The Three Big Challenges Facing Puerto Rico (Part II Of 'Lost And Found In Old San Juan')

It’s close to midnight on a Thursday in San Juan Puerto Rico, and my friend and I (let’s call him Virgil) have finally found a restaurant that will serve us at this hour.  I am happy we are here, but confused by the menu.

“Chinese and sushi? What’s going on here?” He explained a few days later, after many other meals: “People here are just trying to make a buck.”  

It was a good intro to my most recent visit to Puerto Rico (I am an advisor to a new technology accelerator, Parallel 18), where many people in fact are trying to find new ways make a buck, and where some people are actually working hard to lift the entire economy. But as Virgil helped me understand, there are many ways to do this, and some ways may be smarter than others. Fact is, Puerto Rico today is facing a number of big challenges, and not everyone is reading from the same menu.

I make my living as a consultant. I’ve had the opportunity to work for government agencies, brands, NGOs, and — perhaps most relevant to this conversation — technology startups that all wind up learning, after trial and error, that in order to succeed you need to embrace your challenges, not ignore them. As you have probably heard, Puerto Rico has many challenges. But for the sake of simplicity — another virtue that startups have to learn to embrace — I have broken out most of the challenges and complaints I heard during my last visit into three simple categories. And it all begins with what’s most immediately apparent and obviously wrong, and that of course will need to be addressed.

Crisis

In case you haven’t heard, Puerto Rico has amassed more than $72 billion in debt. Over the past year, the local government has been slowly — steadily — building a case for restructuring that debt but has been defaulting, in the interim, on a sequence of payments that have been fast coming due. The next big expected default: July 1, 2016 — about a month from today — when the governor is expected to announce that the island cannot pay $2 billion the island owes. It’s not the beginning, nor is it the end, of a long-building story about the collapse of a territory once regarded as our nation’s jewel in the caribbean.

As both critics and supporters of Puerto Rico have pointed out, there are many reasons for this mess. The island, which once once positioned as a haven for manufacturers, phased out its business and tax incentives for that sector about 20 years ago, right around the time of the island’s decline. Other legal/regulatory challenges: the Jones Act, which, according to critics, have made trade to and from Puerto Rico exorbitant.  Add to all of this: the pain of “island economics”: too many goods are imported here — including food — driving up the costs of living. And add to all of this one of the most devastating but predictable after effects of a declining economy:  the mass migration of the middle-class, precisely the people who could be contributing more to the tax base as well as the talent pool. The declining population in Puerto Rico — tracked by many organizations including Pew Research — has massive implications for both the island and mainland US.

Emphasis on “the US.” According to a recent poll, most Americans do not know that island-bound Puerto Ricans are US citizens. And the reality is that they are not really island-bound. For a Puerto Rican to “immigrate” means moving to another city in the mainland US. And that’s what’s happening, at a scale never seen before. For this and many other reasons, the Puerto Rican crisis is a US crisis, no different in many ways from city crises that we’ve responded to before like Detroit (most recently) and Washington DC.

Ecosystem

I mention Detroit and DC for a reason. They were both the beneficiaries of laser-focused government interventions. And I believe that whether through intervention or collaboration, there will be a resolution to the near-term Puerto Rican crisis.  But that’s not what really concerns me; plenty of others are writing about that. What does concern me is the ability for Puerto Rico to pull together an ecosystem that includes but goes beyond government participants and that can address the longer-term challenges of rebuilding the economy. I’m a big believer in the Winston Churchill adage that one should “never let a good crisis go to waste.” But to get stuff done at the city/country/country level, you need people who know how to work with one another.

Over the past few years, I’ve had the opportunity to travel to what I’ve come to regard as emerging technology ecosystems.  One thing they all seem to have in common:  an awareness that what they are trying to do is to emulate Silicon Valley. But as I noted in the first part of this blog series — paraphrasing Stanford consulting professor Barry Katz — not only is replicating Silicon Valley impossible, it’s probably not even desirable. Leaders from the most successful tech ecosystems are aware of this.  At the same time, if you look closely at these ecosystems, a number of patterns emerge. When I was in Puerto Rico this Spring, I watched for these patterns and tried to assess how well Puerto Rico is doing compared to other regions. What follows is just a summary of what I saw.  I’ll try to go deeper into each of these areas in future posts.

1. Access to markets that can grow or be disrupted

Last Fall, when visiting Guadalajara — a city that has recently positioned itself as the “Silicon Valley of Mexico” (though I’m sure Mexico City would take issue with that) — I met a US-born investor who redirected his life looking for “older industries” in Mexico that were “poised to be digitized.” He wasn’t at all interested in the consumer tech companies that so often pitch him, though he admitted that some could do quite well. He was more interested in learning what industries were already humming in Mexico, and which ones could be augmented or challenged with new technologies. Top on his mind:  agriculture. If you believe whatMarc Andreessen has said about how “software is eating the world,” my American friend was anticipating a huge feast on the industry that helps produce food just south of the border.

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I think the same is true in Puerto Rico, a territory that imports more than 80% of its food.  In my last piece, I wrote about Gualberto Rodriguez’s campaign to promote the island’s abundance of farmable land. More recently, I learned about a new industry conference in Puerto Rico — led by Carlos Cobian, an accomplised events producer — called Agrohack whose mission is to “propel agriculture as a sustainable source of growth and economic development.” And there are other industries in Puerto Rico ripe for change, like manufacturing; in my last article I wrote about the work of Lisa Morales-Hellebo, a New York-based entrepreneur in fashion tech and founder of REFASHIOND, who sees an opportunity to reinvigorate Puerto Rico’s manufacturing economy by building “a manufacturing bridge between NYC and Puerto Rico to make the island a destination for sustainable, Made in the USA, apparel manufacturing.”  Other industries in Puerto Rico that are already there but could be ready for change:  entertainment, healthcare, and, of course, tourism.  In 2015, James Surowiecki — the financial columnist for the New Yorker, whose family lived briefly in Puerto Rico — waxed nostalgically about Dorado Beach, which at one time was “the most glamorous resort in the Caribbean, attracting everyone from Ava Gardner to John F. Kennedy. But, as time passed, resorts on other islands lured high-end travellers away, and Dorado eventually became a charming relic. In 2006, it closed. History had passed it by.” But you don’t need to feel sad about the passing of Puerto Rico’s brand appeal with high-end vacationers. The travel industry — and all of its accompanying service markets — has been disrupted and expanded in other places for the benefit of a broader swathe of the economy, and I believe it can happen here.

2. Access to and demand from other regions

So there may be a great untapped demand for Puerto Rican produce, services, and goods.  That’s good news.  But as the leaders of Israel — a super successful tech ecosystem — learned a long time ago, the market for a small territory is “outside the territory.” Every Israeli entrepreneur grows up understanding that his or her product must find demand in places like the US, Europe, Asia and, yes, Latin America.  For Puerto Rican entrepreneurs to succeed, they may need the assistance of trade, tourism, and marketing professionals to get business leaders outside PR to understand the opportunity.  That’s part of the work that Lisa Morales-Hellebo is hoping to do for fashion.  It’s also the work that Gualberto Rodriguez has already begun doing in agriculture. They and others will need a great deal of support, but in the meantime Gualberto has found a partner in the Puerto Rico Science, Technology & Research Trust — a government-supported NGO — that will be soon be launching a program to help global agricultural partners study and assess specific opportunities.  

3. Spaces, Housing, And Other Comforts

More good news: San Juan still has a good amount of affordable housing — a must for the first stages in early-stage company job creation — and has already begun acting on the global trend of creating shared workspaces. Keeping the costs of space low — both residential and commercial — is a must not only because it enables more entrepreneurs to participate in the local economy, but also because it helps to produce the kind of emergent culture that’s essential to tech hubs.  

I got to visit what is perhaps the most popular shared workspace in Puerto Rico, Piloto 151, a converted aquarium in Old San Juan. Co-founded by Sofia Stolberg — a native of Puerto Rico, and graduate of Columbia University — it’s a multi-story structure that not only serves as a corporate home for many new startups on the island but also as the virtual address for a growing number of companies in the US and other countries that are beginning to see the value of the Puerto Rican tech ecosystem brand. It’s also the home of a number of other projects — including a hacker education program that Stolberg runs called Codetrotters – and the meeting place of several organizations that have helped to coalesce the Puerto Rican startup community. During my week-long visit to Puerto Rico, I lost track of the number of times I heard people say that they were on their way to or from Sofia’s San Juan space.  

But beyond the business and social benefits, Piloto 151 has another appeal. It’s gorgeous. As I said, it’s located in historic Old San Juan — adjacent to a square that’s as ancient as it is beautiful — but the sleek, clean modern interiors reminded me of one of the best shared workspaces I got to visit in Guadalajara. It got me thinking that there may be a new aesthetic that’s helping to define Latin American shared workspaces, and that Sofia is helping to bring it to Puerto Rico. And the aesthetic is more than skin deep — it feels more like a component of a larger complex of creature comforts that places like San Juan can provide on the cheap.  The leaders of Parallel 18 — a new tech accelerator in San Juan that I advise — like to say that the lifestyle of a Puerto Rican entrepreneur is to “work hard, play tropical.” Piloto 151 is for sure a tropical shared workspace, a Plug and Play in paradise.    

more at: http://www.forbes.com/sites/giovannirodriguez/2016/05/28/the-three-big-challenges-facing-puerto-rico-part-ii-of-lost-and-found-in-old-san-juan/3/#7282dfd87d3f

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