Lone star rising A special report on Texas July 11th 2009 TTexas.inddexas.indd 1 229/6/099/6/09 111:48:071:48:07 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 diversied, 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 Rick Perry’s vast possessions are still very rare; the state Voce in the Texas capitol building in budget is still in surplus even as California 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 The 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 inows 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 Houston Authority; Marc Farmer, Lubbock EDA; Steven Farris, Apache; Tony nocoPhillips and Valero; American, Conti• have seen net outows. 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 Oce; 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, Dallas 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 Texas 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 brieng 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 citiesand 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 opportunity citya 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 Texas 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 faces 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: Texas 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 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 transformation into a immigration) down the road of high taxes at sun•scorched farm jobs for pay that An• global, entrepreneurial and knowledge• and excessive regulation.