Friday, May 4, 2012

How Long Can Texas be Tops?

What does it mean to be the most business-friendly state in America?

Texas is relishing its first-place finish in Chief Executive magazine's ranking of the best and worst states in which to do business.  It's something Texas has gotten used to doing, having been the best state eight years running.  All eight years, in fact, that Chief Executive has been running its survey.

Meanwhile, California has been ranked as the worst state in which to do business for all of the same eight years.  Not surprisingly, New York State, Illinois, New Jersey, Connecticut, and Massachusetts have also been bouncing around at the bottom of this list, while states like Florida, North Carolina, and Tennessee have been jostling for the Number Two spot.

In a way, this isn't news.  Whether a chief executive or not, anybody who's had to look for work, buy a home, or pay state income taxes knows that the Northeast long ago lost its economic edge.  While a few companies, like Alcoa, have relocated to New York City for better exposure to the financial markets, hardly any other corporate relocations have crossed the Mason-Dixon line heading northward.  Manhattan's tech-heavy Flatiron District and Boston's Route 128 corridor might resemble Silicon Valley if you squint tightly enough, except that even California's legendary technology incubator can't compensate for its state's rapidly-deteriorating business ethos.

So all eyes are now on the former backwaters of the American economy.  Places like the southeast and Texas, with the Lone Star State reigning as business champ among chief executives for almost a decade.  But does that mean that everything's good in Texas?  And is what's good for business necessarily good for everything - and everyone - else?

What Baggage Comes With Being the Best?

We're told free markets and pure capitalism make for an ideal living environment, which is mostly true. Except that each of those three things - free markets, pure capitalism, and ideal living environment - are open to interpretation.

After all, being hailed as the best at something by one group of people often means you're the worst in the eyes of another group of people.  In the case of being attractive to businesses, chief executives are looking at the lowest common denominator in terms of government restrictions and regulations, mandates for employee rights, environmental leniency, and other associated costs and complications of producing stuff that earns them a profit.

And yes, since states like New York, New Jersey, and Massachusetts have maddeningly intrusive bureaucracies which stifle innovation, force lethargy in business expansion, over-regulate even minor business practices, and demonize employers, they're the states in which chief executives hate doing business.  And to the extent that our free markets are responding to the oppressive business environments in these states, companies are naturally going where they can thrive.

Ironically, one of the reasons these states - many of which hearken back to the founding of the United States and boast the longest history of industrialization in our country - have such onerous regulations stems from the outrageous working conditions many now-primitive employers imposed on their workers back in the 1800's.  Remember, these used to be considered the best places to do business.  Although the North didn't have slave labor like Southerners did, Yankee bosses had something else - sweeping tides of immigrants from Europe desperate for work, and willing to do almost anything for pay.

Once they got onto the factory floor, and saw how dangerous the equipment was, how improperly they were trained, how unsanitary the conditions were, and how flagrant the physical abuses were to women and children, laborers still had to either put up with it, or get fired.  After all, there were more fresh immigrants anxious to take your job if you were stupid enough to speak up for the safety of yourself and your fellow workers.  Eventually, after a series of major industrial fatalities began stoking public rage against greedy employers, unions were formed and workers rights legislation took hold in state capitals from Albany to Harrisburg to Springfield.  Working conditions became humane, and companies realized they could still turn a profit and treat their employees with respect.

Unfortunately, as we've all become painfully aware today, once a law gets on the books, it's almost impossible to remove.

Those same laws and unions which created America's middle class, the five-day workweek, and universal safety standards have evolved today throughout most of America's mature business states into a mindset which automatically reviles employers and coddles workers.  It's only the sheer force of the Northeast's and California's mighty population sizes that keeps them America's commercial powerhouses, even after losing so many relocations to the South.  Companies that stay behind certainly don't do so for the low cost of living, or the employer-friendly work environment.

It makes sense:  most of the southern United States is comprised of right-to-work states in which unionization is practically impossible, and state governments are eager to grow private-sector jobs and tax bases.  Ironically, that "can-do" mentality used to also define California, which shares none of the Northeast's primitive industrialization legacy, but simply overdosed on its own success, and instead of welcoming commerce, began to take it for granted.

Now, it's likely too late.  At least for California, home to a disproportionate number of welfare recipients and illegal immigrants, crushing state debt, ridiculous retirement benefits for public employees that are practically etched in stone, and a vanishing middle class as taxpayers who can flee the Golden State do so.  America's recent mortgage meltdown has left vast swaths of California particularly vulnerable to further erosions in property values in places like its vast Inland Empire.

Not so in Texas, where corporate relocations have been juicing up the economy for decades.  Sure, relocations merely poach employers from other parts of the country; they doesn't necessarily help the national job picture.  But for Texas, which has always had an outsized ego, finally being recognized for something other than dust, cacti, and scorching heat has been its own narcotic of sorts.  Now, its centralized location, cheap and plentiful land, diversified economy, relatively cooperative weather, and entrepreneurial mindset have their chance to make their mark.

When my family moved to Arlington in 1978, the population of our bustling town was only 150,000, whereas today, it's over 360,000.  The Dallas - Fort Worth Metroplex, a sprawling complex of cities covering four counties, had a population of a couple million back then, whereas today, it's nearing seven million.  Some quaint villages that didn't even have a single stoplight in 1978 now have 8-lane freeways snaking through shiny office parks and cookie-cutter McMansion subdivisions.  And although this steady growth has slowed down considerably during these past several years, it never really stopped, and we never had the housing bubbles seen in other parts of the country.

This same story has been replicated across our state, from Houston and Austin to San Antonio, as well as El Paso, Corpus Christi, and smaller regional centers.

Getting to Number One and Staying There Are Two Different Things

But how much of this growth has come at the expense of normal workers and average residents?  Most people who moved here did so whether they liked it or not, because their jobs were Texas-bound regardless.  Nobody really likes the weather here, but we tolerate the frigid winters because they're relatively short, and we endure the scorching summers, because at least everything's air-conditioned.  Home values remain surprisingly reasonable at all price points, and although property taxes aren't cheap, they don't require a mortgage of their own like they do in the Northeastern states and California.

Suburban and exurban sprawl can mean excruciating freeway commutes, but at least we pay less for gasoline here than people in other parts of the country with equally-bad drive times.  We seem to be under some sort of watering restrictions most of the time these days, and water availability may be the only thing that will curb growth in this parched state, where only one of our many lakes is a natural lake.  All the rest are man-made reservoirs.

Today, Texas may be tops in Chief Executive magazine's surveys, but my state hovers at or near the bottom of some other less-auspicious rankings.  For example, we have the highest rate of uninsured workers in the country.  This helps make it cheaper to employ workers in Texas than most other states.

We have consistently high poverty rates, particularly along our border with Mexico, which has been bypassed by the state's economic successes.  Many of the jobs these chief executives have created are low-wage jobs in the hospitality, retail, call center, and restaurant industries.

Our environmental record fluctuates depending on the political affiliation of the person you ask.  Republicans say being able to see the air you breathe during our simmering summers makes life more interesting, while Democrats think we're all going to die prematurely of chemical poisoning because we don't control industrial and traffic emissions strongly enough.

And having Rick Perry as governor longer than the eight years Texas has won Chief Executive magazine's award means that a lot of the state's expenses have been deferred, budgets have been scalped to the bone, and too many raids on our once-Texas-sized "rainy day fund" have reduced it to a muddy puddle.  Public schools, public health services, state parks, and our highway department also limp along on shoestring budgets.  Most conservatives laud all of this miserly public spending as tax savings, while government watchdogs and liberals warn that cutting spending as the state and its obligations continue to grow means that at some point, we can't keep kicking the tax can down the road.  Texas, after all, is proud of many things, but having no state income tax is probably our biggest bragging point.

Indeed, it remains to be seen how much of the advantages chief executives look for in a state can be maintained at levels that keep businesses growing here.  Having so many uninsured workers means that the public can only afford to absorb health care costs for those workers for only so long.  Having wealth concentrated in increasingly disproportionate blobs along the I-35 corridor through the center of the state may create severe economic disparities similar to what's become apparent in California and New York, where densely-populated urban areas compete with increasingly depopulating rural areas for resources of all kinds.  And the questions regarding the availability of water to sustain projected growth continue to go unanswered.

Don't even mention the likelihood that Texas may one day need to levy a personal income tax!  South Padre Island may just freeze over if that ever happens.

For now, Texas business leaders and politicians just want to ride the wave of success for as long as they can.  Deferring negativity is always the more popular thing to do, even though we have proof that too much of a good thing usually goes wrong.

Proof, you ask?

The shift from places like formerly-booming New York and California to Texas proves that businesses constantly cycle through consolidations to the next cheapest place.  How much longer can Texas be that place?

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