How Texas Can Become the Next Silicon Valley

Texas is making another bid to become America’s technology hub. It will be an uphill battle, to put it mildly. But one seemingly small policy tweak could give the state a big boost in its quest to lure the tech industry: banning the enforcement of noncompete agreements.

In the 1970s, Austin established itself as a technology cluster but never attained the heights of Silicon Valley or Seattle. To do that, a city needs a critical mass of talented engineers, big employers and venture capital. Now, the urban dysfunction of the San Francisco Bay Area and a desire for lower taxes have prompted some tech companies and investors to move from the Bay to Austin. Elon Musk’s companies, Tesla and SpaceX, are probably the most notable big companies making new investments in the area, and Musk himself has moved to Texas. Oracle and a smattering of venture capitalists, are also making the move.

This is good news for Austin, but so far it’s a trickle, not a flood. Tesla factories are nice, but if Austin is going to become a software and startup hub on the level of Seattle or San Francisco, it’s going to need a lot more than that. As my colleague Justin Fox has written, the entire state of Texas has lagged badly in both areas.

So the Texas state government needs to pull out all the stops in order to make sure the current trend accelerates. And one of the easiest things it could do would be to ban the enforcement of noncompete agreements.

Noncompete agreements restrain the ability of workers to move between companies in an industry (or starting their own new venture). All else equal, companies would like to be able to block their workers from moving to competitors. Ideas will inevitably leak between companies when employees move, even if proprietary technologies are formally protected by intellectual property law and nondisclosure agreements.