Consultants excel at making sense of disparate, messy, and sometimes conflicting data. This is not a robotic exercise in copy/paste into an excel – no – you’ve got to think through the problem. What’s relevant? What’s valid? Can you find the hidden thread(s) that runs through the data and tells a compelling story. What’s the insight? What’s the so what?

The Economist excels at telling complex stories simply (sounds like consulting, right?).  Recently, they had a special report on the future of the US, as seen through the case-study, compare/contrast between Texas and California. Both states are big, influential, different, and successful.  Ergo, what does this say about the US?

Unlike the condescending, oafish way the US news polarizing red/blue state thinking, the Economist is thoughtful, and well, British. For those with a subscription to the Economist (highly recommend), articles here.  Adding direct quotes from the Economist in blue italics.

For the past few decades they have been heading in opposite directions, creating an experiment that reveals whether America works better as a low-tax, low-regulation place in which government makes little provision for its citizens (Texas), or as a high-tax, highly regulated one in which it is the government’s role to tackle problems, such as climate change, that might ordinarily be considered the job of the federal government (California).

Texas and California matter: big and growing economies

Love this approach of showing two “Yes” cases, and discussing the wide grey expanse between them.  As I often tell students, when someone gives you a choice between (a) & (b). . .the other options are (c), both (a) & (b), and none of the above. For starters, what are some commonalities between these states?

	Texas	California
Population	One in five Americans calls Texas or California home. By 2050 one in four will
	Hispanics are around 40% of the two states’ populations, double the national average
Economy	Over the past 20 years the two states have created a third of new jobs in America
	If they were countries, they would be the fifth- and tenth-largest in the world

They have opposite approaches to state government

Organized some of the juicy quotations in blue italics in a table.  Tables are incredibly useful ways to bucket content so it’s easy to see. On the left, you’ll see a diverse span of topics, and the columns allow for a simple and stark contrast between TX vs. CA.

	Texas	California
Political Party	Republican: No Democrat has won a statewide race there for more than 20 years	Democrat: Democrats control all three branches of government
Taxation	Texas’s constitution forbids a state income tax	California levies one of the highest income taxes
Government	Serious about avoiding government overreach, the legislature meets only every other year	California is the standard-bearer for progressive experimentation nationally
Environment	Texas has loose environmental regulations	Trying to use its economic might to force the rest of the country to adopt more stringent standards
Minimum wage	Follows the federal minimum wage, $7.25	$11 an hour this year and $15 by 2023
Uninsured healthcare %	[Did not accept Medicaid expansion] uninsured rate is over 17%, the highest in the country	[Via federal subsidy, Obamacare] uninsured rate dropped from 17% in 2013 to 7% in 2017
Immigration	Spends $400m a year of its own money to police the border	Withdrew several hundred National Guard troops from S California in a symbolic protest

If California is high taxes, high services, high regulation, then Texas is the opposite: low taxes, low services, and low regulation. In 2017 Texas ranked 49th out of 50 in spending per person, shelling out around $3,925 per citizen, 52% less than the national average and 68% less than California. While on the surface this looks like an indictment of California, it’s not.  On the following table, you’ll see that many of their problems are the same.

They have similar problems

Many of the problems facing the Golden State (CA) and the Lone Star State (TX) are similar.  Neither allocate enough money to education, or have a realistic, comprehensive, immigration approach. Texas has a largely laissez-faire approach to social services, but California is not better – in many ways – because of the astronomical cost of living. California – for all its wealth and top-tier technology and entertainment clusters – has widespread income inequality and homelessness.

	Texas	California
Tax Base	Strong reliance on energy, which accounted for around 16% of its GDP	Top 1% of taxpayers account for 46% of all personal-income tax; 35% of California’s general-fund revenues
Business Friendly	CNBC ranked Texas as #1 [state for business]	CNBC ranked California as #25 [state for business]
Education	Ranked 41 (out of 51 states, including DC)	Ranked 36 (out of 51 states, including DC)
	Some progress with charter schools and alternate models of privatized education	Bureaucratic system: California’s education code: 2,590 pages, is more than twice as long as the Bible
Poverty %, national rank	15% of population, ranking #10	19% of population, ranking #1
Inequality national rank	[Between top 5% and bottom 20%], ranking #10	[Between top 5% and bottom 20%], ranking #2

California’s regulation can be regressive

While California holds itself as a progressive state (think: Governor Ronald Reagan approved legalized abortion 6 years before Roe v. Wade), some of their government policies can lead to a more regressive regime that hurts the poor.

• Restrictive construction laws contributes to housing costs that are 80% higher than the national average
• Requirements for specialized refining contributes to gasoline costs that are the highest in the country

Texas may be a young California. . .

The author of the report, Alexandra Suich Bass, posits that Texas and California may be more similar than they think. Perhaps, just maybe, Texas is earlier in its maturity cycle, and they will increasingly experience middle-age state challenges, cultural shifts, and consciousness.

Take a closer look, though, and Texas looks more like a teenage California. The population of Texas has only recently reached the level California was at in the late 1980s. The Golden State was once a pro-sprawl, low-tax, Republican state, too. Republicans in Austin, who are feeling the first signs of political competition from Democrats in decades, have begun to focus their attention on the state’s shortcomings . . 

What is the trajectory of the US?

• First, immigration is still a major lever. Hispanic populations are approximately 40% of the states’ population and growing.
• Second, many companies have relocated to Texas from higher regulation, expensive states: Toyota, Pizza Hut, Keurig Dr Pepper, Frito-Lay, JCPenney, Kubota, and the PGA.
• The biggest challenge appears to be the supply of an educated workforce to fill all the openings.
• Although it’s easy to over-simplify California as Democratic and Texas as Republican, look at these voting results in 2016. The winner-take-all electoral college system skews the real results. Basically, there are lots of Democrats in Texas, and Republicans in California.

Podcast interview with the author

Some comments from the interview with the Alexandra Suich Bass on Northern California Public Radio here:

• Both states could have some humility and learn from each other
• Texas has a strategic initiative to woo business. . . 
• Environmental regulation [in CA] has a direct consequence on housing and new development
• Texas has always argued for state autonomy and local control. . . but now that the cities are going blue, and experimenting with policies that are not historically Texan values, we are seeing the state trying to control the cities
• Texas is getting more progressive 

Podcast interview on this ConsultantsMind playlist:

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