Rocketing Houston Economy — Small Business 101
Ayn Rand’s John Galt could not have built a better machine than Houston’s sturdy economic engine of today. In her epic novel, “Atlas Shrugged,” published 50 years ago, manufacturing and transportation were Rand’s focal points in the plot to stop the engine of the world. She understood the importance of business growth, entrepreneurialism, and free market capitalism. “Texas is a land of buccaneering capitalism.” (The Economist, 12/19/02).
In addition to having a low cost of living and a great quality of life, Texas has one of the nation’s most favorable business environments. According to Forbes’ new 2007 rankings published this month, Texas is in the Top five best states for business for the second year running. Another media outlet, CNBC, a financial news cable channel, this month designated Texas as the #2 state for business in their July 2007 press release. CNBC evaluated each state on 40 measures of competitiveness in 10 categories: Cost of doing business, work force, economy, education, quality of life, technology and innovation, transportation, cost of living, business friendliness and access to capital. And, Houston, the largest city in the State, enjoys Inc. magazine’s 2007 ranking in its Top 20 hottest large cities for business in the nation.
By 2030 the U.S. Census Bureau projects Texas population will increase by 60 percent compared with 2000 and will be one of the three other states that account for nearly one-half of total U.S. population growth between 2000 and 2030.
Houston’s economy is humming along faster than the rest of Texas as well as the rest of the nation. Houston had a 3.1 percent employment increase between June 2006 and June 2007. During that same 12-month period, the United States added only 1.4 percent new jobs, and the rest of Texas averaged 2.1 percent.
So……..with all the prerequisite ingredients in place, such as continued employment requirements, influx of personnel to fill the employment pool, and a “hot” climate for business, it’s not surprising that Houston’s engine is accelerating. Noted in New York Times article in March, Houston is experiencing its strongest resurgence in more than 20 years. The article cites energy, real estate development, and real estate investment as leading the way for the boom. And, in April, Inc. Magazine further expounded, “Houston is hitting on all cylinders. Not only are manufacturing and energy hot growth areas, there is also a cost advantage on housing, which is a big factor as housing growth in the suburbs, as well as inside Loop 610, is pulsing.”
Let’s talk about these assertions and other spark plugs powering the boom in Houston’s diverse economic health.
Yes, the Lone Star state has been long known as a top producer for oil and gas. But the oil industry is no longer the only energy star in town. It now shares a spot as Texas last year gained acclaim by surpassing California as the nation’s top producer of wind energy. And this month University of Houston landed a federal grant for wind turbine research, boosting Texas’ position as the nation’s leader in wind-generated energy. “This is the birth of a new industry here in Texas,” said Texas General Land Office Commissioner, Jerry Patterson. “Once we build these test facilities, the wind turbine and blade manufacturers will come.”
Houston’s international trade sector is trucking along in the speed zone and will not be putting on the brakes anytime soon. Houston’s Gulf Coast has long powered the growth in southeast Texas and Houston’s Customs District is the nation’s fourth most important Customs District in the nation. The Port of Houston is a primary port of entry for goods coming into the US market ranking first in the country in foreign tonnage, second in total tonnage, and is the sixth largest port in the world. Houston’s upward movement as a major player in international trade and the continued influx of business relocations will keep this sector of Houston’s economy a target of interest for those who are looking for acquisitions in the industries associated with international trade and logistics. Increasing worldwide trade, the benefits and advantages associated with Houston’s Foreign Trade Zone, and the city’s expansion of port terminal facilities sets the stage for its continued strength in international commerce.
The manufacturing industry in Texas has emerged as one of the nation’s fastest-growing manufacturing hubs. Between 1990 and 2005, a time frame long enough to encompass an entire business cycle, the state’s factory output grew an average of 5.8 percent a year, eclipsing all other major manufacturing states. A longer-run perspective shows that Texas’ share of the nation’s manufacturing base has been rising for at least four decades. Houston has seen a marked increase in activity that mirrors the overall manufacturing growth in Texas and is the #1 manufacturing city in the country in terms of total jobs. So, what’s behind the rise of manufacturing, in general, in the Lone Star State? Factory operators in Texas have what they need to prosper in a highly competitive, rapidly globalizing business environment. The following list are advantages that have encouraged companies to expand Texas operations, build new plants and relocate from other states:
- A central location within North America.
- Good distribution facilities that include one of the world’s largest seaports.
- A fast-growing and flexible labor market.
- A relatively low cost of living and an attractive business climate.
- Low land and construction costs compared with other parts of the U.S.
- The presence of Mexico’s assembly-for-export plants, known as the maquiladora industry, at which imported parts are assembled by lower-paid workers into products for export providing manufacturers with a nearby partner for globalizing supply chains and finishing production in the U.S.
In another category — in making their research public in May, the Project on Emerging Nanotechnologies announced that Texas joins California and Massachusetts as the states with the highest number of nanotechnology entities. Why is this seemingly small thing important? In 2006, worldwide spending on nanotechnology research and development reached $12.4 billion, a 30 percent increase from the previous year. It is predicted that by 2014, 15 percent of all manufactured goods, roughly $2.6 trillion worth, will incorporate nanotechnology. This should help people realize that this little “nano” thing is big and Houston’s manufacturing presence is ready to play a strategic role in this emerging technology.
From 1990 through 2006 Texas’ service categories outperformed its U.S. counterpart in job growth. Houston, for instance, has a thriving software development community, supported heavily by the financial, biomedical, and energy industries. There is no scarcity of programming talent in Houston with Rice University, University of Houston, and Texas A&M University on its doorstep. The market gets pumped full of eager developers at the end of every semester.
Texas’ business friendly slogan, “Open for Business,” and its commitment to investing in research is reeling in the Biotech Industry and is encouraging Alternative Energy Development as well. With more than 400 public research centers scattered throughout the state, it has a formidable scientific research base. Most notable is the Texas Medical Center in Houston, the world’s largest medical complex.
Physicians are flocking to Texas, thanks, in part, to the 2003 tort reform that limits malpractice lawsuit awards. Houston’s M.D. Anderson and other well-known medical institutions hold national top 10 rankings in their respective areas of specialization, which also plays a role in boosting the Healthcare-Related Sector in Houston. Each doctor is like a small business, needing staff, suppliers and professional services. The Texas Medical Association estimates that each new doctor would employ five people and contribute $600,000 a year to the economy. About 2,250 license applications from doctors in other states who want to relocate their practices here await processing at the Texas Medical Board in Austin. With the current population growing and projected population growth into the future, an increased number of physicians and health-related services and supporting technology will be necessary to the community, especially as the Texas population grows and ages along with the baby boom generation. Demand will continue for workers in these service areas since the baby-boomers are getting to the age that require such services.
Banking Institutions and other service-oriented businesses are and will continue expanding to Houston as corporations relocate to the Houston area and the population swells as Census statistics foretell.
“Houston continues to lead all Index markets with its 15-point rise in jobs year over year, and the fact that the increase has been broadbased across occupations is an encouraging testament to the diversification of the local economy.” (Monster Worldwide, Inc. – NASDAQ: MNST – parent company of Monster®, the premier global online employment solution for more than a decade.) Job growth and population growth are strong in Houston and together are key indicators for its robust economic future and small business marketplace.
Investors and developers will continue to add Texas real estate assets to their portfolios. In this must-read Boston Globe article, “A Climate for Growth,“ authored by Edward L. Glaeser, a professor of economics at Harvard, poignantly tells the story of why Houston’s pro-growth, no nonsense politics will continue to drive developers and other capitalistic-minded investors to Houston.
Houston is already experiencing a high level of business transfer activity of privately-held small to midsize businesses. Small businesses will continue to be valuable commodities for the foreseeable future as individuals, private equity groups, corporations, and business owners from other countries look to Houston, and Texas in general, to buy existing enterprises in order to take part in its expanding economy and continued prosperous future. In Wall Street Journal’s May 2007 article, “The Realignment of America,“ the graphic used to illustrate the story looks like everybody is headed to Texas.
There seems to be a small business 101 lesson to be learned from Rand’s fictional village, Galt’s Gulch, that she invented in “Atlas.” It was a refuge for industrious, ambitious people — who are the pistons that drive the engine of society — to continue their chosen fields of endeavor without the yokes of over taxation or regulation.