Silicon Valley won't last forever, and Texas knows it

Is Texas really a serious rival to California as a destination for high-tech? The growing exodus of banner companies -– Oracle Corp., Hewlett-Packard Enterprise Co., Tesla Inc.'s Space-X and others -– suggests that there's something to the idea. Still, skeptics rightly point out that plenty of other places have made a bid to become the new Silicon Valley and never come close.

Texas, though, may be different, and not because of the recent high-profile relocations. Unlike other would-be innovation hubs, the state has been quietly nurturing high-tech industry for decades. If Texas eventually rivals California, the consequences could be momentous, not just for industry, but for U.S. politics.

A bit of background: At various times in the nation's history, different locales have emerged as clusters where industrial innovation has flourished, spawning powerful new corporations and staggering amounts of wealth. These "places of invention" attract a critical mass of companies and talent. They often depend on institutions that train the next generation of workers and entrepreneurs.

Silicon Valley fits the model. As Margaret O'Mara has observed in her entertaining history of the region, a critical convergence of engineering talent, venture capital, educational institutions and government money unleashed waves of innovation, each building on the previous one to generate ever-larger economic booms.

But nothing is forever. Consider the fate of Hartford, Connecticut. That city was once a high-tech powerhouse in the late 19th century, dominating precision engineering and instrumentation. Its glory days are long gone. Other centers of innovation and invention have suffered similar fates: Philadelphia, which largely pioneered machine-tool production; Detroit, crucible of the automobile industry; and others.

If Silicon Valley loses its marquee status, it will almost certainly give way to several hubs in Texas, a state now more readily associated with Ted Cruz, capital punishment and crude oil. The idea that it could ultimately displace California as the leading center of innovation seems far-fetched. Except when you take a closer look – and go far back in time.

As one account of Texas's high-tech history has argued, a new age dawned in 1930. The year brought news of the largest oil discovery ever made in the lower 48 states: the so-called Joiner Strike in the East Texas oil patch. But it also saw the creation of Geophysical Service, a company that used sound waves to prospect for oil, which quickly became an industry standard. The company grew rapidly, expanding into submarine detection during World War II.

In 1951, the company became Texas Instruments, one of the giants of the computer age. Three years later, TI became the first company to design, build and market silicon transistors; seven years later, it developed the first integrated circuits, or computer chips. These became the building block of everything from hand-held calculators to computers. Even as Silicon Valley became the visible leader in computing technology, Texas Instruments flourished in Dallas, growing ever larger. (It is now the world's largest manufacturer of analog chips.)

Part of the reason for this trajectory had to do with another institution that continues to play a key role in driving technological innovation in the state: Houston's Rice University, which played a role comparable to Stanford's vis-à-vis Silicon Valley. In fact, many of the early players in Silicon Valley actually moved to California after graduating from Rice, constituting what is sometimes called the "Rice Mafia."

How appropriate, then, that Rice would play a key role in the next step in the rise of Texas. In 1961, the university donated more than a thousand acres of land for the construction of what became known as the Johnson Space Center, flooding a once-provincial city with literal rocket scientists. Like Silicon Valley, where government contracts and connections proved essential in getting the region off the ground, Houston's leadership in the space race kick-started a host of related industries.

All of this happened very gradually, almost imperceptibly, as Texas remained in the shadow of a burgeoning Silicon Valley. But as the state boomed, so did its public university system. Soon the flagship university in Austin came into its own, and start-ups began proliferating in the university's shadow, as well as along Interstate 35, which connects Austin northward to Dallas and southward to San Antonio. This corridor joined Houston, which was already well established.

Some of the companies that defined the Texas tech scene in this early era have perished: Tandy Corp., for example, which helped launch the personal computer era with its TRS-80 laptop before caving to competition and renaming itself Radio Shack Corp. to focus on retail, and Compaq Computers Corp. But others have proven more enduring.  Austin begat a host of successful startups, including Michael Dell's company, which began direct-marketing personal computers to consumers and remains a giant today.

By the year 2000, the battle for tech supremacy had come down to two states: California and Texas. But the Lone Star State was at that point still playing catch-up. For example, California's high-tech exports that year totaled $53 billion, while Texas came in second at $25 billion. Yet Texas surpassed California in 2014 and now holds a commanding lead.

Other measures suggest that California continues to hold onto its lead. Back in 2000, California was the top state for research and development investment, venture capital investment and other measures of future promise. Texas lagged well behind, ranking sixth in R&D 20 years ago. It's since vaulted up to third place, but California still holds a commanding lead.
That's where the growing number of corporate relocations could tilt the balance. The companies making the move aren't bit players; they're massive corporations like Oracle and Tesla. Certainly, some of their operations will remain behind in California. It's still a momentous step.

And these behemoths are hardly alone: Texas is the top destination for a growing number of companies moving out of California -- and has been for upward of 12 years. In 2019, for example, 1,800 companies left the state; most went to Texas. This has been paralleled by population shifts, with a net shift of 42,500 people leaving California for Texas, the largest such movement of people in the country.

The influx of well-educated, affluent tech workers, most of whom count themselves liberals, will transform Texas – and not just its economy.  In time, the growing number of transplants could help turn the state blue for the first time since it went for President Jimmy Carter in 1976, delivering its wealth of electoral votes to Democrats in future elections.

If that happens, Republicans may belatedly realize that the power of the tech sector goes far beyond banning the president from Twitter.

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg Opinion.

Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement.