Messy politics won’t keep Goldman Sachs out of Texas

In about five years, a gleaming new $500 million campus in downtown Dallas, just steps from the Mavericks basketball arena, will house thousands of employees of Goldman Sachs Group Inc. The bank, synonymous of Wall Street and New York, is not alone in growing in the southern states of the United States at a time when social conservatives are unleashing a series of restrictive laws on abortion and education, while breaking down barriers to gun control or the use of fossil fuels.

Last year, Charles Schwab Corp. moved from San Francisco to a new headquarters in Westlake, a suburb of Dallas, while Vanguard Group is spending millions to establish an office in the area for financial advisers and technology staff. Hedge fund giant Citadel is moving its headquarters from Chicago to Miami.

These two cities are starting to become increasingly important financial hubs in the wake of the Covid pandemic. The question for banks and fund managers lured south by tax advantages and falling costs is whether a deeply conservative climate will make it harder to attract and retain the highly skilled young workers they need. For now, the signs show that money speaks louder than politics. Texas has more Fortune 500 headquarters than any other state, even after passing the most restrictive abortion laws in the country more than a year ago, a Bloomberg News article noted this week. A local academic quoted in the article warned that the laws will eventually harm diversity of thought and innovation in the state.

But there is an alternative vision for corporate America: People will continue to move South, graduates from Texas’ top universities will build their lives there, and economic growth will drive wealth creation. Ultimately, the demographic facts on the ground will govern the political climate. In the short term, the battles between conservative politicians and some companies with more socially liberal staff are likely to get worse before they get better.

States have so far used their municipal bond programs to fight their battles. Wells Fargo & Co. has warned it faces a de facto ban on bond trading in Texas as lawmakers seek to block companies from going to institutions they deem hostile to energy companies. Last year, another Texas gun policy law shut some banks out of the market, with several other states passing imitative laws. Politicians have already threatened to make abortion the bond market’s next battleground.

It’s still unclear what anti-abortion lawmakers can or will do if they want to punish companies that support staff seeking out-of-state treatment — but it seems unlikely the answer is nothing. Some banks like Goldman Sachs have pledged to support employees. Others, including Citadel, have not commented publicly. But according to a person familiar with the company’s policies who did not want to be named, the company has always ensured that its staff can get the medical care they need.

For Goldman Sachs, however, there is no doubting its ambitious Dallas development plan. The process of planning and building major new offices spans many years and isn’t just about tax breaks: the bank is committed to hiring locally in Texas, which is a wealthy region for tech recruiting and engineering among Texas university graduates. These movements also respond to demographic changes that have been going on for a long time. Dallas is not a backwater and Texas has been one of the fastest growing state economies for the past 20 years.

More broadly, since 2000, according to Dietrich Vollrath, professor and chair of economics at the University of Houston, more and more workers are heading south and west for warmer winters and away colder northern cities. In his 2020 book, “Fully Grown,” he says this may have been a drag on the US economy for much of that time, as workers often moved to cities that had less productive industries. than their northern counterparts. But as populations grow and density increases, cities like Dallas, Miami and many others could begin to see productivity gains.

Vollrath also looks at the role of housing. In a city like San Francisco, development rules are strict and there is no empty space to build on. The more people try to move there, the faster the cost of housing rises, which acts as a barrier to entry and growth. Dallas is the opposite: there are few restrictions on what people can build and no limits on the surrounding space to build it. This is another big economic reason for companies to continue to establish offices there.

Many politicians and entrepreneurs believe that companies shouldn’t get involved in cultural and political debates, but should stick to creating shareholder value. But very large employers inevitably contain the social mores of their employees: the younger, more educated and wealthier these people are, the less socially conservative their views. Cities offer tax breaks to encourage economic development. Success on this front could also mean political change.

More from Bloomberg Opinion:

• More employers should cover abortion-related travel: Sarah G. Carmichael

• Atlanta has more advantages than any American metro: Matthew Winkler

• Ted Cruz’s anti-gun elites don’t hide behind doors: Justin Fox

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

More stories like this are available at bloomberg.com/opinion

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