Texas, Diversification and Human Capital

The economy of Texas is highly diverse and complex, and commands a global reach in terms of trade partners. Demographically, Texas is well-positioned with a population two to four years younger than the rest of the U.S. on average. With a diverse economy, and a diverse, growing and youthful population, how best should policymakers leverage those strengths?

Texas companies export far more than any other state at $251 billion annually. The next closest competitor is California, with $165 billion in annual exports. Texas is also the No. 1 trading partner with Mexico, generating over $92 billion in export revenues annually. The top export industries from Texas to Mexico, as well as the rest of its trading partners overall are computer and electronic equipment, and natural gas and refined petroleum products.

While the downturn in both oil and natural gas prices has depressed economic activity in many parts of the state, particularly rural areas, export and manufacturing is still driving economic activity in port cities like Corpus Christi and Houston. Because of the low cost of natural gas, Corpus Christi has attracted billions of dollars in manufacturing projects that use natural gas as a feedstock. Export of crude oil and liquified natural gas (LNG) is driving additional economic activity, despite the downturn in energy markets.

It’s worth noting that the energy portfolio of Texas is diversified and includes a substantial amount of wind-generation capacity. For example, many people are unaware that Texas produces the most wind energy of any state by far, generating 39.4 million megawatt hours (MWh) in 2014. Iowa comes in a distant second at 16.3 million MWh, followed by California, with 13.8 million MWh.

Agriculture continues to drive a significant portion of the state’s $1.6 trillion economy. Agricultural exports outside the U.S. totaled $6.5 billion in 2012, which placed Texas sixth in the U.S. in dollar terms. Leading international exports from Texas were cotton and cottonseed ($1.6 billion) and beef ($855 million). Texas produces more cattle, cotton, hay, sheep, goats and mohair than any other state.

There are over 248,000 farms and ranches in Texas, more than any other state. Rural land area in Texas is considerable, making up 84 percent totaling 142 million acres. Rural Texas is home to 12 percent of the state’s population. Annually, food and fiber production in Texas contributes over $100 billion in economic impact.

Recent changes by the state legislature may now serve to increase agricultural margins when those products are used as inputs for spirits manufacturers. Industry representatives report that agricultural products are typically sold at a premium when the buyers are alcohol beverage producers. Since 2008, Texas has gone from eight distillers licensed to over 90 in 2015. Brewery and brewpub licenses have increased from two in 2005 to 156 in 2014.

The technology industry in Texas has undergone a significant transformation in recent years as well. Certainly Texas has had its share of high-tech startups over the past few decades, perhaps most notably Texas Instruments, but also Dell, and the former EDS and Compaq, both of which were acquired by Hewlett-Packard. Another noteworthy example is Rackspace, the managed cloud computing company based in San Antonio that was recently taken private.

More recent cutting-edge startups that have grown significantly continue to be located in the Silicon Valley area. These companies include Facebook, Apple, Google, Uber, Dropbox and Yelp. In this regard, Austin, Texas, has become a significant satellite location for many California-based firms, but the metro area still boasts only relatively small homegrown startups such as HomeAway (acquired by Expedia in 2015) and RetailMeNot, both reporting less than half a billion dollars in revenue in 2014.

For Texas, this means that the future success of high tech will require the ability to generate and grow successful startups on a similar scale to that of Silicon Valley. High-tech job creation in the state will be ever more dependent on software and design creativity — and that innovation will, in turn, be dependent on developing human capital by improving the educational infrastructure in the state — at all levels, in both urban and rural areas.

By 2050, one in 10 U.S. citizens will live in Texas. The state plays an outsize role both nationally and globally. Yet, as the saying goes, past performance is no guarantee of future results. In the years ahead, success will depend on whether Texas can continue to develop its capital — human as well as natural — in order to expand on its leadership role in the U.S. and around the world.

 

About the author: Thomas Tunstall, Ph.D., is the senior research director at the Institute for Economic Development at The University of Texas at San Antonio. He was the principal investigator for numerous economic and community development studies. He has published peer-reviewed articles on shale oil and gas, and has written op-ed articles on the topic for The Wall Street Journal. Dr. Tunstall holds a Ph.D. in economics and public policy, and an M.B.A. from The University of Texas at Dallas, as well as a B.B.A. from The University of Texas at Austin.