Thursday, September 22nd, 2011

The Texas Story Is Real

My latest post is online over at New Geography. It’s called “The Texas Story Is Real” and talks about the economic and demographic performance of Texas in the last decade across a variety of measures: population growth, unemployment, job growth, GDP, personal and household income, and poverty.

I’m not monolithic in what I think works. You may note that I recently posted a positive piece on New York. But although many urbanists don’t like it, I think it is undeniable that Texas is doing something right. It added huge numbers of people and jobs, and did it without diluting the quality of its jobs. Most other places can only dream of being so fortunate.

42 Comments
Topics: Demographic Analysis, Economic Development

42 Responses to “The Texas Story Is Real”

  1. Eric says:

    I think it’s obvious that what Texas did right is be close to Mexico during a period where trade and migration between that country and ours has exploded.

    There’s not a trivial number of, say, Ohioans moving there for business reasons. That there is some competitive advantage vis a vis The North that is the main source of Texas economic growth since 1990 is clearly a self-complimentary fiction. Demographically nearly all of the state’s growth is due to immigration and immigrant’s high birth rates. Texas has subsequently benefited from the resultant growth economics. Salt in the good fortune to be positioned to take advantage of expansion in extractive industries and that retirees can now move there now that air conditioning is common place and, voila: Texas.

  2. BBnet3000 says:

    Is the boom of Texas any different than California 30-odd years ago?

    Its like Ed Glaeser talking about housing prices in Houston vs those in New York City and San Francisco, and linking it to the policies in those areas. Gee, could the circumstances that NYC and SF are completely built out and Houston is growing in greenfield have ANYTHING to do with it? Nah, must be those “growth-friendly”/”business-friendly” policies in Texas…

    PS. I am not claiming that policies have no effect

  3. martin d says:

    From what I can tell, most economic development is economic relocation. That’s good for Governor Rick Perry, but it won’t help President Rick Perry.

  4. Matthew Hall says:

    Few are suggeting that Texas’ job data has been falsified. The relationship of texas to the rest of the country is the question. How much of the investment that has gone to texas would have gone to other states, if it hadn’t gone to texas?Where would texas investments have gone if they hadn’t gone to texas? Mexico, Asia, or another U.S. state. If we can establish that, we can better understand the importance of state and local taxes and other economic development efforts.

  5. Beta Magellan says:

    “ But although many urbanists don’t like it, I think it is undeniable that Texas is doing something right.”

    It’s worth noting that the Texas is question pretty much refers to the Dallas-San Antonio corridor and Houston. While there’s not a lot for lovers of urban form to like there, there’s plenty for those interested in the importance of cities to the economy as a whole.

  6. VR says:

    What happens when the oil economy fades out of prominence?

  7. Harlan says:

    Well sure. The Texas economy does rather well due to the petrochemical industry. High oil and gas prices have definitely been good for Texas. And bad for (all but like 3 of) the other 50 states. Not sure how you scale that up!

    They’ve also had large influxes of young immigrants, which always grows the economy. That can definitely be scaled up, but I’m not sure that Rick Perry will advocate it!

  8. Rod Stevens says:

    There are some valid points raised in the comments here, which are basically to the effect that if the U.S. is becoming like Mexico, a country of haves and have nots, Texas is benefiting from that its positioning as a low-cost place that serves up low-value-added products to the rest of the country. This isn’t necessarily bad if your comfortable with that positioning as both a state and a country, but it is questionable success if you are trying to pursue a strategy as high value-added place. If, for example, you wanted to have an economy more like Denmark, in which the cheese exports for $10 a pound, and the Bang&Olofsun sound systems sell for considerably more than the mass-produced Asian products, then you need each and every component in your economic system to be adding considerable value. In that model you probably can’t afford to ghettoize any one component or state as the “Mexico” in your economic system, not if you have kind of unified standards for health care, education, or safety net.

    Rod Stevens
    Bainbridge Island, WA

  9. Nick says:

    I think what is driving this is the fact that a former Texas governor was elected President of the United States for 8 years.

    Billions in federal dollars were shifted to Texas and the state’s oil industry got astonishing policy favors with no regulation that drove company profits to record levels as fuel prices rose from $1.15 to $4+ per gallon.

    Now flush with cash, the state and local businesses are leveraging their power position as everyone else struggles.

  10. Nick says:

    It must also be noted that while Texas had huge gains, Michigan and the industrial Midwest had a disastrous decline.

    No surprise, a combination of high fuel prices and U.S. auto makers having inferior mix of fuel efficient cars compared to Japan.

  11. DBR96A says:

    If the success of Texas has anything to do with George W. Bush having been president for eight years, then why is Illinois still in such bad shape after Barack Obama has been president for nearly three years? Correlation does not imply causation.

    The real reason why Texas has boomed in the last 10 years is because you get a lot for your money there. It’s the least expensive of the four “extra-large” states (California, Texas, New York, Florida), and its economic fundamentals were much more sound than those in California or Florida.

  12. DBR96A says:

    Regarding the automotive industry, it was grossly overbuilt, not just here in North America, but across most of the world. A correction was going to happen at some point; the real estate crisis simply expedited that process.

    At least now all three of Detroit’s automakers have fuel-efficient vehicles.

  13. Rod, I have to disagree with you on Texas. Yes, it is a cheap place with a number of low end jobs. But even apart from oil drilling, there’s a ton of high end jobs in Texas. These ranges from the HQ’s of AA and WN to the huge medical center in Texas to the high tech cluster in Austin plus chemicals, the port, etc. The GDP and income numbers don’t suggest a particularly low end economy.

    Nick, if there’s one industry that benefited from deregulation and government assistance it has been finance, which is not a Texas industry. If there’s another industry that has benefited from light regulation, it s high tech. That does have a big presence in Texas, but obviously places like SV, Seattle, and DC have done quite well in this environment. I don’t think you can attribute Texas’ success to Bush being president.

  14. Chris Barnett says:

    I guess this year my “one note” is military installations: Counties and metros with significant military installations were among the country’s top performers over the last decade. They have benefited mightily from defense spending.

    For those unfamiliar with the US military, Texas has a couple of the biggest Army installations: Fort Hood and Fort Bliss, along with a couple of large Air Force bases.

    (Yes, I know the active-duty payroll doesn’t count toward GDP or employment totals. But the permanent residents count, as do the service-member spending, the civilian payrolls, and the contractors’ payrolls and the effects have been pretty clear over the decade.)

    This adds to the diversity of Texas’ economy as well as to its growth over the past decade of war.

  15. Chris Barnett says:

    In all fairness, the economic benefits to Texas of wartime spending are at least a secondary effect of Bush 43’s presidency.

    But Bush didn’t cause or create the vast increases in oil demand by China and India over the past decade, which has driven up worldwide prices of oil. (2001 average retail price of regular gas was $1.43 nominal; $1.82 in current dollars, according to EIA.)

  16. Rod Stevens says:

    Aaron,

    I stand guilty on the charge of making overly-broad generalizations. One of my very most favorite companies is there, USAA, one with outstanding management. Also friends who are highly sophisticated people in knowledge industries.

    When I think of Texas, however, I also think of the steel company with an abysmal record of worker rights, and the pollution of the oil and chemical companies. That was one of the things people feared in NAFTA, that the companies with the worst polluting records and treatment of their workers would simply flood south. Yes, there are great tech and financial companies in Texas, but part of what people are reacting to here is a perception that Texas has lax rules that make it hard for other places in the US to compete. A total free-market approach will get you lots of growth, over the short to medium term, but is it socially or environmentally sustainable over the long run, or even economically sustainable. Writing this from a conference in Boulder, Colorado, I can tell you that quality of place pays in drawing good, smart people.

  17. Rod, I think part of the problem is that you can’t build a broad based economy just on “good, smart people.” It’s easy to see how lots of places are fabulous for the “talented tenth” but they tend to be not so good for everyplace else. Texas may not be the Oz that the creative class desires, but for the other 90% it has a lot to offer. Until the high end services advocates can articulate a vision and a reality of providing good jobs, quality housing, and upwards social mobility to the bottom half of the pyramid, Texas is going to continue looking good. I think NYC is rocking and rolling. On the other hand, one out of every five of its residents is in poverty (even higher than Texas), so it isn’t great for everybody. This is the problem with the “sustainable” high end services model.

  18. samizdat says:

    Yeah, the Texas Miracle. Don’t make me laugh. The balderdash you spread here is one of reasons I’ve cut back severely on visiting this site. You’re just another Third Way “liberal”. Well, neo-liberal is probably more accurate. Here is the dark side, the true side, of Perry’s Texas. But I guess the poors and the unemployed are just a bunch of lazy losers, huh? With the sycophantic yes-man posture of the majority of you and your readers, this country is a lost cause. Welcome to the New Barbarism, American-style.

    http://money.cnn.com/2011/09/18/news/economy/poverty_perry_texas/index.htm?hpt=hp_t2,

    http://firstread.msnbc.msn.com/_news/2011/09/16/7796858-latest-texas-jobs-figures-shows-net-jobs-loss-unemployment-highest-in-24-years

  19. James says:

    This feels a little incomplete to me. If Texas’ growth was truly extraordinary or robust, why? And how does this correlate to the cities in Texas? Did places like Houston and Austin do extraordinarily well? Are there lessons that can be learned from this and why or why not?

    After all, political pundits are quick to either extoll Texas or refute it, but rarely is it put into the context of cities. If New York and Houston both did well, what did they do right and what might another city emulate?

  20. Vlajos says:

    Convenient so many TX boosters ignore the facts….

    “Texas ranks 6th in terms of people living in poverty. Some 18.4% of Texans were impoverished in 2010, up from 17.3% a year earlier, according to Census Bureau data released this week. The national average is 15.1%.”

  21. Andy says:

    Aaron, you may want to read former Bush speechwriter David Frum’s recent post on Texas jobs: http://www.frumforum.com/the-texas-non-miracle. “The numbers show, Governor, that your economic policy was great at creating jobs – for Mexico.”

  22. DBR96A says:

    No state gets people frothing at the mouth quite like Texas.

  23. Wad says:

    @James, sounds like you are thinking much along the lines of Jane Jacobs, who in two books said that city regions, not larger states or nations, are the real drivers of economies. There are five factors that help to balance one another to create dynamism: import replacement (adding value), productivity, jobs, capital and magnetism (Jacobs calls it transplants).

    Texas is fortunate to have three or four city regions that could be classified as dynamic: Dallas, Houston and Austin. The fourth is San Antonio. It’s certainly large and fast-growing, but it also has a large military presence, which can be a sort of false positive. The best test is to see whether San Antonio can continue to grow if the military presence were reduced or eliminated.

    Then you have the Border Belt region from El Paso to Corpus Christi, very fast growing but also very poor and moving in tandem with Mexico. El Paso, for instance, has been girded by Mexican nationals moving properties and jobs to get away from the violence in Ciudad Juarez.

    Then there’s the rest of a very large state. It’s still rural and dispersed, and the good fortunes of the Triangle and the Border Belt won’t necessarily spread to these areas. Agriculture and oil towns are supply regions, which are often gripped by the resource curse.

  24. James says:

    Wad,

    I don’t necessarily think that cities drive economies. I think it depends on the economy in question. Some economies thrive on resource extraction, such as Oklahoma and Saudi Arabia, and not necessarily the cities in the region.

    However, I think there is sometimes truth that city regions can drive the economy. For example the Northeast corridor of DC, New York, and Boston is more important than the states where they reside.

    I know that Houston has continued to grow as a city, though city growth can be misleading as well due to regional politics. For example Chicago has shrunk, but the Chicago region has not, and this is largely due to regional politics.

    Otherwise I am fairly ignorant of Texas’ political economy and don’t really know what has driven the growth of the state or if there is a connection between that and the cities therein. Are there disparities between the wealthy regions of Texas and the poor regions? Or is the distribution fairly homogenous? Questions questions questions.

    Since this is the Urbanophile I was hoping that there would be some connection to the cities in Texas, which is why I feel this is incomplete.

  25. Larry Calloway says:

    There is no miracle occurring in Texas – other than that resulting from government largesse. The only jobs “created” are government jobs or government dependent jobs. When the money pipeline stops flowing, the false boom will go bust.

  26. Rob says:

    Since this is my first comment on this blog, I should first point out that I’ve generally found your analysis of trends and issues in urban planning to be enlightening, and especially appreciate the healthy dose of skepticism and the relative rigor you apply to the analysis of statistical data.

    But this article is deeply disappointing, even after considering your admission that you’re only looking at “top level data.” Your concluding comments that “it seems clear that Texas is a winner” and that it “does not appear that Texas purchased job growth at the expense of job quality” seem grossly misleading and unsubstantiated by the evidence you present. Based on a year of reading your blog, I’m guessing that you lingered more on the “nuance in numbers” than is revealed here, but the overall tone of the piece is that on the whole, “Texas is doing something right.” The natural implication, intentional or not, is that the rest of the U.S. might do well to emulate that- and it’s easy to discern through a quick glance that the readers of “New Geography” (clearly not a non-partisan publication) are likely to believe just that.

    I’m reading the same graphs that you prepared and am interpreting them much differently. The Unemployment Rate chart actually shows that over the last couple of years, Texas’ unemployment rate is quickly spiking UP relative to the national average- i.e. while Texas currently has a better than average unemployment rate, Texas has been LOSING jobs much faster than the nation as a whole during the past two years (up from 80% of the national average to over 90% of the national average). Later, you admit that the “total GDP” chart “can mislead if looked at alone”- so why even print it without first adjusting for the changing denominator (i.e., population growth)? The graph of Average Weekly Wage seems to show that the different between Texas and the U.S. isn’t even statistically significant (and I can only hope you’re looking at median and not mean here). The other measures you present (median household income, personal income, and poverty comparisons) don’t exactly show Texas to be a positive national example.

    How does this disprove that “Texas purchased job growth at the expense of job quality”? It doesn’t. And you’re not even off-handedly acknowledging the critically limited implications of an economics-only analysis of quality of life (e.g. what about the quality of tax-funded services such as education, as well as the long-term implications of environmental impact, etc.).

    I agree that the “Texas story can’t simply be discounted.” And I appreciate that your title reframes the Texas “miracle” as just a Texas “story.” A “story” is all that it is… Can we learn something from what is and isn’t working in Texas? Absolutely. But such bold conclusions oversimplify a complex reality, one requiring a more rigorous analysis and more thoughtful summary than what you provided here.

  27. Wad says:

    @James, economies cannot thrive on extraction. Economic dynamics prevent most supply regions from doing so.

    The supply region has a simple code of conduct in order to be a link in the economic chain: Keep your head down, your mouth closed and the product moving.

    Economists call it the resource curse, because the areas that supply raw materials must endure misery while they watch other parts of the world grow fat off of their bounty.

    The resource curse snares supply regions in a trap. Supply regions typically receive investments that reduce value of the raw materials (making extraction cheaper), rather than anything that can add value. (Historically, this has been a deliberate act, as both an act of domination by militaries and moneyed elites.)

    And this is during the boom times! Supply regions then take three common roads to decline. One is exhaustion, where the resource is depleted and the region is abandoned. Two is commoditization, where another area can offer the same good at a more favorable cost position. Three is substitution, where another product ends up crowding out the marketplace.

  28. Wad says:

    @James, to elaborate on what makes Texas — or at least certain Texas city regions — dynamic, look at how they make the most of their advantages.

    The triangle of Dallas, Houston and Austin (possibly San Antonio, too) are at the top of the pack.

    Houston is the apex predator of the energy industry (just as New York is of Finance, Insurance, Real Estate; Los Angeles is of mass media; the Bay Area is of computer software). Houston also has a thriving aerospace sector. Energy and aerospace create a huge demand for engineers. The engineers then can substitute imports by going between those two industries and creating new work. This attracts the need for high-value professional work in medicine, law and finance (Houston has banks and other capital sources to fund energy and engineering endeavors). These professionals can also avail themselves and adapt products and services by the other sectors — Houston, for instance, is also becoming a destination for health care innovation.

    Then Houston has some moats — resources unique to the region that others cannot replicate. It has a port and multimodal land-sea-air infrastructure to move cargo. It’s situated favorably on the Gulf of Mexico — and watch how important that port will become when the Panama Canal expansion is completed.

    This transportation gateway also means it forms international business relationships. Every part of the world will have to do business with Houston in one form or another, and Houston will make it possible.

    The Dallas-Forth Worth Metroplex was one of the first Texas areas to go big really fast. DFW was Texas’ equivalent of New York City, where it was (and is) at the top of the economic food chain. Corporate headquarters means people in Dallas call the shots for cities around the U.S. and the globe. It also has heavy demand for the same professional sector of workers as Houston. Let’s also not forget the importance of Dallas’ hardware technology sectors or neighbor Fort Worth’s historic role in livestock.

    Austin is also among a class of dynamic capital regions in which a private sector thrives alongside the usual state government economic activity. It has an economic engine in a state university, an important arts scene and is Texas’ technology center. Austin is a dynamic capital region, like Columbus and Sacramento, because they are large without being the most important economic city in the state. Those, like Indianapolis and Atlanta, are primate cities, in that they are both economically and politically predominant.

  29. @Rob, thanks for the comments.

    Here’s the fundamental issue I have with Texas critics. Those who engage in it rarely apply any of the same thinking to any of their beloved cities/states. Instead, a handful of data points are cherry picked to make Texas look bad or undercut the story. But never a discouraging word is allowed about their urban-progressive shangri-las. Any type of analysis that could be used to discount Texas can be used with equal effectiveness against Portland, NYC, etc.

    I’m not saying this is you personally, but it’s what I’ve seen out there in the world.

  30. Rod Stevens says:

    A lot of the comments about Texas’ economy are wrapped up with the people, politics and style of the place. This was especially true back in the very early 1980s, when Texas was booming, the rest of the economy was in the tank, and things like line dancing, electronic bull riding, big hats, and the television series “Dallas” were beginning to hit the news. National feelings about the state have become only more pronounced as a result of the 12 years of the Bush presidencies. These discussions obviously hinge on policy questions, but we need to separate out personal sentiment to understand what is learned from the place. I sometimes think of it of the suburbs there as an environmental wasteland that would be hit hard by $8/gallon fuel prices, whenever I go there I feel the dynamism of the place, and that by itself is worth exploring.

  31. Chris Barnett says:

    Wad, I’d quibble a bit about calling Houston the top of the oil & gas pyramid. Houston can’t be the apex city in that ecosystem when only the smallest of the US major energy companies has its corporate HQ there. (Aaron and others who post here have documented pretty convincingly that the “command and control” centers are often more important than the branch plants.) It is full of the first-tier service and supply companies, as well as many value-added processors.

    That quibble doesn’t negate your excellent analysis of the substitution and spinoff effects of Houston’s oil/gas/petrochemical technical specialization. You’re right: in regard to its technical specialization, Houston is like Silicon Valley as an industry center. But the main difference with Silicon Valley is that the strings (major investment decisions) are pulled elsewhere.

    The Johnson Space Center and supporting industry is probably a very good example of government spending stimulating long-term private investment and an industry cluster. Whether that cluster (and the ones centered on Burbank, Huntsville, and the Space Coast) will survive the NASA pullback, the wind-down of the Southwest Asian wars, and the coming defense budget wars is open to question.

    Houston’s logistics and transit advantages may help to offset some of the government-spending downturn, but replacing $80k+ engineering jobs with warehouse jobs over time isn’t a good trade. (Just look at Indy’s median income 1980-2010. All those closed manufacturing plants, besides their union-wage jobs, had thousands and thousands of well-paid white collar jobs too. Logistics and transportation means $12/hour Amazon and FedEx package handlers and $15-20/hour truck drivers.)

  32. James says:

    Wad,

    I’m afraid you are incorrect, regions can thrive on resource extraction. Qatar is the richest nation on the earth due solely to resource extraction. Other top ten economies based almost solely on resource extraction include the United Arab Emirates, Kuwait, and Brunei.

    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita

    Regardless of the long term prospects for prosperity in resource extraction regions, the fact is that prosperity came with resource extraction and solely resource extraction for these regions.

    The city region thesis of economic growth is probably true in many cases, but obviously not all cases. I suspect that there has been too much politicization of Texas’ economy to easily separate cause and effect.

  33. Alon Levy says:

    Not all parts of Texas are the same. Dallas and Austin had net declines in real per capita income over the decade. Houston instead had a large increase, beating the other major metro areas (but not the midsize Northeastern metros, such as Pittsburgh).

  34. Wad says:

    @James, you omit the details on how those Middle Eastern states got rich. They aren’t rich just by striking oil. The Urbanophile even explained Dubai’s success in the Aerotropolis post in the summer.

    They essentially leverage the oil and substitute the revenues for tax levies. This, along with policies very favorable to foreign capital inflows and a see/hear/speak-no-evil attitude to civil and common law, produce business transactions and infrastructure where nature and the market dealt the region a bad hand.

    It’s also not entirely coincidental that this region came into its own during the twilight of the European colonization era. Qatarization and Emiratization allowed for a post-modern colonialism, where the area through capital inflows allowed former empires to continue the social engineering they used to impose on their outlying colonies.

  35. Wad says:

    @Chris Barnett, the praise is much appreciated.

    I wanted to touch on the Border Belt area of Texas, another of the state’s gaining areas.

    The Border Belt is an informal name for a constellation of cities spanning from Corpus Christi (I know, it’s on the Gulf of Mexico and not close to the Texas-Mexico border) to El Paso following the Texas-Mexico border. Historically, the cities have had longstanding economic and interpersonal ties. Both sides, though, have been post-NAFTA beneficiaries.

    Many of the MSAs grew rapidly in the last 10 years. El Paso grew 17.8% and added about 120,000 residents; McAllen grew 36% and added about 105,000; Brownsville-Harlingen grew 21% and added about 80,000; Laredo grew 29% and added about 57,000; finally, Corpus Christi grew 6% but added only 25,000 people.

    The border cities’ figures would be larger, but only U.S. population is counted.

    From Mexico’s point of view, the Border Belt would be a collection of dynamic city regions.

    The area has gained a logistics, manufacturing and warehousing sector, and it has gained residents and trade dollars from Mexico. It has also seen federal largesse in border control funding and military (Fort Bliss in El Paso, Laughlin Air Force Base in Del Rio).

    From the U.S. point of view, these are rapidly developing poor regions.

    Brownsville, for instance, is a city with the sixth highest poverty rate in the U.S., according to a New York Times article (38.6% of 175,831 residents). Corpus Christi is one of Texas’ more stagnant areas, adding only 25,000 residents over a span of 10 years. All of the other Border Belt cities captured more growth in actual populations and percentages, and Texas’ far better off Triangle cities grew massively. Austin and San Antonio gained about 500,000 resident apiece, or absorbing a Corpus Christi. Dallas and Houston added 1.2 million apiece, or about three Corpus Christis.

    And Corpus Christi is in a favored trade region, no less. It’s on the Gulf of Mexico and has the sixth busiest seaport in the U.S.

    Altogether, it’s likely that this Border Belt region is a fast-growing region overly dependent on transplanted economies and capital inflows. This has the effect of attracting poor communities and inhibiting higher-value economic transactions.

    This area is vulnerable because it depends heavily on momentum of people and money. The real estate crash took out a lot of massive population growth, and even immigration from Mexico has slowed — with the exception of middle-class families fleeing violence from places like Ciudad Juarez. Also, if the transnational freight bottlenecks aren’t resolved, the maquiladoras might shift farther south and move through seaports instead, thereby eclipsing one of the key location advantages of the border cities.

  36. James says:

    Wad,

    I don’t quite understand what you are trying to argue here. You dispute that regions can become wealthy through resource extraction and yet you concede that Qatar become wealthy through exploitation of the natural resource extracted therein. Do you not see the contradiction in the argument that using petrol dollars to replace tax revenue means exactly that they became wealthy through resource extraction? That isn’t exactly leverage, it is more like turning on a faucet that spits out money.

    The Jane Jacobs argument would be that places like Qatar and Kuwait became wealthy because of the vibrant economic productivity of the cities like Doha and Kuwait city. But I see no evidence for this. You can see in this survey of Kuwait’s economy:

    “Kuwait has a proven crude oil reserves of 104 billion barrels (15 km³),[48] estimated to be 10% of the world’s reserves. According to the Kuwaiti constitution, all natural resources in the country and associated revenues are government property.[53] Being a tax-free country, Kuwait’s oil industry accounts for 80% of government revenue. Petroleum and petrochemicals accounts for nearly half of GDP and 95% of export revenues. Increase in oil prices since 2003 resulted in a surge in Kuwait’s economy.[54]”

    http://en.wikipedia.org/wiki/Kuwait#Economy

    I don’t see how this is evidence of anything but my thesis.

    I also don’t see that I omitted anything in my analysis. Petrol states like Qatar and Kuwait became rich through extracting oil, a natural resource. It is as simple as that.

    One could argue that Petrol states, by nationalizing production, prevented the profits from resource extraction escaping the region by foreign firms like Exon. But that is neither here nor there; extraction of natural resources is, for some regions, an avenue to prosperity.

    In a related tangent I see that Texas is the largest oil producing state in the US. While correlation is not causation I have to wonder if oil production is one of the key aspects of the last decade of success in Texas.

  37. Wad says:

    @James, oil was extracted from Qatar, Kuwait et al, in the passive voice sense.

    The Middle East is swimming in oil, but it has failed at developing the expertise from well to gas pump production. Market or nationalized, the nations depend on the knowledge, materials and capital of Western nations to get it out of the ground for them.

    Houston doesn’t call on Doha, Kuwait City or Abu Dhabi to help with its energy market. It’s the other way around.

    Most Middle East nations use the extracted oil to create parallel economic development. One reason is to compensate for lack of oilfield specialization. The other is to have some viable economic activity in place to counter fluctuations in prices or peaking.

    The nations with the high GDP also had the benefit of learning from the miserable experience of others. Oil made Saudi Arabia a stable but nonfunctional state; native Saudi Arabs watch not only oil, but almost all jobs, filled by foreigners and the population demographic resembles the poorest, undeveloped nations of the world. They also have the example of Iranian prime minister Mohammed Mossadegh, who made nationalization of oil a cornerstone of a social development regime to create a Persian Scandinavia. The CIA and Britain engineered his ouster in 1953. They also see how resource-rich colonial areas are treated.

    Oil extraction as rent covered these exigencies.

    And no, Jacobs would not have labeled any of these Middle East petrocracies dynamic city regions. The five factors are massively imbalanced.

    The strengths are demand for trade, jobs and capital. The weaknesses are no import replacement industries, few avenues for productivity, transplants and capital.

    That’s not a mistake. Capital is both an asset and a liability. Petrocracies have more capital than they know what to do with, but that capital is deployed to attract transplants. This ends up crowding out homegrown industries. Plus, the whole system works because the area is a magnet for the surplus populations of Asia. You have an army of poor, unskilled workers who mostly redeploy their earnings in the form of remittances. This also creates a disincentive for productivity additions.

    The wealthier workers are expatriates who regularly shuttle back and forth to their homelands, so they have no stake in the creation of a dynamic society. They can always leave, while the labor serfs cannot.

  38. Alon Levy says:

    James, to add to what Wad is saying, look at the evolution of per capita GDP in various Middle Eastern states, e.g. Qatar. Qatar is rich today, but it was even richer in 1980 after adjusting for inflation; the numbers given in the link are in current-year dollars, so adjusting for dollar inflation is required. When your entire economy is based on oil, population growth makes you poorer.

    In general, compare the following sets of countries, with their nominal and real 1980-2010 growth rates, all from the above source:

    Qatar: 71% nominal, -35% real
    Saudi Arabia: 36% nominal, -49% real
    Kuwait: 47% nominal, -44% real
    Brunei: 35% nominal, -49% real
    UAE: 40% nominal, -47% real
    Bahrain (ran out of oil): 194% nominal, 11% real

    USA: 283% nominal, 45% real
    UK: 307% nominal, 54% real
    Germany: 263% nominal, 37% real
    Japan: 304% nominal, 53% real
    France: 239% nominal, 28% real

    Egypt: 396% nominal, 87% real
    Jordan: 193% nominal, 11% real
    Syria: 220% nominal, 21% real
    Turkey: 392% nominal, 86% real
    Tunisia: 400% nominal, 89% real
    Morocco: 318% nominal, 58% real

  39. James says:

    So what you’re saying is that resource extraction made petrol states rich. Why are we having this conversation?

  40. Alon Levy says:

    What I’m saying is that petrol states have a problem: their GDP is fixed to the total amount of oil in the ground. Population growth leads to a proportionate loss of income; this is the story of why most Middle Eastern petrocracies are half as rich today as they were in 1980.

    This is not the story we see in Texas. In Texas income and population are both growing. Texas behaves like a developed country, in that GDP per capita is fixed to the pace of technology and on average grows at a rate that’s constant and independent of population growth. In other words, more people are more workers in a labor- and capital-based economy, rather than more mouths to feed off a fixed amount of land. This is what Wad meant when he says that Houston’s role is active whereas Kuwait, Doha, and Riyadh’s is passive.

  41. Rod Stevens says:

    It’s indisputable that Houston is still the oil extraction capital of the world. Thirty years ago, when shale sands held promise in western Colorado, Denver began to lay claims to being “Houston North”, but the transfer never materialized. Calgary gained, and is gaining because of the shale oil extraction there, but most of the really deep expertise is still down in Houston. You can say that Texas is wealthy because of oil and gas, but it has used the extraction there to build expertise sold elsewhere. That’s the bottom line on much of this argument: Texas does indeed have expertise to sell elsewhere.

  42. Wad says:

    To add to Rod’s comments, Texas’ dynamic city regions also parlayed their expertise in order to add to their economic portfolio. That’s also key.

    Houston is the apex predator of the energy sector because it has the deepest cluster of energy-related goods, services and expertise arguably anywhere in the world.

    But there’s more. Houston is also a nationally and even globally significant center of engineering. In large part, it’s because of a government commitment to aerospace spending. However, what sets Houston apart is that engineers are a professional class who have a great deal of agency in their career and business choices because of their knowledge and wealth generation.

    This has helped Houston specialize, and at the same time prevented the kind of overspecialization that killed economies like Detroit’s.

    Engineering in aerospace and petrochemicals are vastly different and specialized on their own, but engineers can have the foundations of physics, mathematics and chemistry to apply in another field in journey-level work.

    This expertise has also attracted biotech and medical science fields to Houston. (There aren’t apex predator-level city regions for these fields yet, but note that the regions that are seeing these sectors grow are in areas with a mature engineering sector: Houston, the Research Triangle, San Diego, the Bay Area).

    So one of the other important elements for a city region to have is a sector that’s capable of producing wealth as well as jobs. The sector has to have the autonomy to make its own business decisions.

    Texas as a whole grew, but the favorable growth happened in Dallas, Houston and Austin. The Border Belt also grew rapidly and added jobs, but not much wealth. That’s because it was a beneficiary of things beyond its control: immigration policy, NAFTA and work put there by faraway elites to capitalize on the former two.

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