Houston, We Have a Solution
From the September 19, 2011, issue of NR


Mario Loyola

Texas likes to brag that it is “business friendly,” but it would be more accurate to say that it is, by both philosophy and force of circumstances, “competition friendly.” 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 prospered from the fact that it is a right-to-work state. This is not to say that Texas is anti-labor, or even that it is anti-union. Many refineries in Texas are unionized. But Texas seeks to reward labor through the free market. In the words of one former Shell executive, “If you’ve got good management, people aren’t going to want to get unionized. And management has gotten smarter and smarter over time. That’s why the unions are in trouble.”

Houston weathered the storm nicely, in large part through a rapid reallocation of human and material resources. Diversification was the key. Before the bust, the energy sector accounted for about 80 percent of Houston’s economy; now it’s barely 50 percent. Of the 51 Texas companies on the Fortune 500 list, there are computer makers, airlines, retailers, gas-and-electrical utilities, food-and-grocery companies, construction companies, and a telecommunications company.

The Texas Medical Center in Houston is the world’s largest, employing nearly 100,000 people and receiving nearly 6 million patients per year.

The diversification of Houston’s economy has been particularly potent in heavy industry. For the state as a whole, employment in the oil-and-gas sector increased by 5.1 percent between June 2010 and June 2011, largely because of natural-gas projects made possible by “fracking.” Employment in heavy construction and civil-engineering construction, by contrast, increased 10.6 percent in the same period; in primary metal manufacturing, 6.6 percent; in fabricated metal products, 8.2 percent; and in machinery manufacturing, 11.9 percent. Meanwhile, the government work force contracted 1 percent.