Texas and California

Texafornia dreaming

America’s future will be written in the two mega-states

IN THE CABLE-NEWS version of America, the president sits in the White House issuing commands that transform the nation. Life is not like that. In the real version of America many of the biggest political choices are made not in Washington but by the states—and by two of them in particular.

Texas and California are the biggest, brashest, most important states in the union, each equally convinced that it is the future. 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). Given the long-running political dysfunction in Washington, the results will determine what sort of country America becomes almost as much as the victor of the next presidential election Will.

That is partly a function of size. One in five Americans calls Texas or California home. By 2050 one in four will. Over the past 20 years the two states have created a third of new jobs in America. Their economic heft rivals whole countries’. Were they nations, Texas would be the tenth-largest, ahead of Canada by GDP. California would be fifth, right behind Germany.

Texas and California are also already living America’s demographic future. Hispanics are around 40% of the two states’ populations, double the national average. Both states were early to become majority-minority. In California non-whites have outnumbered whites since 2000, and in Texas since 2005. The rest of the country is not expected to reach this threshold until the middle of the century. California and Texas educate nearly a quarter of American children, many of them poor and non-native English-speakers. Their proximity to Mexico, a country that both used to be a part of, means that as Washington procrastinates on updating America’s immigration laws they must live with the consequences.

At first glance the two states seem as different as a quinoa burger and beef brisket. California is a one-party state in which elected Republicans may soon need the kind of protection afforded to the bighorn sheep. In Texas Republicans dominate the state legislature and all the statewide executive offices: no Democrat has won a statewide race there for more than 20 years. The last Democratic presidential candidate to do so was elected over 40 years ago. Texas has no state income tax. California’s state income tax has a top rate of 13%, the highest in the union. Texas has loose environmental regulations. California is trying to use its economic might to force the rest of the country to adopt more stringent standards on carbon-dioxide emissions. Texas lets its cities sprawl; California has restrictive planning laws.

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 such as education.

That matters because Texas’s schools, like California’s, perform poorly and its universities are nowhere near as good. In the Texas legislative session which ended last month, politicians focused less on abortion and bathrooms for transgender people, and instead increased funding for public schools. If more Texans managed to vote, they might encourage politicians to do something about the state’s skimpy health-care provision, too.

This might suggest that, as Texas grows up, it will become more Californian. But, ideally, only to a degree—because California has not aged gracefully. It loses Americans each year while Texas gains them. Though the state government has made huge strides—a decade ago it was broke, now it has a healthy surplus and an overflowing rainy-day fund—the state has daunting social problems. Homelessness is just the most visible of them. Unemployment is persistently higher and incomes are more unequal in California than in the land of the ten-gallon hat.

California thinks of itself as a progressive bastion, but it has the highest poverty rate of any state in America. That is partly because regulation makes it so hard to build new homes, pushing housing costs up. It will take more than Google investing $1bn in Bay Area housing to fix that. Texas, meanwhile, lets its cities march outwards as far as they wish. In this limited respect at least, Texas is the more liberal state and California the more conservative one. Americans wanting to move to where housing is cheap, taxes low and work plentiful are voting with their U-Haul trucks and heading to Texas. Just now, Texas has more room than California to innovate and to strike a balance between small government and social support.

In America’s federal system no single state is a national template, and yet each holds lessons for all the others. As America’s largest oil producer, Texas is exceptional. By contrast, despite its faults, California remains a magnet for highly educated migrants and a formidable factory of talent and ideas—which is why it has produced Google, Facebook, Tesla, Uber and Netflix and why, despite grumblings about creeping socialism, the big venture-capital firms and Hollywood studios stay.

America can learn from both of them. That is especially true when the federal government cannot legislate—which today means most of the time—because the ability of states to decide their own fate becomes correspondingly more important.

It is possible to imagine a mash-up of the two mega-states that takes the best of both: a freedom-loving wish to keep government out of people’s private lives, a place that is friendly to business and provides opportunities for people, while also protecting the environment and funding education. California could steal Texas’s expansive approach to housebuilding; Texas could imitate California’s investment in outstanding universities. Americans elsewhere might be less alarmed by demographic change if they visited great cities like Houston, LA and Dallas. Call this imagined place Texafornia.

US-China contest centres on race for 5G domination

A report for the Pentagon warns the US is falling behind China in telecoms

Henny Sender

Less than 10 years ago, all top 10 technology companies by revenue were American. Global telecom standards were set by US companies such as AT&T and Verizon. Today, by contrast, four of the top 10 internet firms are Chinese.

A decade ago, Huawei, the leading Chinese telecoms equipment maker, was a little known provider of services largely to south-east Asia, and eastern and central Europe, rather than a rival to the Americans in more developed markets. Its revenues amounted to some $28bn in 2009. Last year they reached $107bn.

Friction between the US and China, which seemed to have its origins in trade disputes, has moved on. Today telecoms and wireless technology are at the forefront of the competitive sparring between the two countries.

In a world where everything is dual-use technology, it is increasingly hard to distinguish what is commercial and civilian and what is strategic and military. And technology, unlike trade, does not easily lend itself to concessions at the negotiating table. To have the technological edge is existential for both countries.

“There is an even bigger long-term risk facing the world economy than the current trade war. That is the very negative implications of the current US stance against Huawei,” notes Chris Wood, equity strategist for Jefferies in Hong Kong. “The origin of America’s ultra-aggressive stance remains a determination that China will not dominate in 5G or other emerging technologies.”

Yet if no less a source than the Defense Innovation Board, launched in 2016 to help bring innovation and independent advice to the Pentagon, is to be believed, the US is behind in developing the latest technology and in setting global standards for 5G. That is according to an assessment of the prospects of the two national giants in a report on the 5G Ecosystem the board released in April.

The report portrays a technological world in which the US, far from dominating, is in danger of becoming ever more marginal. “The country that owns 5G will own many innovations and set the standards for the rest of the world. That country is currently not likely to be the United States,” the report concludes starkly. “Chinese equipment is cheaper (and) in many cases is superior to its western rivals.”

One Chinese venture capitalist says he takes this as an affirmation that “we won”.

The introduction of 5G is a big deal, both in itself and because of its multiplier effect on a range of other technologies including autonomous vehicles, the internet of things, smart cities, virtual reality and, battlefields, whether physical or in cyber space. The companies or countries that are the first movers will set global standards. That in turn brings hundreds of billions of dollars in revenues, substantial job creation and leadership in any other technologies that require ever swifter transmission of data, the board notes.

“In the early 2010s, AT&T and Verizon took the lead in rapidly deploying next generation technology that improved on 3G technology. US companies like Apple, Google, Facebook, Amazon, and Netflix then built new applications and services . . . and helped drive global US dominance in wireless and internet services,” it states.

Today, though, the US has lost its edge when it comes to telecoms technology for reasons that have little to do with any possible predatory behaviour either from Beijing or Huawei, which today has become a national champion of China, in part because of attacks from the White House and Congress.

Part of the problem is lack of investment. China has spent $180bn over the past five years and has 10 times as many base stations as the US. American companies including Verizon and AT&T have too much debt to undertake the huge investment necessary to build out the numbers of base stations required, the report notes, while other western firms, such as Nokia and Ericsson, have also seen their fortunes decline.

Another obstacle is the fact that in the US, the government and the military appropriate most of the spectrum being used by the rest of the world for commercial purposes, leaving the US market isolated. By themselves, the US markets, both civilian and military, are no longer big enough to dictate to others or to prevent Chinese 5G from continuing to increase market share globally.

The larger question of course is whether what is true in telecoms becomes true on a wider scale.

Meanwhile, the effect of any US sanctions against Huawei or others is likely to only accelerate Beijing’s efforts to achieve self-sufficiency.

The World Is Running Out of Time

For decades, most of the major economies have relied on a form of capitalism that delivered considerable benefits. But systems do not work in isolation. Eventually, reality asserts itself: global trade tensions reemerge, populist nationalists win power, and natural disasters grow in frequency and intensity.

Bertrand Badré


WASHINGTON, DC – In 2015, the international community launched a renewed effort to tackle collective global challenges under the auspices of the United Nations Sustainable Development Agenda and the Framework Convention on Climate Change (COP21). But after an initial flurry of interest, the progress that has been made toward achieving the Sustainable Development Goals and tackling climate change has tapered off. Around the world, many seem to have developed an allergy to increasingly stark warnings from the UN and other bodies about accelerating species extinctions, ecosystem collapse, and global warming.

Now is not the time to debate whether progress toward global goals is a matter of the glass being half-full or half-empty. Soon, there will no longer even be a glass to worry about. Despite global news coverage of civic and political action to address our mounting crises, the underlying trends are extremely frightening. In recent months, the Intergovernmental Panel on Climate Change (IPCC) has marshaled overwhelming evidence to show that the effects of global warming in excess of 1.5oC above preindustrial levels will be devastating for billions of people around the world.

A recent report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services serves as yet another wake-up call. Human activities, the report concludes, have put an unprecedented one million species at risk of extinction. The oceans that supply food and livelihoods to more than four billion people are under threat. If we do not take immediate action to reverse these trends, the challenges of playing catch-up later will probably be insurmountable.

For decades, most of the major economies have relied on a form of capitalism that delivered considerable benefits. But we are now witnessing the implications of the Nobel laureate economist Milton Friedman’s famous mantra: “the social responsibility of business is to increase its profits.” A corporate-governance model based on maximizing shareholder value has long dominated our economic system, shaping our accounting frameworks, tax regimes, and business-school curricula.

But we have now reached a point where leading economic thinkers are questioning the fundamentals of the prevailing system. Paul Collier’s The Future of Capitalism, Joseph E. Stiglitz’s People, Power, and Profits, and Raghuram G. Rajan’s The Third Pillar all offer comprehensive assessments of the problem. A capitalist system that is disconnected from most people and unmoored from the territories in which it operates is no longer acceptable. Systems do not work in isolation. Eventually, reality asserts itself: global trade tensions reemerge, populist nationalists win power, and natural disasters grow in frequency and intensity.

Simply put, our approach to capitalism has exacerbated previously manageable social and environmental problems and sowed deep social divisions. The explosion in inequality and the laser focus on short-term results (that is, quarterly earnings) are just two symptoms of a broken system.

To maintain a well-functioning market economy that supports all stakeholders’ interests requires us to shift our focus to the long term. In some ways, this is already happening. But we need to channel the positive efforts underway into a concerted campaign to push systemic reforms past the tipping point. Only then will we have achieved a feedback loop that rewards long-term, sustainable approaches to business.

Most important, we must not succumb to complacency. Short-term tensions over trade and other issues will inevitably capture the attention of people and governments. But to permit the latest headlines to distract us from impending environmental and social catastrophes is to miss the forest for the trees.

Having said that, the impetus for driving positive change cannot be based on fear. The looming crises are both real and terrifying, but repeated warnings to that effect have diminishing returns. People have become immune to reality. Long-term change, then, must come from a readjustment of the market and our regulatory frameworks. Although consumers, investors, and other market participants should keep educating themselves and pushing for change, there also needs to be a thorough and rapid re-examination of the rules and norms governing capitalism today.

We need to impose real costs on market participants who do not change their behavior. That won’t happen through speeches, commentaries, and annual reports. The market economy is a powerful force that needs direction, and regulators and market participants themselves are the ones holding the compass. It is time to get serious about establishing the direct financial incentives and penalties needed to drive systemic change. Only after those are in place can we begin to debate whether the glass is half-empty or half-full.

Bertrand Badré, a former Managing Director of the World Bank, is CEO of Blue like an Orange Sustainable Capital. He is the author of Can Finance Save the World?

In Syria, An Opportunity for US-Russian Cooperation

A political settlement between the U.S., Russia and Israel could address Iran’s presence in Syria.

By Xander Snyder

The U.S. and Russia may be at odds from Ukraine to North Korea, but they appear to be much more aligned in Syria, where neither wants to see Iran gain a substantial foothold. As the Syrian civil war winds down, Moscow wants to make sure that it – not Tehran – remains the primary benefactor of President Bashar Assad; that it retains its bases at Tartus and Hmeimim; and that Iran’s presence in the Middle East is curbed. These interests may account for the reports of increasing competition between Russia and Iran in Syria, including skirmishes between groups supported by each.

The U.S., of course, is trying to halt Iran’s advance across the Middle East. It’s unlikely the U.S. can fully displace Iran from Syria, but at minimum it wants to limit the number of Iranian ground forces in Syria to prevent Tehran from having a contiguous overland route to the Mediterranean Sea. And so, as U.S. and Russian interests converge and an opportunity for cooperation arises, Russian, U.S. and Israeli officials will meet next week to discuss what’s next in Syria.
Israel: The Linchpin
Israel's participation is crucial because Israel has in its estimation the strongest interest of the three to keep Iran out of Syria – protecting its territorial integrity. And while both Russia and the U.S. need to curb Iran’s influence, neither wants to attack Iran directly. Both are happy to let Israel do the heavy lifting, at least in southern Syria, where Israel has its own direct interest in pushing Iran and its proxies in Syria away from its borders. While Russia did provide Syria with S-300 missile defense systems, nominally to protect itself from airstrikes, it’s done little else to halt Israel’s attacks on Iranian positions in Syria. Instead, the two have maintained backchannel communications so that Moscow can be notified when Israel intends to strike. Russia has, moreover, reportedly refused to sell S-400 missile defense systems to Iran. Moscow would be wary of providing Iran with air defense systems that could frustrate Israeli airstrikes targeting Iran in Syria. (Iran denied ever seeking to purchase S-400s.)

Still, Israel can’t do it alone. While it hammers southern Syria with airstrikes, the U.S. and Russia will have to play their parts in what is, if not an outright alliance, at least a collaborative effort among the three. Russia will continue to support Assad’s ground forces as they reclaim territory and provide ground support through militias like the Tiger Forces, hoping to reduce Assad’s dependence on Iran-backed ground forces. Russia may also play a more political role, trying to lessen Iran’s influence on the Assad regime. In this, it may already be somewhat successful. A recent reshuffle of Syrian security forces weakened the position of Maher Assad, a brother of the president who is believed to be particularly close to Iran. The U.S., meanwhile, will hold onto positions in northeastern Syria, ostensibly in support of its allies like the Syrian Democratic Forces, but also to prevent Iran from seizing the oil fields in that part of the country that could increase Iran’s power in a final political settlement. Iran won’t be willing to directly attack those U.S. forces for fear of retaliation.

And while Russia may complain about the continued U.S. presence in Syria, it at least temporarily serves Russia’s interests by preventing Iran from seizing territory in northern and northeastern Syria and keeping the Islamic State contained to a limited insurgency with no real ability left to threaten the Assad regime. For its part, the U.S. may be willing to exchange cooperation against Iran in Syria for sanctions relief for Russia.
Turkey: The Wild Card
The U.S. presence in northern Syria serves another purpose for Russia: It mitigates the threat of a Turkish invasion from the north. A complete U.S. withdrawal – the kind that U.S. President Donald Trump threatened in December 2018 but subsequently backtracked from – would open the path for Turkey to push further into northern Syria. Russia would rather reach a settlement between Damascus and the SDF than have to account for Turkish demands, which would inevitably be far greater if Turkey held more territory – and therefore greater negotiating power – in northern Syria.

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But even in a settlement between the U.S., Russia and Israel, Turkey is the wild card. It’s not that its interests are unclear – it would want to trade its current semi-occupation of Idlib province for greater control over its shared border with northern Syria, where the majority of Syria’s Kurds live. The question is what that control looks like, and how much Assad and Russia would be willing to cede to Turkey in the north in exchange for relinquishing its hold on Idlib to Assad.

Turkey’s issue is that it wants substantially greater control over northern Syria east of the Euphrates River, but on its own timeline. Despite Turkish President Recep Tayyip Erdogan’s incessant threats to invade northern Syria, he urged temperance when Trump unexpectedly announced a U.S. pullout back in December. Turkey was not ready for the kind of deployment that would be necessary to move into northern Syria on Washington’s timeline and at a scale necessary to hold the territory and eject the Kurdish forces it wanted gone, all the while preventing a recapture of territory by IS. No, Turkey would much prefer to have its cake and eat it too. If the U.S. stays where it is, providing stability in portions of northern Syria, Turkey can selectively and gradually assert control over small pockets of that region.

In a U.S.-Russia-Israel agreement on Iran, Turkey may have to give up Idlib so that Assad can eliminate the rebel presence there without the support of Iranian ground forces. But Turkey would want something in exchange, and it’s possible that Turkey will not be capable of a full-scale invasion of northern Syria before Assad reaches some sort of agreement with the SDF to surrender its autonomy, or before the U.S. decides to withdraw its own forces. Turkey may talk a big game, but having to confront the Syrian government is a different game entirely from attacking ground militias, which is what Turkey has done on its two incursions into Syria so far.

So, what would Turkey get out of such a settlement? Most likely it would take some form of an updated Adana agreement, the 1998 settlement between Turkey and Syria in which Syria agreed not to harbor members of the Kurdistan Workers’ Party (PKK), and Turkey was allowed limited incursions into Syrian territory (up to 5 kilometers, or 3 miles) to pursue any PKK members that Syria didn’t control. Russia would guarantee the terms of the agreement, Turkey would cede Idlib while retaining some buffer space in northwestern Syria and rights to move into northern and north eastern Syria in order to eliminate specific PKK-related threats when necessary. Turkey may not be thrilled with the result, but it would be enough to meet some of its security needs and wouldn’t necessitate a full-scale occupation of northern Syria, which may be more of a strain on its resources in the long-term than Turkey could handle.

A three-way agreement between Russia, Israel and the U.S. to counter Iran wouldn’t immediately end the Syrian civil war, and neither would it guarantee a complete expulsion of Iran from Syria. But it would be a major step toward establishing shared cause to find meaningful political resolutions to problems that have mired the country in an all-consuming war for nearly a decade.