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Texas vs. California
Red Beats Blue at Its Own Game

Silicon Valley is tech Valhalla as far as most Americans are concerned, but as far as our biggest trading partners are concerned it plays second fiddle. The TechAmerica Foundation’s 2014 report has Texas as America’s number one tech export state, beating out California for the first time. The Lone Star state has seen a 7.3 percent increase in tech exports while California’s have dipped 2.8 percent, putting Texas at $45.1 billion in 2012. California is still head honcho as far as design goes, but the reason for Texas’s export rise at California’s expense can be found in its manufacturing sector. The Dallas Morning News reports:

“Texas has done a very good job at making themselves an attractive location for manufacturing,” [Matthew Kazmierczak, vice president of TechAmerica] said. He noted the dynamic isn’t just about interstate competition; Texas is also competitive with other countries that have traditionally attracted manufacturing.

Gov. Rick Perry touts Texas’ business-friendly approach to regulations and taxes, and its relatively low cost of living, in trying to lure companies from California and other states, for which he has taken some flack.

As the report shows, the states with the biggest dollar-increase in tech exports are Texas, New Mexico, Tennessee and South Carolina, with California suffering the biggest dip in tech exports at $1.3 billion from 2011–12.

As Texas’s leapfrog of California shows, labor and manufacturing costs have to be low enough for a state to stay competitive. Rising manufacturing costs in California hand business-friendly Texas an easy win as far as factory jobs go. Despite creating the most vibrant tech sector on the planet, California’s laws and regulatory system favor skilled, well-educated programmers at the expense of people who could desperately use the manufacturing jobs that stem from their industry. In other words, California is exporting (to states like Texas) the manufacturing jobs its own tech sector is creating. At this point, the biggest thing blue wonks and officials can do to help blue-collar workers is to get out of the way.

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  • rheddles

    And the design jobs will tend to follow the manufacturing. Obviously Caliphornia has a climatic advantage, but as more young engineers are brought on they will find the Texas cost of living a significant off set. It is really nice for an engineer to be able to go down to the shop floor and find out what is really going on, especially during beta.

    • Jim__L

      California industries are trying to find ways to get around the state’s regulatory regime, though. The state’s success will depend greatly on how well they succeed.

  • Boritz

    At this point, the biggest thing blue wonks and officials can do to help blue-collar workers is to get out of the way. -TAI

    They can’t do it. The scorpion and the frog.

  • bigfire

    As a California resident, I want to keep all of the people trying to flee our state right where they are. I don’t want the rest of the country to be polluted by the blue blight that has brought this once great state down to its knee. Better to contain cancer to this state than to have it spread to healthy states.

    • GodisanAmerican

      meanwhile you are making a great sacrifice by staying put in California?
      May you should move to Texas and raise the average IQ of both state up in the process.

    • Tom Servo

      As a Texas resident, I respectfully disagree. California still has a lot of people who are productive and creative, and who will flourish in a place where they are encouraged and supported. I would like to propose a trade: Texas will take as many of California’s productive, creative, and highly skilled people, and so that there isn’t a population imbalance, we will send back to California an equal number of people who have no wish to work, and who in fact are incapable of any productive activity at all, and who instead wish only to live a life of easy government benefits while they watch tv, drink, smoke weed, and play video games.

      Oh wait, that’s already happening. Never mind.

  • Andrew Allison

    Although you make the point later in the post, “but the reason for Texas’s export rise at California’s expense can be found in its manufacturing sector” is not the case. It’s Texas’ tax and regulatory environment which make it attractive to manufacturers (who have been fleeing CA in droves).

    • Tom Servo

      You are correct to an extent, but both yourself and WRM are missing one of the major factors in Texas’ new look as a very attractive locale for heavy manufacturing. Texas is attracting a large number of relocated manufacturing facilities from Europe for this reason alone, and that reason is… Energy.

      Thanks to the fracking boom (Eagle Ford Shale, about to move into the Cline Shale bit farther north), Texas now has the lowest raw energy costs in the WORLD. I saw a story recently about a shortage of natural gas in California; that is a prime feedstock and energy source for almost all heavy manufacturing operations. Texas has a HUGE surplus of nat gas availability right now; the pipeline capacity doesn’t exist to ship it anywhere, so most of it just sits in the ground, waiting to be used. Texas currently is producing more oil than EVER in its history (even more than in the 30’s) and that is set to continue to rise, as fracking increases. What’s more, nat gas production could easily be doubled in less than 2 years, if demand was there. (increasing supply before demand ramps up would only kill the price, and drillers have learned that lesson over the last 2 decades in the gas market)

      California has as much energy in the ground as Texas does – but California won’t allow it to be produced. Germany and the rest of Europe have destroyed their energy supply markets by similarly short-sighted thinking. If you’re a heavy manufacturer who is looking for the cheapest raw materials in the world, given that Energy is the greatest share of all of your raw materials costs, there is only one place to take your factory – Texas.

      And the numbers are bearing that out.

      p.s. When you hear people say that “Energy creates jobs”, this is how that process looks in practice.

      • Andrew Allison

        You make a very good point, however the thrust of the post was the jobs created by tech innovation. I’d be interested in the economics of energy intensive industry in TX. Electricity generation is the obvious one, but the largest industrial sector consumer of delivered energy is the chemical industry, which accounted for 19 percent of the global total in 2010. Energy inputs represent up to 85 percent in the petrochemical subsector.

  • TommyTwo

    You won’t confuse me with your lying numbers and tricky logic, Mead. I saw Rick Perry’s debate performance back in 2011 (well, a 10 second clip thereof); any policies of his are ipso facto deserving of ridicule.


  • GodisanAmerican

    And another area in which Red states, especially Texas, far exceed blue states like California is number of executions.
    As governor goodhair said in a primary debate ‘we have very thoughtful (=thorough, in english) process…we are proud [ highest number of executions in the nation]’ and thunderous applause followed from the GOP supporters for such a rightful government action.

    • Fred

      GiaA, I can’t decide whether you’re a baby boomer who never outgrew the sixties or an adolescent with sixties envy.

      • Jagneel

        So Texas does not have largest number of executions? And not proud of it ?

  • free_agent

    You write, “California’s laws and regulatory system favor skilled, well-educated programmers”.

    Is there a possibility that those laws and regulatory system generate an environment that skilled, well-educated people *like*? That is, are we running into a fundamental problem of democracy, where different socio-economic classes (in this case, skilled, well-educated “cognitive elite” people and manufacturing workers) have distinctly different desires regarding the greater social order?

  • Venkat Rao Dasari

    Although there are perhaps several reasons, one is energy costs. Recently I analyzed state-by-state retail electricity prices. When you plot them, you will note two bell curves (bi-modal distribution). One with a median of about $0.08 per kWh, and another at $0.14 per kWhr. In fact many big blue states pay around 50% higher than TX. You think this has something to do with manufacturing and exports.

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