Texas in the post-J.R. Ewing era

Back when oil was king, oil busts used to bring the Lone Star State to its knees. Cheap oil meant bankruptcies and layoffs. Cities like Houston and Odessa became ghost towns, their glass office towers so vacant you could see through them to the setting sun.

Not anymore. Today, more Texans work in the computer industry than in the oil fields and chemical plants of yore. One out of every 3 jobs in Houston, the self-proclaimed energy capital, is in international trade. Jobless rates in Dallas, Austin, San Antonio, and even the long-dormant border cities of the Rio Grande Valley are at rock bottom. And all this is occurring at a time when crude oil prices have hit a 50-year low.

While many states are diversifying and moving further into the Information Age, few have undergone a more profound economic transformation than Texas. Finding the precise moment when the state dropped its swaggering J.R. Ewing oil-baron image in favor of the global, high-tech economy is not an easy thing.

Experts may disagree on whether such diversification is a good thing, but most agree that this economic shift will have fundamental effects on everything from state culture to the quality of public schools. You can already see it in the way some Texans now view cheap oil prices as a good thing, even a fundamental right. In short, Texans are becoming more, well, American.

"The dependence of the state on the oil and gas industry is becoming smaller and smaller," says Angelos Angelou, president of Angelou Economic Advisors, an Austin-based forecasting group. "This will have a permanent and dynamic effect on the Texas economy. Clearly, the benefits of lower energy costs far outweigh the benefits of high oil prices."

Such statements would have earned Dr. Angelou a one-way ticket to exile in years past. But they have become the new economic gospel in universities, banks, and chambers of commerce across the state. Gone is the dogma that oil is the last great shrinking - and therefore valuable - commodity. Now Texas is as diversified as a mutual fund.

"In my opinion, there is no such thing as a Texas economy," says Barton Smith, an economist at the University of Houston. In Dallas, high technology and transportation are bigger than oil. In San Antonio and south Texas, Mexico-related trade is king.

FOR those who remember the oil bust of 1986, diversification has become a new mantra. And if diversification is looking for a poster city, Houston is a good place to start. In 1982, energy represented 82 percent of the area's economy. Today it still accounts for half of the gross city product, but high technology and trade, as well as the retail and service sectors, provide a much larger cushion in the event of an oil crash.

"Ten-dollar oil, that's not good for anyone," says Jim Kollaer, president of the Greater Houston Partnership, a coalition of local businesses and city officials. "But what we're seeing from the major mergers, such as Exxon and Mobil, may soften the blow."

He has reason to be hopeful. If the past is any guide, Houston stands to benefit from the Exxon-Mobil union, just as it should benefit from the BP-Amoco merger before it. While both companies are likely to announce thousands of worldwide layoffs, most jobs in Houston will be safe, because that is where both companies have major investments in exploration and production, as well as chemical plants and refineries.

"You don't pick up a refinery and move it elsewhere," says Mr. Kollaer.

But not everyone welcomes the new Texas economy.

"The strength of the Texas economy is in energy, so why not do what you're good at?" says Tim Hopper, economist at the Houston branch of the Federal Reserve Bank of Dallas. "If you do what you're good at, in good times, you'll do very well; in bad times, you'll do poorer than the national average."

In any case, Mr. Hopper sees signs that the momentum for Texas's current boom is starting to diminish. With troubled Asian markets unlikely to regain their thirst for all the world's excess crude, start-up drilling companies that were counting on $18-a-barrel oil will start to go bankrupt. Larger oil companies will consolidate, hand out pink slips, and more important, will stop hiring outside legal and numbers-crunching firms. In short, it's beginning to look a lot like an oil bust.

"People look at how energy employment has been shrinking, but a lot of these companies are just farming out their legal and accounting services to some of the Big Six accounting firms," says Hopper. "If anything, we're more reliant on energy than before. In six to nine months, we're going to start feeling the pain."

For their part, state officials are already preparing for the demands - and risks - of the new Texas economy. Oil was very good to public schools, which received millions in revenues. But the good times are clearly gone. In 1986, the Texas General Land Office deposited $406 million in royalties into a permanent school fund; last year, the figure had dropped to $210 million.

To make up for the anticipated shortfall, the Texas legislature and state Education Agency have changed the investment policy for public schools, abandoning slow-growth government securities in favor of the faster-growing stock market. All that stock the state sold earlier this year, in protest of Disney's supposed pro-gay policies, was purchased in the first place to make up for lost oil revenues.

"Public-school financing is just a tricky business," says Ron Calhoun, spokesman for the Land Office. "But the economy being as good as it is, the state thinks it will develop a lot more revenue overall."