As Texas’ Republican governor, Rick Perry, gets closer to deciding whether to enter the 2012 presidential race, it’s clear that his campaign would be about jobs. Texas has created by far the most jobs of any state since the recession ended in June 2009: 37% of all net new American jobs were created in Texas through April 2011, according to the Dallas Federal Reserve. At the Republican Leadership Conference in New Orleans on June 18, Perry laid his rhetorical cornerstone with characteristic swagger: “I credit our conservative leadership [in Texas] for unmatched job creation,” he declared to rapturous crowds.
But how much of that job creation is due to Perry? When it comes to job growth, Texas has been blessed by three things, says Dallas Fed senior economist Pia Orennius: geology, geography and demography. Texas’ booming energy and petrochemical industries; its ports and proximity to post-NAFTA Mexico; and its steady stream of low-cost labor have all combined to fuel above-average job growth since 1990, Orennius says. And Perry inherited policies that businesses love: relatively low taxes and regulatory burdens, and pro-business union rules. “Perry’s challenge,” says GOP strategist David Winston, “will be to translate what he’s done in Texas to what he’ll do for the rest of the country.”
Whether by providence or policy, Texas is a job-generating wonder. From 2001 to 2010, Texas had annual employment growth of 1.15%, the third best in the country. What’s most remarkable about that number is that it came while the population was growing 1.89% every year. And the job growth was diverse. From 1998 to 2008, Texas spun out tens of thousands of jobs in business services, oil and gas production, transportation and logistics, heavy construction services and financial services. So while its unemployment rate has remained stubbornly high, at 8%, it is now employing fully 8% of the country’s workers. Texas, says Orennius, “is a job-creation machine.”
One policy Perry can claim credit for is tort reform. In 2003, he championed a bill imposing a $250,000 cap on punitive damages. Dallas Fed chief Peter Fisher has called tort reform “one of the most important things” fueling Texas’ job growth. “The reason [companies like John Deere] are locating their new production” in Texas, Fisher told CNBC in early June, “is largely driven by that issue of tort reform.” Supporters of unlimited punitive damages say they are necessary to prevent companies from pricing human cost into harmful but highly profitable products. But AT&T, among others, has said that business is better in Texas thanks to its tort reform: only 2% of its litigation costs are in Texas, compared with 40% in California or Ohio, Fisher says.
Perry’s main claim to job-creation fame, though, comes from his high-profile raids on other states. He is a master at the theater of job poaching. During a trip to California last November, Perry crowed that he had stolen 153 businesses from the Golden State in 2010; some 92 companies moved the other way, leaving Perry with a net gain of 61 businesses. And he’s prone to high-visibility gestures. Last October, as Washington State was preparing to vote on an income tax for those earning over $200,000, Perry sent a letter to 90 businesses, including Microsoft, Starbucks and Amazon, telling them, “If Washington doesn’t want your business, Texas does.”
Perry’s biggest tool for job raiding is controversial. Beginning in 2003, he persuaded the Texas legislature to give him control over several massive, largely unsupervised funds that provide subsidies to businesses that move to Texas. His office proudly claims that the two biggest funds have created more than 54,000 jobs in the past eight years. “They’ve been immensely important to our state’s economic development,” says Catherine Frazier, Perry’s deputy press secretary. “This is about attracting jobs and making Texas a destination for companies to relocate and expand.”
The largest fund, the Texas Enterprise Fund, was created in 2003 and has awarded some $412 million in subsidies to companies nominally to create jobs. A December 2010 analysis by the Texas comptroller found that $119 million of that money went to companies that didn’t deliver on the jobs they promised. The governor’s office took back only $21 million from those underperformers, often choosing to define downward the job-creation requirements. GOP Senator Kay Bailey Hutchison, whom Perry beat in last year’s GOP gubernatorial primary, called revelations that taxpayer-funded contracts sent money overseas to create jobs “disturbing” and “unacceptable.”
The second major fund under Perry’s control, the Texas Emerging Technology Fund, has also proven controversial since its creation in 2005. It has spent some $320 million on tax credits and other subsidies for high-tech companies willing to move to Texas. An October 2010 investigation by the Dallas Morning News found that $16 million of that money was awarded to companies with investors or officers who are large campaign donors. Perry denied that politics influenced the awarding of money from the funds. He succeeded in fending off efforts to cut his massive subsidy fund budgets in the legislative session that ended last month, but the legislature did impose new controls and oversight on the funds.
Even those subsidy-chasing companies that do produce jobs don’t necessarily create long-lasting ones or increase a state’s overall prosperity. While 18% of all jobs in the U.S. failed to last the five years from 2001 to 2006, 26% of jobs created through interstate moves failed during the same period, according to researchers Jed Kolko of the Public Policy Institute of California and Donald Walls, a consultant and researcher.
Professor Michael Porter of Harvard Business School says tax-credit funds used to lure jobs from one state to another often “ultimately don’t support long-term prosperity” because companies that can move easily “are looking for the best deal, and when the deal runs out, they move,” taking their jobs with them. Anti-corporate-welfare advocates, like Greg LeRoy, executive director of the Washington-based group Good Jobs First, say the tax-credit game is worse than zero sum, because when a company gets a tax credit to move to a new state, the departed state loses jobs, while the destination state’s residents get stuck with higher taxes or worse services.
Frazier says there’s a larger purpose served by the funds. “Companies that receive taxpayer dollars are creating and pursuing technologies that are not only going to be good for our state but for the nation and the world,” she says. “Texas is creating a model for the rest of the nation to follow, both on the state level and the federal level.” Which leaves Perry in the odd position of arguing that the proper model for job creation nationwide includes funneling taxpayer money to companies partly to develop technologies that will better the world — even if that money has an inconsistent effect on job creation or on overall per capita prosperity growth. Which is exactly what the rest of the Republican presidential field is criticizing Barack Obama for doing.
The jury is out on where Texas is headed after a decade of growth. In a report written for Perry last spring, Porter found that Texas’ overall prosperity growth, as measured by the rate of change in per capita GDP, was the eighth slowest in the country from 1998 to 2008. Texas has the highest proportion of minimum-wage jobs and the lowest median wage in the country. Porter found that Texas’ labor-force productivity was growing more slowly than 37 other states, further suggesting that the job-creation machine may not be keeping pace with productivity improvements in the rest of the country.
Perry’s political success moving from mid-1980s Democrat to slayer of the 20-point favorite, Hutchison, in last year’s re-election campaign has been all about embracing his Texas roots. His deep, if intermittent, Paint Creek drawl and his 2009 suggestion that Texas could secede if push comes to shove are part of what the admiring Wall Street Journal editorial page calls pure “Texas swagger.” But when it comes to job creation, the question for candidate Perry may be one of substance, not style.