A Look Ahead with The Economist: Falling behind

By most measures, the Texas economy is performing very well, with strong hiring, more major corporate locations and expansions than anywhere else, and regular appearances at or near the top of rankings of places to do business, start a business, or get a job. However, a recent study by the Brookings Institution and the Information Technology & Innovation Foundation (ITIF) highlights an area where the state is falling behind. 

The study (“The Case for Growth Centers: How to Spread Tech Innovation Across America”) examined the 13 industries that are the most STEM (science, technology, engineering, and math) and R&D (research and development) intensive. In these industries, $20,000 per worker is spent on research and 45% of the workforce is in STEM occupations. These industries generate innovation, growth and high-paying jobs and range from semiconductors to software to aerospace to chemicals and pharmaceuticals. 

The 20 metropolitan areas with the largest absolute numbers of jobs in innovation industries are concentrated on the west coast and in the northeast, though they are sprinkled across the nation. Not surprisingly, Dallas-Fort Worth-Arlington, Houston-The Woodlands-Sugar Land, and Austin-Round Rock make the list. 

When the researchers looked at the growth in innovation industries, however, Texas did not compare well. In fact, just five metropolitan areas — those surrounding Boston, San Francisco, San Jose, Seattle, and San Diego — accounted for more than 90% of net US innovation-sector growth between 2005 and 2017. Rapid expansion certainly brought challenges, such as increased housing costs and traffic congestion, but it also generated notable benefits including inflows of talented workers and capital and increases in economic activity. 

Although some Texas metropolitan areas saw increased innovation employment over the period — including San Antonio-New Braunfels up 1,472, Austin-Round Rock up 1,200, and the McAllen area up slightly — others declined including Dallas-Fort Worth-Arlington down -8,969, Houston-The Woodlands-Sugar Land down -3,281, and El Paso down -701. 

Large, innovative firms tend to locate near one another for reasons ranging from a larger pool of talent to the ability to collaborate and share knowledge. The Brookings and ITIF study recommends a federal effort to foster new regional “growth centers” across the nation — none of which are in Texas — through a major investment in R&D funding, workforce development funding, tax and regulatory benefits, business financing, economic inclusion, and federal land and infrastructure support. 

Despite notable progress on many fronts, Texas has missed out on recent growth in innovation industries, and without concerted efforts to alter this pattern, the situation is likely to worsen. Enhancing its presence in innovation industries will require a range of initiatives to support higher education, research, inclusiveness, amenities and workforce development. It’s an investment in our future prosperity that we need to make.

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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.