Why Texas, not liberal California, is the perfect role model for Brexit Britain - Thomas Broom for The Telegraph
The words on the board hanging from a pole simply read: “Welcome, Snailbrook, Tx, est, 2021.” There’s just one issue: you’ll struggle to find Snailbrook on any map of Texas. In theory, no such place exists.
The makeshift sign is one of very few clues that Elon Musk is building a new town from scratch at breakneck speed and under a veil of secrecy on farmland just outside the city of Austin.
Over the past three years, entities tied to the billionaire entrepreneur’s various companies have bought at least 3,500 acres in the area – roughly 10 times the size of Hyde Park in London or four times Central Park in New York – according to an investigation by the Wall Street Journal.
Musk appears to be creating a conurbation on the outskirts of the Texan capital, close to where he is also building facilities for companies including SpaceX and Boring Co, his underground mass transit system business.
The name “Snailbrook” is likely a reference to Boring’s mascot, which was adopted after Musk challenged employees to develop tunnelling machines that move “faster than a snail”.
The new town is reminiscent of Bournville, the model village in Birmingham built by George Cadbury in 1893 to house workers at his nearby chocolate factory. Drone footage shot by local residents and posted on YouTube suggests Musk’s version includes modular homes, a pool, an outdoor sports area and a gym. The idea is that employees will be able to live in the new homes at below market rates.
The entrepreneur, who is thought to have been living in a friend’s mansion in Austin for the last two years, also appears to be planning his own residential compound and is reported to have looked into incorporating the new town in Bastrop County along the Colorado river.
This would allow him to set his own regulations and expedite planning, according to the WSJ. It certainly gives the concept of “working from home” a new twist.
Elon Musk's Snailbrook town in Texas - Brandon Bell/Getty Images
It is the most compelling indication to date that Texas has become the centre of Musk’s fast-expanding universe. Following a dispute with Californian officials about Covid restrictions, he moved the headquarters of Tesla, his electric car company, to Austin in December 2021.
At the time, he described California as the land of “overregulation, overlitigation and overtaxation”. Musk is also building a 10 million square foot Tesla manufacturing facility – known as Giga Texas – nearby.
Later this month, SpaceX’s huge new Starship vehicle, which Musk has developed to transport astronauts and cargo to the moon, Mars and who knows where else, will launch for its first ever orbital test flight. It will take off from Boca Chica in South Texas on the Gulf of Mexico where SpaceX has built Starbase, its first privately owned launch facility.
Where better to reach for the stars than the Lone Star State? Texas has fewer planning laws than California and less onerous labour and environmental regulations. It also has large amounts of undeveloped land close to its big cities. Crucially, it doesn’t charge corporate income tax or capital gains and income tax on individuals.
Texas is thriving. The key question for policymakers around the world – not least the UK Chancellor Jeremy Hunt – is whether this is primarily the result of luck and the state’s vast oil wealth, or a product of low taxes and minimal government intervention.
Hunt has said he wants to turn the UK into a “new Silicon Valley”; perhaps a better aspiration would be to turn this country into a new Downtown Austin.
A tale of two cities
The battle of the two states has been shaping up for a while now. Throughout 2013, radio listeners in California were bombarded by a political ad.
Nothing odd about that - except this one was from the governor of Texas. “Building a business is tough, but I hear that building a business in California is next to impossible. This is Texas Governor Rick Perry and I have a message for California businesses: come check out Texas.”
Jerry Brown, California’s then-governor, dismissed Perry’s radio campaign as “barely a fart”. But, whether or not Musk heard the ad, the billionaire entrepreneur definitely got the message. And he wasn’t the only one.
Between 2020 and February this year, 139 companies moved their headquarters to Texas, according to YTexas, an organisation that tracks corporate relocations. In the 12 months to July last year, the state’s population ballooned by half a million new residents.
A quarter of this number was the result of births and a quarter arrived from abroad but a good half came from other parts of the US.
Texan gross domestic product has now broken through $2 trillion (£1.6 trillion) and its economy would be the ninth largest in the world were the state to be independent (again).
Dallas and Fort Worth used to be separate cities but have grown so fast that they have now merged into a single “metroplex” that is expected to overtake Chicago as America’s third-biggest city by the middle of the next decade.
Musk has said that Austin, the state’s capital and most liberal city, which has experienced huge growth on the back of its own tech bonanza and the arrival of Californian exiles, will be the “biggest boom town America has seen in 50 years”. He is working hard to ensure his own prophecy comes true.
One of the most interesting aspects of the growing rivalry between California and Texas is the similarities between the two states. For starters, they are among the largest in the country, both in terms of land mass and populations. They each share a border with Mexico and have large immigrant communities, long coastlines and abundant energy.
But politically, the two states occupy different ends of the spectrum. California is one of the bluest of blue Democratic states where liberal values thrive; Texas is a fiercely conservative Republican stronghold that has voted for the party’s nominee in every presidential election since 1980. The two states therefore offer the nearest thing to an economic control experiment you could hope to find in the wild.
Traditionally California has held the upper hand, with Silicon Valley incubating many of the world’s largest and most dynamic companies. But, after years of reckless spending and unsustainable budget deficits, combined with rising crime and astronomical property prices, the Golden State appears to have lost some of its lustre.
California has suffered particularly badly from the opioid epidemic sweeping across America. Fentanyl overdoses in the state have jumped by 2,100pc in the last five years. Parts of San Francisco have become open-air drug markets and homeless encampments. Many residents, who question how a city can ban plastic straws but permit plastic needles, are voting with their feet.
Texas – famous for “nodding donkey” oil pumps, huge herds of cattle and the soap opera “Dallas” – has been one of the prime beneficiaries of the exodus from the West Coast. Musk’s relocation is merely the most high-profile example.
The Lone Star State has a lot going for it. The unemployment rate is consistently lower than the national average. Last year, it added more jobs than anywhere else in the US. Indeed, between February 2020 and the end of last year, Texas was responsible for generating over a third of all the net new jobs in America.
It’s an extraordinary track record and one that is regularly held up by Conservatives as an economic model for others to copy.
As Newt Gingrich, the Republican politician and former speaker of the House of Representatives, once said, all politicians are in favour of more jobs, but “Texas lawmakers have also made it clear that they like jobs enough to like the people who create jobs”. American businesses have reciprocated.
Low tax Texas
Elon Musk is just one of many business owners moving to Austin - SUZANNE CORDEIRO/AFP via Getty Images
Last year, Caterpillar, the machinery giant, upped sticks and moved its headquarters from Deerfield in Illinois, another Democratic stronghold and Barack Obama’s home state, to Dallas. Meanwhile, Chevron, the oil major, downsized in California and increased its presence in Houston.
They were both following in the footsteps of the likes of Oracle and Hewlett-Packard seeking a new home in cowboy country.
The influx has helped Texas to recover from the pandemic-induced economic downturn far faster than other parts of the US, and helped the state economy diversify from an over-reliance on oil and gas which left it susceptible to past cycles of boom and bust.
The Dallas Federal Reserve’s index of leading economic indicators for the state – which includes things like employment growth, manufacturing activity and drilling levels on the oil and gas fields – has been running at its highest level since such data started to be collated in the 1980s.
Texas is forecast to record a budget surplus of $32.7bn for 2023. Of this, $10.2bn will be squirrelled away in a rainy day fund the state set up in 1988, known as the Economic Stabilization Fund.
The Texas legislature meets only every other year and then for just 140 days.
The local gag is that Texans dislike government so much they’d prefer their politicians to meet for two days every 140 years. Nevertheless, this is already less than every other state and means local politicians must be efficient at getting through the agenda, set a budget for two years rather than constantly tinkering and pursue careers in other fields.
It seems to work; Texas has managed to balance its books every year since 2003.
The state’s finances present a stark contrast to those of both California and New York, which are expected to yet again post big deficits in the coming year. These states are now debating whether to increase taxes in order to help make ends meet.
The economist Arthur Laffer, whose famous “curve” purported to show that lower taxes could result in higher revenues, argues that many blue states have got their thinking precisely backwards.
Laffer, whose theories helped shape the economic policies of Ronald Reagan and Margaret Thatcher, calculates these states have therefore foregone a quarter of a trillion dollars in cumulative taxable income.
“That's only the money on personal income-tax returns,” he wrote in an op-ed for the Wall Street Journal. “It doesn't count lost revenue from corporate profits or sales.”
He pointed out that Texas, Florida and Tennessee impose no state income tax and all have sturdy surpluses.
“Rather than doubling down on the highest taxes in the land and conjuring up new ways to soak the rich, wouldn't it be wiser for the highest-tax states to start imitating the winners?” Laffer asked.
Culture war crisis
The overturning of Roe v Wade sparked widespread protests in the US last year - Brandon Bell/Getty Images
It’s a good question. But another is whether the red states that are currently doing so well will keep on winning. Greg Abbott, who took over as Texas governor in 2015, has adopted his predecessor’s practice of going on “hunting trips'' around the country in order to lure businesses to the state.
However, he is also becoming an increasingly prominent protagonist in the nation’s culture wars. This includes severely curtailing abortion rights in Texas after the US Supreme Court struck down Roe vs Wade last June. The governor has also tightened voter rules, loosened gun laws and engaged in political gimmicks such as deploying state forces on the Mexican border and sending busloads of immigrants to New York.
While these moves appear to play well in rural Texas, they are less welcome in the urban areas where newly arrived employees of relocated businesses have made their homes. The influx is beginning to alter the political map of the state, turning it increasingly purple (a mix of red and blue) in some areas.
Tesla – along with the likes of Citigroup and Meta (the Facebook parent company) – has said it will cover the expenses of any employee that needs to travel out of the state to access abortion services. However, the state’s attorney general has vowed to prosecute any businesses that facilitate the procedure for their employees.
Texan politicians are also taking on financial players, such as the fund manager BlackRock, which choose not to invest in oil and gas companies because of “environmental, social and governance” policies.
“We will discriminate back against those discriminating against our oil and gas firms,” Abbott said last month. “BlackRock is blackballed in Texas.”
It remains to be seen whether the showdown between Texan politicians and the business community will escalate, and if so, whether opening a new front in the culture wars damages the state’s reputation for business-friendliness and a “hands-off” approach to regulation.
A more immediate threat to the Texan boom is soaring property prices. The average house price in the state is still just half that of a similar place in California. However, values are up by 50pc more than the national average since 2010. It may be partly to counter a red hot property market that Musk has decided to build his own town – something one suspects is not an option open to every company.
Texas has started to get a taste of the medicine it used to administer to California. Billboards around Austin advertising the merits of neighbouring Arkansas read: “Everything is bigger in Texas, including mortgage payments.”
Phil Murphy, New Jersey’s Democratic governor, wrote an op-ed in the Houston Chronicle last summer directed at local business leaders: “Instead of quietly figuring out ways to make end runs around state laws to provide abortion access to the women you employ, may I offer a solution: Come to New Jersey.”
Green powerhouse
Fans of Texas like to paint it as a low tax nirvana; sceptics claim that it has merely got lucky thanks to vast mineral wealth. There’s some truth in both views but neither is wholly correct.
The state’s notoriously spendthrift politics have resulted in education being poorly funded, which may exacerbate already high inequality in the state; a higher proportion of the population than elsewhere in the country lives without medical insurance.
A lack of spending on infrastructure is also creating problems. The electric grid has suffered catastrophic outages, including during the “snowpocalypse” the winter before last.
The old image of Texas as a geologically blessed petrostate is also increasingly out of date; JR Ewing, the oil baron in Dallas, would struggle to recognise the place. Finance and property are now the state’s most important industries. Charles Schwab moved its headquarters to Dallas-Fort Worth in 2021 and the city houses Goldman Sachs’ biggest US office outside New York. Tech companies have flocked to Austin, energy companies to Houston and manufacturing and aerospace companies to south Texas.
Meanwhile, despite what its politicians might publicly claim, Texas has turned itself into a green energy powerhouse; the state produces more solar and wind energy than any other in the US.
Ironically, this means that, despite traditional antagonism towards the federal government, Texas is set to be one of the main beneficiaries of President Joe Biden’s Inflation Reduction Act, which has been designed to stimulate the economy and curb carbon emissions. Clean energy projects in Texas are expected to receive more than $66bn by 2030.
And while there’s more to Texas’s small-state pretensions than meets the eye, reports of California’s death have also been somewhat exaggerated. For evidence, look no further than Musk’s empire: Tesla still operates its Fremont factory in the San Francisco Bay Area, is building a new battery factory in Lathrop and has established its global engineering headquarters in Palo Alto.
The reality is that at any given time, either California or Texas may be in the ascendancy.
American companies are blessed with having a wide choice of locations for their operations and states vying with each other to attract them. As any business person will tell you, competition is a good thing – a point perhaps missed in all Britain’s starry-eyed talk of building a government-backed version of Silicon Valley.
