewis (Reference Lewis1955, p. 625) and Goldsmith et al. (Reference Goldsmith, Clavel and Roth1974, p. 144) stress that an important reason for abandoning nationalisation was to attract investors from the mainland.

Together with the growing impression that the government's main objectives could not be accomplished by means of a full policy of building and operating publicly owned manufacturing firms, the increasing dissatisfaction with the performance of PRIDCO's subsidiaries was probably another key driver of privatisation. Taken as a whole, PRIDCO's subsidiaries were in the black, but only one corporation, PR Cement, was making a profit, and the other four subsidiaries were making heavy losses. Table 4 gathers together information on the profits and losses incurred by each corporation between 1945 and 1950. It is plain to see that only the cement plant recorded profits and that all the other corporations recorded major losses in each of the years studied. Table 5 shows the statement of earned surplus of PRIDCO subsidiaries in 1949 and 1950, the last years of public operation. As can be seen, accumulated deficit in 1950 amounted to U.S.$1,978,361 (17.3 million in 2010 U.S.$).

Table 4 NET PROFIT (U.S.$)/(LOSS) OF PRIDCO CORPORATIONS, 1945-1950 (FISCAL YEAR 1 JULY-30 JUNE)

Notes: ^aUntil 1944-45, the only subsidiary fully in operation was PR Cement Co. Its profits had been U.S.$493,865.78 (1942-43), U.S.$492,674.47 (1943-44), and U.S.$247,908.78 (1944–45).

^bNo specific figures for the losses of PR Pulp and Paper Co. and PR Shoe and Leather Co. in 1947-48 were provided. This figure is my own computation for the joint losses based on data in PRIDCO (1948). I found that net loss between July 1 1947 and April 30 1948 for each company was: 173,462 –– PR Pulp and Paper –– and 20,751 –– PR Shoe and Leather –– (data from Travieso, Information on Subsidiaries’ Results). In fact, the loss for the whole fiscal year must have been higher, as the joint computation made for the two subsidiaries shows.

^cThis figure is my own computation based on information in PRIDCO (1949, pp. 20, 22, 26, 28 29 and 36).

^dIn August 1949, the board of directors of the PR Pulp and Paper Corporation decided to close down the plant and the corporation went into liquidation.

Sources: Author's own data, based on PRIDCO Annual Reports 1947, 1948, 1949, 1950.

Table 5 EARNED SURPLUS (U.S.$)/(DEFICIT) OF PRIDCO SUBSIDIARIES, 1949 AND 1950

PRIDCO: Puerto Rico Industrial Development Company.

Notes: ^aThe decrease in the surplus of PR Cement Co. is due to the fact that profits for the year 1950 were scarcely above 50 per cent of the previous year. Nevertheless, PR Cement Co. paid the parent company dividends to the tune of U.S.$800,000.

^bThe increase in the deficit of PR Pulp and Paper Co., PR Shoe and Leather Co., and PR Clay Products Co. is partly due to the fact that in those corporations the research and development costs were written off.

Sources: Author's own data, based on PRIDCO Annual Report 1950.

There was also considerable dissatisfaction with the performance of PR Cement. A comparison of its performance with that of Ponce Cement –– a private factory owned by the Ferré Group, which had begun production in 1942 –– is particularly revealing. In 1943, Ponce Cement's first year of full operation, its production had been 70.4 per cent of that of PR Cement, and Puerto Rico had become a cement exporter in that year. In 1948, the year in which the decision to privatise was firm, Ponce Cement's production figures were 38.1 per cent higher than those of PR Cement (Baralt Reference Baralt1996, p. 127). In addition to the lead Ponce Cement had achieved in production, the differences in price were also an important factor and while Ponce Cement was selling cement at U.S.$0.75 per sack PR Cement charged the Puerto Rican government a price of U.S.$0.95 (Baralt Reference Baralt1996, p. 177).

The comparison between these two cement factories is important within our context, because the other PRIDCO subsidiaries did not have any competitors on the island (although they faced increasing competition from firms on the U.S. mainland). Puerto Rican policymakers were fully aware of the differences in efficiency and productivity between the cement factories, and of the overall inefficiency of PR Cement, as shown by a confidential report produced by PRIDCO in September 1947 –– Report on Puerto Rico Cement performance and productivity –– a copy of which was addressed to Muñoz Marín:

1. 1) Whereas the cost of living increased by 53.8 per cent between 1941 and 1947, the average hourly wage at the Puerto Rico Cement Plant increased by 192 per cent in the same period. Whereas the average weekly wage increased by 164 per cent (p. 3), (monetary) labour productivity increased by just 48.5 per cent in the period (p. 4).

2. 2) The annual salary paid at PR Cement was higher than that paid to the island's policemen (first class; by 25.23 per cent), to the island's firefighters (first class; by 87.8 per cent) and to school teachers (by 30.68 per cent) (p. 6).

3. 3) The hourly wage at PR Cement was around 25 per cent higher than in other industrial sectors on the island (p. 9).

4. 4) The hourly wage at PR Cement was around 35.85 per cent higher than at PR Glass, and 87.88 per cent higher than at PR Pulp and Paper (pp. 10-11).

5. 5) The average weekly wage paid at PR Cement was 20.96 per cent higher than at the Ponce Cement plant. PR Cement employed 24 per cent more workers than Ponce Cement (even though Ponce produced more cement). Efficiency measured as labour productivity at Ponce Cement was 31 per cent higher (p. 12).

The points stressed in this report provide a depressing image of PR Cement's efficiency and productivity and must have made a lasting impression on Puerto Rican policymakersFootnote 39. The situation raised two particular concerns. First, the wage policy in PRIDCO's subsidiaries needed reforms in order to make them profitable, but PRIDCO's managers could never deal satisfactorily with this issue because of its political repercussions (Moscoso Reference Moscoso1953, p. 61)Footnote 40. Second, wages paid to PRIDCO's manufacturing workers, especially those in PR Cement, were pushing industrial salaries in Puerto Rico upwards, with negative effects on the island's competitiveness and its ability to attract foreign investment (Lewis 1955, p. 627)Footnote 41.

In stark contrast to the government's plants, the Ferré Group's companies had a fine record of productive efficiency (Muñoz Marín Reference Muñoz Marín1992, p. 253). Furthermore, Muñoz Marín saw José Ferré, the head of the family business, as an exemplary Puerto Rico entrepreneur, the very opposite of the widespread model of absentee owner that –– to his mind –– had been one of the main obstacles to the success of local industrialisationFootnote 42. These factors, together with the fact that the bid submitted by the Ferré Group was the best received for the PRIDCO subsidiaries, explains how and why the sale of the four remaining factories was decided in October 1950.

In 1950, the industrial development programme was reorganised. The Economic Development Administration (EDA) was created as a regular department of the Puerto Rican government, operating with funds assigned annually by the Legislature. The proceeds obtained from the sale of PRIDCO's subsidiaries were used to promote EDA's activities, and a new phase of industrial policy in Puerto Rico –– the analysis of which is beyond the scope of this paper –– became consolidatedFootnote 43.