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Cowboy Up

With the highest economic growth rate in the nation, Texas is on a roll. Is it time to start talking about the Texas miracle?

Author Edward Lewine Illustration Keith Negley

SIX MEN FILE INTO a conference room in an office building on East Main Street in El Paso. They’re dressed in matching polo shirts with a corporate logo. If you want evidence that the Texas economy is booming, these guys are it. They’ve flown halfway around the globe from the corporate headquarters of their world-famous tech company in Asia to discuss building a new gazillion-dollar facility in town.

It’s Bob Cook’s job to help them make that decision. Cook, 50, is the president of the El Paso Regional Economic Development Corporation. He starts his spiel. He talks about the more than a billion dollars in recent bond issues to build parks, museums and libraries. He mentions that 24,000 new personnel are being deployed to the local army base over the next two years. He says El Paso is home to just the fifth new medical school built in the United States in the last 25 years. The state’s infrastructure is excellent. Labor is cheap. Personal income tax is zero. The regulatory environment is business- friendly. At the climax of his pitch, Cook hits them with an inspirational quote from Conrad Hilton, the hotel magnate who began his empire nearby.

“There is a vastness here,” Cook says, channeling Hilton, “and I believe that the people who are born here breathe that vastness into their soul. They dream big dreams and think big thoughts, because there is nothing to hem them in.”

Everyone knows that Texas is big. Lately, however, Texas has begun to grow into its big reputation where it really counts: the piggy bank. The state has one of the largest and fastest- growing economies in the country.

Aaron Demerson, the executive director of Governor Rick Perry’s Economic Development and Tourism Division, offers a long list of the state’s achievements: Texas is home to the corprate headquarters of 57 Fortune 500 companies, more than any other state; it is the top state in export revenues, with more than $160 billion; from January to July of this year, Texas gained 168,900 jobs; and it’s the only state among the 20 largest in the nation to have maintained a net gain in jobs over the past four years.

It should come as no surprise, then, that people are moving to Texas. The state’s population increased by around 480,000 in the latest census figures, and the cities of Dallas and Houston were numbers one and two, respectively, in population growth for American cities last year.

The state is decidedly urban, with more than 80 percent of the populaton living in cities. “Without a doubt, Texas has the strongest free- enterprise economy of any big state,” says Joel Kotkin, a noted scholar of urban development and a fellow at Chapman University in Orange County, California. “And the Texas economy is based on private sector growth, not an influx of public money.”

Not everyone is so bullish on the state. There are those who warn that Texas will have a hard landing if its priority remains business. Still, there’s a broad consensus among corporate leaders, journalists and academics on what’s driving the Texas economic juggernaut: strong energy prices, low housing costs, a government that encourages economic activity and great public relations.

According to Dana Johnson, the chief economist for the Dallas-based bank Comerica, Texas hasn’t been as affected as the rest of the country by the recession. Job losses didn’t begin until late 2008, he says (the national recession began in December 2007), and Texas started growing again in mid-2009. One reason for this is the relative health of the energy sector.

“The strength in energy prices was giving a nice push to the state economy,” Johnson says. “That gave way last year, when energy prices fell in the recession. But they’ve come back.”

It has also helped that Texas didn’t experience a housing boom and bust. Today the median home price in Texas is just $154,400, says Jim Gaines, an economist at Texas A&M’s Real Estate Center, compared with over $200,000 for other high-growth states like New York and California. “Another reason we are not a high-cost housing state,” Gaines says, “is the regulatory involvement. Texas is notorious for hands-off government.”

Which brings us to the business- friendly attitude in the Texas state capital. “The governor has made jobs and economic development the cornerstone of his administration,” says Demerson. “We just think there is a Texas way to do things that bodes well for us.”

In addition to its cattle and its bootmakers, Texas is famous for having no income tax, no individual capital gains tax, and very little regulation beyond federal mandates. Plus, tort law reforms have accorded corporations better protection against massive lawsuits. Tracye McDaniel, who worked in economic development for the past three Texas governors— the Democrat Anne Richards and Republicans George W. Bush and Perry—says business development is a priority across party lines.

“It’s been consistent,” says McDaniel, now the executive vice president of the Greater Houston Partnership.

Others have noticed. For the past six years, Texas has been named the top state for economic development in a survey of corporate leaders conducted by Chief Executive magazine. “The Texas attitude is considered good,” says J.P. Donlan, the magazine’s editor-in-chief, “and the quality of the workforce is considered good.”

In fact, Texas has been the recipient of a flood of good publicity recently, including a highly influential piece in The Economist. “Texas has all the advantages of being a lean and mean red state,” says Christopher Lockwood, The Economist’s U.S. editor, who wrote the piece, “with all the cool of a blue state in the cities.”

So why is State Senator Eliot Shapleigh so worried? Shapleigh, a fifth-generation El Pasoan, says there’s another side to the Texas miracle. Last year, he produced the fourth edition of his “Texas on the Brink” report, which chronicles the problems he says are caused by what he views as Texas’ lack of investment in education, the environment and healthcare. The report paints a dire picture. Texas is dead last out of 50 states in percentage of population over 25 with a high school diploma; 46th out of 50 in SAT scores; first in uninsured children; third in the percentage of the population living below the poverty level; and first in toxic chemicals released into the water.

Lucy Nashed, a spokesperson for Perry, writes in an email, “Texas has continued to fulfill its commitment to public education by holding high schools accountable for graduating college- and career-ready students and emphasizing an education in the science, technology, engineering and math fields.”

Is Texas going to dominate the American scene the way New York did in the first half of the 20th century and California did in the second half? That remains to be seen. The state could be undone by too much regulation from Washington, too little regulation from within, taxes that are too low, or taxes that are too high, plummeting oil prices, or a growing population of immigrants without access to proper education and other resources.

One thing most observers seem to agree on: There’s an energy in Texas these days. If the state can avoid the pitfalls and build on its strengths, its opportunities are tremendous. If not, there are plenty of other regions of the country waiting to take its place.

“This is why I love America,” says Lockwood, who happens to be an Englishman. “There is always a new model, a new way to expand, and it seems to me that right now Texas has that in spades.”

New York–based writer EDWARD LEWINE is pretty sure his state still dominates the American scene.

One Response to “Cowboy Up”

  1. BJT Says:
    October 19th, 2010 at 11:07 am

    Re: “Texas is home to the corporate headquarters of 57 Fortune 500 companies, more than any other state.”

    Clarification: CA also has 57 Fortune 500 companies, up from 51 in 2009.

    Meanwhile TX lost seven Fortune 500 companies since 2009.

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