In the early days of Texas’ statehood (1845 to the turn of the century), the primary growth engines of the state were cotton and beef. The Texas energy industry was born in 1901 with the discovery of oil in the southeastern portion of the state (Spindletop in Beaumont). The existence of petroleum had been known in the state for more than a century, and wells had been drilled since the 1800s, but massive fields coming on line at the same time as airplanes and cars started generating demand changed the economic landscape of Texas. By July 1931, more than 3,000 wells had been drilled in East Texas, and some periods averaged more than one new well per hour. East Texas was soon the center of the Black Gold Rush, and shortly thereafter, the Permian Basin in West Texas became the largest oil producing region in the continental US.
In the 1970s, cattle, cotton, and oil continued to be substantial contributors to the state’s economic foundation. The cattle inventory in the state peaked in 1975, with over 16 million head (at that time, there were actually more cows in Texas than people). However, the state’s economy had grown increasingly diverse in recent years.
In 1973, several major events occurred which played important roles in redefining the Texas economy. Texas bank holding companies began an aggressive era of acquisitions and growth. The transportation sector in the state took off with the birth of Southwest Airlines and the inauguration of the Dallas/Fort Worth (DFW) International Airport. Real estate boomed, with massive developments such as Las Colinas in Dallas. The outbreak of the Yom Kippur War led OPEC to seek a substantial embargo on oil to countries identified as hostile. At the same time, the cartel cut daily production by 5%. Oil prices immediately skyrocketed, up from a price-control era cost of $3 per barrel to almost $40 per barrel over the next 8 years.
From 1973 through 1981, Texas experienced an economic explosion, while the national economy faced substantial difficulties. During this timeframe, the Texas economy soared: personal income and retail sales almost tripled; the state gained 2.2 million jobs (a 40% increase); population expanded by some 3 million people; and real gross product increased 40%, 9.4% just in 1981. In fact, a major 1975 study rated Houston, Dallas, and Fort Worth as the top three cities in the US in terms of future job prospects.
With worldwide overproduction of oil in 1982, petroleum demand and prices declined markedly. In 1986, prices plummeted to $8 per barrel. Banks that had prospered mightily from energy lending found themselves in trouble and in search of new avenues for generating profitable activity. Many turned to the burgeoning real estate market, buoyed by new tax laws that encouraged development almost irrespective of the health of the underlying economy. Savings and loans, endowed with expanding lending capacity and powers courtesy of deregulation, were jumping into commercial real estate ventures like never before.
In 1986, federal tax law changes eliminated many tax advantages of real estate and oil well investments. Financial institutions, already weakened by the decline in the energy sector, found themselves overburdened with nonperforming real estate loans. Job losses were at times measured in the hundreds of thousands. Some giant corporations went bankrupt or were taken over by mega-mergers.
Although a national recession of 1991-1992 dampened business activity somewhat, by the middle of the decade, Texas had recovered at a more rapid pace than other areas of the country. Broad-based economic growth was enhancing diversity, and production in high-tech equipment (such as electronics and telecommunications apparatus), air transportation, healthcare, and aircraft manufacturing was growing. Economic development organizations across the state were aided by passage of legislation in 1991 providing cities with an additional form of sales tax to enhance their competitiveness.
Manufacturing and services industries played strategic roles in job creation, and numerous high-tech firms moved into Texas. The implementation of the North American Free Trade Agreement (NAFTA) opened the door to economic expansion in many areas of the state. Although Texas remained intricately linked to petroleum, its reliance on the energy sector continued to weaken, with 1997 mining sector employment (167,000) at barely more than half the peak level.
During the 1990s, Texas exceeded national norms in all major performance indicators. Texas led all states in net job creation with more than 2 million new positions. The population of the Lone Star State expanded by 22.8%, an addition of some 3.9 million people. Texas ranked first among all states in creating positions within the construction; transportation, communications, and utilities; manufacturing; and wholesale and retail trade sectors. Much of the overall growth was due to the development of a substantial presence in microelectronics, computers, telecommunications equipment, and other technology sectors. Texas was a leader in securing new corporate locations and business expansions. By the end of the decade, Texas was firmly established as a center for growth and opportunity.
Looking down the road, there’s every reason to believe the Lone Star State will continue to be a national growth leader. However, it is crucial that we take care of important issues such as providing for adequate training for our greatest natural resource—Texas’ large and growing workforce. Growing the right industries is also a key ingredient in ensuring future success. Another factor is keeping this a business friendly state by actions such as adjusting the tax structure so that it’s more equitable and able to provide necessary revenues. All in all, we’ve come a long way and the future looks bright indeed.