Global Texas: More Than Dumb Luck

Simple dumb luck of timing and geography has placed Texas squarely in the path of the largest economic force of our time — globalization. It is the real force that transformed Texas in the 21st century into the role of economic giant.

This is a role that has been played before by New York in the 19th century and California in the 20th century. Now, other advantages like youth, ethnic diversity and population density have recast not just the economy, but the very society and politics of Texas — the new colossus.

By the second decade of the 21st century, the Texas economy has become dramatically diversified from the one that existed just 20 years earlier.

Whereas the economy once rested shakily on just one or at most two pillars at a time — agriculture and then oil (and then, later, oil and real estate) — today’s economy is built on six major sectors.

Importantly, only one of them is energy – and it is the smallest of the six. Financial services, trade and transportation, manufacturing and government constitute larger portions of the $1.2 trillion economy of Texas than the energy sector. The latter constitutes only about 11% of economic activity in the state.

Texan economic prowess – a state among nations

Indeed, the professional and business services sector has grown almost as large as the energy industry, even with its storied natural gas strikes down in the Eagle Ford Shale, up in the Barnett Shale and over in the Permian Basin.

Today, if Texas were its own nation — politically absurd (despite occasional talk of seceding), but economically illustrative — its $1.2 trillion economy would rank 15th in the world. That puts Texas slightly ahead of Mexico and South Korea — and just behind Australia and Canada.

By 2050, the Texas economy is expected to exceed $3.6 trillion in gross product. It will then account for fully one-sixth of the economic activity of the United States, still the world leader then.

Well diversified as the state’s economy is, it is also remarkably immune to setbacks in individual sectors of the economy.

Since Texans are a proud people, they will be thrilled by this economic fact. The economic output of Texas will actually be the difference between America’s primacy and China’s number two ranking.

But of course, by then, Texas will be the fourth-largest economy in the world, trailing only Japan, China — and the United States itself.

These numbers notwithstanding, there is a secret to the growth of the modern economic giant that is Texas — and that is dumb luck — good timing and a great location. And though even a blind hog finds the acorn now and again, there is not a politician alive who could claim credit for either.

Just in time for globalization

The Texas economy was cleaned up and diversified just in time for the first wave of globalization — free trade with Mexico, beginning in the early 1990s.

The approval of the North American Free Trade Agreement (NAFTA) was certainly championed by Texas politicians of both parties. However, its passage and approval depended upon a national consensus in Congress and the support of not one, but two presidents, George H. W. Bush and Bill Clinton.

Much of the expanded trade, of course, passed through Texas and boomed through the mid-1990s. Texas felt the results, not just in the roar of trains and trucks headed south and north.

For every 10% increase in manufacturing in Mexico, employment in Texas border cities jumped 1 – 2%. This created newfound wealth in previously impoverished regions along the Rio Grande from the Lower Rio Grande Valley to far away El Paso.

For Texas, this was just the beginning of the fortuitous intersection of timing and geography. Even as investors moved some manufacturing from Mexico to China, Texas surpassed California back in 2002 as the top exporter in the country.

It accounted for fully one in 10 U.S. exports and put 700,000 Texans into jobs manufacturing goods for export — not just materials for Mexican factories, but capital goods bound for the rest of Latin America, Asia and Africa, the emerging and frontier markets of the rest of the world.

As Mexican manufacturing became attractive to investors again and as Chinese wages rose, Texas stood to gain in the very near future from America’s intensifying relationship with its third-largest trading partner.

Technology in the Texas export economy

The single biggest driver in the role that Texas played in exports, though, was technology. Texas now outstripped even California in technology exports abroad. Nearly half of jobs in computer and electronic equipment involved making equipment for export.

And while Texas has done passably well in exporting to the Brazilian, Russian, Indian and Chinese economies, it has outperformed most states in exporting in general to the established emerging economies like Mexico and Turkey.

This also applies to the dozens of nations that comprise the newest and fastest-growing entrants in the global economy — the frontier markets which span from the Philippines to Burma to the Baltics and West Africa.

And more continues to beget more. A new free trade agreement between the United States and Europe would add about $10 to $30 billion in productivity to the Texas economy — not for any special reason but just by virtue of its sheer size.

A new chapter in global trade

But Texas’s stroke of luck continues. Some $3 billion is being spent to accommodate a new class of ships and open a new chapter in global trade.

Down near the equator, Panama is widening its 48-mile long canal, which has connected the Atlantic and Pacific Oceans for a century. Workers are adding a third shipping lane in order to accommodate a new class of cargo vessels, three times larger than any which can pass through the waterway now.

Those vessels can carry up to 8,000 20-foot shipping containers that each holds 5,000 tons of goods from Asia. These vessels are so large that they account for just 16% of the world’s cargo fleet — but move nearly a third of the goods shipped by sea.

In the United States, most Atlantic ports are too shallow for these behemoths, which require draughts of 45 to 50 feet. Pacific ports are already at capacity and far from other major American markets, requiring long, expensive transcontinental shipments by rail and truck.

Yet, the Texas ports already handle the biggest cargo ships with the deepest draughts because of the energy industry. The ports have plenty of capacity.

And Houston is a comparatively short train trip or truck ride to markets in the Midwest, the Deep South and the Southwest. It’s nearly a half a continent closer to the big cities of the East Coast than Long Beach or Los Angeles.

The first of these behemoth vessels will likely slide through the jungles of Panama from the Pacific, ply northward across the Gulf of Mexico to sail up the 45-foot deep ship channel and, finally, dock in the Port of Houston this year, in 2015.

There will be still more jobs, more people and more money, of course, which will lure still more. Modern-day stevedores and their machines will unload exports from Asia and, once emptied, they will fill these vessels with American exports for the trip back across the ocean.

Many more will follow and expand the global reach of Texas, the new American colossus.