When the Economy Can't Grow, Your People Have To

Every reinvention conversation eventually needs someone willing to say the hard numbers out loud. At our Human Capital Reinvention forum in Puerto Rico, that person was economist Gustavo Vélez, founder of Intelligent Economics.

He didn't soften anything. "We are operating in an economy that has lost its ability to innovate, change, and grow," he told the room.

Then he showed why.

The picture Gustavo painted

Puerto Rico lost its capacity to grow years ago, he explained. Recent gains had ridden on roughly $34 billion in federal recovery money, not on new productive capacity. Labor productivity kept falling. The island was back to about its 1980s population, but much older, after roughly 600,000 people left. And by his estimate, it needed some 200,000 more workers.

The structural fixes, he said, would take a decade or more.

Gustavo also reminded the room that it wasn't always this way. In 1948, he said, Puerto Rico passed what he described as the world's first economic incentive law, a model Taiwan and Singapore later copied. What came next, Operation Bootstrap, gave the island half a century of growth. The island moved from coffee to sugar to light manufacturing to pharmaceuticals and biotechnology, and he called those four transformations unmatched. Each one was anchored in people. Puerto Rico has built an economy on its human capital before. The question is whether its organizations can do it again.

That decade-long timeline is the point leaders should underline. If the policy and demographic solutions are ten years away, then for the foreseeable future no organization on the island can count on hiring its way to growth. There will not be enough people to hire.

The only lever left is the one most leaders ignore

When the labor pool shrinks, organizations usually reach for familiar tools: raise salaries, poach talent from competitors, automate whatever can be automated. Some of that is necessary. None of it is enough.

The lever most leaders underuse is the capacity of the people already inside their walls. Not their capacity to work longer hours, which is how many organizations interpret productivity, but their capacity to contribute more of what they actually know and can do.

In my experience, most employees use only a fraction of their abilities at work. They do what the job description asks, follow the process they inherited and keep their best ideas to themselves because no one has asked. In a growing economy, that waste is hidden by new hiring. In a shrinking one, it becomes impossible to afford.

Productivity is a leadership outcome

We tend to talk about productivity as an economic statistic. Inside an organization, it is a leadership outcome. It rises when people understand how their work connects to results, when they have room to improve how things are done and when they feel trusted to use their judgment.

It falls when people are managed as interchangeable units, when routines are protected for their own sake and when the only acceptable answer is the one the boss already had.

That is why I wanted an economist in a room about human capital. Gustavo connected the island's macroeconomic reality to a decision every leader makes daily: whether to manage people to a standard or develop them as individuals. The first keeps the machine running. The second is the only path to growth when the machine is short of parts.

I pressed Gustavo on one more question, because I knew many people in the room had come to hear his answer. Should organizations invest in AI or in people? He said in people first, and explained why. His own firm built a virtual economist that answers clients' questions in his voice, yet it is only useful because his economists understand the models behind it and feel valued in the transformation. AI will matter more in some industries than others. But technology only performs as well as the people who know how to use it.

Where to begin

• Ask each person on your team what part of their ability their job doesn't use. Write the answers down.
• Identify one routine your organization protects that no longer serves its purpose, and invite the people closest to it to redesign it.
• Measure how much of your growth plan depends on people you haven't hired yet. Then ask what you would do if they never arrive.
• Invest in developing people for the roles you will need, rather than waiting to find those people fully formed.

Not only Puerto Rico's problem

Puerto Rico faces this math sooner and more sharply than most places, but it is not alone. Aging workforces, falling birth rates and talent that can work from anywhere are changing labor markets far beyond the island. What Gustavo described is a preview of what many regions and industries will confront.

Leaders who learn now to grow through their people, rather than around them, will be ready. Those who keep waiting for the labor market to rescue them will wait a long time.

You can watch Gustavo's full talk in Puerto Rico's Workforce and Economic Future, part of the Human Capital Reinvention season.

The numbers he shared were sobering. The conclusion they lead to is hopeful: the capacity Puerto Rico needs is already there, inside its people, waiting for leaders to unlock it.

Want to explore these ideas further? Learn more about my work on leadership, identity and conviction at www.theglennllopis.com.