The island's traditional economy was based around sugarcane plantations. By the middle of the twentieth century it remained one of the poorest in the Caribbean, and in 1948 the United States government began Operation Bootstrap, which invested millions of dollars into the Puerto Rican economy. Envisioning that a densely populated island like Puerto Rico with now over 1000 persons per square mile could not subsist on an agrarian system, the government's Administration of Economic Development —today known as the Puerto Rico Industrial Development Company (PRIDCO)— encouraged the establishment of factories.
The US government in Puerto Rico enticed US companies by providing labor at costs below those on the mainland, access to US markets without import duties, and profits that could enter the country free from federal taxation. The Administration of Economic Development invited investment of external capital, importing the raw materials, and exporting the finished products to the United States. To entice participation, tax exemptions and differential rental rates were offered for industrial facilities. As a result, Puerto Rico's economy shifted labor from agriculture to manufacturing and tourism. The manufacturing sector has shifted from the original labor-intensive industries, such as the manufacturing of food, tobacco, leather, and apparel products, to more capital-intensive industries, such as pharmaceuticals, chemicals, machinery, and electronics. Through this project, a rural agricultural society was transformed into an industrial working class.
Although initially touted as an economic miracle, by the 1960s, Operation Bootstrap was increasingly hampered by a growing unemployment problem. As living standards and wages in Puerto Rico rose, manpower-intensive industries faced competition from outside the United States. It also faced criticism from civil rights groups and the Catholic Church, who perceived the government promoting birth control, encouraging surgical sterilization, and fostering the migration of Puerto Ricans to the United States.
As of 2005 the United States remains Puerto Rico's major trading partner, received 86% of Puerto Rico's exports and providing 69% of its imports.
Chart demonstrating how the economy of Puerto Rico shifted from agriculture to manufacturing by showing how the salaried employees during Operation Bootstrap significantly increased manufacturing jobs while decreasing agricultural jobs.
^FPH (in Spanish) "[...] nuestro actual modelo económico continúa fundamentado en los principios establecidos por Operación Manos a la Obra."
^FPH (in Spanish) "El [sector] financiero creció de 10% del PBN en 1950 a 14.4% en 1980.
^FPH (in Spanish) "El sector gubernamental también creció al aumentar su participación de 10% del PBN en 1950 a 17.1% en 1980."
^FPH (in Spanish) "Los datos revelan que el nuevo modelo económico generaba crecimiento pero no empleos. Los nuevos empleos creados en la manufactura no compensaron suficientemente la pérdida de plazas en la agricultura[...]"
^FPH (in Spanish) "Los nuevos empleos en el sector manufacturero no compensaban por las pérdidas en el sector agropecuario."
^While the total sum of employment in fishing, agriculture, and manufacturing did experience a net loss, it should be noted that the industrialization process created jobs in other sectors. The net loss portrayed in this table only takes into account direct jobs associated within these industries without taking into account the indirect jobs associated with them such as those in the service industry and government.[b][c] Regardless of all this, Puerto Rico did experience an overall net loss due to Bootstrap.[d][e]