Texas seems better placed to adapt than California

“THERE’S A TEXAN expression, ‘You dance with the one who brung ya’,” says Tom Luce, with a serious face and a strong drawl. “But oftentimes you can’t just dance with who brought you. You’ve got to face the future.” Mr Luce founded a law firm, Hughes & Luce, and served under several Texan governors and as assistant secretary of education when George W. Bush was president. He has been a beneficiary of and advocate for Texas’s rise, but thinks that the state faces long-term challenges that political leaders are ignoring, such as a dwindling supply of skilled workers and ever rising health-care costs.

Mr Luce is the founder of Texas 2036, a group that collects data to reveal Texas’s relative position and catalyse a strategic plan for the state. “It’s akin to, if you were running IBM 30 years ago, you’d ask, what’s the competitive landscape out there and what are the dangers?” says Mr Luce, who thinks Texas should “invest incrementally, solving problems 5% a year for 20 years”.

A similar report, called Texas 2000, was commissioned in 1982 under a previous governor, Bill Clements. It guided the state’s investments in water and roads. Mr Luce is the most prominent example of a growing group of forward-thinking Texans who are quietly concerned about whether the Lone Star State will be able to maintain its edge. “The challenge for Texas is and has been, are we willing to match our grand words with bold action?” says Mr Smith. “I could go down the list of social and physical infrastructure investments not being made.”

California, too, has its critics, who believe the Golden State is losing its sheen. No one is comparing it to Greece these days, as some did after the last financial crisis, but plenty of business leaders and analysts privately point to the pervasive homelessness, volatile tax system and large unfunded pension obligations which are not being dealt with quickly enough. Worriers are right to wonder whether California and Texas are properly preparing themselves for the future.

Where’s the beef?

It is also hard not to see the two states as symbolic of a broader, national problem. The two sides are too stuck in their ideological bunkers, their policies dictated not by the needs of their constituents but by the culture wars. Like the country as a whole, both lack long-term strategic plans. Local politicians, like their national counterparts, have no incentives to make unpopular decisions that could leave the next generation better off. This is true even though the two states have assets for which many others would be thankful: huge populations, natural resources, large businesses, dynamic immigrant communities and a cultural inclination to forge a unique path for themselves.

In the coming decade California and Texas face three main challenges. First, they must remain desirable places to do business, ensuring the creation of well-paid jobs and prosperity for their citizens. On this front Texas is better placed than California, but it cannot take for granted that it will maintain its edge over other states that levy no income tax and offer even lower costs. Second, they must educate their children better. As the number of poor, English-language learners grows in both states, this task takes on even greater significance.

Third, they must be mindful of the gap between the haves and the have-nots and deal with the inequality of income and opportunity that exist in both states. Although it has become more expensive to live in Texas in the past decade, it is still much more affordable than California. The Golden State’s economy used to be a rising tide lifting all sorts of boats, says Joel Kotkin of Chapman University. “Now it’s a rising tide lifting a few yachts.” Both states will also have to confront the gap in services and opportunity between their declining rural and growing urban communities.

In need of a steer

Not everything is in the two states’ control. Two of the most important factors in their success, international trade and immigration, are policies that are controlled by the federal government, points out Stephen Levy of the Centre for Continuing Study of the California Economy, a research firm. Many of the experiments California wants to run, from environmental action to universal health care, are best achieved on a national level. “Someone’s got to be the first to jump out of the plane to test the parachute,” says Xavier Becerra, the state’s attorney-general. Although it has managed to pioneer an alternative vision for America in the face of a hostile federal government, this comes at a cost. Nowhere is this more true than in environmental policy. Though its policies are admirable, until the country as a whole joins its climate-change efforts, California is making life expensive for its citizens.

America today is beset by partisan acrimony. It would be a shame if California and Texas, flagships for the two parties and their visions for the country, were too bogged down in their ideological bunkers to learn from the successes and failures of the other. Far from vilifying California in their political advertisements, Texan leaders should study the Golden State, and vice versa.

Texas’s fiscal prudence is wise, as is its culture of seeing business as an ally. Adopting such policies would mean that, when there is a downturn in America’s economy, as there inevitably will be, states are not left with obligations and promises that they cannot meet. But its ungenerous attitude towards the poor and racial minorities on health care will have to change if it wants to ensure a healthy workforce, as will some of its social policies, such as restricting access to birth control and abortions, which are out of sync with the state’s light-touch philosophy.

California, too, has many admirable features, such as a willingness to help its neediest citizens and thoughtfully invest in people through spending on higher education, which will be essential for states to thrive in a high-skills, knowledge-based era. The state is also broadly inclusive and open-minded, which makes it an attractive place to live and do business. It will continue to innovate and produce new technologies and ideas that will spread nationally. But its high-tax, big-government approach will have to change if it wants to continue to be a destination for new generations to build their lives and fortunes.

Which is more likely to be successful in the long term? California’s politicians are not blind to their state’s problems, but they seem unpragmatic. They are also encumbered by structural issues, such as the entrenched interests of unions, bureaucracy and laws allowing voters to approve major decisions in ballot measures. All this means it is much harder for the state to make the big changes required. They may also be less receptive to moderation and pressure to change because they have no fear of losing power to the Republicans in the near future.

Texas is in a position to adapt more quickly. Its politicians today lean further to the right than previous Republican administrations, which has put them out of step with the business community on practical issues such as immigration and education. But they, or their successors, seem more likely than their Californian counterparts to open themselves to change. The rising strength of the Democratic Party in Texas will also encourage this, as Republicans realise that, with a growing young, urban and Hispanic voter base that rejects a hard-right agenda, there is a risk of losing control.

“You don’t do these things because they’re nice to do. You do these things because they’ll help the entire state be more prosperous. Expanding the social-safety net and investing more in education would improve GDP prospects for Texas,” says Robert Kaplan who runs the Federal Reserve Bank of Dallas. He thinks Texan politicians will be pragmatic. “The culture of this state was one way 30 years ago, and 30 years from now it will likely be different. This is a very practical state.”