Top 10 reasons Puerto Rico's economy will continue to decline

There's a lot of things on my mind, that I want to share, but I have to get this out. It serves as the basis for my conclusion that nothing can be done to "fix" our economy. Only massive failure and subsequent crisis will provide any type of empowering motivation for change.

1. There are more people than there are jobs.
2. To accommodate the overflow of workers, the government hired a lot them, then bloated to become the islands largest employer.
3. Our most talented graduates leave the island for more lucrative and exciting opportunities. (see Gil's latest post about this...)
   
4. Little research and development in our universities and basically none in our leading companies.
5. A stubborn focus on Puerto Rico as the market for our products and services.
6. The three doomsday horseman of the apocalypse: corruption, lawlessness, and mass consumerism.
7. An unhealthy belief that tourists can be bought through advertising instead of being influenced through exceptional experiences and word of mouth marketing.
8. The other three horsemen of the apocalypse, anti-small business culture, a zero-sum mentality, and a belief in life-style businesses.
9. Little or no immigration of new citizens seeking a better life.
10. A complete taboo against recognizing our problems as problems and encouraging discussion and mobilization to address those problems.
11. Great disparity in the distribution of wealth, capital, resources, information, and opportunity.
12. A massive unregulated, off-the-books, cash-based, pay your fair share underground economy.
13. Denial tending towards mass hypnosis, acceptance of the status quo, and reticence.
14. A failing infrastructure (transportation, power, sewage, solid-waste disposal) that can not withstand significant increases in demand.
15. A collection of self-serving, self-preserving political, governmental, and social non-profit systems.
16. An educational system which under serves students and perpetuates the status quo.
17. An economy directly connected to the availability of low cost foreign oil.

In my opinion these are the core reasons that working with what we have will only result in what we already have. Without addressing these core issues, anything we do will be temporary and short lived.

Fortuño: Tear down this wall!

When the results of an election bring distinct change, as has happened here with Fortuño and with Obama, there is a feeling of hope, of closure, of finally being able to move on and focus on something else besides how bad things have been. They often call these times a catharsis, for they bring about "purification", "cleansing" or "clarification."

Another such moment was the famous challenge from United States President Ronald Reagan to Soviet leader Mikhail Gorbachev to "Tear down this wall!", by which he meant destroy the Berlin Wall.

Reflections on an election

For me, there has to be something very seriously wrong when during an election, every candidate from every party runs upon a platform of change. What does that mean? It is especially confusing when the party with the incumbent candidate vows to bring about change; just how does that change work? Vote for me, I know I've really screwed the pooch so far, but I promise I'm going to screw things up less next time?

In Nuero-Linguistic Programming it is said that people are motivated by either moving away from pain or moving towards pleasure. So many are saying that people voted for Fortuño because he represented "the hope for a return to better times", in other words, pleasure. I say poppycock (see below for translation). If there was any mandate, in my opinion, the results of this year's election indicate a complete rejection of Acevedo Vila and eight years of the worst leadership this country has seen. Need proof? Over 53% of the un-affiliated, 39% of the voters affiliated with the PPR party, 17% of the voters affiliated with with PIP party, and 6% of the voters affiliated with PDP party voted for Fortuño. While many cry (supposedly 51%) that it was the economy that most influenced their vote, many, like me, just couldn't tolerate 4 more years of the same lack of leadership.

Looking forward...

While the pots already on the stove, and Fortuño is stirring things up, we won't know whether his soup of change has made a difference for quite a while. He faces a constituency which is very "picky" and has many different tastes. So I guess, while most people are hopeful, they are also realistic and recognize that Fortuño will need a magic wand to fix all of the pressing problems we have. I do believe that he will be successful and be able to ease the burden we have suffered in the form of high energy costs, the IVU, and other "taxes" like the large increase in the tolls. But I believe that it is fantasy to hope for Fortuño to save our economy.

Let's be clear. The only thing that can save our economy is jobs. What kind of jobs? High paying, specialized, technology-based jobs requiring a highly trained (prepared) work force. We can not sustain our economy (or the illusion of growth) based on retail or food service industry jobs, which seems to employee a larger percentage of our population every day. It's certain, that Fomento will be successful in attracting some jobs to fill that need. But even if succeed beyond their wildest dreams, the number of new jobs will only number into the tens of thousands. But it won't be enough.

Statistics indicate that over 1/3 of our workforce is employed by the government. I believe there are around 1 million people working and paying taxes (let's forget, for now, about that other underground work force). That means that over 330 thousand people work for the government. Most economists agree, that Puerto Rico must reduce that number. However, any candidate that entertains any thought of re-election must not piss off that block of voters; which are large enough to affect any election.

If you accept that, if we reduce the government by 1/3 or half (as some call for), that means there will be between 100 and 165 thousand people newly unemployed. Notice how large a discrepancy there is between those numbers and the amount of jobs Fomento could possibly attract?

Painful conclusion

In my very humble opinion, the only path which leads to the growth we need is through great suffering, involving both sacrifice and investment. SO, for me, if Fortuño wants to "save" Puerto Rico's economy he must do two things. First he must "Tear down this government!" and he must place us firmly on a path towards foreign oil independence. For while re-inventing the government is going to cause havoc, pretending to be able to sustain (or grow) our economy with anything less than essentially starting over, is, what's that word again, oh yeah, poppycock. And while I'm saddened to see Rogelio Figeroa's platform of energy independence swirl down the toilet, I know concede that he was right.

Translation of poppycock: Anglicized form of the Dutch pappekak, which literally means soft dung or diarrhea (from Dutch pap pap + kak dung) - is an interjection meaning "nonsense" or "balderdash". Hehe, I think I'll be using this interjection more often. Certainly sounds more sophisticated than saying I think that sounds like shit.

5 Strategies for the crisis

You know it's amazing sometimes how serendipity works, but in today's El Nuevo Dia, the headline in the business section is 5 Strategies for the crisis. This is yet another attempt to "fix" our economic weakness with words not action, but you know, whatever, at least acknowledging we have a serious problem is a start. So what are these amazing new strategies?

1. A social pact
2. Syndicate the budget
3. Budget base 0
4. Comprehensive tax reform
5. "Privitization" of the private sector (Huh? WTF?)

I'm on board with items 1 and 5, which if you can't figure out from my translations are: 1) create a long term economic development plan independent of party (Although good luck trying to get all of the entities invited to the table to agree on a plan. I bet the only thing they'll agree to is that each "entity" shouldn't have to sacrifice(invest) anything but should get more.); 5) Although poorly named, what they mean is that the private sector should invest in economic development in order to absorb all of the government employees that will let go to improve their efficiency.

If you ask me, and I know, no one is and why should they I'm just a blogger, investment in economic development by the private sector is the key to Puerto Rico's future economic viability (as I've said numerous times, sorry just wanted to point out that I didn't just dream this up to agree with the article). I think Thomas Friedman puts it much better than I ever could in his editorial "Georgia on My Mind". How's this for a diagnosis for what ails Puerto Rico:

A developed country’s competitiveness now comes primarily from its capacity to innovate — the ability to create the new products and services that people want, adds Curtis Carlson, chief executive of SRI International, a Silicon Valley research company.

And what about this one? It's like the perfect recipe for the medicine that no one here in Puerto Rico wants to drink:

Our competitiveness, though, he added, is based on having a broadly educated work force, superb research universities, innovation-supportive taxes, immigration and regulatory policies, a productive physical and virtual infrastructure, and a culture that embraces hard work and the creation of new opportunities.

Spin Baby, Spin

So what's the deal with strategies 2, 3, and 4. Two things. First, let's be clear about this. These three items are just spin for we need to cut our government in half, thus firing or retiring half of all its employees. Sure it sucks if you're in that 50%, but if we don't we'll never be able to fix diddlysquat. Remember, that I just covered the evils of spin.

Second, when are we going to understand that government doesn't create economic development. In order to create economic development you have to be "in the economy." Since government doesn't produce wealth (well unless you're an elected official, especially our "fine" self-serving senators, representatives, and mayors), or profits, or is a business, it can't really develop the economy. While it can create jobs, those jobs don't add to the creation of wealth, they merely move the money around, like some huge money laundering operation. Sure they can enable, fund, promote, and all kinds of other important activities, but it is the private sector that must "own" economic development. Which, IMHO is the complete opposite of the zero sum life-style focused industry leaders we currently have.

Innovate baby, Innovate

So let's revisit the topic of innovation, and one of your favorite blog post topics, Banco Popular and their new banking website. You remember all the fun we had with that one? Oh boy, good times, good times. Anyway. It's funny how calling someone a big doo-doo head eliminates the need to refute their logic, but one of the claims made about the new banking site, (By the way, all of you BPPR customers, now that the new web site is up, do you feel that the new site was worth the two million? Is it two million times better than the old system?) was that the new site was a bold innovation in Internet banking, one that we should all be proud of.

Jingoism aside, really? Let's use Thomas Friedman's example. Do you think that Puerto Rico would be better off with a new web banking system or a new line of business or product that will dramatically grow Banco Popular. I don't want to get into the semantics of that the new banking system will or will not grow the company, what I'm talking about is Banco Popular investing in research and development that leads to significant economic development. I wonder how much of their profits(or percentage of revenue) they invest in new R&D. R&D that is aimed at new company (subsidiary, whatever) or product generation.

Frankly I don't know, so I'm going to be ignorant and say that I think it's really, really low, and probably close to 0. Here's an article I conveniently found that shows eleven companies whose R&D budget is an average 16.31%. I know it's a little old, but if you think it's not valid compare the stock growth of those companies to that of Banco Popular. I haven't, but I bet it proves my point.

So if Banco Popular is the largest local company and they spend next to nothing on R&D, what do you think the rest of the top 400 local companies do? In my (not so humble) opinion until Banco Popular and the rest of the leading companies in Puerto Rico invest in creating a culture of innovation (the second of the two quotes above), we will not fix our economy. Sure government has it's role to play in creating that culture, but it is a supporting role, not a leading role as the five strategies above proclaim.

Dumb All Over

Stop me if you've heard this one, or have I already shared this? Well, just in case, one of rock's most outspoken and many would say geniuses of rock and roll history (freak, weirdo, oddball others would say) is Frank Zappa (1940 - 1993). One of my room mates in college introduced me to Frank with his classic "Discreet" album. Later in his career he made a wonderful album entitled "You are what you is" on it is the ripping tune "Dumb All Over" which features Steve Vai for all of you rock guitar god aficionados. One of my favorite lyrics is from the end of the song:

"Hey, lets get serious...
God knows what he's doing
He wrote this book here
An the book says:
He made us all to be just like him,
So...
If we're dumb...
Then God is dumb...
(and maybe even a little ugly on the side)"

As if we don't see proof of this everyday, anyone heard of the Darwin Awards? But the example I'm about to give, for me, goes beyond stupidity. The following is a ranking of automobile companies by true gas mileage (*):

Automaker	MPG
American Honda Motor Company	24.4
Toyota Motor Sales U.S.A.	24.3
Hyundai-Kia Automotive Group	24.1
Nissan North America	23.2
Volkswagen Group of America	22.2
American Suzuki Motor Corp.	21.8
Industry Average	21.7
Daimler AG	21.5
Fuji Heavy Industries (Subaru)	21.3
Mitsubishi Motors North America	20.7
BMW Group	20.6
Ford Motor Co.	20.5
General Motors	19.9
Chrysler LLC	19.0
Porsche Cars North America	18.3
Tata Motors	15.4

* Due to low sales volumes and non-affiliation with any of the above brands, Aston Martin, Ferrari, Isuzu, Lotus and Maserati were excluded.

So check it out. Only Porsche and Tata (isn't that slang for breasts?) Motors have lower average gas mileage than the three major automakers from the United States. Why is this dumb, you ask? Hello, anybody been to the pump lately? Well yes, that is it, but did you know that this isn't the first time that the U.S. automakers have been caught with their pants down and their heads up .... in the clouds.

Some of our younger readers might not remember this, but when I was in high school, there was another oil crisis. Back in 1979 there was an oil crisis in the United States caused by the Iranian Revolution. This was when the Shah of Iran, Mohammad Reza Pahlavi, fled his country and allowed the Ayatollah Khomeini to gain control. Over the next 12 months the price of crude oil rose to $39.50.

I remember going to school in the heart of winter with the heat turned down forcing everyone to wear coats in classes and walking down partially lit hallways. Of course gasoline prices soared and the Japaneses imports were cleaning up because they had pioneered more fuel efficient front wheeled cars. This debacle almost bankrupted the American car industry.

So I say it is more than dumb, that almost 30 years later nearly the exact same scenario is happening. Only the hubris of American car makers, the greed of the oil companies, and the arrogance of the American car buyer is to blame. A terrible trio of deadly sins which threatens one of the legs of the fragile American economy. And, as we should all remember, as the American economy goes, so goes the Puerto Rican economy.

Just in case you're curious, here is Frank playing "Dumb All Over" live:

Leather it is!

I just wanted to acknowledge that Gil of Gil the Jenius fame and Joe both correctly identified the connection between all of the photos in our mystery photo essay. However, nether of them was able to identify the technology associated with leather, that will transform the Puerto Rican economy. Although, in their defense, neither of them even ventured a guess.

While I'm busy spinning my yarn for explaining how I believe leather can help Puerto Rico, a recent announcement has gotten my gall, and I can't let it pass without using it as a lead-in for my next post. But I'm getting ahead of myself. So once again, congratulations to our winners and now I ask, what products use leather? And how could any of those products be related to technology?

Complicity - 10 ways Puerto Ricans are complicit in our destruction

For those of you not stuck in a matrix of denial, comfort, excess, bribery, hypocrisy, or oblivion, I present to you a list of the top ten ways Puerto Ricans are negatively impacting the country with their complicity:

1. Our favorite places to shop (Wal-Mart, K-Mart, Sam's Club, Costco, etc.) are exactly the businesses bankrupting the local Puerto Rican merchant.
2. We reward politicians who flaunt their privilege in our faces by repeatedly voting them into office.
3. We wail and gnash our teeth at our weak economy, but our zero sum mentality places against each other instead of us all working together to compete in a global market.
4. We decry the corruption within all corridors of power within our government, and then commit (or permit) embezzlement in our local community "juntas", yet see these as different. There are different in magnitude only.
5. We return to a restaurant or service center because it is the only option, or because it is the most convenient, or it is the one all of your friends use, but the establishment consistently treats you like crap or forces you to wait too long.
6. We allow our friends to pressure us into buying a Beemer or Mercedes, the latest Gucci handbags, or gadget and then rail against how material our children are and how they do nothing but plead for us to buy them more crap they don't need.
7. We ignore our children most of the time, we give them nearly free reign to disrupt, destroy, or inconvenience, yet wonder why they have disciplinary problems in schools or poor grades.
8. We bash the Americanos, the Gringos, the Federalistas and then worship the movies they make, the clothes they sell, the sports teams they televise, the websites they make, the culture they create, the brands they promote, the celebrities they export. and we send our children to study at their universities.
9. We attend a movie which is consistently disrupted by people talking or answering their cellulars, go away dis-satisfied, disgruntled, and complaining, then explain it away as well that's just "the way we are" (asi como somos).
10. We accuse our spouses or novios of infidelity, we cry over the devastation within families suffering through divorces caused by infidelity, we decry the AIDS infection rate, yet promote, support with our dollars, and look the other way to an industry whose sole purpose is to permit secret sex (motels).

Again I thank Seth Godin for reminding me once again that our dollars are votes, our behavior grants approval, our complicity perpetuates all of the problems that plague our society. I guess Michael Jackson was right, it's the man (woman) in the mirror we need to change before we can ever expect to make any progress. Just say no to complicity, resist the status quo, and don't give anyone (indirect or direct) permission to continue to do what you yourself despise, complain, or decry.

Flickr Creative Commons Contributor: Jean-François Chénier

Top 10 obstacles to Puerto Rico Web Startups

In my last post I had a stimulating discussion with Speaking Boricua where she pointed to the Internet as a way to help the Puerto Rico economy. We couldn't agree with her more.

However, things are never as easy as they seem. In probably one of the biggest business lessons of my previous life, I was planning a Project Management business. When I identified that there weren't really any companies providing the service, a business associate commented that maybe the reason there wasn't anyone providing the service was because there wasn't any demand for it. Ahh, I thought to myself, he's right. Project management is an almost unknown business skill or practice in Puerto Rico. How can I sell a service that no one sees as valuable or necessary?

I guess you could say that I forgot that lesson when we started DóndeEs.com, but I think it's more of a situation that I didn't realize the similarity between the two ideas. So, as I promised to Speaking Boricua, I'm going to document the challenges we've faced so that anyone who launches a company after us will have a clearer idea what they face when they attempt to build a high-technology company in Puerto Rico.

To start off, I'm going to identify the top ten obstacles we've encountered in building DóndeEs.com, the first Web 2.0 company in Puerto Rico. While this list focuses on an Internet start-up, most of the obstacles will exist for any type of start-up.

Top 10 obstacles to Puerto Rico Web Startups

1. Stranglehold on advertising industry - In 'An Inconvenient Truth' Al Gore quotes Upton Sinclair "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Most Internet start-ups rely on Internet advertising in their business plans, we are no different.
   
   Between the El Nuevo Dia which receives over 60% of all advertising expenditures and the advertising agencies, the bulk of the benefit of the current advertising marketplace are shared between these two entities. Moving to Internet advertising would significantly cut their revenues. Therefore, they have little motivation to develop this new medium. Only advertising buyers can push for Internet advertising, however, they tend to do whatever the agencies recommend.
   
   While I think that our poor economy will ultimately create the demand for Internet advertising, it will be over the wailing and gnashing of teeth of the advertising industry.
   
   
2. Kleptocracy - The level of corruption in business (in Puerto Rico) is much larger than most people are willing to accept or admit. Therefore in order for a new company to have a fighting chance they require either deep pockets and the willingness to grease the wheels of a deal or have the right family name recognition. Furthermore, when you have a society that is so wrought with a complete disregard of rules, you end up with a society that treats each other with little respect and dignity.Even though people SAY they are going to do something, and may even sign a contract, if some of the obstacles arise, they are quite comfortable in disregarding their promise or word and become irresponsible, unresponsive, and disrespectful. In the end, those who try to play by the rules are left at a huge disadvantage.
   
   
3. Life style business are the goal - The majority of business owners and employees in Puerto Rico are only willing to work as hard as they can until they become comfortable. After that point they become extremely risk averse and essentially stop investing in their businesses and their careers.
   
   A life-style business is a company that is built up to the point that it supports the life-style the owner wishes to have, but never grows any more after that point. So even though these businesses might have the potential to continue growing, providing much needed employment as they grow and expand, the owners are content to let the potential waste away.
   
   
4. Panismo - Strongly related to kleptocracy, however, this extends out further. Panismo is where people are only willing to help their family and friends. While this is not unique to Puerto Rico, it still undermines many ideas, and causes unworthy businesses or projects to get funded and supported when rebels or unconnected projects and businesses go ignored.
   
   
5. Zero sum theory - Taken from game theory, this is when you look at economics (business) as a pie. Essentially in order for someone to help a new company or collaborate with a company, there is the the perception that it is giving pie to that company. And if they give away some pie, it means they will have less pie. Basically the mentality is that you can't get more pie, therefore, you must hoard the pie for yourself. In Silicon Valley, start-up central, the mentality is let's make more pie, some for me, and some more for you.
   
   
6. Information Technology (IT) is a cost center not a strategic asset. - As I've stated many times before, Puerto Rico is about 10 years (or more) behind the United States in terms of the Internet. On any other technology they are probably 3 to five years behind. This perspective goes along with a general consensus that information technology only costs a company money, therefore, the amount of investment in technology must be restricted. This is contrary to what the leading companies in the world, such as GE, Microsoft, Google, Amazon, Walmart, etc have proven.
   
   IT is a strategic asset that can drastically improve the performance of any company. It increases the opportunities available, it provides a significantly detailed analysis of a company's performance (i.e., reporting), plus IT is an investment that can be amortized, and written off against profits. The typical Puerto Rico manager's weapon of choice is manpower, which is THE MOST expensive way to address a problem, because it goes right to the bottom line reducing profits.
   
   
7. Group think - In Puerto Rico there are a few people that are seen as the experts within the Internet community. No, I'm not one of them. Everyone looks to these people as the leaders and always seeks out their opinion, even though none of them have had any significant success to speak of. However, when there is such little innovation, results, or revenues, limited success stands out as a towering success. So when someone new comes along that is not well connected, isn't willing to buy recognition, and contradicts "the experts" they are marginalized and disregarded.
   
   
8. Follow the leader, leader. Follow the leader! - As you can see, some of these obstacles work in conjunction with others, or serve as amplifiers. So while information technology is undervalued, due to group think you have Puerto Rico always becoming late adopters of any technology. However, this goes further to drive nearly everyone in the market to follow what the leader does, whether it is technology, Internet marketing and advertising, or the tendency to ignore business practices that have been proven to improve the efficiency or effectiveness of a business. Remeber, since most of the businesses support the owners life-style, they are risk averse and therefore only willing to invest in something new until it is clearly what everyone else is doing.
   
   
9. Anti-small business support by government - Do you remember that front page news that we were the second most competitive Latin American country, based on the World Economic Forum Global Competitiveness Report?. Well in that report Puerto Rico ranked 130th (Out of 131) for "Burden of government regulation" and 105th for "Wastefulness of government spending". In addition, Puerto Rico ranked 67th in "Favoritism in decisions of government officials", 64th in "Transparency of government policy making", and 94th in the "Extent and effect of taxation." Seeing a trend here?
   
   
10. Brain drain - There just aren't enough resources on the island with sufficient information technology or engineering experience to sustain any type of high technology research or development. And while we consistently produce a respectable pipeline of engineers in the University of Puerto Rico - Mayagüez, they are quickly lured away with higher salaries in the United States. Why? Puerto Rico ranks LAST in technology pay out of all fifty of the United States. Unfortunately, most of the resources in those fields that stay are firmly trapped within a majority of these obstacles.

Sure we're bitter, who wouldn't be? We've struggled over these last two years to bring a steady stream of innovation to market. We have the most sophisticated Internet technology made in Puerto Rico by Puerto Ricans. Our mission is to be the spear point in the attack on the current advertising industry and our vision is to create a new economic engine for Puerto Rico in the form of Internet technology aimed at the United States Hispanic market. Sure we're idealistic; we choose to ignore these obstacles, ignore how difficult it is, and place our hope in our future customers that are willing to break from the status quo and reward our sacrifices with market acceptance.

Flickr Creative Commons Contributor: foxypar4

More Puerto Ricans Stateside than on Island

In another interesting post from the Puerto Rico Sun, Clarisel brings this resource to the attention of her readers. I've heard that most of the movers in Puerto Rico have been working non-stop for some time now. As was seen in previous economic down turns in Puerto Rico, many families are leaving PR in search of better job opportunities in the main land U.S. So this observation by the National Institute for Latino Policy doesn't surprise me.

In my opinion, this is a trend that will continue until the Puerto Rico economy reaches some type of equilibrium between the number of jobs available and the number of people willing to work. If you ask me, this is one of the fundamental problems with the PR economy, not enough jobs to sustain the population. There just aren't enough companies and no amount of economic development is going to change that.

On Latino Policy (from prsun.blogspot.com)

The National Institute for Latino Policy recently provided some interesting information on Puerto Ricans stateside and how the stateside population continues to outnumber those living on the island.

Here's an excerpt of an entry from the Institute July 14 bi-monthly newsletter, edited by Angelo Falcon:

Puerto Rican Population Stateside
Continues to Exceed that of Puerto Rico

In 2004, the Atlas of Stateside Puerto Ricans documented for the first time the stateside Puerto Rican population exceeded that of Puerto Rico in 2003 by 163,246. The latest statistics from the Census Bureau, from the 2006 American Community Survey (ACS), estimates that this gap has grown: in 2006 there were 3,987,947 Puerto Ricans living stateside compared to 3,745,007 in Puerto Rico, meaning that there are 242,940 more Puerto Ricans stateside than in Puerto Rico. Does this development have implications for the politics and policy issues of the Puerto Rican community as a whole?

Interesting question. What do PRSUN readers think?

Anyway, if you are interested in Puerto Rican and Latino policy issues, the Institute's bi-monthly e-newsletter is a wonderful resource. It regularly features items related to Puerto Ricans.

Go to www.latinopolicy.org to subscribe.

By the way, the National Institute for Latino Policy was formerly known as the Institute for Puerto Rican Policy. It changed its name as a way of better representing policy issues impacting Latinos.

The National Institute for Latino Policy is a independent nonprofit and nonpartisan policy center established in 1982 to address Latino issues.

Flickr Creative Commons Contributor: lunchtimemama

President Bush Boosts Porn Industry

Este resumen no está disponible. Haz clic aquí para ver la publicación.

Starbucks Coffee losing steam in Puerto Rico

Either our economy is much worse than anyone is actually saying or Starbucks Coffee is guilty of over-zealous expansion, because this week they announced that they would be closing three stores. According to a report from the Forbes web site, the stores will be closed in June, and all of the employees would be transferred to other stores.

Although the Chicken Little in me wants to say it's the former, I have to be honest and say that it's probably a little bit of both. As I've said before, Starbucks growth in Puerto Rico has been surprising for many people, but of course, if you've traveled to any major city in the Unites States it isn't that much of a surprise. In the heart of most cities like New York, Boston, or Portland, you'll commonly find what seems like a Starbucks on every other corner. Of course, much like when I predicted that Macy's wouldn't do well here in Puerto Rico, what people missed is that it was never about the coffee (just as I missed that Macy's was never about their merchandise). What Starbucks offered was a unique experience unmatched in the marketplace. It made you feel special when you finally figured out how to order what you wanted; you joined an exclusive group that made you feel superior to those that were clueless (just as some believe when they are walking around with a Macy's bag in their hand).

According to Starbucks spokesman in Puerto Rico, Adolfo Santana, the stores struggled financially because they were too close to other Starbucks locations. There's probably some truth to that, but I think when Outback, Ruby Tuesdays, and TGIFridays are also closing stores, the poor economy has to be equally responsible. The conclusion: for this market Starbucks may have reached its limit, especially in the San Juan metroplex.

What will be curious to see is if they continue with plans to open additional stores in other locations. If you check our map of Starbucks locations, there are at least three locations that I would open if I were Starbucks. The locations, in this order of priority, are: Mayagüez, Ponce, and Aguadilla or Arecibo.

Flickr Creative Commons Contributor: hlkljgk

Dark Future for Puerto Rico

This morning as I was just about to start writing about the 10 things you can do to survive the energy crisis, when the lights went out at home. I then had a very bad premonition. A premonition so bad that it's been haunting me all morning. And because I'm such a giver, I thought I would share my premonition and bum out the rest of your day too.

Just imagine for a second that petroleum continues to rise in price. And if you didn't already hear, it hit another record high yesterday to $138,54. This was mostly based on continued instability in the Middle East and the subsequent prediction by Morgan Stanley that prices may reach $150 within a month.

Puerto Rico's Economy

The 2008 energy crisis is killing Puerto Rico's economy. A continuation of that trend will only accelerate that effect and place it on life-support. There are three basic legs to the Puerto Rican economy: Government, Tourism, and Manufacturing (specifically Pharmaceuticals); extremely high energy costs would take away two of those legs (tourism and manufacturing). And no one can stand on one leg for too long before falling down completely, well unless Puerto Rico's economy is a flamingo.

We are already starting to see the impact of rising petroleum on the airline industry, which counter to what you are hearing in the local news, will directly impact the tourism industry. If you look at any Caribbean islands tourism strategy, adding more flights is ALWAYS at the top of the list, maybe second only to adding more rooms. So it only goes to follow that less flights, means less tourists. Remember less IS ALWAYS less.

One of the main reasons so many manufacturing facilities are closing up shop, beside the disappearance of the last vestiges of 936, is the rising price of energy on the island. An important component of the newly signed incentives package that the Governor signed is a subsidy to pay for energy. If petroleum prices continue to rise it will nullify the impact of the incentive or it will bankrupt the government. Either way, rising energy cost will force more manufacturing off the island.

Way too little - Way too late

So a monkey could have predicted last week's' pronouncement by Acevedo Vila and Fortuño that they were "committed to seeking alternatives that would alleviate Puerto Rico's dependence on oil." But the time have made those pronouncements was probably about 8 to 12 year's ago. Of course it is hard to fault anyone when big oil continues have their way with the executive and legislative branches of the United States, as was just witnessed by the Senate successfully stopping a vote on the climate change bill.

According to the Governor, 74% of Puerto Rico's energy is produced by the burning of petroleum, where as the average use of petroleum in the United States is only 4%. Reasonably speaking, it will take decades before Puerto Rico is about to reduce the amount of petroleum it consumes to produce energy. And unfortunately, by then our economy may be completely unplugged from life support.

My Premonition

So as I sat there momentarily shocked by the blackened house, it hit me. Imagine what it would be like if black-outs in Puerto Rico became MORE frequent. Imagine what it would be like if gasoline was $3.00 a liter. Stop and consider for a moment having to drastically rearrange your life, just so that you could save energy, save gas, live closer to work, or move off Puerto Rico, just to make ends meet.

I'm now beginning to believe that it wasn't Rogelio Figueroa who was smoking something when I dogged his suggestion that making Puerto Rico independent from foreign oil was the key to Puerto Rico's long term economic security. And also my hat goes off to Gabriel Pagan over at "I can't spell" for nailing the same solution.

Flickr Creative Commons Contributor Today: ArtNow314