Principles and Conditions for Economic Improvement in Puerto Rico, and Why Adaptive Management Is the Missing Operating System

1. Introduction: Why Puerto Rico Is a Useful Case for Understanding Growth Conditions

Puerto Rico is a particularly instructive case for explaining the conditions for economic growth in small, open, and institutionally constrained economies. It is open to trade and capital flows, has deep financial and legal integration with the United States, and receives substantial external transfers. Yet it has struggled for decades with weak growth, persistent labor market challenges, outward migration, infrastructure fragility, and an export structure that generates less broad-based prosperity than headline export figures might suggest. These characteristics are not unique to Puerto Rico. Many territories, island economies, and small states face the same fundamental dilemma: internal circulation of money can stabilize living standards, but sustainable growth requires expanding the economy’s ability to produce and sell goods and services competitively to external markets, while retaining a meaningful share of the value created.

Puerto Rico’s experience also highlights why economic development is not simply a matter of selecting the “right” policies. It is equally, and often more, a matter of execution under uncertainty. Economies evolve through complex interactions among firms, workers, institutions, infrastructure, culture, and global market conditions. A plan that looks correct in theory frequently fails because the implementation environment is fragmented, politically constrained, or lacks feedback loops that enable rapid course correction. That is where adaptive management becomes essential. Adaptive management is a disciplined approach to decision-making in uncertain environments that treats policy as a learning process. It emphasizes experimentation, tight feedback loops, and iterative refinement rather than static, one-time designs. This approach was formalized in the adaptive management literature as a method for reducing uncertainty through structured learning and deliberate iteration. (Cambridge University Press & Assessment)

This essay therefore has two intertwined goals. First, it clarifies the conditions for economic growth in a place like Puerto Rico, focusing on production, exports, productivity, value retention, and institutional credibility. Second, it connects those conditions to adaptive management, arguing that Puerto Rico’s main bottleneck is not merely “missing ideas,” but missing operating capacity: a system for learning what works, scaling what works, and stopping what does not.

2. The Core Growth Logic in Small Open Economies: Income Must Be Earned Externally

Economic growth is ultimately about expanding real output and real incomes. In a small open economy, this cannot be achieved sustainably through internal circulation alone. Local spending can create activity and stabilize households, but it largely redistributes existing purchasing power. The economy grows when it increases the value it produces and when it earns net income from outside. In practical terms, the growth engine is a combination of exports, productive investment, and rising productivity. If a locality imports most of what it consumes and lacks strong export sectors, internal spending tends to leak out through imports. The result is that stimulus or consumption-led expansions provide short bursts of activity, followed by a reversion to weak growth.

This does not mean external inflows are inherently good, nor does it imply that an economy should be dependent on transfers. It means that, absent monetary sovereignty and with high import dependence, an economy like Puerto Rico must generate new income through competitive production, typically by exporting goods and services or attracting investment that creates lasting productive capacity. The long-run objective is not “importing money” as an end in itself. The objective is building capabilities so that external demand translates into local value creation and value retention.

The composition of exports matters as much as the volume. Evidence from the growth and trade literature shows that what a country exports can predict subsequent growth, especially when exports embody higher productivity and knowledge spillovers. This is a central message of research showing that export sophistication is linked to future income growth. (NBER) Similarly, economic complexity research argues that economies tend to converge toward income levels consistent with the complexity of their productive structures, and that deviations from that relationship predict future growth. (PMC) For Puerto Rico, this implies that simply increasing the number of tourists or expanding low-value activities may raise GDP at the margin, but will be less likely to produce sustained improvements in wages, resilience, and local business formation unless the export base becomes more complex and more rooted in local capabilities.

3. Productivity and Innovation: The Fundamental Source of Long-Run Growth

The deepest driver of long-run growth is productivity: producing more value per worker and per unit of capital. Standard accounting identities are helpful, but the key insight is that economies cannot become richer simply by moving money around. They become richer by developing better technologies, better organizations, and higher skill levels that raise output and wages. Modern growth theory explicitly elevates technological change and knowledge accumulation as central. In endogenous growth models, growth is driven by intentional investments in knowledge creation, and the equilibrium tends to underinvest in research relative to the social optimum because knowledge has spillovers and is partially non-excludable. (EconPapers)

In a complementary line of work, growth through “creative destruction” emphasizes that innovation displaces older technologies and reorganizes markets, producing sustained growth when incentives and competition encourage continuous upgrading. (econometricsociety.org) These frameworks matter for Puerto Rico because the island’s strategic challenge is not merely to attract firms, but to attract and develop capabilities that stay, that build local supply chains, and that expand the share of high-value functions performed locally. Without innovation capacity, Puerto Rico is vulnerable to a development pattern where it hosts some production but does not own the knowledge, does not capture profits, and does not upgrade local firms.

R&D and innovation therefore have three critical roles in the specific context of Puerto Rico. First, they raise productivity through process improvements and technology adoption. Second, they shift the export basket toward higher value and more defensible niches. Third, they help retain value locally by enabling local firms and institutions to own intellectual property, provide specialized services, and occupy higher-margin segments of value chains. Puerto Rico’s own entrepreneurship ecosystem assessments have identified deep constraints in access to capital and scaling pathways that directly limit the ability of innovative firms to grow locally.

4. Value Retention: Why GDP Can Rise Without Broad Prosperity

Puerto Rico can experience periods where GDP, or at least measured output, looks strong in certain sectors while household incomes, labor force participation, and local business dynamism remain weak. This phenomenon is not mysterious. It follows from value chain structure and leakage. If an economy’s export sectors are dominated by firms whose profits are repatriated and whose supplier networks are mostly external, then local wages and local firm revenues capture only a fraction of the gross value produced. The remainder leaves the economy through imported inputs, offshore professional services, and profit repatriation.

The policy implication is that Puerto Rico must prioritize “value retention” rather than focusing narrowly on attraction. Attraction of external firms and capital can be beneficial, but only to the extent that it produces durable local capabilities and linkages. Value retention improves when local firms supply exporters, when local workers occupy mid- and high-skill roles, when local institutions perform R&D and design, and when local capital participates in ownership. In that sense, export-led growth is necessary but insufficient. Export-led growth must be paired with deliberate strategies for local upgrading, supplier development, and innovation anchoring.

Economic complexity research is useful here because it shifts attention from “how much you export” to “what you can make.” Complexity is fundamentally about capability accumulation and the network structure of production. Economies that build diverse and sophisticated capabilities tend to be more resilient and converge to higher income levels. (PMC) This helps explain why Puerto Rico, despite exporting high-value goods, can still struggle if the underlying capabilities and decision-making functions remain outside the island.

5. Human Capital and Demography: Talent Retention as an Economic Strategy

Human capital is not a general slogan. It is a growth mechanism. In endogenous growth theory, human capital influences the rate of knowledge creation and therefore growth. (EconPapers) In practical terms, Puerto Rico’s ability to sustain innovation-led growth depends on whether it can develop, attract, and retain workers with technical and managerial skills, and whether those workers have credible career pathways on the island.

Puerto Rico also illustrates the macroeconomic relevance of migration. When a locality experiences sustained outmigration, it loses labor force scale, reduces the depth of its internal market, and often loses entrepreneurial energy. Migration dynamics also affect the skill distribution of the workforce. Research on labor flows in Puerto Rico shows patterns in which outflows and inflows differ in their skill composition, shaping wage dynamics and labor market structure. (NBER) While the details of present-day patterns require continuous updating, the structural lesson is stable: growth strategies in Puerto Rico must include explicit talent strategy, not merely education policy.

A talent strategy includes work-integrated learning, applied training aligned with export sectors, management development for scaling firms, and quality-of-life improvements that make staying attractive. It also includes the institutional capacity to place graduates in local firms and to connect diaspora talent to local opportunities. Importantly, talent retention is not achieved by rhetoric. It is achieved by building a credible growth ecosystem where skills lead to wages, mobility, and stable careers.

6. Infrastructure and Energy: Competitiveness Requires Reliability, Not Only Investment

Infrastructure is often treated as a background condition, but for Puerto Rico it functions as a binding constraint on competitiveness. High energy costs, unreliable service, and disaster vulnerability increase operating costs and reduce the attractiveness of high-value manufacturing and services. Even when firms can tolerate high costs temporarily, persistent unreliability discourages long-term investment in sophisticated activities that require stable power and logistics.

Public reporting on Puerto Rico’s energy system has repeatedly highlighted both cost and reliability challenges, with electricity prices exceeding mainland benchmarks and outages remaining frequent, while policy aims for a long-term transition toward cleaner and more resilient energy. (AP News) The specific numbers and plans change over time, but the development implication is stable. Puerto Rico cannot build an innovation-led export economy without credible infrastructure reliability. Energy reliability is therefore not separate from economic development policy. It is a core component of it.

Infrastructure also interacts with adaptive management. Large infrastructure programs frequently fail because they are implemented as fixed blueprints rather than adaptive portfolios. In a complex environment with uncertain permitting, procurement risks, technical uncertainties, and political changes, the ability to run pilots, learn quickly, and scale reliable solutions matters. This is especially true for distributed energy systems, microgrids, and resilience investments where local contexts differ and standardized approaches often underperform.

7. Institutions, Credibility, and the Implementation Problem

Growth requires investment. Investment requires expectations. Expectations depend on institutional credibility. This is the channel through which governance affects growth outcomes. If permitting is slow, procurement is unpredictable, regulations shift with political cycles, and data systems are weak, then investors face high uncertainty. They demand higher returns or they do not invest. Local entrepreneurs also respond to these signals by staying small, choosing informal strategies, or leaving.

Puerto Rico’s economic planning documents and ecosystem analyses frequently emphasize coordination problems and implementation gaps, particularly around linking innovation strategy to broader development efforts. When coordination fails, policies become scattered programs rather than a coherent system. Funds get allocated to initiatives that cannot scale, and reforms become symbolic. This is not only a Puerto Rico problem. It is an organizational problem that appears in many public sectors, especially where political incentives reward announcements rather than performance.

Here the state capability literature becomes relevant. Work on “capability traps” argues that many governments adopt outwardly correct reforms that mimic best practice but do not change real performance, leading to persistent implementation failure. (Center For Global Development) This diagnosis fits many economic development settings where strategies exist on paper but do not produce measurable results on the ground. The remedy is not only technical. It is managerial and institutional. The system needs an operating method that translates strategy into performance.

8. Adaptive Management: Why Learning Systems Are a Growth Condition

Adaptive management began as a response to uncertainty in environmental and resource management. It is defined as management conducted in a manner that explicitly increases knowledge and reduces uncertainty through structured learning, monitoring, and iterative adjustment. (Cambridge University Press & Assessment) While its origins are in ecology, the logic travels directly to economic development. Economic development interventions are also experiments under uncertainty, because policymakers do not fully know which incentives will shift firm behavior, which training programs will lead to employment, which cluster initiatives will generate supplier networks, or which infrastructure investments will unlock private capital.

Adaptive management is therefore not an optional governance style. It is a necessary operating discipline when pursuing structural transformation. In Puerto Rico’s case, the need is intensified by three realities: repeated shocks, institutional fragmentation, and persistent leakage. Under these conditions, static plans fail because they cannot respond quickly enough to new information. Adaptive management provides a structured way to treat policies as hypotheses and programs as experiments, while maintaining accountability.

A closely related approach in the development and state capability literature is Problem-Driven Iterative Adaptation, commonly known as PDIA. PDIA argues that reform should focus on locally nominated problems, encourage experimentation, embed learning in tight feedback loops, and mobilize broad coalitions to sustain change. (Harvard Kennedy School) The overlap with adaptive management is direct. Both emphasize iteration, learning, and contextual problem-solving rather than the transplantation of best practice templates.

For Puerto Rico, the relevance is practical. The island does not merely need more programs. It needs a portfolio of interventions that are constantly tested against outcomes, adjusted rapidly, and scaled only when evidence supports scaling. This is the difference between an economic development strategy that exists as a document and one that functions as an operating system.

9. The Conditions for Growth in Puerto Rico: A Coherent Framework

Puerto Rico’s growth conditions can be summarized as an integrated set of requirements that reinforce one another.

The first condition is an external income engine. Puerto Rico must expand net earnings from outside the island. This requires competitive exports of goods and services, and it requires a deliberate move toward more sophisticated exports that embed knowledge, capabilities, and higher margins. Research shows that the composition and sophistication of exports can predict future growth, implying that moving into higher-productivity activities matters. (IDEAS/RePEc)

The second condition is capability accumulation. Economic complexity research provides a useful framing: development occurs when economies accumulate the diverse capabilities needed to produce a wider set of sophisticated products. Complexity measures correlate with income and predict future growth, suggesting that durable development requires building the underlying productive know-how. (PMC) This perspective aligns naturally with cluster strategies, supplier development, and innovation ecosystems.

The third condition is innovation and R&D capacity. Innovation is not only about laboratories. It includes process innovation, managerial innovation, and service innovation that allow firms to improve productivity and differentiate products. Modern growth theory emphasizes that knowledge creation and research are central to growth, and that markets tend to underinvest in research absent policy support because of spillovers. (EconPapers)

The fourth condition is value retention. Puerto Rico must retain a greater share of value created by export sectors through local supplier networks, local professional services, local management and decision-making, and local ownership. Without this, GDP growth will not translate into broad income growth.

The fifth condition is enabling infrastructure, particularly reliable energy and logistics. Competitiveness depends on reliability. This is not an ideological claim. It is a cost and risk claim. If reliability is weak, firms choose lower complexity activities, invest less, and avoid long-run commitments. (AP News)

The sixth condition is institutional credibility and execution capacity. Policy coherence, predictable rules, effective procurement, and operational competence reduce uncertainty and enable investment.

The seventh condition is adaptive governance. Because development policies are uncertain experiments, the public sector must have a learning architecture, with metrics, feedback loops, and authority to adjust programs rapidly.

These conditions do not operate independently. They form a system. Weakness in one area often prevents progress in others. For example, limited access to capital prevents innovative firms from scaling, which weakens export diversification, which reduces opportunities for talent, which accelerates migration, which further reduces local capabilities. Puerto Rico’s ecosystem assessments have singled out access to capital as a severe deficiency, which illustrates this systemic constraint.

10. What Strategies Are Currently Lacking or Underdeveloped in Puerto Rico

Puerto Rico has many initiatives, but several critical strategies remain insufficiently developed, fragmented, or not executed with enough discipline to scale.

One missing strategy is a credible, large-scale risk capital and scale-up financing pathway. Without this, innovation cannot translate into growth. A region can produce startups, incubators, and pitch competitions, yet still fail to produce scaling firms. Evidence from Puerto Rico-focused ecosystem work points to capital access as the most critical deficiency, and the logic is straightforward: if firms cannot finance growth, they either stagnate, sell early, or relocate.

A second missing strategy is systematic supplier development tied to anchor sectors. Puerto Rico’s development model has historically relied on external firms. The next stage requires deliberate upgrading of local SMEs into suppliers, with technical assistance, certification support, and procurement commitments that convert potential linkages into actual contracts. Supplier development is not achieved through generic small business support. It is achieved through targeted upgrading aligned with specific value chains.

A third missing strategy is deep commercialization infrastructure for R&D. Universities and research institutions cannot be assumed to translate research into economic impact on their own. They require technology transfer offices with professional staffing, proof-of-concept funding, IP support, and industry collaboration mechanisms. Without these, R&D becomes disconnected from growth.

A fourth missing strategy is an integrated talent-to-industry pipeline, including managerial talent for scaling. Many ecosystems underestimate the role of middle management, operational excellence, and commercialization skills. Puerto Rico’s entrepreneurship survey evidence highlights that talent and senior management availability are obstacles, which reinforces the need for managerial development and career pathways.

A fifth missing strategy is an energy reliability and cost competitiveness program that is treated as economic development policy, not merely energy policy. Reliability is a core input to competitiveness. The ability to deploy distributed solutions, validate performance quickly, and scale what works is an adaptive management problem as much as an engineering problem. (AP News)

A sixth missing strategy is an execution system that embeds adaptive management across agencies. Puerto Rico often has plans and funding streams, but insufficient institutional machinery to run them as iterative portfolios. This is precisely the domain of PDIA and adaptive management, which emphasize local problem definition, experimentation, tight feedback loops, and coalition building. (Harvard Kennedy School)

11. How Adaptive Management Should Be Applied to Puerto Rico’s Growth Agenda

Adaptive management becomes operational when it is embedded into how programs are designed, funded, and reviewed. For Puerto Rico, an adaptive economic development architecture would include several components.

First, it would define a limited set of measurable outcomes, not a long list of activities. Outcomes would include export diversification measures, number of scaling firms, local supplier contracts awarded, R&D commercialization milestones, energy reliability improvements for industrial corridors, and labor force participation improvements.

Second, it would treat interventions as hypotheses. For example, a supplier development program would be designed as a set of experiments across sectors or regions, with clear indicators and pre-defined decision rules about which variants to scale.

Third, it would institute tight feedback loops. Monthly or quarterly reviews would compare actual outcomes to targets, document causal mechanisms, and decide what to modify. The point is not to punish programs for missing targets, but to learn quickly and reallocate resources.

Fourth, it would create an authorizing environment for learning. One reason public agencies resist adaptation is that adaptation can be misread as inconsistency. Adaptive systems must therefore legitimize iteration and protect teams that make evidence-based changes, consistent with the PDIA emphasis on enabling experimentation. (Harvard Kennedy School)

Fifth, it would build coalitions. Economic development requires coordination among government, universities, firms, municipalities, and financiers. Adaptive management processes can be designed as shared learning forums, where stakeholders review evidence and co-design adjustments. This echoes the stakeholder dimension of adaptive management as described in the literature. (Cambridge University Press & Assessment)

The practical result is that Puerto Rico’s development strategy becomes less about static “plans” and more about a continuously improving system that can survive political cycles, because it is justified by performance evidence.

12. Adaptive Management in Practice: Turning Strategy into a Learning System

To understand why adaptive management is not merely complementary but essential to Puerto Rico’s economic improvement, it is necessary to examine how development strategies fail in practice. Most failures do not arise because goals are ill chosen. They arise because the pathway between goals and outcomes is uncertain, contested, and politically mediated. In Puerto Rico, this uncertainty is intensified by structural constraints, including fiscal oversight, fragmented governance across agencies and municipalities, and exposure to external shocks such as hurricanes and global market volatility. Under these conditions, static plans become obsolete quickly, and rigid implementation frameworks discourage learning.

Adaptive management addresses this problem by explicitly treating policy as a sequence of decisions made under uncertainty. It requires that policymakers accept, at the outset, that they do not fully understand causal relationships. Instead of assuming that a given incentive or program will work, adaptive management asks policymakers to articulate hypotheses. For example, one hypothesis might be that supplier development grants in advanced manufacturing will increase local content and wages. Another might be that co-investment funds will crowd in private capital rather than substitute for it. These hypotheses are then tested through pilot programs with clear metrics and predefined review points.

The relevance of this approach to Puerto Rico lies in its ability to overcome what the state capability literature describes as “isomorphic mimicry,” the adoption of the outward form of best practices without the underlying functional capability. Puerto Rico has often adopted policies that resemble those of high-performing regions, such as tax incentives, cluster initiatives, or innovation hubs, but without embedding them in a system that continuously measures performance and adjusts design. Adaptive management directly targets this failure mode by making learning and adjustment part of the formal process rather than an ad hoc reaction to disappointment.

A practical adaptive management system for Puerto Rico would operate at several levels simultaneously. At the program level, individual interventions would be designed with short feedback cycles, allowing rapid refinement. At the portfolio level, agencies would allocate resources across multiple experiments, scaling those that show promise and terminating those that do not. At the system level, shared data platforms and cross-agency reviews would allow policymakers to see patterns that are not visible within siloed programs. The key is that adaptation is not left to informal discretion. It is institutionalized through rules, metrics, and review processes.

13. The Political Economy of Growth and Why Learning Matters

Economic development does not occur in a vacuum. It is shaped by political incentives, distributional conflicts, and institutional inertia. Puerto Rico’s development history illustrates how political economy can undermine otherwise sound economic logic. For example, policies that deliver visible short-term benefits, such as construction projects or tax holidays, are often politically attractive even when their long-term growth impact is limited. Conversely, policies that build capabilities gradually, such as workforce development, supplier upgrading, or R&D commercialization, tend to produce diffuse benefits over longer horizons and are therefore harder to sustain politically.

Adaptive management offers a partial solution to this dilemma by changing the political narrative around reform. Instead of framing development as the implementation of a fixed plan, adaptive management frames it as a process of disciplined experimentation in pursuit of agreed goals. This framing allows policymakers to justify course corrections without appearing inconsistent or incompetent. It also creates space for coalitions to form around evidence rather than ideology. When stakeholders can see data showing that a particular intervention is improving exports, wages, or firm survival rates, they are more likely to support its continuation and scaling.

In Puerto Rico’s case, this approach could help reconcile tensions between different development priorities. For example, debates often arise between those who emphasize attracting external investment and those who emphasize supporting local firms. Adaptive management allows both approaches to be tested in parallel, with evidence determining the balance over time. Similarly, debates about sectoral priorities can be informed by comparative performance data rather than political preference alone.

The political economy dimension also underscores why adaptive management must be transparent. Data and evaluation results should be publicly accessible, not confined to internal reports. Transparency increases accountability, reduces suspicion of favoritism, and helps build trust in institutions that have historically faced skepticism. Over time, this trust becomes an intangible but critical asset for growth, lowering transaction costs and encouraging investment.

14. Sectoral Implications: Applying the Framework to Key Puerto Rico Industries

The abstract principles discussed so far become clearer when applied to specific sectors that matter for Puerto Rico’s economy.

In pharmaceuticals and medical devices, Puerto Rico has long hosted large-scale production facilities. The growth challenge in these sectors is not entry but upgrading. Adaptive management would imply piloting supplier development programs that target specific inputs, such as precision components or specialized services, and tracking whether local firms can meet quality and cost requirements. It would also imply testing incentives for locating process development and quality engineering functions on the island, rather than only final production. Over time, evidence from these pilots would guide whether to expand such programs or redesign them.

In tourism, the distinction between volume-driven growth and value-driven growth is central. Puerto Rico can increase visitor numbers without substantially improving incomes if spending per visitor remains low and leakages are high. An adaptive approach would test interventions aimed at increasing local value capture, such as support for locally owned accommodations, cultural experiences, and supply chains that connect tourism demand to local agriculture and creative industries. Metrics would focus not only on arrivals but on local wages, firm revenues, and import substitution.

In digital services and professional services, the primary constraints are talent, connectivity, and access to clients and capital. Adaptive management would involve piloting remote work hubs, export promotion for services, and training programs aligned with client needs, then evaluating placement rates, income growth, and firm formation. Because these sectors are less capital-intensive and more scalable, learning cycles can be particularly rapid, making them well suited to an adaptive approach.

In energy and resilience technologies, Puerto Rico’s exposure to natural disasters creates both a vulnerability and an opportunity. Adaptive management would support demonstration projects for microgrids, storage, and efficiency solutions, with rigorous monitoring of performance, costs, and reliability. Successful solutions could then be scaled across industrial parks and critical infrastructure, simultaneously improving competitiveness and resilience.

Across sectors, the common thread is that growth does not come from choosing a sector and declaring it strategic. It comes from building and testing mechanisms that translate sectoral opportunity into local capability, income, and resilience.

15. Measuring What Matters: Indicators for Adaptive Economic Development

A recurring weakness in economic development efforts is the reliance on input and activity metrics rather than outcome metrics. Counting the number of grants awarded, meetings held, or firms assisted says little about whether an economy is becoming more productive or resilient. Adaptive management requires a different measurement philosophy.

For Puerto Rico, key outcome indicators should include measures of export sophistication, such as the diversity and complexity of exported products and services. Changes in these indicators provide early signals about whether the economy is moving into higher value activities. Firm-level indicators, such as survival rates, scaling rates, and productivity growth, are also critical. These metrics capture whether local firms are becoming more competitive and capable of sustained growth.

Labor market indicators should go beyond unemployment rates to include labor force participation, wage growth in tradable sectors, and occupational upgrading. These measures reflect whether growth is translating into better jobs and whether human capital investments are paying off. Similarly, value retention indicators, such as local content shares and profit reinvestment rates, help assess whether growth benefits are staying on the island.

Finally, process indicators are important for assessing the functioning of the adaptive system itself. These include the speed with which programs are adjusted in response to evidence, the proportion of funding allocated to pilots versus scaled interventions, and the transparency of evaluation results. Together, these indicators provide a multi-dimensional picture of economic progress that aligns with the underlying growth logic.

16. Risk, Uncertainty, and Resilience in Puerto Rico’s Growth Strategy

Economic growth strategies are often designed under implicit assumptions of stability. Puerto Rico’s experience demonstrates why such assumptions are unrealistic. The island faces frequent shocks, including hurricanes, earthquakes, global supply chain disruptions, and changes in federal policy. These shocks can derail even well-designed strategies if resilience is not built into the system.

Adaptive management is inherently suited to high-uncertainty environments because it emphasizes flexibility and learning. Instead of committing all resources to a single pathway, adaptive strategies diversify risk across multiple experiments. This portfolio approach increases the probability that at least some interventions will perform well under changing conditions. It also allows policymakers to reallocate resources rapidly when circumstances change.

Resilience also has an economic dimension beyond disaster response. Economies with diverse and complex production structures tend to be more resilient because they can reallocate resources across activities when demand shifts. This insight from economic complexity research reinforces the importance of diversification and capability building as growth strategies. For Puerto Rico, diversification does not mean abandoning existing strengths but layering new capabilities onto them.

17. Puerto Rico in Comparative Perspective

Comparative experience from other small and open economies reinforces the lessons drawn from Puerto Rico. Economies such as Ireland, Singapore, and Israel have achieved sustained growth by combining export orientation with aggressive investment in human capital, innovation, and institutional capacity. Importantly, these economies did not succeed by copying policies wholesale. They adapted strategies to local conditions and continuously refined them through learning and feedback.

Ireland’s development illustrates the importance of moving beyond attraction to capability building. While foreign direct investment played a central role, Ireland also invested heavily in education, R&D, and linkages between multinational firms and local suppliers. Singapore’s success highlights the role of institutional competence and adaptive planning, with strong emphasis on execution and continuous upgrading. Israel’s experience underscores the importance of venture capital ecosystems and military-to-civilian technology transfer, coupled with a culture of experimentation.

Puerto Rico differs from these cases in important ways, particularly in its political status and fiscal constraints. Nonetheless, the underlying principles are transferable. Growth requires external income, productivity, innovation, value retention, and credible institutions. Adaptive management provides the method through which these principles can be operationalized under local constraints.

18. From Plans to Practice: Building an Adaptive Development Architecture

For Puerto Rico to move from diagnosis to sustained improvement, adaptive management must be embedded in a concrete institutional architecture. This architecture would include a central coordinating body with authority to oversee economic development portfolios, supported by analytical capacity and data infrastructure. It would work in partnership with sectoral agencies, municipalities, universities, and the private sector.

Crucially, this architecture would have the mandate to reallocate resources based on performance. Programs that demonstrate impact would receive additional funding, while those that do not would be redesigned or terminated. This requires political commitment to evidence-based decision-making and tolerance for experimentation. It also requires safeguards to ensure that adaptation is not captured by narrow interests.

Capacity building within the public sector is essential. Adaptive management demands skills in data analysis, evaluation, facilitation, and strategic decision-making. Investing in these skills is as important as investing in physical infrastructure or financial incentives. Over time, the presence of a capable, learning-oriented public sector becomes itself a competitive advantage, reducing uncertainty and attracting investment.

19. Conclusion: Growth as Capability, and Capability as Learning

Puerto Rico’s development challenge clarifies the conditions for growth in small open economies. Sustainable growth requires earning income externally through competitive exports and investment. It requires productivity growth driven by innovation and capability accumulation. It requires value retention through local supply chains, local high-value functions, and local ownership. It requires reliable infrastructure, particularly energy. It requires institutional credibility and execution capacity. Critically, it requires adaptive governance because the pathway to transformation is uncertain and must be discovered through iteration.

Economic theory and evidence support the central role of innovation and knowledge in long-run growth. Endogenous growth research emphasizes technology and human capital as drivers, and creative destruction models emphasize the continual replacement of obsolete technologies through innovation. (EconPapers) Research on export sophistication and economic complexity emphasizes that what an economy produces and exports is predictive of future growth, and that development depends on building the underlying capabilities required for more complex production. (IDEAS/RePEc) The implementation and state capability literature emphasizes that reforms fail when they mimic best practice without changing performance, and that iterative, problem-driven learning approaches help escape capability traps. (Center For Global Development) The adaptive management literature provides a structured framework for learning in uncertain systems, with explicit iteration and monitoring. (Cambridge University Press & Assessment)

Puerto Rico already has pieces of this agenda, including policy discussions around innovation, entrepreneurship, and sector development. What has been missing is not only funding or strategy documents, but an integrated learning-and-execution system that can convert initiatives into scalable outcomes. Adaptive management, combined with an innovation-led export strategy and deliberate value retention policies, is a credible way to build that system.

References

Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351. (econometricsociety.org)

Andrews, M., Pritchett, L., & Woolcock, M. (2012). Escaping capability traps through problem-driven iterative adaptation (PDIA). Harvard Kennedy School Working Paper (and related dissemination via CGD/UNU-WIDER). (Harvard Kennedy School)

Hidalgo, C. A., & Hausmann, R. (2009). The building blocks of economic complexity. Proceedings of the National Academy of Sciences, 106(26), 10570–10575. (PMC)

Hausmann, R., Hwang, J., & Rodrik, D. (2007). What you export matters. Journal of Economic Growth, 12(1), 1–25. (IDEAS/RePEc)

Pritchett, L., Woolcock, M., & Andrews, M. (2010). Capability traps? The mechanisms of persistent implementation failure. Center for Global Development Working Paper (widely cited in state capability literature). (Center For Global Development)

Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), S71–S102. (EconPapers)

Williams, B. K. (2011/2013 discussion and synthesis). Adaptive management as structured learning and decision-making under uncertainty (see synthesis article). Environmental Conservation, 40(1), 5–18. (Cambridge University Press & Assessment)

Borjas, G. J. (2008). Labor outflows and labor inflows in Puerto Rico. Journal of Human Capital, 2(1), 32–68. (IDEAS/RePEc)

If you reply “continue,” I will extend this text to reach (and exceed) 6,000 words, keeping the same structure and style, and I will add additional peer-reviewed references that support the infrastructure-competitiveness channel and the innovation ecosystem channel.