Cowboy capitalism hits a rough patch and keeps on riding

Texans' legendary sense of size has long amused, and occasionally rankled, the rest of the country. To this day understatement is a gift many residents have yet to master.

Yet, if a little Texas pride has been showing through the past few years, there may be some justification. For in recent decades the Lone Star State has probably made its presence felt more on the American scene - and in the world - than at any time since the Alamo.

Spurred by a bounty of natural resources and land, as well as a cowboy capitalism with loose government reins, Texans have transformed a frontier economy into a leading industrial state within one generation. It now stands as the Croesus of the Sunbelt, notwithstanding the state's dubious image in the TV show ''Dallas.''

At the same time, the longhorn of plenty has brought a saddlebag of social and economic dilemmas, such as over-urbanization and the threat of social strains.

After rampant growth in the 1970s, Texas faces a critical period: Can its system of laissez-faire capitalism - probably America's grandest example of free-wheeling private enterprise, a system where state taxes are few and unions resisted - hold up in the face of the same problems that have dogged other regions of the country?

''The 1980s will be a testing time for Texas to see if cowboy capitalism can survive economic maturity and growing social problems,'' says Bernard Weinstein, professor of economics at the University of Texas at Dallas.

In the last decade, the rising tide of wealth reduced the number of Texans living below the poverty line from 18.8 percent to 14.7 percent, although this quotient of poor was still above the national average.

By most accounts, the Lone Star State is a long way from becoming a ''superstate'' to rival the country's two powerful bookends, New York and California. But there are some here (a degree of bravado duly noted) who believe the next quarter century will see Texas emerge the way California did after World War II.

Nevertheless, the state's rendezvous with recession in the last few months has been a reminder of just how vulnerable Texas is to the outside world. Just when some thought it was becoming immune to economic slumps, the downturn began reaching its fingers into almost all sectors of the state economy, from electronics to energy.

Texas has been affected by national economic slowdowns before, but usually not as much. During the downturn of the mid-1970s, rising oil prices cushioned the impact here. But this time the state has been dealt a twin blow of recession and soft world oil prices. In June the state's unemployment rate jumped to a post-Depression high of 7.7 percent. Since then it has edged down to 6.7 percent , still well below the national rate.

To many economists the lesson from the current recession is clear: Texas is slowly graduating from its comfortable, insular days as primarily a resource state (cotton, cattle, and oil). Its industries are diversifying and growing up, taking their lumps in the world of commerce along with everyone else. ''It is just one of the risks that goes along with greater industrialization,'' says Carol Bennett, an economist with Texas Commerce Bank in Houston.

The current dip slows what, by any measurement, has been spectacular growth. The state has witnessed a Chisholm Trail of people, commerce, and ideas pouring in from all directions. The economy has been growing close to double the US average for the past eight years. Texas has become the only state in the Sunbelt (outside California) whose annual per capita income exceeds the national average.

Last decade its population grew at about twice the US rate, topping 14.2 million by 1980. By the year 2000 Texas could surpass New York as the second most populous state, behind California. The newcomers are stirring a melting pot that already contains enough diversity to befit a nation, which Texas actually was from 1836 to 1845. ''Yankee'' accountants and California engineers are joining Gulf-coast shrimp-boaters and spirited Panhandle grain farmers.

In the process, old traditions are being worn away. A veneer of urbanity is being laid over an enduring, and sometimes endearing, cowboy culture. Texas is also becoming less of a Southern Democratic state than in the past, with voters showing more independence, but still plenty of conservatism. In addition, a crop of new leaders is rising up to challenge some of the old cliques that have long ruled, for instance, in Houston.

Perhaps most dramatic has been the Texas transformation to an urban state. A network of ''city states'' are emerging where scrubby mesquite trees and cattle once reigned. Three Texas cities - Houston, San Antonio, and Dallas - are now among the 10 largest US urban areas.

But those huddled masses are producing a wagonful of woes. Texas roads, already overworked in some parts, may have to handle double the current volume of traffic by the turn of the century. More garbage needs picking up. Sewer and electrical lines need to be laid. Violent crime is soaring in some areas.

Perhaps no place in Texas mirrors the risks and rewards of a decade of growth more than Houston, now the country's fourth-largest city (metropolitan population: 2.9 million). Rising Oz-like out of a leafy section on the state's southeastern edge, Houston is probably humankind's most ambitious monument to the petroleum age. It is a city of glass and concrete, ambition and might, pickup trucks and Cadillacs. From his 65th-floor office, Isaac Kerridge Jr. looks out on the city from one of the highest perches in the South.

The affable chief economist for the Hughes Tool Company, an oil-service firm, arrived in Houston 30 years ago, when most buildings weren't much taller than a cottonwood tree. Peering out into a clinging Southern day, he points to a 56 -story Gothic-style bank going up, a 71-story bank under construction, and several others under way - which at 20 to 30 stories he scarcely bothers to mention - all a testament to Houston's vitality. On the other hand, freeways start filling up here at 6 in the morning, water supplies are a growing concern, and local citizens, like those in the Dallas area, are wondering why the two metropolitan areas have divorce rates that are among the highest in the country.

Houston's new mayor, Kathryn Whitmire, is now trying to work with local mandarins to ease problems of traffic, sanitation, and crime aggravated by an immigration that, at peak moments in recent years, hit 1,000 people a week. ''You cannot throw 3 million people into an urban area and not go through a period of catchup,'' says Dr. Paul Geisel, an urban expert at the University of Texas at Arlington. ''Ten to 15 years ago businessmen were looking at Houston to relocate. They all came on the same day.''

Paying for all the new bridges and roads needed across the state in years ahead could be a problem. For now, Texas remains comparatively flush, sitting on a $1.3 billion surplus. But state planners are aware that two of their biggest sources of funds - mineral taxes on oil and gas and federal aid - are not eternal. Federal funds are already dwindling. Revenues from oil production in the state, now in decline, should bring in healthy sums as energy prices rise in the future. But for how long?

''We've got another good 10 years without any worries with our present tax base,'' says Dr. Jarvis Miller, state director of budget and planning. Still, some analysts see more financial burdens being shifted to localities in the future and, eventually, maybe the need for something Texans consider as repugnant as a rattler: either a corporate or personal income tax. Texas now has neither.

One area where more government intrusion seems certain is water, the state's most pressing environmental issue. State officials have estimated that as much as $30 billion will be needed to pay for more water projects to avoid severe shortages within the next 20 years. Dwindling acquifers particularly worry farmers in water-shy West Texas.

''There is growing consensus of a need for better ground-water management,'' says Ken Kramer, an environmental lobbyist in Austin.

If there is one tradition that maturity is not gnawing away at, it is the Texas legacy of a conservative social policy. Texas ranks among the lowest in the country in public-assistance programs such as Aid to Families with Dependent Children, a reflection of the state's frontier tradition of self-reliance.

''The old myth that industrialization is going to change this sense of Southernism (conservative social policy) has been propagated for 40 years. I just don't see it happening,'' says Dr. Chandler Davidson, chairman of Rice University's sociology department.

Yet the state's tradition of limited government has at times brought another unwelcome development - federal intervention, which some observers think could increase in the future if the state doesn't address growing social needs. Federal court rulings in recent years have forced Texas to open public schools to the children of illegal aliens, improve bilingual education, and reform prisons.

Mexico's peso woes has painfully reminded Texans of its double-edged relations with its southern neighbor. Mexican workers provide a valuable source of labor for many firms in the state. But a flood of illegal Mexicans could spawn social problems. Hispanics, who command a majority in El Paso and San Antonio, have learned to flex political muscle. Last year's election of Harvard-educated Henry Cisneros as mayor of San Antonio may signal the start of Hispanic integration into the Texas power structure.

The state probably will not boom in the next two decades the way it did the last two. The nation's economy is in an era of slower growth, and fewer baby-boom job seekers are streaming south. Some believe Texas may also begin to lose, ever so slightly, some of its allure for business transplants. Manufacturing wages here, traditionally low, are now higher than the national average. Housing costs are racheting upward. The AFL-CIO has targeted Houston as the site for one of its most ambitious organizing drives in decades.

''We expect to see long-term growth close to double the national average,'' says Texas Commerce's Carol Bennett.

Oil and gas will fuel some growth in the future, since Texas has become the energy toolbox and servicing center for the Western world. The state has other resources: magnesium, graphite, sulfur, and lignite coal. But some of its best growth potential probably lies with ''brain centered'' industries such as telecommunications and electronics. The state now lacks the research and development (R&D) tradition of a Massachusetts or California to undergird these industries. But it is trying to channel money from this relatively flush petroleum era to spur more R&D.

Research is being tailored to take advantage of the state's natural assets, such as energy and agriculture, as well as to probe computer-age frontiers, contends Dr. Victor L. Arnold, director of the bureau of business research at the University of Texas at Austin and the former head of the Texas 2000 Commission, set up to look at future issues.

Texans cling to the hope that, with a little foresight, private and public efforts can fashion their system of entrepreneurial capitalism into a showpiece for the nation. In the past, most Americans stored that notion in the braggadocio file. But with Republican President Ronald Reagan pushing the old Jeffersonian maxim that the least government is the best at the federal level, states are being forced to cast about for new ideas.

OK, Texas, the eyes of America are upon you.