Dr. John E. Martinez, Professor of Economics and Dr. Scott Manley, Director of the Lalani Center for Entrepreneurship & Free Enterprise
The university remains a small but powerful economic engine for the region
When it comes to the local economy, Midwestern State University (MSU) is currently a relatively small, yet vital economic engine. Currently, the main economic drivers in the region are the oil and gas sector, Sheppard Air Force Base (SAFB) and the entire manufacturing sector. However, looking into the distant future – perhaps 20 to 30 years from now – the relatively small economic engine that MSU currently embodies is likely to be among the major locomotives on which the economic fortunes of the region will depend.
Future economic development depends on the growth of the knowledge economy
The employment structure of a region is made up of its primary, secondary, tertiary and quaternary sectors. The main jobs are to obtain raw materials from the natural environment (for example, mining, agriculture and fishing). Secondary jobs involve making things (eg making cars, steel, etc.). Tertiary jobs involve the provision of a service (eg, sales, nursing, lawn care).
The quaternary sector is the intellectual side of the economy also known as the knowledge economy. It includes education, training, technology development, and research and development. It is the component of the economy based on human capital such as information technology, knowledge and education. Without the growth of technology and information, economic development would likely be slow or non-existent.
Although the trajectory of economic development does not always follow a straight and linear line from primary to quaternary, there is no doubt that the future progress of any region will generally rely more on its tertiary and quaternary sectors.
What is an economic engine?
Any sale of locally produced goods or services that results in an influx of income from outside sources is called export activity. Flat glass production in the Wichita Falls area is an obvious example. Most locally produced flat glass is sold outside the area, although some is consumed locally through the indirect purchase of new vehicles.
While manufacturing and mining (primarily oil and gas exploration and production) are generally considered excellent examples of export operations, the various training programs conducted at Sheppard Air Force Base are funded almost exclusively by external dollars and are just as much a form of “exportactivity. Although not a major export sector, most agricultural products are also sold outside the region.
The key concept of economic base theory is that export activity is the engine of growth. Goods sold outside the region are called “basicwhile those sold in the region are defined as “not basic” Where “service.” However, in this classification scheme, “non-essential” activity should not be interpreted as less important.
Could anything be more important than the services rendered by a dentist or doctor when relief from excruciating physical pain is essential? A recent personal experience of one of the authors attests to this fact. Without the timely and dedicated services rendered by Dr. Avera of North Texas Ophthalmology Associates, one of the authors would likely have lost vision in one eye.
It is because of its essential role in determining the economic health of an area that the so-called “export” activity is considered “essential”. When sales and revenue from export activity increase or decrease, sales and revenue from local markets generally follow the same direction, but the reverse does not necessarily happen.
The existence and growth of export industries give rise to the development of supporting economic activities. Sectors such as retail, transport and construction are generally considered “non-essential” or “services” since their output is generally consumed locally. The same is true for public education, K-12. It is mainly consumed by local residents, although it is one of the most important supporting services provided in the region.
Since they are generally provided to non-local customers, university and state prison services should also be classified as export activities. For example, MSU sells most of its services to nonresidents with payments received primarily in the form of tuition and fee income.
Current export or base engines sputter
From 1900 to 1960, population and economic growth in Wichita Falls was relatively robust. The post-World War II expansion of Sheppard Air Force Base and vast mineral deposits meant capital investment, and a strong workforce naturally gravitated to this region. As a result, the population of the Wichita Falls metro area (composed of Archer, Clay, and Wichita counties) has increased nearly sevenfold (686%), a whopping 3.3% per year.
A lot has changed in the last few years, because growth hasn’t been so easy. Since 1960, the area has experienced some population growth, but nothing comparable to the previous period of growth. From 1960 to 2020, the metropolitan area’s average annual population growth rate was only a fraction of a fraction of the rate recorded over the previous 60 years.
If the local area is to see a resurgence of its previous economic growth, the existing economic base will need to be supplemented with a potentially new and robust economic engine.
Outward-looking strategies to promote future economic growth
Community leaders relied primarily on two externally directed strategies to promote local economic growth. The first is the provision of tax incentives to attract outside businesses to the region. The second is to secure external funding, primarily by lobbying to bring state and federal funds to the region.
Without a doubt, such strategies have served us well in the past. However, exclusive reliance on external guidance is unlikely to be sufficient for future growth and development. This does not mean that local policies are irrelevant. On the contrary, the region’s leaders have been relatively effective in responding to the storm and stress of events that have plagued the Wichita Falls economy over the past two decades. Local economic development funding measures have prevented the region’s economy from sinking into a deep abyss.
However, in the future there is a danger of relying exclusively on externally directed strategies. Any negative threats to local economic performance in the years to come will most likely come from factors beyond our immediate influence, primarily domestic and global demand shocks. As empirical validation of this claim, just over 80% of local employment volatility in recent years can be attributed to external forces (i.e. global demand for oil and gas, commodities manufacturing and federal budget constraints).
Future economic development will depend on quaternary activities
As noted earlier, future growth will increasingly depend on internal control factors (ie the promotion of human capital as a strategy for economic development). Therefore, what is needed is an internally-directed growth strategy that focuses on increasing the development of local physical infrastructure (i.e. roads, public schools, bridges and facilities recreational facilities such as bike paths, trails, parks and lakes).
More importantly, what is needed is an internally driven growth strategy that focuses on the region’s human resource base. Human capital – the education and skills of a region’s workforce – will become increasingly important as a key driver of local economic growth. There is a strong and well-established statistical correlation between a region’s investment in human capital and subsequent employment and income growth. This association will most likely strengthen over time.
To be more precise, it is essential to invest more and more physical and financial resources in higher education if we want to revitalize local growth. It is important to remember that higher education is essentially an export business.
Whether higher education support should come from 4A and 4B economic development funds or other financial resource options remains open. What is not open to debate is the need for patient commitment of capital and time by individuals, organizations and various local charitable foundations to our higher education infrastructure.
Summary and conclusions
The great conservative political philosopher Edmund Burke once observed, “You can never plan the future by the past.” While this is certainly sage advice, past economic developments can, within limits, give us an idea of the most promising future course of action.
As noted earlier, the trajectory of economic development is not a linear process. Nevertheless, amidst the “Sturm und Drang” (storm and stress) of economic change, there seem to be deep underlying economic forces marching inexorably from primary to quaternary development.
If this is indeed the case, then several decades from now, MSU Texas (along with the region’s other major economic drivers) has the potential to be an augmented force to help pull the local economy over the next big mountain, or whatever the obstacles. ahead.
But it won’t happen just because we want it to.