Budget & Tax
Oklahoma's Dwindling Private-Sector Economy
March 3, 2009
J. Scott Moody, Wendy Warcholik, Ph.D.
Personal income is an important economic measure of a state's well-being. Higher levels of personal income mean that a state's residents are able to purchase more goods and services such as homes, cars, education, and health care.
Fundamentally, personal income comes from two sources: the private sector and the public sector. The distinction between these two sectors is important because only the private sector creates new income. The public sector can only redistribute income through taxes and spending.
As we pointed out in these pages last July, Oklahoma's private-sector share of personal income in 2006 was 68 percent and ranked as the 13th smallest in the country.
However, the size of the private sector varies greatly by county. As the table below indicates, the county with the largest private sector in 2006 (the latest data available) was Tulsa County at 81 percent. At the other end of the spectrum, Cherokee, Comanche, and Jackson counties had the smallest private sectors at 40 percent, 32 percent, and 31 percent, respectively.
Now, caution must be observed when interpreting Comanche and Jackson counties because each hosts a major U.S. military installation. Generally speaking, military installations are located far from dense population centers and, as a result, tend to dominate the local economy, creating a distorted economic picture.
So if we exclude these two counties as unique cases, that leaves Cherokee County and 13 other counties whose private-sector share of personal income falls below 50 percent. They are: Atoka (49 percent), Choctaw (49 percent), Coal (48 percent), Craig (46 percent), Greer (46 percent), Harmon (47 percent), Love (49 percent), Muskogee (49 percent), Okfuskee (44 percent), Pittsburg (50 percent), Pontotoc (49 percent), Pushmataha (48 percent), and Tillman (49 percent).
Over the 1970 to 2006 time period, only five counties saw small increases in their private-sector shares: Comanche, Latimer, Logan, Oklahoma, and Wagoner. The remaining counties mirrored the state average with declining private-sector shares. The steepest drop belongs to Cimarron County, falling 24 percentage points to 57 percent in 2006 from 81 percent in 1970.
Nationally, and in Oklahoma, the composition of personal income has significantly shifted away from the private sector and toward the public sector. More disturbingly, the long-term trendline is pointing toward an ever-shrinking private-sector share of personal income.
Unfortunately, there will be an economic price paid as the private-sector share continues to shrink. The transfer of resources from the private sector to the public sector, via taxes and/or regulations, will stifle future entrepreneurial growth. Since only the private sector can create new income, the future may well bring a declining standard of living.
However, the future is not written in stone. Proper public policy that embraces secure property rights, low taxes, and fewer regulations will lead to an environment where entrepreneurship can thrive.