Houston Supplants New York

When I had the great good fortune to study business history with the founder of the discipline, Alfred D. Chandler, one question we pursued was the historical competition for commercial dominance between Boston and New York in the 18th and 19th Centuries. The key to New York's victory was its ability to capture the flow of goods, thanks to the Erie Canal, completed in 1825, which enabled exports of grain to flow to Europe by water the entire way, and equally facilitated imports.

By becoming the nation's dominant entrepôt, New York gathered a critical mass of skills and money necessary for commerce, and became the place to be if you wanted to grow and prosper to the maximum extent. New York has remained the nation's principal port until now. The Financial Times reported:

The greater Houston area has replaced New York City as the largest goods exporting region of the US, official data have shown, thanks to the energy boom that is reshaping the country's industrial landscape.

Houston's exports have been powered by the surge in oil and natural gas production from shale reserves, which has created cheap feedstocks for the region's refineries and petrochemical plants.

The metropolitan area's exports were worth $110.3bn in 2012, up 5.6 per cent from last year, pushing the New York area into second place after a 2.7 per cent drop to $102.3bn.

The data are for goods exports only, and New York's service sector would probably make it the largest US area for total exports. Exports from the New York region were hit by tropical storm Sandy last year.

The factors powering Houston's rise are likely to continue, perhaps even accelerate. Because feedsstock is so much cheaper in America thanks to fracking, more and more chemical manufacturing will be shifting to the US, and with its unbeatable concentration of technical, financial, and other specialized talent, the Houston region is likely to claim a large share of it.

Houston then

Houston now: Texas Medical Center with downtown Houston in the background

New York rode to dominance on the back of the Middle West, whose economies were rising with the development of the grain industry. In today's America, energy is playing a similar economic role, powering what little growth there is in an ObamaCare-constrained economy.

Walter Russell Meade has an apt name for what powers the new economy being led by Houston:

Houston is a great example of the power of brown jobs and brown energy, and an important model for other energy-rich states looking to emulate its success.

No doubt New Yorkers find it hard to conceive of Houston supplanting it as the nation's economic center of gravity, in no small part because petroleum and chemicals are smelly and icky in their minds. But energy is now a high technology field, and it attracts a lot of sophisticated brainpower, who, like financiers, tend to cluster in one place. That place for not just America but the world is Houston.

To be sure, New York's lead as a financial center is critical and still unchallengeable. But in the long run, money follows opportunity, and Houston is gaining. If New Yorkers and other blue elites wished to protect their standing among cities, they would do well to emulate the economic policies of Texas and Houston. But I am not holding my breath, which is why I am bullish on the rise of Houston and all of Texas.

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