Monday, March 03, 2008

Texas vs. Ohio

Both Joel Kotkin and the Wall Street Journal have written similar op-eds showing the dichotomy of the Texas and Ohio economies before the potentially decisive Democratic primaries. Joel's post even attached some metrics charts on migration, job growth, economic growth, and demographics. Reason excerpts the political ramifications, as well as noting:
Interesting, Joel also points out that techies and CEOs seem to be attracted to Texas's low housing costs, free market business climate, and lack of an income tax. Ohio, on the other hand, has tried unsuccessfully to revitalize its economy through tax breaks and glitzy downtown development schemes.
Some Kotkin excerpts:
Texas is clearly on the rise, a fast-growing, dynamic and increasingly economically attractive place that will eventually contest California itself for national preeminence.
...
Texas presents, in many ways, Ohio’s mirror image. This free-market haven is among the few large states that enjoy both strong net internal migration of domestic residents and growth in immigration. Despite its less than stellar reputation among northeastern intellectuals and journalists, Texas also has become a major draw for college-educated workers in their late 20s and beyond. This is not merely an Austin phenomenon, but it is also true for Houston and Dallas.

Economically, Texas is on a roll, driven in large part by its historic role as an energy center. Bill Gilmer, a Houston-based economist from the Federal Reserve Bank of Dallas, ascribes the growth to several critical factors, including higher energy prices, relatively low housing and business costs and a recovery in the technology sector. “Everything’s now hitting on all cylinders,” Gilmer said.

Anyone who has spent time working in Houston, as I have, has noticed the big “buzz” of economic activity that shows the place has come back. The streets are definitely more crowded now than they were just a few years back, and there seem to be a lot of high-end stores and restaurants opening all around.

Houston’s job growth is running at about twice the national average, with manufacturing, finance and professional and business services all gaining. Incomes, adjusted for cost of living, have grown more quickly there than in most other cites. But it’s energy, Gilmer and other economists believe, that’s driving growth, bringing a whole cadre of new, highly paid professionals to an increasingly sophisticated high-tech business.

“Our business has been growing 40 percent for the last three years,” exults Chris Schoettelkotte, CEO of Manhattan Resources, a Houston-based executive search firm specializing in recruiting energy executives. “We’re pulling people from Wharton, Harvard, MIT and UCLA like never before.”

...Technology, too, is making a comeback in the Lone Star State. Austin is often lumped in with “hip” places such as Boston or Silicon Valley, but unlike them, it is adding jobs and enjoying a big surge of new migrants.

Lower housing prices and no state income tax, it appears, appeal to techies as much as other high-income folks, particularly engineers and executives entering their child-rearing years and moving primarily into the city’s sprawling suburbs.
...
Due in part to expanding trade with Mexico and other Latin American economies, Texas in 2002 replaced California as the nation’s leading exporting state.

With typical Texas ambition, Houston is actively poaching global business from both East Coast and West Coast ports, and Dallas-Fort Worth and Houston are becoming huge players in air cargo, one of the fastest-growing elements in world trade.

...Texas is a relatively young state — its population between the ages of 18 and 44 is expanding at more than three times the national average.

...But Texas Latinos are not identical to those in the Golden State.

For one thing, they tend to be far less unionized and more entrepreneurial than their California counterparts. And they are far more integrated into the Texas mainstream than the California community, which is made up of more recent immigrants.
The WSJ continues the hammering of Ohio:
Ohio's economy has been struggling for years, and most of its wounds are self-inflicted. Ohio now ranks 47th out of 50 in economic competitiveness, according to the American Legislative Exchange Council. Ohio politicians deplore plant closings even as they impose the third highest corporate income tax in the country (10.5%) and the sixth highest personal income tax (8.87%). A common joke is that Ohio lays out the red carpet for companies -- when they leave the state. By contrast, Texas has no income tax, a huge competitive advantage.

Ohio's most crippling handicap may be that its politicians -- and thus its employers -- are still in the grip of such industrial unions as the United Auto Workers. Ohio is a "closed shop" state, which means workers can be forced to join a union whether they wish to or not. Many companies -- especially foreign-owned -- say they will not even consider such locations for new sites. States with "right to work" laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations.

On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu. Foreign-owned companies supplied the state with 345,000 jobs. No wonder Texans don't fear global competition the way some Presidential candidates do.

So tomorrow the eyes of America will be on these two states moving in different directions. Ohio has an economy burdened by high taxes and work rules that impose heavy costs on employers. Texas embraces free trade, keeps taxes low, doesn't impose unions on business and has tooled itself for 21st century global competition. Ohioans may not like to hear this, but for any company considering where to locate a new plant or move an existing one, the choice between Ohio and Texas isn't even a close call.

The challenge for our national economy in a world of competition is to become more like Texas and less like Ohio
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5 Comments:

At 7:13 PM, March 03, 2008, Anonymous Anonymous said...

It is interesting to note that Ohio has affordable housing. The major cities are in the 100-150K range. I know someone who is renting a 900 square foot, 2-bedroom, recently-built apartment with free cable and water in the Cleveland suburb of Brooklyn for $850/month.

The poor business climate and union stranglehold is killing their economy. It just goes to show how important it is to maintain a pro-business climate in Houston, and keep union influence to a minimum. Affordable housing is important, but apparently not the most important.

 
At 8:15 PM, March 03, 2008, Anonymous Neal Meyer said...

Tory,

A large amount of the activity that goes on in the halls of power, at all levels of government, is that nearly all organized groups attempt to use the arm of the state to shut out their competition, often through regulatory measures tariffs, bans, and so on. In the case of labor unions, the competition consists of non-organized labor and labor elsewhere. Labor unions attempt to do close the loop on competition via pushing through legislation requiring closed shop work rules.

Unionized labor's strategy for shutting out the competition and effectively capturing rents can work so long as capital is not very mobile, nor as long as people and businesses are not footloose. Alas for labor unions, capital markets now operate worldwide and many types of industries, particularly those which are more production cost oriented (verses oriented towards other costs), can be indeed be considered footloose.

The competition for job generation has become very fierce between the states. Between that competition and the growing burden of the alternative minimum tax on taxpayers who live in income tax collecting states, there will be pressure to either amend the AMT or for states to do away with it altogether. Either way, we are sitting pretty right now.

Neal

 
At 7:55 AM, March 04, 2008, Blogger Brian Shelley said...

Houston and Texas should be pushing hard for free trade from Chile to Mexico. We are one of the main ports of entry from these countries and stand to benefit greatly from the enormous opportunities that all that trade and trade logistics offer.

We should also push for bilateral agreements between the US and Mexico that would allow American investment in their oil industry in exchange for more work visas and citizenships. If you want Houston to boom, get that to happen. Economic liberalization in the rest of Central and northern Latin America will directly lead to enormous opportunities for Houston and Texas.

"Texas is clearly on the rise, a fast-growing, dynamic and increasingly economically attractive place that will eventually contest California itself for national preeminence."

If we accomplish these things Houston and Texas will be a juggernaut.

 
At 9:23 AM, March 05, 2008, Anonymous mike said...

It's amazing... fifty years ago Texas was basically considered a hick state and Ohio was a major industrial power. How are the mighty fallen.

 
At 9:47 PM, March 24, 2008, Anonymous Anonymous said...

As a former Houston resident now living in Cleveland, I can assure you Texas is no heaven on earth.

I am a techie with a degree and security certifications and out of work for over 18 months before finding a job in Cincinnati and then to Cleveland.

I also known how the religion and politics of Texas work. If you think Ohio church leaders force feed it to Ohioans, then you have never met a southern baptist. They are basically the polar opposite of militant Islam, except without the suicide bombers.

Texans love their money too, except for black and Hispanic minorities who make up the majority population of Houston, Dallas, and San Antonio, while rich whitey lives in the suburbs, well outside the reach of the city tax authorities. That is why the major cities keep annexing land on a regular basis.

I will never again grace Texas with my presence (since I believe it is a craphole and I will never live anywhere they puts me out of work for 18 months AGAIN...F*ck Texas) but people should keep their options open and do their research where they want to live.

NAFTA did kill Ohio because Ohio has not changed its pro-union/mob controlled mindset and will not do so until many politicians are not reelected. Texas benefits from NAFTA because it built an environment to make it work effectively.

 

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