We All Need a Lone Star State
Today: A contrarian view on the function that Texas has performed in the US history of innovation.
The Agenda 👇
You’ve all read about Texas recently
Texas was long a frontier state
Then it turned into a petrostate—and a Republican stronghold
Then something changed recently
What’s the equivalent of Texas in Europe?
Thumbs up/down for last week
Texas has been in the news a lot recently, due to unusually low temperatures and the near collapse of the state’s electric grid. A lot of commentary, such as this essay by native Texan Noah Smith, makes the case that there’s more than meets the eye going on in Texas and that we all need to look beyond the caricature of a region populated by cowboys and animated by sessionist and racist sentiments.
As for Europe, well, we love to hate Texas because it seems to offer the caricature of off-putting Super-Americans about which the New Yorker’s John Bainbridge wrote in 1963—to great acclaim from the wider world but also, it seems, triggering some pushback from Texans themselves.
I wouldn’t say I can explain Texas’s passion for being different, but at least one motive is easy to find in the state’s unique history: Texas seceded from Mexico in 1836, then went on to become an independent republic for about 10 years, and then was finally admitted by the United States in 1845. The fact that it still calls itself the “Lone Star State” proves that Texas likes to think it stands out among the other 49 states, essentially looking down on the rest of the country (much like is the case for the Freistaat of Bavaria, where I live here in Germany, as it even refuses to call itself a Land like all the others).
Today I wanted to share my personal thesis about Texas—which, by the way, I’ve never visited (but Laetitia and I will make sure to do so as soon as COVID-19 makes that possible once again).
The state became notorious as a haven for people from other parts of the country who wanted to escape debt, war tensions, or other problems. Indeed, “Gone to Texas” was a common expression for those fleeing the law in other states.
Texas as the frontier endured until quite recently. It was still true in the middle of the 20th century, as I wrote in the edition about George Bush and the Death of the US Elite (December 2018):
What’s interesting in the case of [George H.W.] Bush is that his personal journey reveals something different [from the rest of the US elite]. Unlike others, he had an early and prescient feeling that the elite world to which he belonged was about to come to an end. A clear sign of that is his moving from Connecticut to Texas at the age of 24 [in 1948].
In doing so he revealed two things. First, that the nature of the elite was changing, now more attracted to money than to public service, and more diverse as well (one of his sons, Jeb, even married Columba Garnica Gallo from Mexico, which wouldn’t have happened if the family had stayed in Connecticut).
Somehow Bush had understood that power was shifting: from the old blue-blood dynasties to the self-made businessmen; from the smoky rooms in the exclusive society of New England to the oil fields of Texas. He probably had the fantasy that he could have it all, retaining his heritage as a New England Brahmin while gaining the credentials of a Texas oilman—and that having both was the only way for his dynasty to survive.
But Texas being the frontier was long about searching for oil, which came with its own problems. Today we have the impression that the oil industry is all about giant, all-powerful corporations. But back when oil was first found in America (in Texas, Pennsylvania, Ohio, Oklahoma...), it was an authentic entrepreneurial venture. Standard Oil of New Jersey was the dominant player in the nascent oil industry, but at first it didn’t bother to search for oil itself—that part, which was ridden with danger and uncertainty, was best left to lone, reckless adventurers from whom Standard Oil was all too happy to buy oil—if they indeed found some, and in any case at a rather low price that wasn’t really negotiable. (Only later in its history did Rockefeller’s empire opt for vertical integration.)
Because it was so dangerous and uncertain back then (less so today because we have more sophisticated tools at our disposal), the oil industry pressured the government to enact something known as the “oil depletion allowance”. I wrote about it in New Technologies Need New Regulations (August 2017):
The infamous oil depletion allowance was approved by Congress in 1926 to let oil producers deduct more than a quarter of their gross revenues from their taxable income. The allowance was initially designed to account for the high risk that came with exploring unknown oil fields in Texas. But later on, it simply morphed into a toxic, perennial loophole fiercely defended by very prosperous rent-seekers—as well as generations of Texans in Congress and the White House.
This is what has made it so hard to maintain Texas’s competitive advantage as a haven for entrepreneurs and adventurers. Once the first generation of oilmen had turned the Texas opportunity into a series of fortunes, they morphed into rent-seekers. And they made sure Texas would exert oversized power in Washington, DC so as to preserve the status quo in their favor.
Indeed, this is one incredible fact about Texas. Until a recent date when it became so populous so as to become the second-largest state by population, Texas’s influence in Washington, DC was quite disproportionate to its fundamentals. I love the following list showing how well the state has always been represented at the top of the US political system over the years (a list I once made for students at Sciences Po to whom my wife Laetitia and I were teaching American politics):
Vice-President John Nance Garner (1933-1941); Speaker of the House Sam Rayburn (1940-1961); Lyndon B. Johnson as Senate Democratic Leader (1955-1961), Vice-President (1961-1963), and President (1963-1969); Secretary of the Treasury John B. Connally (1971-1972—Connally was governor of Texas and the man riding with Kennedy when he was shot in Dallas); George H.W. Bush as Vice-President (1981-1989) and then President (1989-1993); his sidekick James A. Baker, who served as White House Chief of Staff (1981-1985), Secretary of the Treasury (1985-1988), and Secretary of State (1989-1992); then Secretary of the Treasury Lloyd Bentsen (1993-1994); and then, of course, President George W. Bush (2001-2009).
I’m not sure any other American state, apart from New York and to an extent California, has been so well represented and influential in the highest circles. But then Texas overreached: wealth was so concentrated there (a trait of economic growth based on extraction of natural resources) that it became easy for a small group of people to exert influence over politicians at both the state and the federal levels (a political feature that exists in every petrostate, from Texas to Saudi Arabia to Angola).
From this point onward, it became all about consolidating power and promoting rent-seeking (in no small part by defending the oil depletion allowance), which led Texas’s economic interests to seal an alliance with the most conservative politicians of all—exchanging a low regulation/low taxation/small government agenda for resources allocated to stirring anger around cultural issues such as guns, gay marriage, affirmative action, keeping immigrants at bay, etc. This cocktail is what turned Texas into a conservative Republican stronghold over the past decades.
The Faustian bargain between rent-seeking oilmen and conservative politicians created two problems for Texas.
First, it has become difficult to advocate for Texas’s interests with both Democrats and Republicans. The best position to be in for an American state is to be competitive in presidential elections. This is a guarantee that every administration, whether Democratic or Republican, will do anything it takes to solve your problems—and this where Texas was until the beginning of the 1990s. (Ann Richards, George W. Bush’s predecessor as governor, was the last Democrat to be elected statewide in Texas, and that happened in… 1990.) Over the past 30 years, however, Democrats have mostly given up on the idea that they can win in Texas, thus no Democratic administration does much of anything to help Texas—and Republican administrations don’t, either, because they take Texas for granted. Clearly, from a political perspective Texas has become a shadow of its former self!
Second, having bet so heavily on the most conservative stance on every societal and cultural issue has long turned Texas into a repellent for progressive elites. No wonder why most people have long shunned the Lone Star State and opted to move to California or Colorado instead—with known consequences when it comes to economic dynamism and the appetite for radical innovation!
But then something changed. Progressives started to move to Texas again, including from California and New York. The concentration of a younger, more progressive middle class in Texan cities combined with the rise of Latino voters as a proportion of the Texas population, has contributed to the emergence of a new guard of ambitious Democratic politicians such as Beto O’Rourke, Julian Castro, and MJ Heggar. In turn, the aggressive campaigns by this new guard at the statewide level have inspired the idea that maybe Texas could lean Democratic again one day, even one day soon. In turn, this unprecedented appeal of Texas as a new progressive battleground has attracted a new elite to the state—one that doesn’t care about vested interests in the oil and gas industry, but instead very much cares about fighting climate change, embracing progressive values, and promoting a very different agenda from that of Texas’s rulers.
There are many things going into this radical change. Many foundational resources have remained, even as Texas underwent this archconservative turn for about 30 years—including universities that rank among the best in the world and a fertile ground for innovation in the tech sector, as illustrated by real-life precedents such as Ross Perot and Michael Dell and fictions such as the incredibly inspiring TV series Halt and Catch Fire.
Above all, Texas being a border state means a great deal: it contributes to attracting immigrants from Mexico and other countries even further south, thus forcing a cultural and linguistic melting pot onto the state’s great cities. This in turn sustains a vibrancy that uniquely exists in cities and regions that attract lots of immigrants—places such as London and the San Francisco Bay Area.
What we could witness soon is the rebuilding of an alliance between progressive Texan politicians and the new entrepreneurial elite attracted to Texas by the unique vibrancy that only a large immigrant population can trigger. I’ll be watching closely as this new generation, both in business and politics, rises in Texas, and the state embraces its legacy as the everlasting frontier rather than going the way of Florida (which still mostly attracts retirees and… Donald Trump) and other backward-looking states.
My last question is about Europe. Do we have the continental equivalent of Texas—an entire state/country that likes to think of itself as an outsider, presenting itself as the perennial frontier and translating this message into action by providing entrepreneurs with a looser regulatory framework and infinite resources (from oil to real estate) which they can freely use to grow their business?
We know about US Supreme Court Justice Louis Brandeis’s idea of the American states as “laboratories of democracy”—a game in which Texas has played a unique role in US history. I’m not sure we have a European equivalent, even considering the strong cases made by the likes of Portugal, Estonia, Sweden, and perhaps soon post-Brexit Britain.
If we don’t have one, then it’s a pity, because everyone needs their own Lone Star State. And in any case, I very much look forward to future opportunities to travel to the US again and visit that state that’s currently undergoing a radical change—one that, just like changes in the past, could contribute to changing America, ultimately for the better?
OK I admit this was definitely longer than what you would have been expecting after my announcement last Friday (Tuesday being the day of the short take). But admit it, Texas is a most inspiring topic, which is why I had so much to share!
And if that’s not enough, here are several articles for you to dig further:
Twilight of the Super-Americans (Ruth Pennebaker, The Texas Observer, March 2010)
Robert A. Caro on the Secrets of Lyndon Johnson’s Archives (Robert A. Caro, The New Yorker, January 2019)
The 'Texas Miracle' Missed Most of Texas (Jim Tankersley, The New York Times, July 2019)
Texas Is Bracing for a Blue Wave in 2020. Yes, Texas. (Bob Moser, The New Republic, August 2019)
One of the most precious gifts that Texas gives its residents is identity. (Brandon Hudgeons, Twitter, December 2019)
Why Texans Don’t Want Any More Californians (Derek Thompson, The Atlantic, January 2020)
Texas, Like OPEC, Can't Turn Back Time for Oil (Liam Denning, Bloomberg, April 2020)
The Texas tech cluster (Noah Smith, Noahpinion, December 2020)
Why everyone's moving to Austin (David Pierce, Protocol, December 2020)
How Texas Can Become the Next Silicon Valley (Noah Smith, Bloomberg, December 2020)
This Is Why Texas Is the Next Georgia (Steve Phillips, The Nation, January 2021)
Texas vs. The Future (Noah Smith, Noahpinion, February 2021)
Power Outages: Blame Texas Exceptionalism, Not Green Energy From Wind Farms (Julian Lee, Bloomberg, February 2021)
Deep in the Cold of Texas (Peter Zeihan, Zeihan on Geopolitics, February 2021)
What Happened in Texas (Byrne Hobart, The Diff, February 2021)
Texas Froze by Design (James K. Galbraith, Project Syndicate, February 2021)
😀 Climate change will be curbed (mostly) thanks to entrepreneurs. I wrote about how startups and the VCs backing them were tackling climate change some time ago, and now people are realizing how much of a difference startups could make: Biden’s Strongest Climate Allies Are Outside Washington.
🙂 A new essay by Jerry Neumann, in which he explores how founders can make decisions when confronted with uncertainty. Make sure to read it, Uncertain decision making and the maximax criterion, and then to come back to other related works in this newsletter (here, here, here).
😏 Many things are happening in corporate taxation—a topic I wrote about in the past, here and here. See India risks tax clash with Biden over crackdown on tech companies as well as US removes stumbling block to global deal on digital tax.
😐 Daft Punk called it quits, which is sad. There’s been a deluge of articles praising their incredible career and celebrating their music and (mysterious) persona. I was especially interested in this column by Janan Ganesh in the Financial Times: Daft Punk and the virtues of mystery.
😒 More signs of the Great Fragmentation: there is no such thing as a global retail bank anymore, as demonstrated by HSBC leaving the US market and Citigroup closing branches outside of the US: HSBC and Citigroup: Global Retail Banking Is Heading For Extinction.
😖 McKinsey, a firm about which I wrote an essay in my “11 Notes” series, had a very bad week. They’re caught in a scandal in the US due to their seemingly active contribution to the opioid crisis, another (much milder) scandal in France in the context of Macron’s failed vaccination campaign, and then their chief executive had to resign because he lost a vote of confidence.
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From Munich, Germany 🇩🇪