In 1982, three disgruntled employees of Texas Instruments met in a Houston pie shop to complain about upper management and plot what to do after they all left the company. They talked about starting a chain of Mexican restaurants. Instead, on the back of a placemat, they sketched out on something that at the time was a revolutionary innovation: a portable computer.
That computer, and the company they founded, was called a Compaq. And that decision – to forgo the chimichanga for a computer small enough to be “luggable,” as the phrase was then – is why early four decades later Houston is now being hailed as “America’s preeminent new tech hub.”
The story – quite abbreviated – illustrates several points that are important to any community that is trying to plot its own economic future.
- Technology is what is driving the economy today and the communities that are prospering the most are generally the ones that can lay claim to some aspect of the technology sector.
- Homegrown start-ups matter because if they grow, the community will grow with them.
- It’s always good to be lucky, and Houston got lucky when Rod Canion, James Harris and William Murto decided to stick with microchips instead of tortilla chips.
This story is not as random as it may seem: Tonight the World Series opens, pitting the Houston Astros against the Atlanta Braves. It’s my custom to use a major sports championship as a research challenge: to look at the two competing cities and see what economic lessons they hold for Southwest and Southside Virginia. Houston and Atlanta make this easy. Both are Sunbelt cities that have reinvented themselves, making them good models for communities here that have been forced to do the same as traditional employers have declined or disappeared entirely.
We are probably more familiar with Atlanta due to geographic proximity, and also because Atlanta has been proclaiming itself the capital of a New South ever since Gen. William Tecumseh Sherman passed through in 1864 and engaged in an early act of urban renewal. Roanoke, in particular, might feel a little too familiar with Atlanta. Over the years, many Norfolk Southern jobs migrated to Atlanta and, in time, so did the company itself. It might more properly today be called Atlanta Southern.
The Houston Astros are the favorite in the series, and Houston is actually a more fascinating example than Atlanta. We think of Houston as an oil city, and that’s certainly still true, but Houston has quietly become much more than that. Specifically, Houston is now regarded as a rising technopolis, ranked as the 19th best emerging ecosystem in the world by StartUp Genome, a California nonprofit that tracks urban economies. That status as a rising tech capital was underscored when Hewlett-Packard Enterprise announced last December that it will move its headquarters from Silicon Valley to Houston. Now, Hewlett-Packard Enterprise is not quite the Hewlett-Packard of old – the company has split in two – but, still, this is a company whose founders helped invent Silicon Valley back in the day. When Hewlett-Packard, even in reduced form, moves out of Silicon Valley for Houston, that makes a statement. Part of that statement is about how expensive California has become as a place to live or do business. Hewlett-Packard is hardly the only company decamping from California for another city.
Still, why Houston? Hewlett-Packard said Houston made sense because the city “has long been our largest U.S. Employment hub.” So why was Houston the company’s top employment hub? Ultimately, because of those three disgruntled Texas Instruments engineers in 1982. The company they founded – Compaq – became, for a time, the largest computer company in the world. Hewlett-Packard, looking to get a piece of the new portable computer market, bought out Compaq in 2002. Compaq’s products eventually lost favor in the marketplace (don’t see many people lugging around a suitcase-sized Compaq Portable these days), but Hewlett-Packard’s place in Houston did not. That brings us to some more lessons:
- Building a new economy is a generational undertaking. Former Roanoke city councilman Ray Ferris used to talk about how local government is about “cathedral-building.” He liked to point out that the great cathedrals of Europe took decades, sometimes centuries, to build. Same with a new economy. It took 39 years between the founding of Compaq and the declaration by the website Marketplace about Houston as a “new technology hub.” The economy sometimes moves at a geological pace but that apparent slowness doesn’t relieve communities of any pressure. Just the opposite. Community leaders need to ask themselves this: What decisions are they making now that will pay off 39 years from now? (Sharp-eyed readers will notice that that time frame is completely at odds with our every-four-years election cycle.) Our politics rewards the politicians who can capture the moment, but the economy issues its rewards on a quite different time scale.
- Fossil fuel capitals really can become green energy capitals. Here’s another way that Houston is surprising. Houston, with its oil background, is surely as wedded to fossil fuels as much as Appalachia has been. And yet … Houston is also home to the largest climate-tech startup incubator in North America. Houston seems to have figured out something that Appalachia is just now starting to realize it needs to do: leverage its status as an energy capital so that it can stay an energy capital even if the sources of energy change (which they will and are). Greentown Labs now counts 30 companies in Houston doing climate-tech work, with that number expected to rise. This city that was powered by oil for so long now aims to be “the energy transition capital of the world.” The InvestSWVA economic development group is now trying to pull off the same trick in Southwest Virginia. You can argue that the coalfields should have done this sooner, but we can’t change the past, only the future, and that’s where InvestSWVA’s focus is. For anyone who doubts this transition is possible, look at Houston. OK, Houston hasn’t totally pulled this off yet, but it’s done enough that it seems reasonable to think it really can become that energy transition capital. The website Marketwatch says Houston is building a new tech economy “in the shell of an older economy.”
An observation: It doesn’t seem to be politicians in Houston who are driving that transition; it seems a consequence of the marketplace. If anything, at least some politicians in Texas seem to be actively speaking out against that energy transition, most notably its governor, a curious example of a Republican criticizing the free market. By contrast, we’ve seen Republican legislators in Southwest Virginia – while not exactly your prototypical tree-huggers – claiming victory when a deal was announced this September to turn 1,200 of former surface mines on the Wise-Dickenson county line into a solar farm. They understand that the world is changing.
Now the big question: Is it easier for a major metro to make this transition than a rural area? The marketplace may work fine for Houston – a city with lots of expertise in “hard” technology and some top-flight universities – but what if it doesn’t work so well for Appalachia? What then? We hear lots of politicians talk about how they want to create green energy jobs – we’re looking at you, Terry McAuliffe – but we hear nothing about how they will make sure those jobs get created in places where fossil fuel jobs are disappearing. Neither party seems to have a plan for that. Why not?
So how about this as a challenge: Houston’s Greentown Labs is an offshoot of Boston’s Greentown Labs. What would it take for Greentown Labs to open a third location – in Southwest Virginia? Which politician or which community leaders will take the lead in making that case?
6. Talent matters. This is something that comes up every time: Jobs once went to where the natural resources were – Houston became Houston because that’s where the oil was and the port was to get it to market. Now jobs go to where the workers are. Hewlett-Packard didn’t have to go to Houston just because it had a lot of employees there. It’s not as if Houston is pumping microchips out of the ground. Instead, Hewlett-Packard praised Houston’s tech-savvy workforce, calling the city “an attractive market for us to recruit and retain talent.” Translation for us: We need a better-skilled workforce and we need to make sure our communities are ones where people want to live. It’s not all just about what the tax rate is, although let’s not kid ourselves, tax rates in Texas are a lot cheaper than in California.
I’ve focused a lot on technology but it’s important to note that doesn’t simply mean computer companies. Hewlett-Packard Enterprise chief executive officer Antonio Neri has made the point that “every company is an IT company now.” A study by Cyberstates turned up this curious statistic: Houston has the highest percentage of technology workers at non-technology companies. Talent also manifests in many ways. When Del. Terry Austin, R-Botetourt County, was in Houston a few years ago for medical treatment (Houston has also become a big health care city), he was surprised to learn that many of the health workers he came in contact with had gone to a high school that specialized in health careers – the DeBakey High School for Health Professions. He came back home cured, and with an idea. The result: He persuaded the General Assembly in 2020 to appropriate $700,000 for a pilot program in the Roanoke Valley to increase health sciences education in high schools as a way to create more “career pathways” into health fields. This is not a moment too soon, nor an issue confined to the Roanoke Valley. Our places also face a looming shortage of health care workers as the population ages. One study found that in Martinsville and Henry County, the current pipeline of health sciences students wils supply only 10% of what the region really needs. Houston founded its DeBakey High School in 1972, so we’re only 49 years behind.
7. Diversity matters. Here’s where things may become uncomfortable for some people. Once the nation’s most ethnically diverse cities were the industrial cities of the Midwest and Northeast. Today, its most ethnically diverse city is Houston. (One-fourth of its population is now foreign-born, a high percentage today but still relatively low by historical standards. In 1900, many American cities were more than one-third foreign-born and not just cities; the highest concentration of foreign-born population then, not counting Hawaii, was rural North Dakota, where 35% were born outside the U.S.) But back to today: Diversity has become an economic selling point. Sorry, Tucker Carlson. He’s tried to make the case on his Fox News show that diversity is a national weakness, which suggests he doesn’t understand American history as well as he claims. The economic facts on the ground suggest otherwise. Turn again to Hewlett-Packard and why it chose Houston as its new headquarters. An existing presence, sure. And a deep and growing talent, too, absolutely. But also the fact that the talent pool is diverse: “Houston provides the opportunity over time to draw more diverse talent into our tanks – a key priority for HPE …”
Here’s the most difficult part of all: Our nation is bifurcating in many ways – politically, culturally, but also demographically. The United States as a whole is becoming much more diverse, but that diversity is largely concentrated in metro areas. We have large swaths of rural America that are not seeing any of these changes, which further estranges them from the rest of the country – and, as we see here, the rest of the economy. The almost unrelenting whiteness of Southwest Virginia can only be regarded as a detriment in terms of recruiting certain employers – or potential employees.
Two years ago, a study for the GO Virginia region that covers the New River Valley, the Roanoke Valley, the Alleghany Highlands and Lynchburg surveyed recent college graduates about why they chose to stay – or, more commonly, not stay – in the region. The answers were often pretty painful: Our lower cost of living was not as big a draw as we wish it were, our wages are too low, and, umm, we’re too white. “This makes attracting diverse talent difficult, as many new residents are looking for a [community] in which to engage that shares their own culture, making it easier to feel at home. The lack of diversity can also promote a perception of a lack of tolerance, whether it is real or perceived.” That’s not unusual. A similar study for the GO Virginia board in Richmond said much the same thing. A more practical point: One of the most fascinating cities in our region right now is Danville, which seems on the cusp of making a lot of things happen. Some tech companies pushed out of the pricey Research Triangle are setting up shop, its old buildings downtown are starting to be rehabbed into housing. The coming casino may not be as transformative as some believe, but there seems no doubt that in 10 years Danville is going to be a very different place (and likely in a good way). The River District could be every bit as cool as Roanoke’s City Market or downtown Lynchburg with its riverfront redevelopment. But when I was in Danville recently I also counted two big Confederate flags flying on private property along the main drag. Those are not exactly welcome signs. We can’t change our demographics overnight, but if we could stop flying those darned flags we could at least show we know which century we’re in.
Coming Wednesday: Lessons from Atlanta.