Julián Castro's Message: What San Antonio Can Teach the U.S. About Government and Growth

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Mayor Castro's city is a good reminder that government has a role in supporting economic growth, but that dependence on government-protected industries carries the risk of atrophying a local economy.

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Julian Castro (left); Getty

Julián Castro, the 37-year-old mayor of San Antonio, will deliver a keynote address tonight, on the first day of the Democratic National Convention. While not yet a major national figure, Castro is nonetheless one of the brighter Hispanic stars in a party that relies heavily on dominating the non-white vote. But even without his telegenic youth and background, Castro is still a perfect opening savlo against a GOP convention that praised entrepreneurs who succeeded on their own -- "We Built That" -- without the help of government.

That's because, in San Antonio, government spending has made all the difference.

In 2010 I went to San Antonio to find out what made it the "most recession-proof city in America." What became clear very quickly, from studying metro statistics and speaking with business leaders and Castro himself, was that, for much of the last decade, San Antonio was a tortoise in a country full of hares. While much of the Sun Belt saw massive population growth and booming economies on the back of rising housing prices, San Antonio grew steadily, without a big home-price boost.

The city is powered by three major industries, all directly or indirectly supported by government, which I'll call: eds, meds, and enlisteds. Education, medicine/biosciences, and military and local government spending employed a third of the city's workers in 2010. Its 31 colleges and universities (mostly public) enrolled another 100,000 students, boosting the cities population by 8 percent in school time. Hundreds of thousands more jobs are in low-paying services that would not have existed without government-supported hospitals and military spending.

Many of the people I met in San Antonio, including the mayor, praised the city's patience with economic growth. But something like luck played a big role, as well. In the latest military realignment round, San Antonio got a $2.2 billion investment to build the nation's largest new military medical complex at Fort Sam Houston, to go along with its two Air Force training centers. Would San Antonio have had the same recovery record without its windfall from Washington? We simply don't know. But it's not likely.

In our interview, Castro acknowledged that the bedrock of San Antonio's economy was not in bright shiny venture capital industries (in fact, the city's information sector is shrinking), but rather in safe and conservative industries that were largely non-cyclical, and therefore recession-proof. He further conceded that the city was blessed by the most uncontrollable factor of all: geography. "We've got lots of affordable land," he told me, which helps keep housing prices low. The proximity to the border creates a "constant supply of labor [that] feeds the hospitality industry" and keeps wage levels down.

And then there's history: "The banking practices in Texas since the Savings & Loan blowout of the 1980s have been a little bit more conservative, more cautious, than around the nation," Castro said, explaining the city's relatively buoyant housing prices. "Another thing is the tax scheme in Texas is heavily dependent on property taxes and discourages [real estate appreciation] more than a state that relies on sales taxes primarily."

The upside of slow-and-steady growth is that when the world is falling apart around you, you look pretty good. In fact, San Antonio was perhaps the most resilient city in the 18 months after the crash precisely because so much of its activity revolves around government. The downside of slow-and-steady growth is that, well, it's slow. San Antonio is not a rich metro. In fact, it is still poorer than mid-level cities like Oklahoma City. Mayor Castro told me he wouldn't mind breaking out of the city's "tortoise" reputation. Rapid development in high technology "might leave San Antonio more vulnerable to the ups and downs of the economy," he said, "but the rise in income levels is worth that trade-off."

Unfortunately, keynote speeches are not prized moments of economic nuance. I don't know what Castro is going to tell tonight's audience. But the mayor I met in San Antonio two years ago understood the power of government and publicly supported industries during economic downturns. But he also understood that you can't achieve breakaway growth by relying on military and health care spending to drive your economy. By acknowledging the roles that geography and recent history play in determining the short-term trajectory of cities, he didn't pretend that San Antonio was transcendentally special in its approach to business. He seemed dangerously close to admitting something politicians rarely say out loud: Local history, randomness, and geography play a disconcertingly large role in the fortunes of individual states and metros.

The theme of the RNC would have had you think that entrepreneurs exist in a world devoid of exogenous forces, that the right amount of internal willpower is enough to make any business thrive, and that government can only get in the way of the entrepreneur. The DNC would be equally misleading if its speakers try to pretend that the choices government makes are the only things that matter to an economy. In fact, Castro's city is a good reminder that government has a role in supporting economic growth, but that dependence on government-protected industries carries the risk of atrophying a local economy.

That is a terribly complicated story to tell. I hope Castro tells it.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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