The recent Arkansas Economic Feasibility Study from Bentonville nonprofit Heartland Forward revealed the good and the bad of the state’s economic development picture.The state does many things very well but has much work to do in some areas, the study found.
The report was commissioned by the Governor’s Task Force for Economic Recovery. In it, Steuart Walton, task force chair, outlined the need for such an economic assessment for the state.
“While focusing on the immediate needs of our state — needs that are critical to the health and safety of our residents, as a group, we’ve also known that we need to look further into the future with a long-range lens on what Arkansas should be considering for economic health and prosperity coming out of COVID,” he wrote.
Walton considers Heartland Forward, funded through the Walton Family Foundation, a “think and do” tank. Its mission is to “improve economic performance in the center of the United States by advocating for fact-based solutions to foster job creation, knowledge-based and inclusive growth and improved health outcomes.” The study was conducted through the implementation of “independent, data-driven research to facilitate action-oriented discussion and impactful policy recommendations.”
The report, designed to help Arkansas bounce back from unprecedented economic circumstances due to the COVID-19 pandemic, consisted of six major economic sectors: talent and workforce development; innovation and research; entrepreneurship and small business; health care; supply chain and logistics; and high-speed internet, as well as recommendations for improvement in these areas.
Heartland Forward’s key takeaways and recommendations for the state in each category are as follows:
Talent and Workforce Development
• Create a talent attraction and retention strategy;
• Embrace data-driven and industry-led workforce development and flexible university credentialing;
• Reimagine high school to industry pathways;
• Support the economic opportunity of Arkansas women.
Innovation and Research
• Change the state’s economic development culture to embrace innovation as an economic development strategy;
• Fund startup ventures;
• Promote academic research discoveries into ventures with high growth and export potential as an engine of economic prosperity.
Entrepreneurship and Small Business
• Coordinate support services;
• Increase access and availability of startup capital;
• Invest in other forms of entrepreneurship infrastructure.
• Improve health behaviors and access to services;
• Innovate for health care sector transformation;
• Promote health care research and economic development.
Supply Chains and Logistics
• Embrace a “new” type of blue-collar work in Arkansas, from manufacturing to transportation and logistics;
• Build a state-wide supply chain cluster initiative, connecting the state’s knowledge hubs and its industrial and rural sectors;
• Become a leading laboratory for supply chain management innovations;
• Build industry-informed workforce pipelines throughout the state, from community colleges and technical schools to universities.
• Ensure ubiquitous availability of high-speed internet in Arkansas;
• Empower Arkansans to adopt and utilize internet technologies effectively.
Ross DeVol, president and CEO of Heartland Forward, told Arkansas Money & Politics that the state has an opportunity coming out of COVID to think and act differently, to double-down on investments and to better integrate the needs of employers. He also stressed the need for supporting entrepreneurs and growing companies, offering incentives to companies that expand into the state, and the increase in federal funding and STEM concentrations to earn more funding for research and innovation.
“We didn’t want to create a strategy that just sits on a bookshelf and isn’t implemented,” he said. “We developed a recovery strategy for Northwest Arkansas. An entity has taken interest and has started to provide a leadership role. This strategy, too, will need a stakeholder. The governor will need to get behind it, as well as some leaders from the council, and agree on who is going to take the lead in different areas, and who is going to take ownership.”
Analysis of Economic Sectors
Talent and Workforce
The Heartland Forward report made two observations about talent and workforce in Arkansas.
“Arkansas has made improvements in creating talent, but woefully lags other states in its commitment and execution of new training paradigms. There are two primary measures of talent: one is based upon degrees and credentials, and another is tied to occupations of people,” the report found.
Only 23.3 percent of Arkansans over 25 have a bachelor’s degree, ranking the state 48th in the nation, while just 8.3 percent of Arkansans have a graduate degree (50th). However, Arkansas does better in regards to those who belong in the creative class, where the state ranks 43rd.
Arkansas’ strength is in the state’s share of the workforce in skilled trade, where Arkansas ranks second in the nation. However, a key restraining factor for the state is the low engagement of women in the workforce. Heartland Forward makes a few recommendations, including the need “to develop a cohesive and aligned talent creation, attraction and retention strategy. It should be tied to growing knowledge-based sectors such as data sciences, supply chain management, business services, health care, education and research and development,” along with offering relocation tax credits to individuals with skills in demand. Additionally, the state should emphasize its attractive quality of life and family friendly nature, the report said.
Innovation and Research
“High levels of innovation and research activity separate places, creating well-paying jobs from those languishing. So, Arkansas should elevate these activities to play a critical role in its economic recovery strategy,” the study said.
Heartland Forward identifies the commercialization of university research as well as industry-performed research and development to be key sources of knowledge-based economic growth. Arkansas was granted $179 million in federal science and engineering funding in 2019, ranking it 50th nationwide. In order to succeed, Arkansas must aggressively pursue its official science and technology plans.
Some of the recommendations that Heartland Forward makes include increasing and making permanent the funding for the Arkansas Economic Development Commission (AEDC), identifying and supporting ventures with high-growth potential, providing matching funds for Small Business Technology Transfer (STTR) grants and utilizing the State Small Business Credit Initiative (SSBCI) funds of up to $56 million.
Entrepreneurship and Small Business
“Arkansas has a rich history of entrepreneurs such as Sam Walton; John H. Johnson, founder of Ebony and Jet magazines; and current entrepreneurs like April Seggebruch and her partner Stan Zylowski, founders of Movista, who are revolutionizing retail store management,” the report reads. Young firms that are less than six years old are responsible for 10 percent of Arkansas’s private-sector firm employment, while the national figure is 10.8 percent. Arkansas performs worst among knowledge-intensive young firms, which is classified as those with a high percentage of employees with a bachelor’s degree or greater. The report outlines that these are the high-paying jobs that Arkansas needs in order to generate a stronger economy.
Arkansas underperforms at attracting venture capital or angel investments, ranking 43rd in the proportion of eligible individuals that are accredited investors. However, the think tank reassures that the pandemic presents new opportunities for the state to focus on entrepreneurship for economic development and job creation. The study recommends that the state embrace innovation and research.
Recommendations include providing sufficient funding and resources to the small business and entrepreneurship programs at AEDC, additional funding of entrepreneurial support organizations (ESOs) and the creation of programs to assist budding entrepreneurs.
The study also recommends that, “Arkansas should bring its personal income-tax structure in line with neighboring states to encourage entrepreneurs to invest in businesses and reduce obstacles that encourage them to move to neighboring states.”
“The COVID-19 pandemic has demonstrated the need to shift to a value-based system where payments are more aligned with health outcomes rather than a fee-for-service model,” the report states.
High rates of chronic conditions across the state, especially in the last year, made evident the need to address Arkansas’ poor performance related to social determinants of health. Low-income families in Arkansas still have limited access to health care services, while the state as a whole ranks 47th for employer-provided insurance coverage.
The health care sector is one of the fastest-growing sectors of the U.S. economy. However, in Arkansas, it is seen as a rapidly rising cost requiring more state resources being directed at it, according to Heartland Forward. The think tank recommends strategic investments of public funds in health education for the public, additional funding for the Arkansas Center for Health Improvement (ACHI) and “a collaborative program with providers, insurers and others in the health community to develop these programs as necessary to reverse Arkansas’ poor position on the social determinants of health.”
Supply Chain and Logistics
“The knowledge economy is not just about software, digital media and other intangibles. Manufacturing and the movement of goods in the physical world are essential elements of Arkansas’ economy,” the report stressed. Arkansas’ statewide performance closely reflects a national pattern: while transportation occupations have soared, production occupations in factories have declined.
Additionally, e-commerce sales have grown significantly as a component of retail sales, giving Arkansas a significant competitive advantage.
“Arkansas has the third-highest share of transportation industry employment in the nation — almost double the U.S. average,” the report reported, thanks in part to the large number of Fortune 500 companies headquartered in the state. The state must “leverage these existing strengths and make further investments in training and methods to become a national leader in supply chain, logistics and transportation services, and a larger player in the e-commerce revolution,” according to the report. Also, the state should embrace a “new” type of blue-collar work found in the transportation and logistics sectors.
Internet access was one of the most prominent areas affected in the state by the COVID-19 pandemic.
“In 2019, 20 percent of Arkansans did not have internet access, and 18 percent of households with connectivity only had a cellular data plan. Further, 122,600 Arkansan households did not have access to any computing device, including a smartphone,” the report revealed. The study noted that Gov. Asa Hutchinson’s administration addressed the issue by allocating $125 million of the state’s CARES Act funding to the Arkansas Rural Connect (ARC) program. The think tank recommended that the state “increase funding for deployment efforts to achieve aspirational levels of internet connectivity for Arkansans and ensure expansion and technological upgrades of the broadband infrastructure over time,” as well as incentivizing the use of multiple technologies, in addition to other feasibility and affordability suggestions.
The report emphasized that these suggestions are not meant to replace the current strategies that the state employs, but to add to and strengthen them. The report also acknowledged that COVID-19 has played a big role in what the state can do. It concluded that Arkansas is poised for success in the next few decades but must continue to allocate resources and focus on the groundwork that is already present.
“Arkansas can be much more effective at attracting and producing skilled and educated talent… Arkansas also has a tremendous capacity for developing talent, which is increasingly important as relevant skills are constantly changing and becoming more technology-driven,” it said.
DeVol noted the recent spike in COVID cases should be the state’s top priority right now but added that permanent funding of AEDC should be another.
“Let the AEDC get the ball rolling,” he said. “There needs to be the foundation work laid to work on this longer term so you don’t allow the potential for momentum to dissipate.”
DeVol also said the state should build on existing strengths that will pay off in the medium- and long-term such as supply chain and logistics, which he said is well-positioned and maybe even under-recognized nationally.
“Arkansas has many strengths if you look at trucking and transportation,” he said. “Walmart and the retail side, the University of Arkansas has one of the top rated logistics/supply chain undergraduate programs in the country. It’s a real opportunity, and it doesn’t require many additional investments to bridge these industries together.”