“Boom” Is a Four-letter Word
Thanks to high tech, the Texas economy is surging—just as it was in the early eighties. So how come nobody wants to talk about it?
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During the old boom, Dallas was home to the big loans, big buildings, and big deals that characterized the period’s glory days. Today Bunker and W. Herbert Hunt have lost their empire, and Sanjiv Sidhu (a native of India who left Texas Instruments to form his own software company) is getting rich. Banks that were a symbol of the city’s standing as a citadel of commerce have been obliterated; hallowed institutions like RepublicBank have been outpaced by national names like Bank One. But Dallas has retained its status as a corporate hub. Among the businesses planning to move their headquarters to the area are Blockbuster and Cadbury Schweppes. And not all of the New Boom’s beneficiaries are upstarts: Texas Instruments is now the leading maker of digital signal processors, a device that a modem can’t operate without.
Lately even the construction cranes are back. Dallas once led the nation in available office space, but last year occupancy climbed to its highest level since 1982, generating a need to build again. Most of the new construction is taking place along the Dallas North Tollway and in suburbs like Plano and Frisco: To get to Southfork Ranch today, TV oil baron J. R. Ewing would have to drive his Mercedes through a canyon of new skyscrapers.
Cowtown’s Diversification
FORT WORTH NEVER DID GO WILD during the last boom, and only one of the city’s banks failed during the bust. At first it looked as though Fort Worth might be spared the fate of other Texas cities, but then the Berlin Wall came down. Defense contracts with companies like General Dynamics had funneled billions annually into the Tarrant County economy (thanks to former House Speaker Jim Wright), and when the Pentagon budget was slashed, those dollars vanished. In 1989 37 percent of all manufacturing jobs in Fort Worth were tied to defense spending, but today that figure has been cut in half.
In the past six years, however, the number of jobs here has climbed 17 percent, housing permits 32 percent, and restaurant sales 33 percent. Unemployment has fallen to 3.2 percent. “These are good times,” says Mayor Kenneth Barr. “We’re reaping the investment of the past twelve to fifteen years.” Among the biggest investors in Fort Worth are the Basses, who have brought a dozen new restaurants and two movie theaters with twenty screens between them to the blocks on either side of redbrick Main Street. Next May the $60 million Nancy Lee and Perry R. Bass Performance Hall will open as well. Less showy but more consequential is the success of the 8,300-acre Alliance Airport, a business terminal developed by Ross Perot, Jr., for corporate clients who don’t want to bother with the hassle of DFW. The new airport is a job-creation machine: Twenty-four companies signed up as tenants last year, including a regional hub of Federal Express, a Nokia cellular phone factory, and a $1.3 billion fabrication plant of Intel Corporation, the world’s largest computer-chip maker.
$20 a Barrel
WHILE PARTS OF THE STATE RECUPERATED EARLY, it was impossible for Houston to forget the bust as long as the price of oil hovered near $15 a barrel. Exploration and production now make up only 36.4 percent of Houston’s export-based economy, while it formerly made up 68.7 percent, but Houston still leads the world in almost every segment of the oil and gas industry, from exploration to plastics, and one third of the country’s energy-related business takes place there. In 1980, when the price of a barrel of oil went to $35, Houston’s fortunes soared. And after the price of oil fell below $10 on April 1, 1986, Houston was on its way to losing one out of seven jobs—more than 221,000 total. But by 1990, that many new jobs had been created again, as positions lost in the oil patch were replaced in business services, engineering, and health. Now even Houston’s traditional economic pillars, oil and real estate, are back.
As in Dallas, Houston’s commercial real estate market perked up after a glut of space was finally absorbed. Offices that were vacant for years are being leased once more; the biggest deal so far has been the move of global natural gas marketer NGC from far-�ung offices on the Northwest Freeway to eleven �oors of the 71-story First Interstate Plaza Downtown, which took 235,000 square feet of office space off the market. The city’s fortunes are mirrored in the fate of the once-thriving but long-closed Rice Hotel, which is currently undergoing refurbishment as a condominium.
To understand how the energy business recovered you need to know just one statistic: Over the past six years, the cost of finding a barrel of oil and bringing it to market has dropped by 40 percent. Because of technoligical revolution and the bust-induced layoffs, most companies can now make money even if oil sells for $17 or $16 a barrel. And recently the price of oil has stabilized at around $20—twice what it was at the nadir of the collapse. Two cold winters have kept the price of natural gas between $2 and $4 per thousand cubic feet, sending petrodollars pouring into Houston again.
After shedding thousands of employees, the major oil companies have become sprightlier, while smaller companies have assumed a greater role. Mike Prescott, who runs a two-person exploration company called Big M, has become one of the wealthiest men in Houston. “It’s sort of tongue-in-cheek,” he says of his firm’s name. “We’re not a big company at all.” But Prescott pursues big ideas, and when he struck two giant gas fields, he became a multimillionaire. Like the wildcatters of old (this is Houston after all), Prescott bought a mansion in Houston, a beachfront condominium in Los Angeles, and lakefront property on Tahoe. Two years ago, he updated his business by spending $50,000 on a state-of-the-art personal computer that he loaded up with special features so that it can process the same amount of geological data as any mainframe owned by a major oil company.
But as the oil industry has become more efficient, it has also come to play a less significant role, as was starkly apparent when the chip slump and the Mexican peso devaluation of 1994 combined to slow the state’s growth. “Texas has become much less energy dependent,” says Fiona Sigalla, an economist with the Federal Reserve in Dallas. “Last year was really startling to me. You saw the energy industry take off, and yet the Texas economy continued to cool. Oil does not drive the Texas economy like it did before.”
The Border
THIS PARADOXICAL REGION HAS LED THE STATE in job growth over the past six years, but also leads the state in unemployment. That is true because no matter how many jobs are created, there are never enough to satisfy all who arrive looking for work. Since 1991 the population of border towns has grown by an astounding 22.2 percent—twice the rate of cities elsewhere in the state. A unique mix of profit and poverty has resulted.
That the border would be out of step with the rest of Texas is not surprising, as the area has always marched more to the beat of the Mexican economy. The devaluation of the peso was felt profoundly here: Before their economy went into free-fall, Mexican nationals spent an estimated $2.8 billion a year in border cities like McAllen, Laredo, and Brownsville, but in 1995 spending dropped to $2.07 billion, and last year it slipped further still to $1.87 billion. NAFTA has indisputably made the region busier, but trade brings both gain and loss.
Consider Laredo, where last year more than one million trucks crossed the international border, up 106 percent from five years before. But look at what’s crossing: The city’s top export is vehicle parts, and its top import is motor vehicles. In other words, automobiles are being built at maquiladoras, American factories on Mexican soil just across the Rio Grande. Ironically devaluation benefited maquiladoras by making them more profitable (at the expense of their Mexican work force), but it hurt less-educated workers on the American side of the border. El Paso, the worst hit of all the border cities in Texas, has lost 5,600 primarily low-skilled jobs to Mexico over the past three years; at the same time, companies that rely on maquiladoras have also created new engineering positions in El Paso, conveniently near their assembly plants in Ciudad Juárez.
Clearly the biggest losers of the new era are low-skilled workers across the state. In El Paso hundreds of people are taking bus rides to temporary jobs in states as far away as Alaska. In Austin rents have jumped nearly 50 percent. The north side of Fort Worth is thriving, but inside Loop 820, unemployment runs twice the citywide average and neighborhoods are lined with boarded-up stores. “We’re becoming a dual economy,” says Bernard Weinstein of the University of North Texas’ Center for Economic Development and Research. “Along with the boom has been an increase in poverty.”
How Long Will It Last?
ORDERS HAVE BEGUN TO INCH BACK UP in the chip business. “We are hiring again and everything looks good at Motorola,” says company spokesman Dan Rogers. “The semiconductor industry has begun a slow turnaround.” And Mexican money has started �owing into the state again. “We’ve seen a bounce back,” says Keith Phillips of the Federal Reserve Bank in San Antonio. “Spending by Mexican nationals is apparently up about thirty percent this year.” For these reasons, the state should probably grow at the same pace or better this year compared with last. The new economy is less susceptible to collapse resulting from catastrophic events affecting one commodity like oil. On the other hand, the state’s fortunes more closely mimic those of the nation now; Texas used to be relatively immune to national recessions, but that’s not true anymore. Like a longtime bachelor who has just become a married man, Texas is more responsible but has lost a measure of independence. Should interest rates rise, causing a national slowdown, Texas will slow as well. The worst thing that could happen is that Texans could forget the lessons of the bust and borrow too much money to finance visions of unending growth. We have to accept that the slow and steady progress of the New Boom is probably better for us than the explosive growth of oil.
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