The Texas Miracle is a Mirage

Texas is attracting larger companies than any other state. Texas is  the eighth largest economy in the world. And yet, the Texas miracle has a burgeoning underbelly of inequality that is giving more credence to the latter half of the Texas moniker “live free, die hard.” So much for the free living part.

States and countries have long played the game of luring businesses with low taxes and less regulation. The belief is that the rising tide of a growing economy lifts all ships. Research suggests the opposite. In fact, the benefits are short lived and the tide only rises for the ships in the right harbor. In Texas, breakdowns in infrastructure, overcrowding, and rising costs of housing cast a shadow over the economic boom, and these issues are often not resolvable without raising taxes. Texas demonstrates why this aphorism (philosophy?) is a ruse. It is a trojan horse that promises a better life to everyman while keeping away Uncle Sam, but results in widening the wealth gap

The Lone Star state is authentic in its principles. Texas has long availed itself to businesses as a low tax jurisdiction, less encumbered by regulation and owned by oil barons. Its politically conservative roots outside of the Austin bubble were a deterrent for many, but now there is a strong draw for the “anti-woke” and free speech absolutists who believe that the left is sensationalizing minority issues and pressuring media to self-censor. Elon Musk claimed that California laws on gender identity were “the last straw” in deciding to move his companies to Texas. 

Culture wars aside, the real draw for businesses is the combination of low taxes, low regulation and a talent pool of workers.  As former Texas Governor Rick Perry recently said, “The solid rock that Texas built its foundation on economically was: don’t overtax, don’t over-regulate, don’t over-litigate and have a skilled workforce…” So far, so good. But he goes on to say, “...that’s the foundation — and then we added to it.” Despite an influx of business, the Financial Times cites that “Texas ranks in the bottom 10 US states for educational attainment, has the highest proportion of people with no health insurance and among the highest rates of child poverty, at about 20 per cent.”  The transportation infrastructure is beginning to crack, too. 

Texas’ shortsightedness in attracting business is common. Take the hypothetical: a computer server company (“Company X”) wants to move into town. Politicians claim that thousands of high paying jobs will be created through attracting this “high tech” company. The model is as follows:

• Company X takes bids from multiple states. The winning state provides funding for the project and offers specialty tax treatment.
• Computer servers end up needing water and power that result in higher utility bills and more frequently outages.
• Most local jobs are short term construction gigs to build the warehouse and set up the server racks. The servers themselves are maintained by a handful of on-site staff.
• There is not enough technical talent in the state to manage the server, so foreign IT workers are brought in on H1 Visas to staff the plant at a lower cost.  

• The server is a part of a network of servers in a tech company whose revenues are recorded offshore where the data is “processed.”  

Overpromising and under delivering is part of the arbitrage of the corporate lobbying playbook. Foxconn, a titan in the tech manufacturing world that assembles iconic products like the iPhone, announced with great fanfare in 2017 that it would establish its first U.S. facility. The deal, famously inked on a napkin, was the brainchild of Foxconn chairman Terry Gou and former Wisconsin governor Scott Walker. The promise was bold: Foxconn would receive a hefty $3 billion state subsidy in return for investing $10 billion into a cutting-edge LCD manufacturing plant, with hopes for the creation of 13,000 new jobs in Wisconsin.

Fast forward to 2018, and the grand vision began to unravel. Despite Wisconsin’s subsidy ballooning past $4 billion, the massive factory intended to produce 75-inch LCD panels for TVs had yet to materialize—and still hasn’t. Instead, Foxconn shifted its focus to a smaller facility dedicated to producing smaller LCD panels. The 13,000 jobs? Largely unfilled, with the few hires made consisting mostly of “knowledge workers” set to build an enigmatic and jargon-filled ecosystem dubbed “AI 8K+5G.” This reimagined vision bore little resemblance to the ambitious original plan, leaving Wisconsin holding the bag while Foxconn made out like bandits.

Our representatives must come around to the idea that ribbon cutting and highlighting job “promises” is less important than a concrete plan to usher in long-term economic growth that will be widely distributed and fill up the coffers to ensure that education, transportation, health and the security of citizens is not offered in exchange for a martini.