The Encyclopedia of Oklahoma History and Culture

OKLAHOMA ECONOMY.

Oklahoma's economic history is divided into four periods. The first period covers the nineteenth century, encompassing settlement by American Indians of the Southeast followed by new arrangements facilitating private land ownership. The second extends from 1900 to the onset of the Great Depression in 1930. The third ends in 1973 with the first of the major oil shocks. The fourth comprises the energy boom and bust of the late twentieth century, along with contemporary conditions.

The century from 1800 to 1900 encompassed the time of Indian and white settlement. During the nineteenth century Oklahoma was characterized by very high ratios of land to labor and capital, by almost total dominance of primary (natural resource based) production, and by unique institutional and cultural features, of which the effects of some remain important in today's economy. The initial settlement by the Five Tribes in the 1820s, 1830s, and 1840s in what is now Oklahoma (at that time Indian Territory) did not reflect free-market labor migration in response to income differentials. Added to the coercion of removal was the fact that the Five Tribes had adopted the institution of slavery in their former southern setting. Slave-owning Indians brought with them an additional labor supply.

Economic analysis of Oklahoma prior to white settlement is complicated by the cultures of the Five Tribes. Some members of those groups had adopted the dominant white culture's modern economic and political systems prior to Removal. Others, frequently full bloods, did not wish to become part of the modern sector. There was thus a dual economy. The modern sectors of the Five Tribes apparently prospered during the period from removal to the Civil War. Tribal governments were reestablished, and although land was owned collectively, the tribes granted effective control to large-scale landholders raising cotton and livestock. No doubt per capita incomes grew significantly during this "Golden Era."

The Civil War was an economic disaster for the Five Tribes. The North-South conflict was played out in miniature in the territory. Assets were destroyed and agricultural activities interrupted. After the war ended, punitive measures against tribes that had sided with the South involved confiscation of their lands in the western half of the state.

From the Civil War until the initial land run in 1889, the western half of Indian Territory served as the destination for the removal of various additional tribes from the western United States. These Indians, as well as those who already lived there, continued their traditional activities of hunting and subsistence agriculture and were not part of a modern economy. In the eastern half, however, there was rapid economic recovery spurred by railroad construction, expansion of timber and coal mining, and immigration of a substantial number of whites. The growth of the non-Indian population grew remarkably. A census of the Indian agency with jurisdiction over the Five Tribes reported an 1888 total population of 177,000, only 37 percent of whom were members of those tribes.

By the late 1880s there was great political pressure to open Oklahoma to white settlement. Nationally, the population "escape valve" provided by the western frontier was being closed. The ratio of land to labor in Oklahoma was too small to be politically sustainable. When the political pressure finally resulted in policy, quite different processes were used to settle the eastern and western halves of the state.

The contrast between methods of obtaining property rights in land in the east (Indian Territory, or I.T.) and the west (Oklahoma Territory, or O.T.) could not have been greater. In O.T. rights were obtained through land runs and lotteries and by court order between 1889 and 1906. Migrants from the Midwest and other places obtained homesteads and town sites through clearly defined legal processes. Rewards were anticipated for the hard work required to develop farms and ranches and to develop urban enterprise. Legal institutions were created by a central territorial government established in 1890 (following passage of the Organic Act on May 2, 1890) and were complemented by new local governments.

In contrast, throughout much of the nineteenth and early twentieth centuries non-Indians migrating into eastern Oklahoma were largely from the South. They were not discouraged by existing conditions regarding the lack of opportunity to own land, to participate in government, or to educate their children. Some were squatters, some were sharecroppers, some were blacks escaping the onset of Jim Crow laws in the South. No doubt many of these people anticipated the eventual availability of property rights in land. Nevertheless, land continued to be held collectively by the tribal governments until the late 1890s. A new federal government policy forced the process of allotment of individual parcels to Indians determined to be on the tribal rolls. Unfortunately, it then became easy for whites and mixed-blood entrepreneurs to separate less sophisticated Indians from their individual land holdings. Thus, although in the western half of Oklahoma property rights were largely obtained through hard work involved in homesteading, in the eastern half rights were obtained through business practices that were sometimes legal and sometimes not, but that today appear unethical.

Between 1900 and 1930 Oklahoma was spreading out and filling in. This was a period during which Oklahoma's economy began to look like that of a typical state. Having already doubled during the 1890s, population soared from 790,000 in 1900 to 2,396,000 in 1930, and gainful employment grew from 266,000 to 828,000. Although agriculture remained the dominant economic activity in the state, its relative role was much diminished. Agriculture's share of employment dropped from 70 to 37 percent, and employment shares grew in trade and technical occupations. Much of the new manufacturing growth was related to the natural resource base, for example, petroleum refineries, meat-packing plants, and cotton gins.

The very high ratio of land to labor characterizing the late 1880s was rapidly lowered. In fact, there were areas in which the agricultural work force overshot the supportive capacity of the land, that is, initial homesteads were too small to be profitable. More than half of Oklahoma's counties experienced their peak population during this period. After about 1910 farming and ranching were never again important sources of statewide employment and population growth.

Between 1910 and 1930 the share of state employment in mining (largely oil and gas) grew from 2 percent to 5 percent as a series of oil fields were opened. This generated a good deal of local economic instability. It also meant that the state's economy was now buffeted by world commodity price changes in petroleum as well as agriculture.

Rapid population growth from 1900 to 1920 created demands for public infrastructure and demands for the growth of tertiary (service) activities to be provided, largely in urban areas. As needed investment took place, no doubt the productivity of the state's economy was enhanced. Between 1900 and 1919, for example, total personal income was estimated to have grown from $90 million to $1 billion.

From its beginning, Oklahoma was relatively poor in comparison with national norms. It is estimated that the state's per capita personal income was only 52 percent of the national average in 1900. By 1919, with heavy wartime demands for farm produce and petroleum, per capita income reached 83 percent of the U.S. figure but dropped quickly to 67 percent in 1921. At the national and the state levels the Roaring Twenties was a period of serious recession in agriculture.

The results of the strikingly different cultural characteristics of the migration flows to the eastern and western parts of the state were evident quite early. In 1910, for example, illiteracy rates were significantly lower in the western counties, which had been the former Oklahoma Territory, as compared to the eastern Indian Territory counties.

With statehood in 1907 came a new state constitution and an institutional framework for business that reflected widespread skepticism of concentration of power, whether in big business or in government. Elements of this populist philosophy remain embedded in some of the state's institutions. Immediately included was a new system of racial segregation practices not present during territorial days. No longer could Oklahoma serve as a destination for migrating blacks escaping Jim Crow laws.

The years from 1930 to 1973 were a time of a quest for stability and diversification. Economic forces from outside buffeted the Oklahoma economy during this period. There was the Great Depression of the 1930s, the boom times of World War II and postwar recovery, and the dramatic restructuring of the farm economy in the 1950s. At last, in the 1960s and early 1970s Oklahoma began to have significant success in economic diversification with expanded manufacturing activity.

There was a continued decline in agriculture's share of jobs, from 33 percent in 1940 to 5 percent in 1970, and manufacturing's share grew from 8 percent to 16 percent. In spite of the trauma of the Great Depression, the number of farms only declined from 204,000 to 180,000 during the 1930s. By far the most significant period of farm consolidation and out-migration from rural areas was the 1950s, during which the number of Oklahoma farms declined from 142,000 to 95,000. Although the number of farms has continued to trend downward, there were still 74,000 reported in 1997. Concentration of output in larger units has continued; in 1997, 8 percent of the farms with sales over $100,000 accounted for 79 percent of total sales.

From 1930 to 1960 the state's economy was unable to generate enough nonfarm jobs to offset the declines in agriculture. Although population growth began to accelerate in the 1960s, during the entire forty-year period 1930–70 Oklahoma's population expanded only 6.8 percent, while the national population grew 65.6 percent. The performance of incomes in Oklahoma reflected the relatively loose labor market characteristic of low rates of employment and population growth. The state's per capita personal income was 65 percent of the national norm in 1929 and dropped to 54 percent in 1932. Between 1940 and 1944 the state's per capita income grew from 63 to 79 percent relative to the nation's as the state capitalized on wartime expenditures at military installations and war plants and in the oil and agriculture sectors. State manufacturing employment grew from 37,000 in 1939 to 102,000 in 1944, a level that was not to be achieved again until 1965. And Oklahomans took advantage of the wartime boom in employment elsewhere. In spite of the "Dust Bowl" image of Oklahoma in the 1930s, the years of World War II witnessed some of the most intense out-migration in the state's history as people left to acquire defense jobs, particularly on the West Coast.

By 1960 state per capita income had risen to 85 percent of the national norm, and it appeared as though Oklahoma was on the way to achieving wage scales comparable to many other states. A challenge lay ahead, however, in achieving a more diversified economy. Manufacturing employment had expanded from 65,600 in 1950 to 86,600 in 1960. As a result of investment impulses from a prosperous national economy in the 1960s, significant federal assistance in infrastructure development, and new state/local government economic development incentives, sixty-five thousand new manufacturing jobs were added to the state's economic base between 1960 and 1973.

A very important but often overlooked development during the 1950s and 1960s was the widespread adoption of mechanical air conditioning. The productivity of industrial and commercial establishments was enhanced during the heat of the summer, and housing was more comfortable. No longer was a hot summer climate a major barrier to attraction of business from cooler climes.

An important feature of the period 1930–73 involves the growing economic influence of the federal government. During the 1930s the New Deal greatly expanded the federal role in infrastructure, industry, and labor markets. Depression-era agricultural policies have remained a major source of support for Oklahoma farms. Output controls, import quotas, and favorable tax treatment created a more stable environment for Oklahoma's oil industry. Social Security and public assistance ("welfare") helped individuals and families lead more secure lives. Oklahoma took special advantage of the joint federal-state public assistance program by earmarking the state's new general sales tax to its Department of Public Welfare (now the Oklahoma Department of Human Services), under the direction of Lloyd Rader. By 1960–61 Oklahoma led the nation in per capita public assistance payments. Although the state no longer holds that distinction, the transfer payment share of personal income remains well above the national average.

The growth of military bases and defense-related industry during World War II created an important new sector in the state's economy. With forty-six thousand civilian and military personnel in 2000, this sector remained a mainstay of the state's economy, generating massive inflows of federal dollars. Although the 1950s was not a period of major expansion of the federal government, the new federal-state interstate highway system, along with state turnpike development, transformed Oklahoma's transportation facilities in the 1960s and 1970s. Completion of the McClellan-Kerr Arkansas River Navigation System added transportation advantages and provided a new system of water-based recreation at Corps of Engineers built lakes. Expanded airline service meant quicker access to economic centers on the East and West coasts and permitted Oklahoma to take advantage of its central geographical location.

Another period of expanded federal economic programs came in the 1960s. Emphasis on fighting poverty, promoting regional development, and improving education put Oklahoma in a favorable position to seek federal support; the state had plenty of poverty and badly needed regional development. New federal policies supporting education for skilled trades were the basis for an extensive system of area vocational-technical schools.

From 1973 to 2002 Oklahoma endured shocks from the global economy and federal retrenchment. Except perhaps for the periods 1910–30 and 1950–73, the economic history of Oklahoma has involved a great deal of turbulence, for example, rapid settlement prior to 1910, the Great Depression, and World War II. The oil price shocks of 1973–86 maintained this tradition. There was a ten-fold increase in the price of Oklahoma crude oil between 1972 and 1981 as the OPEC cartel drove up world oil prices. Employment in the oil patch grew from around 34,000 in the early 1970s to a peak of 102,000 in 1981 and then fell back to around 40,000 in the late 1980s as Oklahoma oil prices dropped by 50 percent. The traumatic collapse of the energy business led to substantial out-migration, failure of financial institutions, excess capacity in real estate, and fiscal crises in state government.

During the energy boom, incomes rapidly rose. The state's per capita personal income was virtually identical to that of the nation's in 1982; by 1987, the state's income relative to the nation's had fallen back to 81 percent. Total state nonfarm employment, which had risen from 852,000 in 1973 to 1,201,000 in 1981, fell to 1,108,000 in 1986. Although incomes had collapsed, the state did not give back all the employment gains of the boom years.

As a generator of jobs, the state's economy proved to be remarkably resilient after the collapse of the energy boom. During the period 1986 to 2002 the nonfarm employment rose by nearly 400,000. Oklahoma's employment growth kept pace with the nation's during a period of steady expansion from 1991 2001. As this occurred, the state became relatively more diversified. By 2000 the mix of state nonfarm employment among major sectors of the economy looked similar to that of the nation as a whole, with only a slightly lower share in manufacturing (12.3 percent in Oklahoma versus 14.0 percent for the United States). By far the most significant contrast with the nation's industry mix was for government employment, which accounted for 19.4 percent of nonfarm jobs for Oklahoma and only 15.6 percent for the nation.

Oklahoma's population continued to follow trends of employment strength and weakness. During the booming 1970s many people migrated into the state, and population grew 18.2 percent, rising to a little more than three million residents in 1980. Population growth during the 1980s was only 4.0 percent, though growth picked up to a 9.7 percent rate in the 1990s. In 1990s as well as the 1980s, however, state population growth lagged that of the nation.

The expanding national economy between 1991 and 2001 was characterized by some as a "New Economy," relying on rapid productivity growth driven by computer-based technology and related improvements in communications and facilitated by growth in world trade. At the national level, nominal per capita personal income grew 50.7 percent during this period. Oklahoma did not quite keep up with the nation, with per capita personal income growth of 48.2 percent. At 82 percent of the nation's, the state's 2001 per capita personal income was still far behind the rest of the country. No doubt some of this gap is due to the fact that a less than average share of the adult population in Oklahoma is in the labor force. Relatively low wage levels remained another factor. Some of this gap is ameliorated by the fact that costs of living are perhaps as much as 10 percent lower in Oklahoma than is typical of the nation. Recent research indicates that the state's low income may be due to low labor productivity rather than having the "wrong" fundamental mix of industries. Labor effectiveness is partially determined by education or investment in human capital.

The income gap is also associated with the persistently low levels in much of eastern rural Oklahoma and a few counties in the southwest. The pattern of differential east-west economic well-being observed at the time of statehood was still maintained in 2000, but with important distinctions. During the 1990s individual incomes and population tended to grow throughout the eastern half of the state, but incomes were, for the most part, relatively stagnant in the west. More than two thirds of the state's nonmetropolitan counties west of Interstate 35 lost population in the 1990s, but all of the nonmetropolitan counties in the east, except one, gained population.

The state's institutional environment changed as a result of a reorientation of federal policies. The intense reliance on linkages with the federal government that was so important between 1930 and 1973 weakened during the recent period. Federal government budgetary retrenchment meant that state/local governments were less reliant on federal grants-in-aid, and deregulation meant more intense free market forces in fields such as banking, transportation, communications, and utilities. Emphasis on fewer government barriers to international trade, both for the nation and the rest of the world, meant increasing participation by Oklahoma in the global economy. As the new century began, the future of Oklahoma's economy appeared increasingly tied to its competitiveness in international as well as national markets.

Larkin Warner