Business | Schumpeter

Boomtown, USA

You do not have to travel to the emerging world to discover emerging markets

EVEN if you expect everything to be bigger in Texas, the north Texas branch of the Nebraska Furniture Mart, near Dallas, is a shock. The megastore, which is owned by Warren Buffett’s Berkshire Hathaway, is the size of ten American football fields and employs 2,300 staff. Around 70 delivery trucks arrive every day and 20,000 visitors descend each Saturday. Mr Buffett predicts that the store, which opened only in May, will have a turnover of $1 billion in its first year.

For those disinclined to spend time wandering among the La-Z-Boys and monster grills, there is plenty of other evidence of prosperity in the region, which is variously described as greater Dallas, Dallas-Fort Worth or north Texas, depending on local loyalties. Drive to nearby Plano, and you can watch bulldozers clearing a vast lot to house the new North American headquarters for Toyota, which is moving from southern California. Head farther north to Frisco and you are in America’s fourth-fastest-growing town. The mayor, Maher Maso, has five shovels piled in the corner of his office from recent ground-breakings.

It is conventional to divide the world into a slower-growing rich world and a faster-growing poorer world. North Texas, however, is a reminder that there are bits of the rich world that are growing very fast (London and the San Francisco Bay area count among other examples), just as there are parts of the poor world that are stuck in the slow lane.

Last year Texas grew by 5.2%, more than any American state besides North Dakota and more than double the growth rate of America overall. Dallas-Fort Worth added a net 360 people a day in the year to July 2014. The region is among the top hubs for corporate headquarters in America. It hosts 21 companies in the Fortune 500, including American Airlines, Exxon Mobil and J.C. Penney. It is a logistical hub with America’s biggest inland port, and is home to high-tech giants such as Texas Instruments, as well as startups. Its aerospace industry employs around 80,000 people. The discovery of shale gas in the Barnett Shale, probably the largest onshore natural gasfield in America, was a bonus rather than a game-changer.

What can other parts of the world that thirst for growth learn from north Texas, and from the state as a whole? Texas is unusual in several respects. It has multiple boomtowns: San Antonio and Austin, as well as Dallas-Fort Worth. Middle-class families are thriving, not just billionaires and supernerds. Mayor Maso points out that 15 years ago Frisco only had five schools. Now it has 61. The egalitarian nature of Texas’s growth has fostered a mood of excitement that is seldom found outside developing countries. A 2011 poll of Dallas residents found that 65% felt optimistic about the future; a 2014 poll of north Texas business leaders found that 78% expected the economy to improve.

The locals point to a combination of small government, low prices and pro-business attitudes. Texas is one of only seven American states with no personal-income tax and one of six with no corporate-income tax. Houses are cheap and big: a single-family home in Dallas-Fort Worth is less than a third of one in the San Francisco Bay area. Texas is also an employer-friendly state with weak trade unions and light regulations.

Not just cowboy capitalists

Despite Texas’s reputation for anti-government radicalism, local politicians such as Mr Maso of Frisco are happy to embrace government spending and regional planning if it boosts the local economy. The roads and airports are much better maintained than those in California and New York, thanks to a combination of tolls and targeted spending. Frisco in particular has been clever when it comes to rethinking how to design its schools and police force for the age of the internet and dual working-parent households. Texans also understand the power of fierce “co-opetition”. They pull together when it comes to trying to attract business from out of state, with the governor acting as a cheerleader for the state, but afterwards they fight like cats and dogs—first for their region, then for their sub-region, and then for their local city.

The virtues of pro-business pragmatism can be seen in Dallas’s attempt to revive its downtown and boost its fortunes vis-à-vis the suburbs. The city is doing all the usual things, like investing public money in parks, bicycle paths and free trams, but it is also harnessing the power of small business. Trinity Groves, west of downtown, has been transformed from a no-man’s-land of industrial detritus into a bustling urban centre thanks to Phil Romano, the founder of Macaroni Grill. This unlikely hero has created a restaurant “incubator” that provides chef-entrepreneurs with help and training, before launching them into the world.

Texas has a long tradition of busts following booms. The last time the local boosters were so euphoric, in the 1980s, the economy nosedived when the oil price tanked. Today, Texas faces a similar challenge. In the past five years the state’s share of American oil production has jumped from 25% to 40%, but the oil price is half what it was a year ago. In time Texas may have to reckon with other setbacks, too. The local habit of competing to offer businesses tax breaks and other inducements to move there may undermine the tax base and infrastructure investment in the long term. The region’s all-important cost advantage may soften: house prices increased by around 9% in the year to February. The rise of the right-wing Tea Party could threaten the business-friendly pragmatism that has played a role in Texas’s success.

But it is unlikely that such challenges will undermine the boom for long. Previous busts have been followed by rapid recoveries. North Texas has added around 1m people every decade since 1970. A region that can combine the élan and optimism of the emerging world with the pragmatism and infrastructure of the rich world has a lot going for it.

This article appeared in the Business section of the print edition under the headline "Boomtown, USA"

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