This commentary originally appeared in Forbes on December 21, 2015.
The 2016 presidential contest will be decided, in part, on what economic model best promotes economic vitality and growth of well-paying jobs. There are two basic sides to this debate: a government-centric model or a model where the private sector comes first.
Three states offer real life examples to illuminate this fundamental economic choice: Texas and the D.C. Beltway states of Maryland and Virginia.
In the eight years from January 2007 to January 2015, Texas generated 1.4 million new nonfarm, non-government jobs compared to 2.3 million in the rest of the nation. Put another way, Texas accounted for 38% of all the new non-government jobs added in the nation over eight years—and this in a state that only 8% of Americans call home. Further, contrary to conventional wisdom, most of the jobs added in Texas were not in the capital-intensive oil and gas industry which reached an employment peak of 305,000 out of 11.7 million jobs in December 2014, or less than 3% of the total. It is instructive to note here that Texas has no state income tax, a low overall tax burden and a light and predictable regulatory climate.
The antithesis of the Texas model of economic success can be seen in the nation’s D.C. Beltway region. That region’s record has plenty of defenders. For example, former Maryland Gov. Martin O’Malley this past weekend declared that Maryland—a state heavily dependent upon the D.C. jobs engine—possessed “…the highest median income in America” while “…creat(ing) 2,000 new jobs in the solar industry and… adopt(ing) more inclusive economic practices.”
But how is the overall economic record in Maryland, or even Virginia, for that matter?
The truth is that Maryland and Virginia have been beneficiaries of the massive growth in the federal government in recent years, with federal employees earning an average of 78% more than private sector workers in 2014: $84,153 vs. $56,350.
About seven out of every eight government employees work at the state and local level. In March 2013, the U.S. Census Bureau reported that there were 21.8 million government workers in America. Of these, 12.6% worked for the federal government, 24.2% for state governments, and 63.2% for local governments. But, federal employment is heavily concentrated in the Beltway area, with 27.5% of all federal workers residing in the Beltway region of the District of Columbia, Maryland and Virginia.
The table below shows that the District of Columbia’s federal workforce as a share of the private sector is about 26 times more concentrated than in the U.S. minus the Beltway region and Texas, while the federal workforce in Maryland and Virginia are eight and seven times more concentrated, respectively, than in the rest of America. Texas, with its large military and NASA presence is about three times overrepresented in federal jobs than the remainder of the nation.
What isn’t factored into the table is that the federal government spent about $129 billion in 2012 to employ 670,000 service contractors, with many of these residing in the Beltway region. Considering these private sector federal support employees would show D.C., Maryland and Virginia to be even more dependent on federal spending than is the case when only examining federal workers.
Looking at the jobs record of the Beltway states from January 2007 to January 2015 is illuminating when considering sustainable private sector growth:
Here we see that Maryland and Virginia private sector employment crept ahead by only 0.4% in eight years, less than one-fifth the pace of the U.S. economy minus Maryland, Virginia and Texas. Meanwhile, Texas added jobs at a rate of 42 times that of Maryland or Virginia and more than seven times the pace of the U.S., minus the three states examined.
In raw terms, Maryland added about 1,063 non-governmental jobs per year over the eight years ending in January 2015 while Virginia added 1,400 per year compared to Texas’ addition of 178,500 private sector jobs per year. Put another way, Texas produced 168 times as many private sector jobs over eight years as did Maryland and 128 times as many as did Virginia.
Looking at the ratio of private sector to government employee hires is instructive as well.For every addition to the private sector payrolls in Maryland, 3.8 government workers were hired. In Virginia, every new private sector employee was overmatched by 2.5 new government workers. In Texas, the ratio was reversed, with each new private sector hire supporting only 0.09 new government workers with their taxes.
It isn’t at all sustainable to assume that each new worker in the private sector could support one new government employee, much less three or four as is the case in Virginia and Maryland.
The Beltway economic model only works with the trillions of dollars of federal money, much of it borrowed from future generations, coursing through the region, employing more than a million mostly well-paid federal workers and contractors. Promoting the success of a region dependent on government growth, higher taxes, and a burgeoning regulatory burden administered by a growing bureaucratic elite is not a solution that can be applied to America as a whole—after all, we can’t all work for the government.
Chuck DeVore is Vice President of National Initiatives at the Texas Public Policy Foundation. He was a California Assemblyman and is a Lt. Colonel in the U.S. Army Retired Reserve.