Building the Arkansas Innovation Economy Summary of a Symposium (2012) / Chapter Skim
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To review the states recent initiatives to develop a knowledge-based economy, the National Academies' Board on Science, Technology, and Economic Policy (STEP) and University of Arkansas at Little Rock convened a conference on Building the Arkansas Innovation Economy.
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4 BUILDING THE ARKANSAS INNOVATION ECONOMY FIGURE 1 Location of Arkansas in the United States At the same time, the state's development continues to be hampered by weaknesses in its knowledge and skills base, the out-migration of college graduates, a dearth of venture capital, and a relatively low level of federal research funding (See Table 1)
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: 4.9 19.4 Venture Capital deals per high tech establishments 0.0 0.59 (2008) : High tech to all business establishments (2008)
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See, the Executive Summary of Governor Mike Beebe's Strategic Plan for Economic Development, Little Rock: Arkansas Economic Development Commission, 2009.
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are a major source of innovation and new jobs.6 However, as Jeff Johnson, CEO and President of ClearPointe Technology, a managed service provider based in Little Rock, noted at the conference, "very few new firms have adequate cash to get a new business through the first year, and we were no exception."7 The result, according to Bendis, is that most start-ups with new ideas do not move to the commercialization stage at present of 150-200 small firms that develop business plans, only about 10 draw the interest of venture capitalists, and only one is actually funded. Most small firms that need financial backing are in the proof-of-concept, start-up or seed capital phases, and typically need $500,000 to $2 million for the development of prototypes.8 This need is not being met; seed 3 See the summary of the presentation by Richard Bendis in the Proceedings chapter in this volume.
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with a mandate to promote industrial development. Under the leadership of its first chairman, Winthrop Rockefeller, the AIDC began to court out-of-state businesses aggressively.12 The result was 9 PWC MoneyTree Venture Capital Report, 2010.
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6. The Arkansas Science and Technology Authority was created by statute in 1983 to "support scientific and business innovation as an economic development tool." In 2009, it completed 31 projects involving about $8 million in grants and tax credits.
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See also the Arkansas Science and Technology Authority website, http://www.asta.arkansas.gov accessed January 11, 2012. 19 Giang Ho and Anthong Pennington-Cross, "Fayetteville and Hot Springs Lead the Recovery in Employment," The Regional Economist (October 2005)
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River. You can not only ship anywhere in the country, you can ship anywhere in the world," "Nucor Makes Blytheville Steel Capital of the South," Arkansas Business (December 16, 1996)
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. In 2010, Mitsubishi Power System Americas broke ground on a $100 million wind turbine nacelle plant in Fort Smith, Arkansas, citing the location's transportation advantages as a key factor in the site selection.
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The incentives included a $1 million in Quick Action Closing Funds for building and training and additional benefits tied to performance. "Windstream Picks Little Rock, AR for HQ," Business Facilities (July 13, 2010)
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Speaking at the conference, Watt Gregory, the chair of Accelerate Arkansas, said that his organization commissioned studies about the Arkansas economy, most importantly a landmark report by the Milken Institute that represented the most comprehensive study ever undertaken of the Arkansas economy.35 The Milken study observed that a fundamental transformational 33 Governor Mike Beebe's Strategic Plan (2009)
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The study observed that "Arkansas' strong performance in the area of net formation of high-tech establishments is very good news for the state's economy" but warned that if factors such as the quality of primary education did not improve, "Arkansas' competitiveness in the attraction and retention of high-tech firms will quickly erode."37 On the basis of the Milken study, members of Accelerate Arkansas concluded that the state needed to take a new approach to economic growth that was not dominated by efforts to recruit traditional manufacturing companies. In addition to the Milken study, Accelerate Arkansas studied the development plans of other states and deliberated extensively, both internally and with stakeholders throughout the state.38 Based on this analysis, they identified five "core strategies for acceleration:" 36 De Vol, et al., Arkansas' Position in the Knowledge-Based Economy: Prospects and Policy Options (2004)
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increasing Arkansas' education level in science, technology, engineering and math; 5. and support for existing industry through improved technology and competitiveness.39 Arkansas Strategic Plan In the wake of the Milken study, Governor Mike Beebe authorized the AEDC to develop a long range statewide economic development plan.
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These were to: · Emphasize human resource development, particularly STEM education at all levels and workforce education · Develop mechanisms to carry innovation into the marketplace, including: · Support for entrepreneurship · Additional risk capital · Increased global competitiveness in recruiting businesses and industries · Develop cyberinfrastructure · Support innovation by existing businesses.41 Continuing Erosion of Jobs Arkansas has continued to experience a net loss of manufacturing jobs. The manufacturing workforce declined from 269,815 in 2001 to 199,015 in September 2011, a drop of 25.9 percent for the decade.42 In his conference keynote, Governor Beebe acknowledged that during the economic downturn that began in 2008 the state "lost jobs, more than we've gained -- about 24,000 created, 27,000 lost," but pointed out that of the 27,000 job losses, many required less education and resulted from movement offshore or consolidation, whereas the new jobs were better-paying and required higher levels of education and skill.
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ARA sponsored a study by the Battelle Technology Partnership.45 The study identified 18 "core competencies" in the state as well as 12 "niche competencies," winnowing those down to nine "strategic focus areas" multidisciplinary fields of research likely to enable Arkansas to engage multiple institutions and leapfrog traditional universities with strengths in narrow academic fields.46 Table 2 details the focus areas. 43 See the summary of the keynote speech by Governor Mike Beebe in the Proceedings chapter in this volume.
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Addresses Chronic major public Disease health issues Management Obesity and Emerging Significant Extensive Limited Nutrition addresses major public health issues SOURCE: Battelle 2007.
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The state was strongest in high tech industries' average yearly 47 See the summary of the presentation by Jerry Adams in the Proceedings chapter in this volume. 48 Governor Mike Beebe's Strategic Plan for Economic Development, Little Rock: Arkansas Economic Development Commission, 2009.
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A second park is the Arkansas Bioscience Innovation and Commercial Center at Arkansas State University in Jonesboro, which is completing its Phase I business incubator. The development of a third S&T Park in Central Arkansas accelerated in 2010 when the Arkansas legislature authorized the establishment of research park authorities.53 A Tech Park located in Little Rock between UAMS (the University of Arkansas for Medical Sciences)
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Initial engineering evaluations of possible sites are now underway. Arkansas Biosciences Institute In her conference remarks, Carole Cramer of the Arkansas Biosciences Institute located at Arkansas State University observed that some 200 food processing facilities are located in the state, including those of some of the world's largest: Tyson Foods, Frito-Lay, Butterball, Wal-Mart, Riceland, Post, Nestle, and others.
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55 An USEDA Technical Assistance Grant helped establish the Center for Regional Innovation at the University of Arkansas at Little Rock. A $1.75 million USEDA public works grant to Arkansas State University at Jonesboro helped establish the Arkansas State Bioscience Institute Commercial Innovation Center.
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Apon launched an effort to bring an outside team of experts, the External Advisory Committee, to study Arkansas' cyberinfrastructure needs, the result of which was a recommendation that the state launch the Arkansas Cyberinfrastructure Initiative.59 In May 2008, Governor Beebe funded the Initiative through the Arkansas Science and Technology Authority, and an Arkansas Cyberinfrastructure Strategic Plan was drawn up in 2008 by members of research organizations in the state.60 In her conference remarks, Dr. Apon said that underlying the cyberinfrastructure initiative is the recognition that "computing has become the most important general-purpose instrument of science."61 Research in fields such as nanotechnology, materials science, and human biology sometimes requires millions of hours of computing time per year.62 Arkansas deployed a major new cyberinfrastructure resource in 2008, the "Star of Arkansas," the most powerful computer in the state, capable of storing over five times the data stored 57 Arkansas Cyberinfrastructure Strategic Plan (2008)
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cited Arkansas' "extraordinary work ethic" as a factor underlying its decision to locate a $100 million manufacturing facility for wind turbines in Fort Smith, Arkansas. The plant's general manager said that "we looked for a part of the country where manufacturing is not some lost art." "Mitsubishi Breaks Ground on Nacelle Facility in Arkansas," North American Windpower (October 8, 2010)
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At the University of Arkansas at Pine Bluff, the percentage of entering freshmen in 2007 requiring remedial courses was 75.5 percent for English, 84.9 percent for math, and 73.6 percent for reading.68 A 2006-07 survey of Arkansas college professors on the overall 65 See, for example, the summary of the presentation by Jeff Johnson in the Proceedings chapter in this volume. Nordex USA found that when it sought to open a manufacturing plant for wind power equipment in Arkansas, it was only able to find after five months of interviews 62 of the estimated work force of 700 who possessed sufficient skills.
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The net result of the Lake View decision was a substantial increase in state funding for operations and facilities in elementary and secondary schools as well as overhaul of the curriculum, increased teachers' salaries and increased requirements for accountability from school districts. By the time of the Education Task Force's report, these reforms were beginning to have positive effects.71 As Governor Beebe noted at in his keynote speech at the conference, Arkansas is now winning accolades for levels of per-pupil funding, test scores, transparency, accountability, standards, and increase in advanced placement students.72 The Arkansas Science Technology, Engineering and Math (STEM)
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The 2009 Battelle study found that Arkansas' university system increased the number of graduates from 12,153 in 2001 to 15,262 in 2007, a growth of nearly 26 percent. Graduates in fields related to science, math and engineering grew from 3,548 in 2001 to 4,341 in 2007, an increase of 22 percent.
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Research funding in Arkansas universities has been growing rapidly, but from a comparatively weak starting point in effect the state is still playing catch-up. The Battelle study found that in 2007 spending on university-based R&D in Arkansas totaled $240 million, an amount equal to 0.25 percent of gross state product (GSP)
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Mary Good observed in her conference remarks, the state has two pressing needs -- to improve the access to very early state capital for start-up firms, and to raise sufficient funding for innovative initiatives.81 The Milken study found that an average of about one (0.96) Arkansas firm per 10,000 businesses received venture capital from 1993 to 2002, a rate which was one-sixth the national average.
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Diamond State Ventures, affiliated with ACCG, provides venture capital investments ranging from $250,000 to syndicated investments up to $20 million. Another ACCG member, Commerce Capital Development Company, supervises investment tax credits provided pursuant to the Arkansas Capital Development Company Act.87 Arkansas Certified Development Corporation, also an ACCG member, administers SBA 504 loans.88 A group of angel investors created an $8 million Fund for Arkansas' Future that provides start-up funding in the $100,000 to $500,000 range.
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to implement a venture capital investment program.89 Synergies in Federal Innovation Funding The 2009 Battelle study used the level of federal funding as an important metric in identifying Arkansas' areas of strength in research. According to the Arkansas Research Alliance's founder, Jerry Adams, federal funding is the accelerator.
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. In that year the Milken study ranked Arkansas 49th among the 50 states for SBIR awards per 100,000, and 50th for Phase II SBIR awards per 10,000 businesses.96 The National Institute for Standards and Technology (NIST)
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MEP concentrates on helping existing small firms scale up based on a national perspective.97 In Arkansas, AMS services reportedly have facilitated $592 million in new and retained sales, $25 million in capital investment, $12.7 million in cost savings, and 3,335 jobs retained and created. MEP has created an Arkansas-specific portal into the National Innovation Marketplace -- "Arkansas Innovation Marketplace (AIM)
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These imperatives are opening up economic opportunities for Arkansas-based businesses in fields such as renewable energy and electric power transmission.102 Arkansas already supports a number of research organizations and businesses, which give it advantages in developing the electric power sector. University of Arkansas Research Center The Battelle study noted that a core research competency in power electronics was emerging at the University of Arkansas campuses at Fayetteville and Little Rock.
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Wind Energy According to Joe Brenner of Nordex, a manufacturer of wind turbines, Arkansas is already "a manufacturing powerhouse for the wind industry," and has become a manufacturing base for some of the most competitive makers of wind equipment in the world.108 Arkansas is located at the edge of the "Saudi Arabia of wind" the U.S. great plains states and its strategic geography has been cited by wind power equipment manufacturers as a key factor in their 2030.
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Nordex chose the Arkansas site because of the commitment of state and local leaders to economic development, the availability of a trainable work force, the nearby presence of Arkansas State University as a site for training programs, and Arkansas' central location in North America.110 U.S. Department of Energy Initiatives The federal government is committing substantial resources to the promotion of energy efficiency and renewable energy (EERE)
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initiative to promote home energy efficiency; the concentration of developmental block grants for residential and commercial energy efficiency retrofits; and the development of technologies for concentrated solar power, geothermal energy wind power, biofuels, and hydropower.112 AEDC Wind Study Arkansas' own wind power generation capability is still underdeveloped.113 As Joe Brenner noted in his conference presentation, "There were challenges to finding the right locations in some parts of the state," but "siting specialists are quite sure that Arkansas can provide wind energy."114 In 2011, AEDC's Arkansas Energy Office commissioned a "tall tower" study of wind velocity at various points in the state to generate data to afford wind power developers at better sense of the availability of wind resources in the state. The Energy Office is providing a grant to fund a wind resource monitoring network comprised of sensors on existing communications towers at the 80-foot level, the hub height of standard industry wind turbines.115 Nanotechnology Speaking at the conference, Dr.
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Envisioning a regional research park, local leaders created the Bioplex on the land, using $200,000 in federal grant money to clear land, and to build roads and utilities. The state has pledges to support the project with tax credits, revenue lands and other incentives.
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She credited Wal-Mart's emphasis on "green" techniques with a major impact on attitudes in the state, and noted that the recent Battelle study identified market opportunities for Arkansas in new food processing and 119 Arkansas is the number one producer of rice in the US and is second in broilers, third in cotton, cottonseed and catfish, fourth in turkeys, fifth in grain sorghum, eighth in chicken eggs and ninth in soybeans. Food processors in the state include Tyson Foods, Frito-Lay, Butterball, Wal-Mart, Riceland, Post and Nestle.
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Job growth in this field is expected to grow by more than twice the rate as the average for all Arkansas jobs, and to grow at a faster rate than the national average for computer-related jobs. The University of Arkansas campuses at Little Rock, Fayetteville and Pine Bluff possess core competencies in informatics, sensing and senor networks, and use of information systems to manage supply chain logistics.123 The University of Arkansas at Little Rock has a unique program in Information Quality that is drawing students from around the world.
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For example, the Arkansas Research Alliance Scholars program is modeled on Georgia's highly successful Georgia Eminent Scholars program, which has been luring "top notch scientists to Georgia's research institutions since 1990."125 The Arkansas Economic Development Commission "carefully studied the organization and structures, service delivery methods and funding mechanisms of a dozen states to identify best profiles" in the area of workforce development and training.126 Analysis by the National Governors' Association regarding specific state government and metropolitan development strategies has also been consulted.127 Speakers at the conference highlighted the recent experience of Arizona, California, and Oklahoma in growing knowledge-based economies. 124 Battelle Study (2009)
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The erosion factors are the increased mobility of trained workers, the growth in the research capacity of universities around the world, the diminished U.S. hegemony in markets, and a proliferation of venture capital globally.
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SFAz had a mandate to diversify and strengthen the state's economy to enable it to compete on a global basis. Its $100.9 million in funds were committed to support R&D in sectors deemed to be state priorities wind and solar energy, sustainable mining, personalized medicine, new materials and software supporting the semiconductor industry, and aerospace.130 In mid-2009, after about two years of SFAz activities, the Battelle group evaluated its return on investment and concluded that it had resulted in 11 spin-off companies, 757 jobs created or retained, 50 patents filed or issued, and 292 scientific publications, and that $2.18 in value had been leveraged for each $1 awarded by SFAz in university grants.131 Oklahoma In his conference presentation, David Thomison of Oklahoma's Innovation to Enterprise (i2E)
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One OCAST innovation was to hire a "CFO in residence," in effect a CFO capable of serving a number of startups simultaneously on a part-time basis in their efforts to secure venture capital. See the summary of the presentation by David Thomison in the Proceedings chapter in this volume
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These include initiatives in areas such as nanotechnology research and the manufacture of wind power generation equipment. Arkansas' ability to address these challenges by improving its education, investment and research infrastructure, and by leveraging existing areas of strength to create new knowledge-based companies and jobs will determine the future standard of living and long run economic well-being of its citizens.
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