Elon Musk, the chief executive of Tesla and SpaceX, earlier this month said he had moved to Texas from "complacent" California
Credit: ODD ANDERSEN/AFP
In February 2013, Californians listening to the radio were treated to an unusual advert. "Building a business is tough," a honey-toned voice affirmed. "But I hear building a business in California is next to impossible." The speaker was none other than Rick Perry, then the governor of Texas, attempting to entice entrepreneurs away from the Golden State.
The advert was followed by a four-day poaching trip paid for by Texan business lobbyists, as well as an entertaining public wrestling match with Perry’s West Coast counterpart Jerry Brown. Seven years on, it remains a symbol of the longstanding rivalry – sometimes real, sometimes tongue in cheek – that burns between America’s two most populous states.
Those flames were rekindled last week when two pillars of Silicon Valley announced that they were switching sides. First Elon Musk, the chief executive of Tesla and SpaceX, said he had moved to Texas from his "complacent" and "entitled" former home. Then Oracle, the software giant based in California since its foundation in 1977, shifted its corporate headquarters to Austin, the Texas state capital.
They are not alone. Hewlett Packard Enterprise, the HP spin-off, is also Austin-bound, as is Palantir co-founder Joe Lonsdale and his venture capital firm 8VC. Dropbox chief executive Drew Houston is said to be mulling a move.
For many, "Texodus" is simply a business or personal decision, but others hail it as something like a divine punishment for the neglect and hostility of California’s ruling Democratic political machine.
"California and New York have failed miserably and pathetically, at the government level, at the state level and the city level, and they have made it impossible to conduct business – period," says Ari Rastegar a pugnacious Texan property developer who says this year has been his best ever.
"They couldn’t have tried harder by design to screw it up," he continues. "This is an ongoing trend that Covid threw jet fuel onto… We are the new Silicon Valley. And the crux of Silicon Valley was Oracle, but they’re gone." He cites California’s "crazy" taxes, including a new wealth tax, and claims that Apple may be the next to move.
Rastegar has every incentive to talk up his home town. Still, census data shows that about 82,000 people ditched California for the Lone Star State that year, when Texas was also the second most moved-to state in the Union.
There is certainly no shortage of push factors in Silicon Valley, and the San Francisco Bay Area that surrounds it. Apart from the towering rents, painful cost of living and – before Covid, at least – intractable traffic, there is the worsening wildfire season driven by climate change and dangerously neglected electricity lines.
This year both problems collided, leaving some residents struggling to breathe in a surreal orange smog while suffering power cuts imposed to prevent further blazes.
Texas, meanwhile, already had a fine technology pedigree. One of the world’s biggest chipmakers is Texas Instruments, and many semiconductor pioneers were built in the "Silicon Prairie" around Dallas.
Thank you, South Texas for your support! This is the gateway to Mars.
— Elon Musk (@elonmusk) December 10, 2020
Today techies are flocking most to Austin, which Rastegar describes as a "hippie town" turned burgeoning tech hub. He says the party really started around 2013, when Google began investing in local fibre optic broadband, pumping up the real estate market and prompting Rastegar himself to quit New York and found his company.
Texas’s most obvious advantage is that it has no personal income tax at all. Residents need only pay the US federal rate, whereas California clips off just over 10pc on average for itself. According to the centre-right Tax Foundation, Texas is also tied with six other states for America’s lowest "combined" corporate income tax. California’s is the eighth highest.
Controversially, successive Texas governors including Perry have also spent taxpayer cash to attract business. An analysis by the Texas Observer in 2017 found that the state was on track to hand out almost $8.5bn in "corporate welfare" by 2031. A report by the Texas Senate concluded that most of the companies who took advantage – largely wind and manufacturing, rather than software – had "ample reasons for locating in Texas aside from [tax incentives]".
If current trends continue, Cloudflare’s Austin office will be larger than SF in 2021. More product engineering already led out of Austin. Happier teams. Believe what you want about why, but… the future looks less and less like it’s in the Bay Area.
— Matthew Prince 🌥 (@eastdakota) December 15, 2020
But Laura Huffman, chief executive of the Austin Chamber of Commerce, insists there are other advantages. She likes to describe the city as the "human capital", a pun on its highly-educated workforce (about 47pc have at least a bachelor’s degree against a national average of 33pc) as well as its quality of life. "Business thrives in an environment where talent thrives," she says, citing Austin’s lively restaurant scene and plentiful green spaces.
Quality of life was the key draw for Darrell Mervau, chief executive of FileTrail, which makes records and auditing software used by many law firms. This April he moved the company’s HQ from San Jose, part of the Bay Area, to Austin after a two-year search in which the city’s lively culture sealed the deal.
"I was born and raised in California, so I’m a Californian by heart," he says. "But it was getting to the point where our employees were saying ‘it’s taking 45 minutes for me to get to work now, my rent is ridiculous’. We looked at Arizona, Nevada, Nashville… and we kept coming back to Austin."
To his surprise, 80pc of his Californian workers followed suit instead of going remote. "Our employees have said that they got an automatic raise just by moving here," he says, also praising the balmy weather, green spaces and property prices that can bring any veteran of San Francisco’s brutal housing market to tears.
Some see the issue with more schadenfreude. On Blind, an anonymous social network where Big Tech workers gossip and insult one another, Texas vs California is a recurring flame war that frequently turns political. "The people fleeing California seek asylum from its Democrat decay," said one Snapchat employee. Others at Google and Amazon described California as full of "Left extremism" and, echoing President Trump’s description of some African countries, "a s***hole".
Those more bitter voices seem to be a minority, with many simply hoping for a more decentralised tech industry unlocked by remote working, where no single megapolis is able to suck all the talent into its orbit. Miami is also emerging as a contender: its enterprising mayor Francis Suarez has embarked on a Perry-style trashing campaign, rolling out a rhetorical red carpet to tech founders who feel California has taken them for granted.
This Mayor is a real hope ! California will bleed it’s talents away to other amazing states like Florida. https://t.co/v71Ia3cjzq
— Seshu Kiran (@art_kiran) December 16, 2020
Yet new tech wealth can be a curse as much as a blessing. Plenty of people in the Bay Area would be happy to see Silicon Valley knocked off its perch, since they blame the massive influx of well-paid tech workers for destroying the city they used to know and pricing out the dreamers that it sheltered. Might Austin end up the same way?
Rastegar is unfazed: "Yeah, in about fifty years. And that will be my kids’ problem." Mervau is a little more worried, predicting trouble in as little as three to five years. Locals, he explains, already complain that house prices are spiraling out of control, even as Californians arrive and marvel at how low they are.
"They’re going to have to address that very shortly," he says of Austin’s authorities. "I think they’ve planned for it. They know that it’s coming."
Nevertheless, he is optimistic about the city’s ability to maintain its character, saying: "The nice thing is that it still has a soul, right? San Francisco has lost some of that."
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