The Gulf Coast is America's New Economic Powerhouse

In the wilds of Louisiana’s St. James Parish, amid the alligators and sugar plantations, Lester Hart is building the $750 million steel plant of his dreams. Over the past decade, Hart has constructed plants for steel producer Nucor everywhere from Trinidad to North Carolina. Today, he says, Nucor sees its big opportunities here, along the banks of the Mississippi River, roughly an hour west of New Orleans by car.

“The political climate here is conducive to growth,” Hart explains as he steers his truck up to the edge of a steep levee. “We are here because so much is going on in this state and this region. With the growth of the petrochemical and industrial sectors, this is the place to be.” Already, about 500 people are working on the project. When completed in 2013, the plant — it’s expected to process more than 3.75 million tons of iron ore a year — will create about 150 permanent jobs immediately. Another 150 are expected after a second development phase.

Nucor isn’t alone in coming to Louisiana or to the vast, emerging region along the Gulf Coast. The American economy, long dominated by the East and West Coasts, is undergoing a dramatic geographic shift toward this area. The country’s next great megacity, Houston, is here; so is a resurgent New Orleans, as well as other growing port cities that serve as gateways to Latin America and beyond. While the other two coasts struggle with economic stagnation and dysfunctional politics, the Third Coast — the urbanized, broadly coastal region spanning the gulf from Brownsville to greater Tampa — is emerging as a center of industry, innovation and economic growth.

The gulf area long lacked industry. Even when the Spaniards and the French ruled it, the gulf was a planters’ region, and its economy was largely dependent on exports of indigo, sugar and cotton. The economy also relied on the slave labor that made such exports possible, a state of affairs that continued until the Civil War. After the war, the region therefore lost much of its economic influence, as growth shifted to the rail-dominated east-west axis.

The gulf region also suffered from vulnerability to natural disasters. In 1900, more than a century before Katrina, the deadliest hurricane in American history all but destroyed Galveston. In 1927, the Great Mississippi Flood inundated a 27,000-square-mile area, much of it in Texas, Mississippi and Louisiana. And then there was the hot and humid climate.

What Joel Garreau, in his landmark book The Nine Nations of North America, writes about the South as a whole — that it became a “region identified with stagnation — backward, rural, poor and racist, a colony of the industrialized north, enamored of an allegedly glorious past of dubious authenticity” — applied with particular force to the Gulf Coast, whose major cities, especially New Orleans, were seen as hopelessly corrupt and decadent. It’s no surprise that for much of the last century, the region exported people, particularly those with skills, to other parts of the United States.

So it’s particularly striking that the region’s steady economic growth is now attracting so many people. Over the past decade, Texas and Florida have ranked first and second among the states in net domestic immigration, combining for a gain of roughly 2 million people. Together, Houston and Tampa have gained more than 1.5 million people over the course of the decade; in fact, in 2008 and 2009, net domestic migration to Houston was the highest of any major metropolitan area.

What’s more, the Third Coast is winning the battle of the brains. Over the past decade, according to the Census Bureau, 300,000 people with bachelor’s degrees have relocated to Houston. Between 2007 and 2009 New Orleans, which had hemorrhaged educated people for the previous few decades, enjoyed the largest percentage gain of educated people of any metropolitan area with a population of over 1 million, as demographer Wendell Cox has chronicled.

Thanks to all this immigration, the population of the Third Coast has grown 14 percent over the past decade, more than twice the national average. The growth continued even when the Great Recession struck in 2008. Overall, the gulf region is expected to be home to 61.4 million people by 2025, according to the Census Bureau.

Many of the region’s new arrivals are attracted by the low cost of living. The median home-price-to-income ratio in Houston, Tampa and New Orleans is roughly one-half that of New York, Los Angeles, San Francisco or San Jose. Over the last decade, Houston boasted the highest growth in personal income of any of the country’s 75 largest metropolitan areas.

The region’s most dramatic appeal, however, is its remarkable employment growth. Between 2001 and 2012, the number of jobs along the Third Coast, according to Economic Modeling Specialists International (EMSI), increased by 7.6 percent, well over three times the national growth rate. The vitality of the Third Coast persisted even during a brutal recession, with four metropolitan areas — Houston, Corpus Christi, Brownsville and New Orleans — gaining jobs between 2008 and 2012, even as the nation’s job rolls shrank by 3.6 percent. Of the three states that have recovered all the jobs lost during the recession, two — Texas and Louisiana — are on the Third Coast.

The region’s job-creation engine is powered by the growth of basic industries: manufacturing, energy and agricultural commodities. The region from South Texas to Florida now bristles with scores of new steel plants, petrochemical facilities, and factories producing everything from airplanes to canned food. Along with the Great Plains and the Intermountain West, the Gulf Coast has enjoyed a huge boost from energy and other commodity growth. Over the past decade, Texas alone has added nearly 200,000 oil- and gas-sector jobs, with an average salary of about $75,000.

The magazine Site Selection says that four of the gulf states are among the nation’s 12 most attractive states to investors: Texas topped the list, with Louisiana ranking seventh, Florida 10th and Alabama 12th. Texas and Louisiana also ranked first and third among the 50 states in terms of new plants built or being constructed. “There’s been a drastic change in the business climate here,” says Chris McCarty, director of the University of Florida’s Bureau of Economic and Business Research. “A lot of regulations have been moved aside, and there’s a big push by the state to get out of the way.”

Energy is the key driver. The Third Coast already accounts for roughly 28 percent of the nation’s oil and gas employment, despite the federal crackdown on offshore drilling after the 2010 Deepwater Horizon disaster. The region boasts new shale plays, such as those now being developed in northern Louisiana, and massive crude reserves, which follow the arc of the Gulf Coast from Brownsville to New Orleans.

The future for American energy is bright. According to the consultancy PFC Energy, the United States is on course to surpass Russia and Saudi Arabia as the world’s leading oil and gas producer sometime during this decade. With the Atlantic and Pacific coasts either banning or sharply curtailing energy production, the gulf’s pro-business, right-to-work states have emerged as the likely staging ground for this energy resurgence.

“Texas and Louisiana understand the oil business,” says Ralph Phillip, vice president of a Valero oil refinery just a few miles from the rising Nucor steel plant. “They understand what this industry is all about and expect you to manage the risks. If you want to do a permit in California, they won’t return your call. But here they want everything to work.”

Another important part of the region’s economy is exports, since trade patterns are shifting away from the Atlantic and Pacific coasts and toward the gulf. Since 2003, the Third Coast’s total exports have tripled in value, and its share of total American exports has grown from roughly 10 percent to nearly 16 percent. The trends favoring the Third Coast will accelerate further once the $5.25 billion Panama Canal expansion is completed in 2014. The wider canal will be able to accommodate Asian megaships, now forced to dock in California. That will open the gulf to more Pacific trade.

When Garreau published Nine Nations 30-some years ago, he predicted that as growth kicked in, the gulf region would clot into an archipelago of cities similar to the Boston-New York-Washington megalopolis, or to the band stretching from San Diego through Los Angeles and San Francisco to Portland and Seattle. If he proves right, Houston will be the hub of this new system, much as New York anchors the East Coast and Los Angeles the West.

The greater Houston metropolitan area is one of the fastest-growing in the country; its population, now 6 million, is expected to double over the next 20 years. Houston is also the nation’s third-largest manufacturing city, behind New York and Chicago. Over the past decade, the city and its surrounding communities have added almost 20,000 heavy-manufacturing jobs, the most of any metropolitan area in the United States. Further, Houston has the third-largest representation of consular offices, after Los Angeles and New York, and it hosts more Fortune 500 companies — 22, as of 2011 — than any city other than Gotham. Over the past half-century, says Federal Reserve economist Bill Gilmer, Houston has consolidated its position as the center of the global fossil-fuel industry.

Houston’s solid business climate empowers entrepreneurs. Between 2008 and 2011, according to a study by EMSI, the number of self-employed workers grew more quickly in Houston than in any other large metropolitan area. Greater numbers of educated workers are coming, too: Houston’s total increase in people with bachelor’s degrees over the past decade bested Philadelphia’s, was three times that of San Jose and was twice that of San Diego.

“I don’t get the pushback I used to get” from potential recruits, says Chris Schoettelkotte, who founded Manhattan Resources, a Houston-based executive-recruiting firm, 13 years ago. “You try to find a city with a better economy and better job prospects than us!”

Though Houston has always been a good place to do business, it continues to suffer from a bad cultural image. In 1946, journalist John Gunther described Houston as a place “where few people think about anything but money.” It was, he added, “the noisiest city” in the nation, “with a residential section mostly ugly and barren, a city without a single good restaurant and of hotels with cockroaches.”

The miserable city that Gunther described no longer exists, but residents on the other two coasts have been slow to acknowledge that development, despite Houston’s first-class museums and lively restaurant scene. “Let’s face it, we have a bad reputation,” says L.E. Simmons, a legendary Houston energy investor. “But the good news is, it keeps the stylish opportunists out. It makes us kind of an urban secret.”

Houston’s cultural weakness, more perceived than real these days, has long been New Orleans’ strong suit. Yet the Big Easy’s long-standing appeal to artists, musicians and writers did little to dispel the city’s image as merely a tourist haven, and a poor one at that. The problem, as Hurricane Katrina made all too plain, was a corrupt city plagued by enormous class and racial divisions and one of the lowest average wages in the country. The city’s urban core continues to endure one of the highest violent-crime rates in the nation.

Though energy is responsible for much of New Orleans’ recent economic growth, the city has also begun attracting the information industry. Since 2005, New Orleans’ tech employment has surged by 19 percent, more than six times the national average. At a time when movie production has dropped nationally, Louisiana has nearly tripled its production of motion pictures, from 33 per year in 2002-07 to 92 per year in 2008-10.

The region’s ascendancy, however, faces significant impediments. Gilmer says that the greatest risk to growth comes from Washington, especially if the Obama administration cracks down even more aggressively on offshore oil development. Federal regulators’ reluctance to let drilling resume in the wake of the BP oil spill ruined hundreds of New Orleans-area businesses. Potentially strict new controls on extracting gas by means of hydraulic fracturing could slow the energy boom further, which in turn would derail the expansion of petrochemical and other manufacturing facilities.

Perhaps more troubling are social problems, some the legacy of centuries of underdevelopment. Despite the influx of skilled and college-educated workers, Third Coast states continue to lag in college graduation rates and the percentage of their adult populations with college degrees. Of the 18 metropolitan areas across the Third Coast, only two — Tallahassee and Houston — have a higher percentage of college grads than the national average of 30 percent. When you rank states by their students’ proficiency in math and science, only one Third Coast state — Texas — sits near the middle of the list.

Efforts to reform public education — notably, Louisiana’s new statewide voucher program and aggressive expansion of charter schools — offer some hope of addressing these weaknesses. In a new report, government efficiency expert David Osborne describes New Orleans’ reforms as a “breakthrough.” The results, he says, are “spectacular: Test scores, graduation rates, college-going rates, and public approval have more than doubled in five years.” He adds, “I believe this is the single most important experiment in American education today.”

The obstacles facing the Third Coast today aren’t so different from those that once confronted other American economic dynamos. In the 19th century, New York was seen as a hopelessly corrupt sewer. In the early 20th century, Los Angeles was dismissed as superficial and equally corrupt, with only one industry: fantasy. Few would make those claims today.

It is much the same with the Third Coast. Weather, education and, in some places, a legacy of corruption still present considerable challenges to its ascendancy. But if the region can surmount these challenges — and it appears to be succeeding at this — the Third Coast could become one of the major forces in 21st-century America.