Houston Strategies

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.
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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.

Labels: economic strategy, economy, growth, perspectives

posted by Tory Gattis @ 6:45 PM