Texas has demonstrated that the way to create jobs is to keep the government small and the markets free. Unfortunately, this has somehow escaped the attention of President Obama. In his speech last Thursday night he proposed almost everything except what would actually create jobs: reducing the regulatory and tax burden on America’s businesses.
Texas is proof that less government and free competition are the path to prosperity from the depths of crisis. When the Saudis abandoned their position as “swing producer” in OPEC in 1985, ramping up production from 2 million barrels per day to 5 million barrels in a matter of months, the price of oil plummeted, sending Texas into depression.
According to one former Shell executive, “it was a bloodbath.” Texas businesses went bust left and right. In a matter of months, massive layoffs rocked the city. Real-estate values plunged, and Texas was sucked into the savings-and-loan crisis. The unemployment rate for the state as a whole jumped from 6.1 percent in September 1984 to 9.3 percent just two years later.
As soon as oil prices fell, the independent oil producers cried out for government protection. But the largely Houston-based oil giants were international traders, so they fought against tariffs. Beset by these conflicting appeals from the oil sector, the government was paralyzed in its response – and, happily, did nothing. Unemployment rates in the city dropped quickly, reaching 5 percent in 1990.
The Lone Star State is now the industrial engine of the American economy, singlehandedly responsible for half of the country’s job growth in recent years. When recession created enormous gaps in the state budget, as in 2003 and 2011, the state managed to balance the budget mostly through spending cuts.
Texas still has no personal-income tax, which continues to draw enormous investment, thereby increasing the tax base. Revenue to the government of Texas has increased by nearly 50 percent since 2000, while federal revenue has languished, growing only about 10 percent.
Texas can justly boast a record of small government, cost-effective regulation, and free markets. The 2003 tort reforms essentially broke the power of the trial bar and have drawn thousands of doctors and substantial business investment to Texas.
The state’s environmental health has improved dramatically as state regulators worked to meet national air-quality standards in cost-effective ways without imposing needless burdens on business. Houston, home of the world’s largest petrochemical industrial complex, satisfied federal ozone standards in 2009 and 2010, after massive investments by the private sector.
Texas likes to brag that it is “business friendly,” but it’s more accurate to say that it is “competition friendly.” Uncompetitive businesses get little sympathy from government in Texas. Companies in Michigan get protection and bailouts from the government; in Texas, they are advised to consult the bankruptcy code.
Like most states, Texas has an economic-development fund, but it’s a small one: Since it was created, the Texas Enterprise Fund has disbursed slightly less than $363 million. That’s one-tenth the amount Michigan has spent on economic development in recent years, and Texas has almost three times the population. In other words, the government of Texas spends about one-thirtieth as much per person on corporate-development projects as Michigan.
Texas has managed to preserve something very essential about America, namely the frontier mentality, what the great Texas historian T. R. Fehrenbach described as the “cult of courage.” Or, in the words of George Strake, one of Houston’s most venerated oilmen, “Give me wide open spaces. Let me enjoy the good times, and don’t feel sorry for me in bad times.”
Naturally, this leads to a certain vision of government: Defend our shores, deliver the mail, and get the hell out of the way. Now there’s a jobs program worth a speech to a joint session of Congress.
Mario Loyola is Director of the Center for Tenth Amendment Studies at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.