Lone star rising A special report on July 11th 2009

TTexas.inddexas.indd 1 229/6/099/6/09 11:48:0711:48:07 The Economist July 11th 2009 A special report on Texas 1

Lone Star rising Also in this section Tex•mix The state’s best and worst sides. Page 3

Work hard. Be nice A new breed of school for some of the poorest kids. Page 4

Beyond oil The Texan economy is becoming ever more diversi†ed, but energy remains a favourite. Page 5

The red and the blue Whisper it softly, but Texas looks set to become a Democratic state. Page 7

The new face of America Texas is the bellwether for demographic change across the country. Page 8 Thanks to low taxes and light regulation, Texas is booming. But demography will bring profound changes, says Christopher Lockwood

ISITORS to Governor ’s vast possessions are still very rare; the state Voˆce in the Texas capitol building in budget is still in surplus even as Austin (with a dome a mite taller, naturally, and New York teeter on the edge of bank• than the one in Washington, DC) are some• ruptcy. Unlike those fellow states with times o ered a viewing of a triumphalist large populations, Texas levies no personal video. Entitled ŒThe Texaplex, the seven• income tax, and with almost unlimited minute †lm is a hymn to the successes Tex• space on which to build, its houses are big Acknowledgments Besides those mentioned in the text, the author would as has achieved in recent years, and they and a ordable. like to thank the following: look pretty impressive. All this has brought people ‡ooding in Angelos Angelou and Carrie Yeats, Angelou Economics; Texas now hosts more Fortune 500 and made Texas America’s fastest•growing Dan Bellow, Jones Lang LaSalle; Michael Brandl, McCombs School of Business; Terry Britton, Port San Antonio; companies than any other American state. state. Net domestic in‡ows have been run• Robert Cavnar, Milagro Exploration; Susan Combs, They include AT&T, Dell and Texas Instru• ning at around 150,000 people in recent Comptroller of Texas; Deirdre Delisi, Texas Transportation ments; oil giants such as Exxon Mobil, Co• years, whereas California and New York Commission; Jim Edmonds, Port of Authority; Marc Farmer, Lubbock EDA; Steven Farris, Apache; Tony nocoPhillips and Valero; American, Conti• have seen net out‡ows. Next year’s nation• Garza, former US ambassador to Mexico; Tori Gaddis, nental and Southwest Airlines; Fluor, a al census is expected to show that ‡ourish• Houston Strategies; Patrick Neal Jankowski, Opportunity huge construction †rm (recently lured ing Houston has replaced struggling Chica• Houston; Dana Johnson, Comerica; Elena Marks, Mayor of Houston’s Oˆce; Bill Miller, Hillco Partners; Tom Pauken, from California); J.C. Penney; Halliburton; go as America’s third city. Of the ten largest Texas Workforce Commission; Gregory Rodriguez, New and 52 others. Texas claims to have been re• cities in America, three are in Texas. America Foundation; Nestor Rodriguez, UT Austin; Brooke sponsible for 70% of all the net new jobs Those three, Houston, and San Rollins, Texas Public Policy Foundation; Mimi Schwarz, Texas Monthly; Shearwater; Russel Smith, Texas created last year in America’s 50 states, Antonio, together with the state capital, Renewable Energy Industries Association; William though since only a few states created any Austin, and Fort Worth, make up what the Sproull, Richardson Chamber of Commerce; Randall jobs at all that is not quite as astonishing as boosters call the Texaplex: a densely Terrell, Equality Texas; Dan Wolterman, Memorial Herman; Nelson Wol , Bexar County Judge; Greg it sounds. packed triangle, with each side measuring Wortham, mayor of Sweetwater; Antonio Zavaleta, UT True, the †lm tactfully ignores the reces• about 300 miles, that is home to roughly Brownsville. sion. Texas followed America into the 80% of the state’s population of 24m (sec• downturn in September last year, almost a ond only to California’s 37m). This ŒTexas A list of sources is at year after the rest. In May it shed a worry• triangle, containing America’s third•larg• Economist.com/specialreports ing 24,700 jobs, and the Dallas Federal Re• est airport (Dallas•Fort Worth) and its sec• serve now forecasts that between 315,000 ond•busiest port (Houston, despite being An audio interview with the author is at and 350,000 jobs will go in 2009. But pro• 50 miles inland), has emerged as one of the Economist.com/audiovideo portionately the May †gure was still lower most dynamic regions in all of America. than for the nation as a whole, and Texas’s Joel Kotkin, an urbanologist based in A country brie†ng on America is at unemployment rate, at 7.1%, was 2.3 points California, recently compiled a list for Economist.com/unitedstates below the American average. Housing re• Forbes magazine of the best cities for job 1 2 A special report on Texas The Economist July 11th 2009

2 creation over the past decade. Among those with more than 450,000 jobs, the top †ve spots went to the †ve main Texaplex cities‹and the winner of the small•cities category was Odessa, Texas. A study by the Brookings Institution in June came up with very similar results. Mr Kotkin particularly admires Houston, which he calls a perfect example of an Œopportunity city‹a place with lots of jobs, lots of cheap housing and a welcoming attitude to newcomers. He is certainly right about the last point: not too many other cities could have ab• sorbed 100,000 refugees, bigheartedly and fairly painlessly, as Houston did after Hur• ricane Katrina struck New Orleans. With vibrant Asian communities alongside its balanced Hispanic, white and black mix, with no discernible racial tensions, and with more foreign consulates than any American city except New York and Los Angeles, Houston is arguably America’s mass of Texas belongs both to the South that too many of its newcomers are chas• most enthusiastically cosmopolitan city, a and the West. ing low•end jobs. A committee on educa• place where the future has already arrived. Historically, a low•tax, low•spend mod• tion appointed by Mr Perry concluded in Wander round to the Senate side of the el has served Texas fairly well, though the January that ŒTexas is not globally compet• state capitol, though, and you will hear a limitations of dependence on a few com• itive and gave warning that it Œfaces a di erent Texan tale. There, you might en• modities (oil, cattle, cotton) were cruelly downward spiral in both quality of life counter Eliot Shapleigh, the Democratic shown up in the mid•1980s. When the oil and economic competitiveness. state senator for a district centred on El price crashed, the property market and The other, even more important, reason Paso, on the extreme west of the Mexican then the entire banking system went down to expect change is internal. In 2004 Texas border. Mr Shapleigh publishes his own re• with it. Between 1982 and 1993 Texas saw became one of only four states in America port: ŒTexas on the Brink. 523 banks go under, and in the single year where whites are no longer in the majority. His statistics are a lot less rosy. Texas has of 1986 its gross state product slumped by On recent trends, Hispanics will be the the highest proportion of people lacking 3.1%. Since then it has been diversifying largest ethnic group in the state by 2015. health insurance of all 50 states; the third• frantically, with considerable success. Since they tend to vote Democratic, this highest poverty rate; the second•highest has big implications for Texas’s political imprisonment rate; the highest teenage• Starstruck make•up and for national politics. And an birth rate; the lowest voter turnout; and the But there are now two big reasons to think increasingly assertive Hispanic caucus, in lowest proportion of high•school gradu• that the Texas model will need further revi• an increasingly Democratic state, also ates. Mr Shapleigh is not surprised that sion. One is external to the state: the global seems sure to demand better schools and these †gures are so terrible: Texas spends economy has become a much more health care for the people it represents, less on each of its citizens than does any knowledge•intensive place, with even the who currently lag far behind the Anglos on other state. Being a low•tax, low•spend oil business turning into a high•tech indus• any social indicator you care to name. state has not made Texans rich, though try, so Texas needs more and better univer• Close to half of Latinos in Houston, for in• they are not dirt•poor either; their median sities and schools. Embarrassingly for the stance, fail to graduate from high school. income ranks 37th among the 50 states. state, only one of its universities (the small, How Texas responds to these forces will These two faces of Texas are hardly a private Rice University in Houston) makes determine its future. Get it right, and the paradox. Texas has one of the most un• it into the list of the top 20 universities in state will remain business•friendly and equal income distributions of any state, a America, let alone the world. globally competitive, with high employ• legacy of the days when rich ranch•own• In contrast to those Forbes ratings, the ment and a rising standard of living. Get it ers and oil billionaires were served by Kau man Foundation, which promotes wrong, and Texas could follow California poorly paid ranch hands and roughnecks; entrepreneurship, puts Texas only 18th in (which Œ‡ipped from Republican to and when Mexican immigrants crossed an its ranking of states’ ability to take advan• Democratic control in part thanks to rapid essentially open border at will to toil away tage of America’s Œtransformation into a immigration) down the road of high taxes at sun•scorched farm jobs for pay that ŒAn• global, entrepreneurial and knowledge• and excessive regulation. This route has glo (non•Hispanic white) workers would and innovation•based New Economy. bankrupted California and is prompting a not contemplate. You might call this Tex• Texas falls down in a number of categories, net 100,000 people to leave each year. as’s persistent ŒSouthern side, a contrast most of them to do with education. Many of them head for Texas. One simple to its high•tech, urban and liberal ŒWest• Kau man ranks Texas 41st for the edu• statistic tells that tale: it costs nearly three ern side. These two aspects of Texas’s cation level of its workforce as well as for times as much to rent a self•drive van for a character and history still sit uneasily to• the average education level of recent arriv• one•way journey from Los Angeles to gether, just as geographically the vast land• als from elsewhere in America, suggesting Houston as the other way around. 7 The Economist July 11th 2009 A special report on Texas 3

Tex•mix

The state’s best and worst sides

HOUGH the Texas model has many sented, as at the port of Houston, the man• health are underfunded. All states these Tcritics, its admirers tend to list the same agement says they behave sensibly. days compete to get businesses to move in; advantages. The low tax burden (second• Then there is tort reform. Texas used to Scott McCown of the Centre for Public lowest in America) invariably comes top be a plainti ’s dream, with few restrictions Policy Priorities (CPPP) in Austin calls this of the list. Arthur La er, inventor of the on who could sue for what and where. Œbuying dates. Such incentives distort the famous curve, reckons that one of the most Class•action suits against big corporations market and bene†t newcomers at the ex• important determinants of whether a state used to be heard by juries who made free pense of established companies. does well or badly is not just the overall with the defendants’ money. George Bush Texas’s package of bene†ts is hand• level of taxes but their structure too. A (who was from 1995 un• some. In 2003 its legislature voted in a Tex• high, progressive personal income tax, he til he headed o to greater things in 2000) as Enterprise Fund, with $295m, since says, is about the worst incentive•killer partially reformed the system in 1995. Rick topped up, to spend on luring companies you could devise. Americans are highly Perry, his successor, oversaw a second re• to Texas; that was followed two years later mobile, so the most able will simply leave form in 2003, concentrating on medical by a $235m Emerging Technology Fund. for another state. Mr La er himself left Cal• awards that were driving doctors away. These are among the biggest such funds ifornia for low•tax Tennessee three years Since then malpractice•insurance rates anywhere in America. ago because he felt that bad taxes were de• have fallen and the doctors have returned. The legislature also allows Texas city stroying the state’s economy. The state’s sound public †nances are of• governments great latitude in designing Progressive taxes are considered fairer, ten noted too: in the landmark legislative their own inducements for business. Free but better to leave it to the federal authori• session of 2003 (Texas’s legislature meets land, cheap electricity, subsidies towards ties to impose a progressive income tax, only every other year, for 140 days) Texas the wages of higher•paid workers, funds the same for every state. The nine states eliminated a budget de†cit of close to $10 for training and long tax holidays are now with a personal•income•tax rate of zero, billion and has not looked back. It is still in essential weapons in municipal armou• Mr La er †nds, had net domestic immigra• surplus, though only thanks to a large dol• ries. Most controversial are the Œabate• tion of 4.5% of their population in the ten lop of cash from the federal government. ments o ered to big investors that exempt years to 2007; the nine with the highest Since 1988 the state has maintained a them from paying property taxes to the lo• marginal tax rates saw out‡ows averaging Œrainy•day fund, paid for by taxes on oil cal school districts; in Texas, as in most 2.2%. A high state tax on capital gains is also and gas companies, which is now worth states, these taxes are the schools’ main bad because it tends to be volatile, causing $6.7 billion; it can be raided only if two• source of funding. big budgetary problems. Texas does not thirds of both houses of the state legisla• have one of those either. ture agree, and Mr Perry vows not to touch Sprats and mackerels Next on its list of advantages usually it in the current, arguably rainy, downturn. Such inducements are helpful for the com• comes the feeble state of its unions. Texas, A fourth factor is the amount of help panies, but they also make business sense like 21 others, mostly in the South, is a that state and local government o ers to for the cities that o er them. Gary Law• Œright to work state, so no one can be com• business. Here purists on the right †nd rence, who heads the Economic Develop• pelled to join a trade union. Only 4.5% of its common ground with those on the left ment Alliance of the city of Lubbock, in the workforce is unionised, against 12.4% na• who complain that companies are given Texas panhandle, explains that one elec• tionally. Even where unions are well repre• generous tax breaks but education and tronics investment he backed cost the city $4.7m in revenue forgone over ten years. But in return the company undertook to Advantage Texas 1 create 165 well•paid jobs, creating a de• GDP, % increase on previous year Unemployment rate, % US house prices, % change mand for houses that is increasing income on a year earlier from property taxes as well as sales taxes. 5 9 The $4.7m should be written o in as little 20 as three years. This kind of deal has put 4 8 Lubbock on the map. US 7 10 Mr Perry and the Republicans who 3 Case-Shiller Dallas index + have dominated both chambers of the leg• 6 0 2 islature since 2003 can claim some credit Texas – Texas 5 for all those boosts to business. But they get 1 10 none for Texas’s biggest advantage: its US Case-Shiller 4 national index sheer size. Larger in area than any country 0 20 in the European Union and than any 200001 02 03 04 05 06 07 08 2005 06 07 08 09 2005 06 07 08 09 American state bar Alaska, Texas has huge Sources: Bureau of Economic Analysis; Bureau of Labour Statistics; Standard & Poor’s amounts of space into which its cities can 1 4 A special report on Texas The Economist July 11th 2009

2 expand. This has allowed Houston to ton or Dallas; small rented homes in the Mr McCombs is not alone. Almost sprawl over some 600 square miles; it is grimmer parts of south•east Houston are everyone interviewed for this report ex• probably the most spread•out big city in advertised for as little as $99 a week. With pressed concern about the poor state of America and has no zoning restrictions, al• taxes and prices also lower, an incomer Texas’s public schools and the mediocre re• lowing the market to determine the best from California might easily save 30% or cord of its universities. Stephen Klineberg, balance between retail, commercial and more of his salary by moving from Silicon professor of sociology at Rice University in residential uses. Valley to the ŒSilicon Hills of Austin. Houston, puts it bleakly: ŒIf we fail to turn California is constrained by its moun• our education system around, we will †nd tains and the ocean, to say nothing of the Learning diˆculties that a whole generation has been locked demands of environmentalists keen to Red McCombs is no bleeding•heart liberal. out of the jobs market. The drop•out rate preserve its remarkable natural beauty. A lumbering giant of a man and one of Tex• from Texas’s schools is high across all three Texas, says Michael Lind, a †fth•generation as’s crop of a couple of dozen billionaires, of the main racial groups, white, black and Texan who writes about demography, he built his fortune by buying and selling Hispanic, but it is the Hispanic drop•out identity, history and much else, Œis ‡at and everything from car dealerships to football rate that worries people most. ugly. The Sierra Club is not going to kick up teams. But he gets distinctly emotional According to Mr McCown of the CPPP, a fuss if Houston or Dallas keeps on grow• about the poor performance of Texas’s the only answer is more taxation. ŒWe ad• ing. He is being a little harsh; most of cen• educational system. ŒThe biggest blight on vocate a state income tax, he says, Œand tral Texas is perfectly nice•looking grass• our state, he thunders, Œis the terrible the emerging majority’s need for better land. But there certainly is a lot of it. graduation rate from our high schools. education and health services will eventu• Limitless space translates into low Shame on us! It’s been that way for 30 ally produce one. The problem is that if we property prices; you can buy a 1,500 square years, and it’s getting worse. Have we been wait until then, we will lose a generation foot (140 square metre) starter home for as greedy, ignorant, uncaring? Maybe all of getting there. Texas ranks 34th in terms of little as $100,000 in a decent part of Hous• those things. expenditure per pupil, but Mr McCown 1

A new breed of school for some Work hard. Be nice of the poorest kids

CHEERY yellow building in south• tion in the hiring and †ring of teachers pansion of KIPP schools across the coun• Awest Houston may not look like the and are free to pay by results as they think try is proof of that, and Mr Witney says centre of an educational revolution, but †t. Charter schools are a mixed bag, but these days there is no shortage of highly appearances can be deceptive. Bedecked the best of them are achieving results motivated young people who want to with upbeat slogans‹ŒPeople make the most board•run schools can only dream work as teachers in such schools. KIPP can di erence, ŒThink like a champion to• of and are heavily oversubscribed. hardly be the answer to all of Texas’s pro• day, ŒBe the constant, not the variable‹ Central to the KIPP programme is the blems, let alone America’s. But along with the building houses the main oˆces and contract that all students (or KIPPsters) the †ve campuses operated by YES (Youth assembly area of the KIPP Academy, sign before they join the school, which Engaged in Service), with a very similar Houston, the †rst of a network of 66 commits pupils, parents and teachers to philosophy, it is an important part of it. schools in 19 states and Washington, DC. do everything in their power to ensure KIPP (Knowledge Is Power Pro• that the pupils complete their courses and gramme) started in 1994 with a simple phi• go on to a university. Critics say that this, losophy, encapsulated in its main motto, in e ect, excludes children from the most ŒWork hard. Be nice. It stresses personal deprived families of all. responsibility and hard work (even the Still, around 70% of the academy’s stu• youngest students can expect a couple of dents come from low•income families, hours of homework a night, and teachers and around 95% are either Hispanic or Af• must be available on their mobile phones rican•American. Typically, says Elliott to help with it) and tells its pupils that Witney, the head of the academy, only Œthere are no short cuts. about 7% of students from low•income The KIPP schools are the most striking families graduate from college; KIPP’s rate example of a movement that is improving so far has been over 90%, though it has not education across America: the rise of yet quite achieved its goal of 98.6% (Œbody Œcharter schools. These are paid for by temperature). state governments and free for the stu• KIPP’s successes may be due to excep• dents, open to anyone and, crucially, inde• tional leadership, but according to Mr Wit• pendent of often badly•run school ney there is no reason to think that they boards. Head teachers have wide discre• cannot be widely replicated. The rapid ex• And play hard too The Economist July 11th 2009 A special report on Texas 5

2 reckons that it needs to spend more than dence that their presence is encouraging the universities, which are way too high. the average, not less, because of the high the school districts to up their game. Other e orts are under way. Francisco proportion of its students that do not For Texas’s universities, there is proba• Cigarroa, the chancellor of the University speak English at home, or at all. bly no substitute for digging deep and of Texas system and the †rst Hispanic ever Others disagree. If money were every• spending more money, and the state gov• to hold this prestigious job, says his board thing, California’s children would have ernment is trying to do just that. Embar• has authorised a $150m fund to bring lead• much better test scores than Texas’s, but a rassingly, Texas has only three Œtier•one ing academics to Texas. The system, made recent study by McKinsey, a consultancy, universities (generally de†ned as meaning up of 15 centres of learning, now has a $3 shows the opposite. As it happens, Hous• that a university undertakes at least billion fund (approved in a 2007 referen• ton is the birthplace of two independent or $100m•worth of research a year). Califor• dum that would surely have failed in just Œcharter school movements that are now nia has nine tier•one universities and New about any other state) to establish a world• taking America by storm: KIPP (the Knowl• York state seven. class cancer foundation. It has just recruit• edge Is Power Programme‹see box, previ• ed a Nobel laureate as its chief scientist. ous page) and YES (Youth Engaged in Ser• Buying brainpower David Dewhurst, Texas’s lieutenant•go• vice). Texas’s three are the University of Texas at vernor and president of the Senate (jobs Neither requires increased spending; in Austin; A&M at the small town of College that arguably make him the most powerful fact, their costs per pupil are generally low• Station; and the tiny (and private, hence ex• person in the state), says that Texas is still er than those of the school districts in pensive) Rice at Houston. So none of Tex• adding to its university enrolment where• which they operate and compete. Their re• as’s three largest cities has a big tier•one as California’s is contracting. ŒIf you aren’t sults have been phenomenal, with typical university to its name. A bill passed by this making money, you can’t expand, he says. drop•out rates of less than 5%. But the num• year’s legislative session commits the state That, in a nutshell, is the philosophy of Tex• ber of charter schools in Texas is currently to help no fewer than seven tier•two uni• as today. But allowing the state’s schools capped at 215, and a mere eight new ones versities reach tier•one status. If voters and universities to improve enough to were authorised last year. And only well• agree in a referendum, up to $680m could meet its future needs, while keeping the motivated parents tend to send their chil• be available. Texas should also be saving low taxes that businesses †nd so attractive, dren there. However, there is some evi• money by cutting administrative costs at will be a tricky balancing act. 7 Beyond oil

The Texan economy is becoming ever more diversi†ed, but energy remains a favourite

IGHWAY 84, as it descends from Lub• be connected to any of America’s three John Crew, manager of Republic Power Hbock through Snyder to the small main grids: the eastern, the western and Holdings in Dallas, says he is aiming to pro• town of Sweetwater, is a road worth tak• Texas’s very own ERCOT grid. vide 6,000MW through a mixture of gas, ing. Spread across the vast plain are thou• Another †ve transmission lines to ER• wind and clean coal up in the panhandle. sands of windmills, gently turning in a fa• COT are therefore being built. Texas has al• Lucky Texas has abundant natural gas, vourable wind; not too slow, not too fast ready exceeded threefold a target it set it• too. Though it has seen no signi†cant on• and, above all, fairly consistent. self in 1999 for the amount of power to be shore oil †nds for decades, it has done well Only as you draw near to one do you re• generated from renewables, almost whol• with gas in the past few years. This is a mat• alise that these towers are the height of 40• ly thanks to wind. And much more is ter of technology as much as geology. storey buildings; their blades are the planned: T. Boone Pickens, a famous local Since the turn of the millennium engineers length of a jumbo jet’s wing. They are clev• corporate buccaneer, plans eventually to have perfected the art of drilling horizon• er too. Without human intervention, they install 4,000MW•worth of windmills in tally through hard shale. One main vertical can turn their heads and alter the pitch of the panhandle, and to build his own trans• shaft can now branch out into as many as a their blades to make the most of the wind. mission line to the main grid. dozen Œlegs, each perhaps 5,000 feet They cost about $5m apiece. Wind is inherently variable, so it can (about 1,500 metres) long; all this at depths Sweetwater calls itself the windpower never compete with the cheap and dirty of 8,000•13,000 feet. capital of America, and with roughly coal that generates half of America’s elec• As well as saving money, this makes it 3,300MW of installed capacity within a tricity. But powering up a coal station takes possible to extract gas from below urban 50•mile (80km) radius the claim is not ex• half a day, so electricity companies get areas‹and, as with the lucrative Barnett travagant. Already endowed with oil and their baseload from coal or nuclear sources shale, from under the Dallas•Fort Worth gas, Texas is blessed with a fair wind as and rely on something else to handle varia• airport. East Texas also saw extensive prov• well. Even stronger and more consistent tions in demand. Most use natural gas; the ings in 2008. The Haynesville shale, which winds are to be found further north along latest gas generators can power up or extends into Louisiana, is a huge †nd. the Œwind corridor that stretches from the down in †ve minutes. Wind makes an ex• The search is now on for alternative west Texas plains up through the pan• cellent substitute for some of that gas, and uses for the fuel. The obvious one is to handle and into Oklahoma and beyond. some of the most interesting Œpower power vehicles with compressed natural But for now these areas are too remote to plays in Texas involve a mix of the two. gas (CNG). That would mean creating a 1 6 A special report on Texas The Economist July 11th 2009

2 network of †lling stations for private users, Austin. ŒQuality of place is a phrase you but public transport and some other com• hear a lot in Texas. mercial users could operate their own, and The Greater Houston Partnership, an al• since CNG is much cheaper than petrol liance of hard•nosed businessmen that they could save money. looms large locally, has worked well with The environmentalists’ holy grail is Bill White, Houston’s business•minded Œclean coal which does not produce but green mayor, to support his clean•up of greenhouse gases. That means capturing the city’s air and water. Dallas, fearful of and sequestering the carbon dioxide re• being outdone by Houston’s top•notch leased when the stu is burned. With pre• Wortham arts centre, will soon have a sent technologies that is uneconomic. But spanking new opera house and a big the• what if there is a market for the CO2? atre complex. The opera house was paid The easily available oil from West Tex• for by 300 families, each ponying up $1m. as’s Permian Basin, the richest oil†eld in A big part of Austin’s draw is its music, and America, is mostly gone now. The best way particularly its SXSW festival. Austin is a to extract the remainder is to pump gas remarkably laid•back place, with all the ad• down to force the oil out. Oil companies vantages of being a blue city in a red state. use CO2; once pumped down, it is trapped Third, geography counts for a lot. Tex• there. It may be economic to establish a as’s importance as America’s leading trad• clean•coal plant in or near the Permian Ba• ing state, and one of its main distribution sin, trucking in the coal from Wyoming Austin’s weird and wonderful side centres, is bound to grow. Governor Perry’s and selling the CO2 to nearby oil operators. plans for a ŒTrans•Texas Corridor, a Several †rms are now pursuing this idea in thriving high•tech cluster. Inevitably there mighty new highway running north from and around the oil town of Odessa. is overlap, and con‡ict; San Antonio has Mexico across the state, was turned down not forgiven Dallas for luring AT&T away as too expensive and disruptive, but large Multi•trick pony last year. But Mr Gilmer argues that the cit• parts of it will be built anyway. Once the But hydrocarbons these days are only a ies are not so much rivals as partners. widening of the Panama Canal is complet• small part of what drives Texas’s resilient A few conclusions can be drawn from ed in 2014, Houston will become an attrac• economy. Work by the Dallas Federal Re• all this. First, the role of government, at all tive port for Asian goods being shipped to serve suggests that the economy’s sensitiv• levels from federal to local, has been sur• the central and eastern states; it is already, ity to changes in the oil price has dimin• prisingly strong for a state that likes to in e ect, the principal export port for ished to only one•sixth its level in the 1970s think it typi†es rugged individualism. The prosperous northern Mexico. and 1980s. That helps to explain the rela• decision to put Mission Control in Hous• Dallas•Fort Worth’s enormous airport tively muted impact on the state of the oil• ton back in 1961kick•started that city’s non• lies at the centre of a large number of logis• price crash at the end of last year. oil economy. San Antonio has boomed tics and distribution centres. Again, having A 2004 paper by Robert Gilmer, an thanks to the presence of three large mili• oodles of space to expand into is crucial; economist with the Dallas Fed, has an in• tary bases, and the well•managed closure Los Angeles, New York and Chicago, teresting take on some of the forces that of a fourth in 2001 has created a vast new America’s other big logistics centres, are all have helped Texas diversify. He argues that air• and rail•distribution port, mainly serv• hemmed in. the four main cities of the Texas triangle ing Mexico. Much of Dallas’s electronics Fourth, the memory of the 1980s bank• should be seen as a vast single economic industry began with defence contracts. ing crisis is still strong. Whereas banks in entity, separated only for geographical and The University of Texas at Austin, one the rest of America have reeled, those in historical reasons and complementing of America’s largest single campuses, has Texas remain in reasonable shape. Richard rather than competing with each other. helped that city become a leading high• Fisher, the president of the Dallas Fed, puts Thus, San Antonio handles trade with tech centre. Dell, one of America’s 40 big• it down to his state’s particularly e ective Mexico, which has been a huge boon to gest companies, started life at the universi• regulation. He is biased, no doubt; but Tex• Texas since the creation of the North Amer• ty in 1984, and smart industrial policy as law does cap the loan•to•value ratio of ican Free•Trade Agreement in 1994: Texas brought Sematech, a consortium involving mortgages at 80%. Without a big property has been America’s biggest exporting state the government as well as 14 big chip †rms, boom this time around, prices did not have every year since 2002. Toyota’s decision in to Austin in 1988. Scores of other tech †rms so far to fall. 2003 to put a huge new factory and suppli• have followed. And †nancial services in Texas, having er park there had a lot to do with the Latin Second, Texas has bene†ted from trans• been almost wiped out in the 1980s, are American market. plants. Cheap property and low taxes have now expanding. Dimensional Fund Advi• The Dallas metroplex is strong in tele• attracted corporate headquarters and start• sors, which has $99 billion under manage• coms, aerospace, distribution (four inter• ups alike. At a round•table organised for ment, moved from Santa Monica to Austin state highways converge there) and bank• The Economist in Austin by Angelou Eco• in 2006. Comerica, America’s 23rd•largest ing. Houston has oil and gas, but also nomics, a consultancy that specialises in bank, according to Fortune, moved its NASA and the Texas Medical Centre, an ag• matching Œnew economy businesses headquarters from Detroit to Dallas a year glomeration of 47 not•for•pro†t hospitals, with cities that want them, only two of the later. Texas is not about to become a big na• medical schools and other institutions. 12 entrepreneurs taking part were native tional banking centre, but these are further Austin, as well as housing the machinery Texans. Most of them cited non•economic signs that an economy of cotton, cows and of state government, has developed into a as well as commercial reasons for being in drills has become a lot more diverse. 7 The Economist July 11th 2009 A special report on Texas 7

The red and the blue

Whisper it softly, but Texas looks set to become a Democratic state

HE elected sheri of Dallas County is a lar in Texas. Jim Hightower, a former Texas Tlesbian Latina. The leading candidates agriculture commissioner and the perenni• Closing the gap 2 to become mayor of Houston in Novem• al voice of Texas populism, says that ŒTexas Share of the US presidential vote in Texas, % ber include a black man and a gay white has always been a purple state‹up for woman. The speaker of the House of Rep• grabs by either the red Republicans or the 70 resentatives is the †rst Jew to hold the job blue Democrats. Republican in 164 years of statehood and only the sec• It had a Democratic governor, in the 60 ond speaker to be elected from an urban feisty and liberal shape of Ann Richards, district in modern times. In this year’s leg• until as recently as 1995; but since that year, 50 islative session, bills to compel women to which saw George Bush’s ascent to the go• undergo an ultrasound examination be• vernor’s mansion, the Republicans have 40 fore having an abortion (to bring home to been †rmly in control, and no Democrat Democrat them what they are about to do) and to al• has won statewide oˆce. Since 2003 the 30 low the carrying of guns on campus both Republicans have controlled the House as fell by the wayside; a bill to increase com• well as the Senate, monopolising every le• 1968 72 76 80 84 88 92 96 2000 04 08 pensation for people wrongly convicted ver of power in the state. Now the pendu• Source: Texas Secretary of State sailed through. Lakewood, in Houston, the lum is swinging back. biggest church not just in Texas but in With no prospect of a local son to vote the governorship. Rick Perry is running for America, claims to welcome gays. As Do• for in future elections (a Bush has been on a third full term in the job, but the main rothy in ŒThe Wizard of Oz might have the ballot paper for six of the past eight challenge he faces is not from the Demo• said, we’re not in Texas any more. presidential votes), the Republicans have crats who, oddly, have come up with a re• Or at least, not in Texas as we have re• lost one big advantage. In the 2008 election markably unconvincing candidate: Tom cently come to know it. A Democratic•vot• the Democrats did much better all over the Schie er, who used to be Mr Bush’s busi• ing Texas would be nothing new, but politi• state. They won the presidential vote in all ness partner and who is famous mainly cal memories are short, and the blunders the big cities except Fort Worth (see map). because his brother is a TV presenter. The of the Bush presidency have coloured glo• They made big inroads into the Republi• real rival is within, in the shape of Kay Bai• bal perceptions of what Texas is like. It cans’ dominance of the suburbs, where ley Hutchison, probably the most popular mostly voted Democratic in presidential American elections are lost and won these politician in the state. Mrs Hutchison has elections until 1968, when, alone among days. Overall they took 44% of the vote, up served as one of Texas’s two senators in the former Confederate states, it went for from 38% in 2004, even though Barack Washington, DC, since 1993, and was last , and 1976, when it voted Obama barely campaigned in Texas. re•elected in 2006 with 62% of the vote. for . Many of those voters They secured a blocking minority, 12 were highly conservative ŒDixiecrats and seats out of 31, in the heavily gerryman• Internecine warfare later ‡ipped to the Republicans. But there dered state Senate, and almost took control Mr Perry has a strong economic record to has always been a strong radical streak too. of the Texas House of Representatives: the run on, but because his toughest †ght is William Jennings Bryan was hugely popu• Republicans now hold it by just 76 seats to against a fellow Republican, this has al• 74. The conservative speaker was ready turned into a battle for the souls of promptly ousted and replaced by Joe the 600,000 conservative sorts who vote Straus, who depended for his election on a in the Republican primary, due to be held sizeable block of Democratic votes. next March. Mr Perry has lurched to the The mild•mannered and charming Mr right to woo this atypical electorate. Straus has turned out to be a bipartisan Thus, he has backed allowing ŒChoose and moderate †gure, though he insists that Life to be an oˆcial Texas car licence•plate he made no promises to the Democrats motto. This hurts Mrs Hutchison, who is in who backed him. But this year’s legislative trouble with social conservatives for hav• session showed the Democrats ‡exing ing once voted against overturning Roe v their muscles in the House, blocking a bill Wade, the Supreme Court decision that on voter identi†cation that they said dis• protects the right to abortion. He has also criminated against their supporters. refused to take up a big chunk of the stimu• The rise of the Democrats poses a di• lus funds o ered to Texas to help pay un• lemma for Republicans in Texas, just as it employment bene†t, on the ground that does nationally. And just as the national this would create a long•lasting obligation. party seems to be lapsing into fratricide, so No one doubts that Mrs Hutchison a vicious internal war has broken out over would beat Mr Perry or anyone else in Tex•1 8 A special report on Texas The Economist July 11th 2009

2 as in a general election, but recent polls Texas had become used to being at the have her lagging behind Mr Perry in the centre of events, having supplied the presi• primary. If she does formally enter the dent, the vice•president or at least the trea• race, as expected, she will have to face be• sury secretary for all but a handful of the ing branded as a baby•killer and a creature past 50 years. Now it does not even have a of spendthrift Washington, DC. senator in the majority party, meaning that Mrs Hutchison insists that Œit’s very im• Texas has no voice in any of the big deliber• portant that we don’t build a party around ations in Washington, DC. That will help an issue [abortion] that is so personal, on the Democrats too. which even families disagree. She is But it does seem fair to ask what Texas surely right, but primary voters may not Democrats actually stand for. They say see it that way. This race matters hugely to they want more money spent on health Texas: it is a moment when the state’s Re• and education, but pretty much every poli• publicans will have to decide which wing tician in Texas says the same, and the of the party they are on. party’s leadership shows no appetite for The Democrats, meanwhile, are pin• delivering this by taxing Texans more ning their hopes for the 2010 election on heavily. Hardly anyone seeks to abolish securing a majority in the state House of the death penalty, even though, in most Representatives and on winning a US Sen• years, Texas executes as many people as ate seat (which may come up sooner if Mrs the rest of America put together. Gun con• Hutchison resigns to concentrate on her trol and recognition of gay marriage are o race for governor). Their chances in the And now for someone completely di erent the table. Everyone has jumped on the re• House are good: as the recession starts to newable•energy bandwagon. bite in Texas, later than elsewhere in the inos voted Democrat by 63% to 37%. Mr It would, in short, be possible to imag• country, support for the Democrats is likely Obama’s nomination of the †rst Hispanic ine Texas slipping back to the Democrats to rise. On the other hand Barack Obama Supreme Court justice is unlikely to hurt, without much happening in consequence, will not be at the head of the ticket in 2010, and nor will his commitment to immigra• except for two considerations. The †rst is as he was in 2008‹though in Texas he was tion reform. As Hispanics increasingly that, should Texas go Democratic at the never quite the draw he was on the coasts. spread out across the state they will start to presidential level, the Republicans nation• The steady rise in the Hispanic popula• tip the balance in many suburban coun• ally would be in deep trouble: with its 34 tion, coupled with a slow but continuous ties, which is where the big political battles electoral•college votes, Texas is the only big increase in Latinos’ tendency to vote, in America are being fought. state they have regularly won in recent bodes well for the Democrats. George In the Senate race the Democrats’ prob• presidential elections. The second consid• Bush did an impressive job courting the able candidate will be Bill White, the cur• eration is the Hispanics. As they become Hispanic vote, but the Republican Party rent mayor of Houston. He has done an ex• ever more powerful in an ever stronger threw that advantage away by rejecting his cellent job balancing the needs of business Democratic Party, there is every chance plans for immigration reform in 2006•07. with those of his core voters, and he will that they will turn against a model that has In the 2008 presidential election Texas Lat• have a lot of money behind him. left far too many of them behind. 7 The new face of America

Texas is the bellwether for demographic change across the country

T THE age of 34, Julian Castro has enjoy the in‡uence that their numbers sug• man in a hurry. ŒMALC is taking over the Apulled o a remarkable feat. On May gest. ŒWe do have a history of failing to par• Democratic Party here, he says, Œand it is 9th, without even the need for a run•o , ticipate, he admits. ŒBut we have been time for us to expand our footprint. the polished young lawyer won the race to seeing a series of big advances. The most pressing issue, he reckons, re• become mayor of San Antonio, the largest Things are indeed changing. At the na• mains education. ŒWe are creating a major• Hispanic•majority city in America and the tional level voter turnout among Hispan• ity population here that is limited in its seventh•biggest city in the entire country. ics was 49.9% last year, up from 47.2% in skill set. It is up to us: if we don’t act, we are He joins Antonio Villaraigosa, the mayor 2004, though still much lower than the heading for disaster. But it is not just edu• of Los Angeles, as one of America’s half• non•Hispanic whites’ 66.1%. The body to cation; Hispanics, he says, are poorly dozen most prominent Hispanics. watch is the Mexican American Legislative served when it comes to access to capital, The curious thing is that Mr Castro is Caucus (MALC), which claims 44 of the 74 health care and public transport. ŒThis only the third Hispanic mayor in San Ant• Democrats in the Texas House (there is not state, he says, Œhas not yet atoned for the onio’s long history; the †rst, Henry Cisne• one Hispanic Republican there, a gigantic sins of its past. ros, was elected only in 1981. America’s His• problem for the party). Trey Martinez Fi• You only need to tour the Rio Grande panics have a long way to go before they scher, who chairs MALC, is another young valley, which stretches from Brownsville in1 The Economist July 11th 2009 A special report on Texas 9

Martinez Fischer says that the state has sys• whites, or Anglos, are in the minority): Cal• tematically underfunded public education ifornia, Texas, Hawaii and New Mexico. He and insists this will have to change. expects the 2010 census to show as many Health care is another racial issue. Tex• as 10•12 states to have passed that mile• as has the worst insurance•coverage rates stone; by 2040, he thinks, America itself in America, and Hispanics, as well as will be a minority•majority nation. blacks, fare much worse than Anglos; most The geographical spread of Texas’s His• Americans get their health care through panic population has changed in a way their companies, but Hispanics and blacks that will change the state’s politics. Most are more likely to work for employers who Latinos used to live south of the I•10, the provide limited bene†ts or none, or to be motorway that joins San Antonio to Hous• unemployed. ton, notes Mr Anchia. But now Dallas, like The ‡aws in the American health sys• Houston, has considerably more Hispan• tem are mostly a federal matter, but Texas ics than Anglos: a little over 40% of the makes them worse by failing to take up population against around 30%. Mr An• available federal dollars because of the chia himself represents a district that in• need for co•†nance by the recipient state; cludes part of Dallas and a swathe of 2 the east up almost as far as Laredo, to see by providing few public clinics; and by re• prosperous suburbs, including some what he means. The valley includes some fusing to reimburse private hospitals for where there have been nasty rows about il• of Texas’s fastest•growing and most suc• the cost of emergency care for people who legal immigration. cessful counties, such as Cameron County cannot a ord to pay, forcing them to jack Even public schools up in the once lily• around Brownsville and Hidalgo County up prices for others. It also operates one of white panhandle in the north of the state around McAllen; Brownsville has the least generous subsidy regimes for are seeing their classes †ll up with Hispan• boomed, thanks in large part to its port, poor children in the country. ic children; to take a random example, in which serves Mexico’s buoyant north. Mc• The reason why MALC will have to be tiny Stratford up on the border with Okla• Allen has also become a favoured place for listened to on all these counts is demo• homa some 54% of the children at the local rich Mexicans to buy homes, educate their graphic. The Hispanic population is con• high school are Hispanic. ŒEvery single in• children and squirrel their money away; its stantly being reinforced by the arrival of stitution in this state was built by Anglos mayor, the engagingly town•proud Rich• immigrants from across the Rio Grande, for Anglos, says Mr Klineberg. ŒAnd they ard Cortes, has big plans for an arts district, though economic, political and security will all have to change. upmarket shopping centres, a huge public pressures have started to make the border library which he says will be the †fth•larg• less permeable. Come on in est in the country, and much else. But international migration is not the That might be easier than it sounds. Texas main driver of Texas’s booming popula• has proved far better than the other border Down in the valley tion. Texas’s Hispanics, on average, are states (California, New Mexico and Arizo• But you can also encounter poverty on a younger than the Anglos, and their wom• na) at adapting to the new, peaceful recon• scale hard to †nd anywhere else in Ameri• en have more babies. In 2007 just over 50% quista. In California, Proposition 187, which ca. More than 30% of the valley’s popula• of the babies in Texas were born to Latinas, cracked down hard on illegal immigration, tion still falls beneath America’s oˆcial even though Hispanics make up only 38% was heartily backed by the then Republi• poverty level, according to Sister Maria of the population. Over the eight years to can governor and passed in a referendum Sanchez of Valley Interfaith, a local charity. 2008, reckons Karl Eschbach, Texas’s oˆ• in 1994, though it was later struck down by The poorest among them are to be found in cial state demographer, natural increase a federal court. This kind of thing has only the colonias, small settlements outside re• (which favours Hispanics) accounted for ever been attempted in Texas at local level, cognised towns. There are around 2,300 just over half the 3.5m increase in the and even then only very rarely. colonias in total, and the worst of them still state’s population, and migration from Texas has always been a strong suppor• have large numbers of houses without other states for almost half of the rest. ter of immigration reform that would o er running water. In recent years state money Even if the border closed tomorrow, illegal immigrants (of whom Texas has has hugely improved some of them, such Hispanics would still overtake the Anglos close to 2m, about 7% of its population) a as Las Milpas, outside McAllen. Others, by 2034, reckons Mr Eschbach. Recent path to citizenship. It has also always fa• like Los Altos outside Laredo, are a nation• trends suggest that this will in fact happen voured NAFTA. Perhaps that is because al disgrace. ŒWe are the richest country in by 2015. More than half the children in the Texas was itself Mexican until 1836. For the world, and we still have this, says †rst grade of Texas schools are Hispanic. centuries the border, demarcated by the Jaime Arispe, of the Laredo Oˆce of Bor• And in the Houston public•school district Rio Grande, was entirely porous, and its der A airs, as he surveys a street that looks the proportion is 61%, notes Stephen Kli• very length meant that much of Texas felt as if it could be in Port•au•Prince. neberg, of Rice University. (African•Ameri• joined to Mexico‹a cultural aˆnity evi• Others echo Mr Martinez Fischer’s cans make up another 27%.) denced in the fact that the margarita and views, if not quite the passion with which Nor is it only Texas that is undergoing the fajita were both invented in Texas. he expresses them. Rafael Anchia, another profound demographic shifts, says Mr Kli• Only recently, at the behest of distant House member, was recently tipped by neberg. Texas today is what all of America authorities in Washington, DC, has this Texas Monthly as the †rst Hispanic gover• will look like tomorrow. At the moment sense of propinquity seemed to weaken. nor of Texas‹though not until 2018. He there are only four Œminority•majority Driven by anger elsewhere in America, im• brushes the accolade aside, but like Mr states (that is, states where non•Hispanic migration oˆcials raid businesses looking 1 10 A special report on Texas The Economist July 11th 2009

ican side of the border to bene†t from low• er wages and land costs, have specialised in making parts for Detroit. One of Texas’s main assets is a bit distressed just now.

Don’t mess with Texas So Texas has a huge challenge to cope with. But it seems wrong to end on a pessimistic note. Texans above all are optimists, and few of them seem to doubt that Mexico’s proximity is a huge long•term source of strength for the Lone Star state. That opti• mism, rooted in a profound sense of local pride that can sometimes jar with outsid• ers, is Texas’s dominant characteristic. Pledging allegiance It is the reason why the wildcatter, the independent oilman whose test drillings 2 for workers with false Social•Security drug lords in its border cities, are certainly might come up dry 20 times before gush• numbers. Driven by post•2001 fears, the a ecting both the legal and the illegal sort ing in the end, is an enduring Texas sym• number of Border Patrol oˆcers is being of crossing. Everyone along the valley of bol. And it explains why risk•taking is ad• increased from 6,000 in 1996 to 20,000. the Rio Grande seems to believe that the mired and failure no disgrace. Most of the Texans don’t like this much. In April Je border is slowly closing. Enron executives who lost their jobs when Moseley, president and CEO of the Greater At the extreme eastern end of the bor• the †rm went bust in 2001 quickly found Houston Partnership, the city’s chamber of der, Jude Benavides, an ecologist at the new ones. The company’s oˆces in Hous• commerce, made a powerful speech to a University of Texas at Brownsville, la• ton were swiftly re•let. Enron Field base• Senate hearing in Washington in which he ments how life has changed. ŒThree of my ball stadium became Minute Maid Park. rebutted the notion that undocumented four grandparents are from Mexico, he ŒDon’t mess with Texas was once a slogan workers are a drain on America’s re• says. ŒWe used to cross over the bridge to for a wildly successful anti•litter campaign. sources. According to a study he presented, Matamoros just for lunch or dinner. Now It is now the state’s unoˆcial motto. they are more likely to be net contributors we don’t go. We are scared of the violence, To visit America in the midst of the in †scal terms. He argued that they mostly and it can sometimes take as long as two worst recession for decades can be a dis• complement rather than compete with do• hours in line to get back across. heartening experience, but a tour of Texas mestic workers, and that they are less like• The economy, too, is a powerful reason is quite the reverse. Since su ering that big ly to commit crimes than the native popu• why people are crossing less often. The shock in the 1980s, it has become a well• lation. And he pointed out that cracking Mexican peso has fallen by 18% against the diversi†ed, †scally sensible state; one down on illegals has had a perverse e ect, dollar since the beginning of 2008. That where the great racial realignment that ending a pattern of seasonal or circular mi• has hit retailers on the American side hard. will a ect all of America is already far ad• gration that has served Texas well for Mexicans in the northern border prov• vanced; and one whose politics is gradual• many decades. Instead, it has encouraged inces have been hurt by the collapse of ly †nding the centre. It welcomes and as• the use of people•smugglers bringing America’s car industry. Many of the ma• similates all new arrivals. No wonder so across whole families who then tend to quiladoras, factories set up just on the Mex• many people are making a beeline for it. 7 stay. It has fenced people in, not out. Mr Moseley used the word Œfence cal• O er to readers culatedly. Down in southern Texas there is Future special reports Reprints of this special report are available at a Countries and regions no †ve•letter word more likely to provoke price of £3.50 plus postage and packing. The Arab world July 25th anger. The way Texans see it, the fence that A minimum order of †ve copies is required. Indonesia September 12th is being built along a third of America’s Corporate o er China and America October 24th 2,000•mile long southern border is an ex• Customisation options on corporate orders of 100 pensive waste of time. It sends an appall• or more are available. Please contact us to discuss Business, †nance, economics and ideas ing signal to a friendly neighbour; it is easy your requirements. Telecoms September 26th to climb over, with or without a ladder; it is The world economy October 3rd Send all orders to: easy to circumvent; it is bad for the envi• Business and †nance in Brazil November 14th ronment, because it cuts o animals from The Rights and Syndication Department their water sources; and it tramples on the 26 Red Lion Square WC1R 4HQ rights of landowners, since it has to be London Tel +44 (0)20 7576 8148 built well back from the riverside so as not Fax +44 (0)20 7576 8492 to interfere with ‡ood channels. e•mail: [email protected] But if the fence itself is likely to have lit• tle e ect on illegal immigration, the fear of For more information and to order special reports Previous special reports and a list of terror that gave rise to it, coupled with the and reprints online, please visit our website forthcoming ones can be found online recession on both sides of the border and Economist.com/rights Economist.com/specialreports Mexico’s murderous struggle with the