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BREAKING NEWS: Texas is NOT an Economic Paradise

You may have seen Tyler Cowen’s cover story about Texas (discussed on his Marginal Revolution blog).

I’m sure  I see these kinds of articles regularly (Economist had a cover story a few years ago about California vs. Texas).   They annoy me because they are one-dimensional. I think they compare it to California or NY  — which probably is burdened by more paperwork  and has a state income tax. But overall, California and NY and Mass provide a lot more startups than Texas, and Texas doesn’t innovate a whole lot (except for medical, which they do pretty well in). Probably the best known non-fossil fuel  business to come from Texas is Dell, but Dell has always taken pride in NOT innovating but simply running a more efficient suply chain.

  1. Texas acquired their wealth through ample land and  mineral depletion. Many local economies are  still dependent on defense and oil and gas. These are ephemeral signs of wealth.
  2. Texas is VERY vulnerable to climate change, and per capita CO2 emissions are very high. Its pollution is also very high; the whole state would be a smokestack were it not for the federal Clean Air Act.
  3. Texas has pitiful social services, and its safety net is abysmal.  Many people fall through the cracks. Also, we have a significant underground economy from undocumented workers. Who knows? That probably means that the GDP of Texas is bigger than estimated, but the important point is that they operate on the outskirts of  the law (minus worker protections, etc.)
  4. Lack of zoning (I assume he’s talking about Houston only) has some consequences. It becomes impossible to do any urban planning, and as a result mass transit is practically impossible. From that you become a car-dependent city with all sorts of social stratifications.
  5. A lot of companies choose Houston or Dallas as their headquarters, but I think it has to do with low taxes and low real estate than anything else.  Many companies assume that they can find workers from other cities or out-of-state to work for their jobs.
  6. One thing rarely mentioned in talk about Texas is commute times. I have never seen such a high percentage of workers (in Houston and  elsewhere)  be willing to spend an hour or more commuting each way to work every day.
  7. Texas does have cheap college tuition options, but secondary schools have a great deal of inequality which almost makes that point moot.
  8. Texas does have a lot of cultural dogmatism. Remember, 76% of Texas voters voted to ban gay marriage.  It is absolutely suffocating to any educated person (even in a “liberal bastion” like Houston).
  9. Texas has a very fickle judicial system. Election of judges, “tort reform” and political influences on judges.
  10. Housing prices are relatively cheap because land is plentiful; what else is new? Significantly, the biggest political contributors to the state GOP  have been housing developers; as a result, you have homeowners without  much legal recourse in the event of disputes.
  11. One reason innovation is fairly lacking in Texas is the mediocre education system for a state its size. We have a lot of big companies move to Texas (to take advantage of cheap labor and lack of regulation and cheap land), but our startups are not as bold as in California or Massachusetts  for example. If you need some PHDs in Math or Comp Sci, Texas is not the best place to go. (Well, except here and here) On the other hand, if you need minimally educated Americans to provide phone support, Texas can’t be beat!
  12. Creative types in Texas (and especially Houston)  tend to be snapped up by  the fossil fuel sector or the military. The tragedy here is first, much of this innovation  does not transfer easily to other fields. Second,  this innovation does not really better humanity in a way that a product manufacturer or enterpreneur might. As the years go by, the stigma of working in fossil fuels will only  increase.
  13. I have mentioned it already, but Texas consumes more fossil fuels than any other state in the US. If Texas were a nation, it would be the 7th largest emitter of greenhouse gases. Electric plants in Texas (population 25 million) emit as much CO2  as electric plants in the COMBINED states of   New York, California, Florida, Massachusetts and Oregon (population: 86 million). Texas has made the decision to couple its state economy  to the carbon  consumption and generation. But  other states have decoupled their economies from carbon and still have strong growing economies. From a standpoint of risk, sticking with fossil fuels for living and for growing an economy  doesn’t seem wise in the long term.

In Houston (where I live), a large percent of the economy is dependent on the fossil fuel industry — either directly (with drilling, pipelines etc) or indirectly (IT support, financial services related to energy futures). Many of these services relate specifically to oil and gas and don’t transfer that easily to renewable energy or any other industry. Anyway, the profitability of fossil fuels in Texas eclipses the opportunities presented by renewables.  Houston tried to diversify after the oil bust in the 80s, but from what I can tell,  it just shifted away from domestic drilling to global exploration & logistics.

Here is Forbes’ list of most innovative companies  and Fortune’s ‘ Best Companies to Work for in Texas and Forbes List of  Fastest Growing Companies . I realize that not every state can have a Google or Microsoft or Facebook or Amazon, but I think it’s notable that Texas doesn’t really has an industry leader (outside of fossil fuels) which it can call its own. Rackspace and Texas Instruments and Dell are distinguished companies, and Cowen’s article mentions TinyTexasHouses (which also seems great).  With these notable exceptions, Texas is where established or rising companies go to expand.

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