The economic growth lesson from Texas ain’t what you think

In 2004 Michigan Future published a report on knowledge-based states having higher per capita income than manufacturing-based states. The data showed that the most prosperous states––other than states with lots of oil and natural gas––had four common characteristics:

  • Over concentration in what we now call knowledge-based services
  • High proportion of adults with a four-year degree or more
  • At least one big metro that was even more concentrated in the two characteristics above than the rest of the state
  • A central city in their big metro(s) that had a high proportion of its residents with a four-year degree or more.

That report marked a turning point in our work. Before then, if anything, we had been on the advanced manufacturing as the key to economic success path. But the data kept telling us that was wrong. The message from the data clearly was that if you wanted to recreate a mass Michigan middle class you needed to be concentrated in knowledge-based services. And to do that you needed concentrations of those with a four-year degree or more.

That analysis led us to recommend that Michigan focus its economic development efforts on preparing, retaining and attracting talent. Which we argued required more public investments in education and placemaking.

The alternative path––the one Michigan took––was to compete for business investment based on low taxes and small government. If there was one state that we were told over and over again that we should model ourselves after it was Texas. The impression being that their low tax/small government philosophy had produced a state economy that was leading the nation in economic growth.

Minnesota, and even more so Massachusetts, always had better individual household economic outcomes than Texas. As did most of the other high education attainment states. But that didn’t stop many telling us over and over that Texas was the model.

The four characteristics of successful non energy-driven states are at least as true today as 2004. Even it turns out in Texas. A recent New Times article is entitled The Texas Miracle Missed Most of Texas. The article summarizes:

Nearly all of the net growth in jobs and new businesses in Texas over the last decade, Labor Department data show, has been concentrated in four large metropolitan areas — Austin, Dallas, Houston and San Antonio. Those areas accounted for more than four out of every five jobs created in the state since the recession ended, their populations swelling with surges of young and talented workers. Collectively, the four saw double the rate of job growth as the rest of Texas.

A similar geographic inequality is playing out in other places in America, alarming officials at the Federal Reserve. While the latest jobs report showed the economy’s continued strength after 10 years of expansion, the effects have been uneven, with the wealthiest parts of the country reaping a disproportionate share of the gains.  — and leaving smaller, traditionally blue-collar towns like Longview at a disadvantage.

So it turns out if there is a lesson from Texas that we should learn it is our 2004 lessons that: “The economy has evolved toward more technology and service jobs, favoring areas with highly educated workers and high-end professional service industries” And that those two, across the country, are concentrating in big metros with vibrant central cities. 

Michigan’s core economic challenge, as it was in 2004, is that our two big metros do not have the talent concentrations needed to at scale grow, retain and attract knowledge-based service enterprises. If you don’t fix the Michigan big metro talent concentration problem––as Amazon HQ2 should have taught us––Michigan is almost certainly going to continue to be a low-prosperity state.

Print Friendly, PDF & Email

Social Links

Featured Video

Play Video

Newsletter Signup

* indicates required

Latest Reports

Recent Posts