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Overview Arkansas is seeking to reinvent itself as a knowledge-based economy. This transformation continues the state's longstanding efforts to adapt to changing economic conditions. When the post-World War II automation of agriculture displaced much of the state's predominantly agrarian work force, the state succeeded in attracting manufacturing industries based on Arkansas' low wages and favorable business climate. When these industries began moving offshore in the 1970s, the state experienced a steady erosion of manufacturing jobs that continues to the present day. Arkansas began building the infrastructure for technology-based economic development in the 1980s. Recognizing the growing importance of knowledge-based industries, Arkansas' leaders are once again taking steps to secure their future economic growth. 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. Held at the Clinton Presidential Library in Little Rock, the conference drew Arkansas business, political, and academic leaders along with senior U.S. government officials and national experts to highlight the accomplishments and growth of the innovation ecosystem in Arkansas, while also identifying needs, challenges, and opportunities. The participants at this conference discussed a series of proposed initiatives to strengthen Arkansas' innovation and technology infrastructure and identified areas where federal, state, and foundation contributions could generate positive synergies. As this report of the conference documents, Arkansas' business, academic and government leaders recognize the economic and technological challenges confronting the state. They have studied successful economic and research programs in other states and drawn on national experts to develop strategic plans to promote economic growth and in recent years to enhance the state's standing in the knowledge-based economy of the 21st century. Arkansas benefits from homegrown entrepreneurial ingenuity and pluck, its reputation as a highly pro-business state, strong transportation links, and a geographic location in the center of the North American market. 3
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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). Many of the Arkansas' economic and technology development initiatives were designed to address these areas of vulnerability.
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OVERVIEW 5 Table 1 Innovation Indicators for Arkansas Category Arkansas U.S. Average State funding for major public universities per $10, 825 $9,082 enrolled student (2010) Engineers in the workforce (2010) 0.53 1.12 Life and physical scientists in the workforce 0.3 0.45 (2010) Federal R&D obligation per employed worker $112 $862 (2008) Federal R&D obligations per S&E occupation $4,947 $21,594 holder (2008): Academic S&E articles per 1000 science doctorate 477 579 holders in academia (2008) Patents per 1000 S&E occupation holders (2010): 4.9 19.4 Venture Capital deals per high tech establishments 0.0 0.59 (2008): High tech to all business establishments (2008) 7.02 8.52 Business performed R&D to private industry 0.52 2.14 output (2008) Source: NSB Science and Engineering Indicators 2012 State Data Tool THE INNOVATION IMPERATIVE The twenty-first century is witness to fundamental changes in the world's economies. Knowledge-based economic activity is recognized worldwide as the basis for sustained growth. The prosperity of individual regions is based increasingly on their relative success in attracting and retaining knowledge-based activities and assets and utilizing them for economic development. At the same time, the globalization of trade and investment as well as advances in communications and transportation has created an increasingly integrated global market. Reflecting the growing mobility of capital and labor, states and regions are increasingly vulnerable to companies, industries and jobs moving to other parts of the U.S. or to foreign countries that offer a skilled and flexible workforce, often at lower cost, and greater incentives for investment. The nation's states and regions therefore face an imperative to foster innovation and start, grow, and retain innovative firms if they are to
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6 BUILDING THE ARKANSAS INNOVATION ECONOMY sustain and augment their standard of living and ensure their long run economic well-being.1 BOX 1: Addressing the Innovation Imperative in Arkansas In his conference keynote, Governor Beebe of Arkansas said that among the state's advantages are its strong work ethic and entrepreneurial spirit. He noted Arkansas' reputation for successful businesses, beginning with Sam Walton's Wal-Mart, and continuing with Tyson, J. B. Hunt, Stevens, Acxiom, and Alltel, which had become part of Verizon. "Those success stories were the basis for what was yesterday," he said, "but they provide us with a roadmap for tomorrow. We're probably not even aware of how our children and grandchildren will live 10, 15, or 20 years from now. But those who embrace technology and innovation and entrepreneurship; make the marriage between education and economic development; and learn that science is the basis for tomorrow's economy will reap the benefits for themselves, their employees, their loved ones, and their region." Acknowledging that the state lags in per capita baccalaureate degrees, where it stands 49th in the nation, Governor Beebe said that he was determined to change that ranking.2 The state has initiated policies that include higher standards, higher expectations, and more advanced placement. The state has approved a lottery, with all of its available revenues targeted for college scholarships. "There will be no excuse for Arkansas to stay 49th in per capita BA degrees," he said. In his conference remarks, Richard Bendis, of Innovation America, outlined the key issues for building knowledge and innovation-based economies. He defined innovation as "the creation and transformation of knowledge into new products, processes and services that meet market needs." Knowledge economies are "based on creating, evaluating and trading knowledge." Bendis observed that the public, academic and private sectors each have essential roles in innovation. Academia must focus on the creation, integration and transfer of 1 Ross De Vol, et al., Arkansas' Position in the Knowledge-Based Economy Santa Monica: Milken Institute, September 2004, p. 1. 2 Recognizing these realities, Governor Mike Beebe's Strategic Plan for Economic Development points out that Arkansas is "at a critical disadvantage in competing for opportunities in the 21st century economy," and that the state had "not kept pace" with the requirements of the global knowledge-based economy. 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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OVERVIEW 7 knowledge itself. Industry must use that knowledge to create wealth in the form of commercial products, processes and services. Governments must develop policies to encourage innovation, engage in long-term vision and planning, invest in under-supported areas, and participate in public-private partnerships with industry.3 He added that technology clusters, which facilitate innovation through physical proximity and the close interaction of many actors from different sectors, serve as catalysts for innovation and the creation of start-ups. While Silicon Valley, Route 128 in Boston and Research Triangle Park in North Carolina are widely cited as examples of successful technology clusters, growing successful clusters by stimulating the development, commercialization and financing of technology-based firms is a significant challenge.4 In this regard, Bendis stressed the role of "innovation intermediaries" to coordinate local technologies, assets and resources to advance innovation in a jurisdiction.5 Bendis further observed that successful development of economic activity within a region requires a "three-legged stool." First, the region must attract companies from other regions; second, it must retain companies that are already present; and third, it must create new companies. Creating new companies is both the most important element and the one that is most difficult to achieve. It is important because small and medium enterprises (SMEs) 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. 4 For a review of the nature of innovation clusters and state policies to grow innovation clusters, see National Research Council, Growing Innovation Clusters for American Prosperity, Charles W. Wessner, rapporteur, Washington, D.C.: The National Academies Press, 2011. 5 See the summary of the presentation by Richard Bendis in the Proceedings chapter in this volume. 6 Small and medium enterprises generate 13 times as many patented technologies as large firms, and are an important source of innovation for large firms that often partner with SMEs. In the three years after the recession of 2001, companies of less than 20 employees created 107 percent of net new jobs while companies over 500 employees eliminated a net of -24 percent. See the summary of the presentation by Richard Bendis in the Proceedings chapter in this volume, where he cites data from the Small Business Administration. 7 See the summary of the presentation by Jeff Johnson in the Proceedings chapter in this volume. 8 See the summary of the presentation by Richard Bendis in the Proceedings chapter in this volume.
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8 BUILDING THE ARKANSAS INNOVATION ECONOMY stage investments by the U.S. venture capital industry declined by 48 percent in 2011 to $919 million, or 3 percent of all venture capital investment.9 In effect, venture investment is moving downstream, away from risk, a phenomenon that is acting as a drag on start-ups in Arkansas and elsewhere. Responding to this innovation imperative, governments around the world have implemented a variety of policies and programs designed to promote innovation-based economic growth.10 Many of these efforts emulate U.S. public-private initiatives that are widely seen as successful. Indeed, the United States has a long tradition in public-private partnerships, beginning with a 1798 government grant to Eli Whitney to produce muskets with interchangeable parts, and continuing through government support for development of the telegraph, the airplane, jet aircraft, semiconductors, computers, nuclear energy and satellites.11 As we see next, Arkansas' recent economic and technological development efforts are a part of this long national tradition in cooperation and pragmatism in fostering economic growth and addressing common missions. BACKGROUND: ECONOMIC DEVELOPMENT EFFORTS IN ARKANSAS, 1955-2012 For most of its history, farming and forestry dominated Arkansas' economy. During the mid-20th century, sharecroppers and poor migrant laborers were displaced by agricultural automation. While many migrated, others stayed, making up the state's pool of low cost surplus labor. In 1950, Arkansas' per capita income was 56 percent of the national average, and its population was declining. In 1955, the state legislature established the Arkansas Industrial Development Commission (AIDC) 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. 10 For a review of innovation polices of leading nations and regions in Asia, Europe, and North America and the challenges facing the United States, see National Research Council, Rising to the Challenge, U.S. Innovation Policy for the Global Economy, C. Wessner and A., Wm., Wolff, eds., Washington, DC: National Academies Press, 2012. 11 For an abridged history of US public private partnerships and an analysis of factors characterizing successful partnerships, see National Research Council, Government Industry Partnerships for the Development of New Technologies, C. Wessner, ed., Washington, DC: National Academies Press, 2003. 12 The AIDC was formed pursuant to Act 404 of 1955, which also authorized incorporation of local industrial development corporations and issuance of local industrial development bonds. Today the AIDC operates as the Arkansas Economic Development Commission (AEDC), with a current mandate to promote economic development and develop strategies that produce better-paying jobs, support communities and support workforce training. See the summary of the presentation by Watt
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OVERVIEW 9 an influx of manufacturers seeking low wage labor and cheap land. Between 1955 and 1960 Arkansas added over 51,000 jobs.13 In 1997, AIDC was renamed the Arkansas Economic Development Commission (AEDC) to reflect a broader emphasis on developing service and high technology industries in the state. By the 1970s the "smokestack" industries that had located in Arkansas during the preceding decades came under international competitive pressure and began to move offshore. The percentage of manufacturing employment in the state began a long decline, from 32 percent in 1975 to 17 percent by 2005. Per capita income rose through the 1960s and 1970s, but leveled off in 1978 at about 77 percent of the national average where it has "refused to budge despite the best efforts of economic developers in the state."14 Arkansas' unemployment rate, which stood at 5.0 percent in 1970, nearly doubled to 9.5 percent in 1975. Unemployment peaked at 9.7 percent in 1983 and remained above seven percent through the entire decade of the 1980s.15 In 1979, the AEDC released a report that warned that the state's future economic growth was limited by a strategy that sought to recruit firms that provided labor-intensive, low skill, minimum wage jobs to Arkansans.16 During the 1980s the state took a number of steps to counteract the loss of businesses and jobs. Two new development agencies were established: The Arkansas Science & Technology Authority (ASTA) was tasked with promoting innovation, scientific research, and science, technology, engineering and mathematics (STEM) education.17 The Arkansas Development Finance Authority (ADFA) was established to provide tax-exempt bonds to finance businesses and education.18 Gregory in the Proceedings chapter in this; See also Governor Mike Beebe's Strategic Plan for Economic Development, 2009, op. cit., p. 2. 13 Governor Mike Beebe's Strategic Plan (2009), op. cit., p. 3. 14 Report of the Accelerate Arkansas Strategic Planning Committee, Building a Knowledge-Based Economy in Arkansas: Strategic Recommendations by Accelerate Arkansas (September 2007), pp. 16-17. 15 Governor Mike Beebe's Strategic Plan, (2009), op. cit., p. 5. 16 AEDC, Arkansas Climbs the Ladder: A View of Economic Factors Relating to Growth of Jobs and Purchasing Power (1979). 17 Galley Support Innovations (GSI) is a California-based manufacturer of galley locks and latches for OEMs in the aerospace business that relocated to Arkansas in 2005. Hit hard by the economic downturn that began in 2008, it sought assistance from the Arkansas Science and Technology Authority's Arkansas Manufacturing Solutions program. GSI was awarded to ASTA Technology Transfer Assistance Grants (TTAG), which enabled GSI to secure a large multi-year contract with an estimated positive financial impact of $5 million over six years. "AMS Grant Helps Local Aerospace Manufacturer Turn Business Around," Arkansas Business (January 5, 2012). 18 (2009) op. cit., p. 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. It has provided grants to support the Arkansas High-Performance Computing Center at the University of Arkansas and to the
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10 BUILDING THE ARKANSAS INNOVATION ECONOMY Despite difficult economic circumstances, Arkansas has spawned a significant number of world-class companies.19 Wal-Mart, which began with one retail outlet in Rogers, Arkansas, in 1962, became the nation's largest retailer in 1991.20 J.B. Hunt, founded in 1961 in Lowell, Arkansas with five trucks and seven refrigerated trailers, became the largest US trucking company by the early 1990s. Tyson Foods, based in Springdale, Arkansas, and which originally consisted of a farmer driving a single truck to deliver chickens to Chicago, became the largest U.S. processor of poultry and the world's second largest processor of chicken, beef and pork. Murphy Oil Corporation, based in El Dorado, Arkansas, operates onshore and offshore oil and natural gas drilling operations globally, and in 2008 ranked 134th on the Fortune 500 list.21 Other major companies with origins in the state include Riceland, Stephens Inc., Dillard's, Alltel and Acxiom. While most of these companies are not regarded as technology-intensive firms, many of them have applied technology in their business processes with dramatic and in some cases revolutionary impact.22 Arkansas Research and Education Optical Network (ARE-ON), a communications network linking Arkansas' four-year public universities. The authority provides financial support for technology transfer to local businesses, provides working capital for small start-up businesses (usually pursuant to royalty-based agreements), and sponsors professional development workshops for teachers and grants to individual STEM teachers for equipment and supplies. See the presentation by Watt Gregory, "Evolution of Innovation in Arkansas," in the Proceedings chapter of this volume. 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). 20 Wal-Mart, with one of the most sophisticated and innovative supply chains in the world, has attracted distribution centers from its major vendors to Arkansas, including Heinz, Clorox, Pfizer, General Mills, Mattel, PepsiCo, Procter & Gamble, Coca-Cola, Johnson & Johnson and Hershey's. "Arkansas: A Natural Wonder," Inbound Logistics (May 2009). 21 The company offers to pay college tuition and fees for all El Dorado high school students. "Murphy Oil Company," Arkansas Business http://www.arkansasbusiness.com/company_info.asp?sym=MUR 22 Wal-Mart's emergence as the world's largest retailer and the world leader in supply chain logistics is attributed largely to its pioneering practice of tracking inventory by high performance computers. 22 See the summary of the presentation by Watt Gregory in the Proceedings chapter in this volume.
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OVERVIEW 11 FIGURE 2 Map of the State of Arkansas Source: U.S. Department of Interior, U.S. Geological Survey Arkansas' location in the center of the North American market, reinforced by a strong rail, highway and river-based transportation network, (see Figure 2) has proven a major advantage with respect to attracting and holding some traditional industries.23 Some local manufacturers have found that Arkansas' location lowers transportation costs and thus makes them cost-competitive with products made in China.24 It is becoming evident that Arkansas enjoys geographic 23 Arkansas has over 1,000 miles of navigable waterways and port facilities on the Mississippi and Arkansas Rivers. Three carriers provide rail service including intermodal freight service. Eight interstate highways cross various parts of the state. Nucor Steel located a mini-mill in Hickman, Arkansas, which makes thin-slab steel coils for use in pipes, tubes, processors and automotive applications, citing location and transportation infrastructure as key decisional factors. Mike Parrish, a Nucor Vice President who managed the Hickman plant, said in 1996 that "What's great about this area is it's centrally located in the country. It's great to advertise in this area. You're on the [Mississippi] 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). 24 In 2011, the designers of five-gallon Kosmo coolers, a proprietary product, abandoned plans to have them manufactured in China, a decision based on "prohibitive" shipping costs. Instead most of the parts for the coolers will be manufactured by custom injection and blow molder River Bend Industries LLC at its factory in Fort Smith, Arkansas. River Bend worked with the designers, Arkansas entrepreneurs Tim Mika and Steve Bowman, developed a mostly US-made product (only the metal legs will be sourced from China) containing blow-molded and injection molded parts and
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36 BUILDING THE ARKANSAS INNOVATION ECONOMY industrial collaboration center for global users, which include companies and universities.104 It is the only facility in the world offering programmability and reconfiguration operations at six megawatts. Southwest Power Pool The Battelle study also identified the Southwest Power Pool (SPP) as an important asset in developing the states' potential in electric power transmission.105 At the conference, Nick Brown described the Southwest Power Pool as a cooperative organization that was originally formed in Arkansas during World War II to ensure sufficient electricity to support production of aluminum for the war effort.106 SPP was created because the aluminum plants' electric power needs exceeded the entire generating capacity of the state, necessitating the formation of a pool originally comprised of 11 regional utilities. Originally comprised of 11 utilities in the region, SPP has expanded to 56 members operating in nine states.107 SPP manages the flow of power over electrical networks, operates as a wholesale sales agency for power and serves as a "one-stop shop" for the sale of transmission services. 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. See the summary of the presentation by Alan Mantooth in the Proceedings chapter in this volume. 104 NCREPT won an "R&D 100" award from R&D magazine for innovation in 2009 for the development of a 3"x5" power electronic module for hybrid electric vehicle motors. Current modules must be actively cooled by the radiator, but the NCREPT device can operate at 250 degrees C., does not require water-cooling, and is lighter and more resilient than existing models. The new module was developed with funding from Japan's Rohm Semiconductor and Sandia National Laboratory, and was manufactured in Fayetteville by NCREPT and Arkansas Power Electronics. See the summary of the presentation by Alan Mantooth in the Proceedings chapter in this volume 105 Battelle Study (2009) op. cit., p. 21. 106 At the beginning of the 1940s Arkansas had the largest commercially exploitable deposits of bauxite in the United States. Alcoa and the Reynolds Metal company established plants in the state, and a United States government entity, Defense Plant Corporation, built an aluminum factory in Jones Mill, Arkansas, which was leased to Alcoa. 107 SPP members include utilities, cooperatives, state and municipal agencies, and bulk power marketers. 108 Nordex USA, a subsidiary of Nordex SE, a German manufacturer of wind turbines and a pioneer in the development of wind-driven power generation.
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OVERVIEW 37 decision to establish a presence in the state.109 In 2010, the wind industry supported 1-2,000 direct and indirect jobs in the state. In his conference remarks Joe Brenner cited the strong support for his company by state and local leaders and a positive environment for innovation. In 2008, Nordex USA selected Jonesboro, Arkansas as the site for a manufacturing facility for 2.5 megawatt wind turbines. The plant, which became operational in 2010-11, is one of the most technologically sophisticated facilities in its kind in North America. 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). Dr. Gilbert Sperling of the U.S. Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy noted that the American Recovery and Reinvestment Act (ARRA) had temporarily augmented his office's budget, normally around $2 billion, to $16.8 billion. Of this amount, $11.5 billion was returned to the states to stimulate building weatherization and other efficiency-enhancing measures.111 DOE's EERE initiatives, he said, seek to increase the market share of renewable energy power generation from the current one percent to 30, 40, or 50 percent. This effort requires convincing the American people why EERE investments 109 See the summary of the presentation by Joe Brenner in the Proceedings chapter in this volume. The sheer size and weight of large wind turbines make transportation costs a factor in locational decisions. The turbines manufactured in Jonesboro will be as tall as a football field is long, and each turbine blade will be a comparable length. See the summary of the presentation by Nick Brown in the Proceedings chapter in this volume; "Arkansas Wins $100 Million Wind Turbine Nacelle Plant," Energy Overviews (May 11, 2011); Interview with Joe Brenner, Mitsubishi Power Systems America, in Wind Systems (January 2011). 110 The University worked with Nordex and Beckmann Volmer, a supplier to Nordex of turbine mainframes and other components, to create classes and degrees to meet the unique need of the wind power industry. The University now offers training in "mechatronics," a combination of electrical and mechanical skills specific to the manufacture of wind turbines. "Beckmann Volmer Breaks Ground on Osceola Plant," Paragould Daily Press (September 14, 2011); Interview with Joe Brenner, Vice President of Nordex USA, in Wind Systems (January 2011). 111 Arkansas received over $117 million in grant money for energy efficiency and renewables projects. Another $34 million went to the state in the form of tax incentives for wind power generation, electric vehicles, batteries, and other renewable and energy efficiency technologies. See the summary of the presentation by Gilbert Sperling in the Proceedings chapter in this volume. Nordex USA received $22 million from ARRA in the form of tax credits to support its manufacturing facility in Jonesboro, Arkansas. "Firm Building Jonesboro Plant to Get $22 Million Stimulus," NWA Online (January 11, 2010).
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38 BUILDING THE ARKANSAS INNOVATION ECONOMY are warranted, securing private capital investment in renewables, and the removal of incentives for utilities to make more money by selling more energy. Specific initiatives by EERE include an effort to have one million plug-in hybrid electric vehicles on the road by 2015; an improvement of the federal government's energy efficiency; "recover through retrofit" (RTR) 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. Salamo, a Distinguished Professor of Physics at the University of Arkansas, Fayetteville, defined nanoscience as "the effort to understand and design structures at the nano scale and to seek their application."116 The Arkansas effort in nanoscience, he said, is a collaborative undertaking among partner institutions throughout the state university system. Materials Research Science and Engineering Center The National Science Foundation has funded the establishment of a network of Materials Research Science and Engineering Centers (MRSEC) at academic institutions across the United States to undertake materials research, develop human resources, and collaborate with industry in materials science. A 112 See the summary of the presentation by Sperling in the Proceedings chapter in this volume. 113 At the end of 2010, the state had 10 megawatts (MW) of wind power generating capacity online with another 210 MW in planned projects. According to an estimate by the National Renewable Energy Laboratory, Arkansas has sufficient wind resources to provide 58.3 percent of the state's current electricity needs. "Arkansas is a National Leader in Wind Energy Manufacturing," American Wind Energy Association (August 2011). 114 See the summary of the presentation by Joe Brenner in the Proceedings chapter in this volume. 115 "A Wind Study the Size of Arkansas," Wind Power News (April 1, 2011). 116 See the summary of Professor Salamo's presentation in the Proceedings chapter of this volume.
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OVERVIEW 39 MRSEC has been established jointly at the University of Arkansas and the University of Oklahoma to support an interdisciplinary research program on semiconductor nanostructure science and applications. The Arkansas/Oklahoma MRSEC is pursuing nanotechnology research with applications in energy efficiency, conversion of waste to electricity, solar power generation, semiconductor technology, medical diagnostics, and cancer treatment. The MRSEC has resulted in six spin-off companies. Dr. Salamo noted that the University of Arkansas System's schools lead the U.S. in the supply of nanomaterials to research organizations across the United States. National Center for Toxicological Research Arkansas' potential for developing nanotechnology appears to be particularly promising in the area of life sciences. As Watt Gregory noted at the conference, the U.S. Food and Drug Administration (FDA) operates the National Center for Toxicological Research (NCTR) near Pine Bluff, Arkansas. This facility employs 500 people, nearly half of whom are Ph.D. level researchers and scientists. NCTR research themes include food contaminants, detection of terrorist threats, and evaluation of drugs for medical use. The effort to develop a regional cluster in nanoscience has advanced in recent years. In July 2011, Governor Beebe signed a memorandum of understanding with the U.S. Food and Drug Administration to establish a nanotechnology research collaboration between the National Center for Toxicological Research (NCTR) and five Arkansas universities. The MOU provides for creation of a virtual Center of Excellence in Regulatory Science that will include toxicological research associated with nanotechnology and a regulatory science curriculum at the University of Arkansas for Medical Sciences. It also establishes a working group appointed by the Governor and co- chaired by the Director of NCTR and a gubernatorial appointee to coordinate the Center's activities and assist in commercializing its research results.117 Local business leaders believe NCTR can do for Arkansas what Oak Ridge National Laboratory has done for Tennessee that is, generate products for commercialization that generate high-knowledge, highly paying jobs.118 117 "Beebe, FDA Sign First of its Kind Agreement at NCTR," Arkansas Business (August 12, 2011). 118 In 2001, the Department of Defense deeded 1,500 acres of arsenal land adjacent to the NCTR facility to the Economic Development Alliance of Jefferson County. 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. See Arkansas Business, "NCTR Has Potential to Create High- Paying Jobs," July 4, 2011.
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40 BUILDING THE ARKANSAS INNOVATION ECONOMY Arkansas Nano-medicine Center In January 2012, the University of Arkansas for Medical Sciences opened the Arkansas Nanomedicine Center, which will coordinate statewide nanomedicine research efforts. Food Processing As noted earlier, Arkansas is one of the leading agricultural states in the U.S., with about 200 food processing facilities located in the state.119 Food processing is Arkansas' largest source of manufacturing jobs, accounting for 25 percent of the state's 199,915 total in 2011.120 The Milken study found that Arkansas enjoyed a "definite comparative advantage" in food processing that, while not in itself a high technology industry, does feature many areas for increased technology and science applications.121 As Carole Cramer noted in her remarks, Arkansas is promoting research through multi-institutional, cross- disciplinary clusters to promote in-state innovation in agriculture: · The Arkansas Division of Agriculture supports a cluster that has developed a world class reputation in rice and poultry science, and is now focusing on bioengineering. · The Arkansas Biosciences Institute leads a cluster of institutions with the NSF EPSCOR P3 Center (Plant-Powered Production) featuring research programs in plant biomass and yield, plant protection, medicine and feed production. Cramer noted that biotechnology rather than traditional approaches to crop improvement is needed to promote innovation in agriculture within the state. She foresaw innovation in value-added and specialty crops and products, agriculture, green materials devised from crops and livestock and veterinary products. 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. See the summary of the presentation by Carole Cramer in the Proceedings chapter of this volume. 120 Industrial Jobs in Arkansas Declined 1.5 percent Over Last Year," Manufacturers' News (October 31, 2011), citing the Arkansas Manufacturers' Register. 121 US consumers have highly sophisticated and increasing demand for healthy and fresh foods. "Speed-to-market, logistics networks, quality control, and the accurate matching of supply and demand: represent areas for the application of science and technology, potentially giving the state "a competitive advantage in the nation." De Vol, et al., (2004) op. cit., p. 150.
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OVERVIEW 41 preservation technologies, advanced food packing, and food safety biosensors and rapid food-borne pathogen detection.122 Information Technology In his conference presentation, Jeff Johnson of ClearPointe noted that the overall environment for IT companies, and especially start-ups, is changing, along with the broader IT environment. IT is no longer delivered only by internal resources and on-site staff. Instead, necessary data may as likely come from the Internet or a hosted solution from an application vendor as from internal IT. This has caused a shift in the IT landscape, he said. The day of the traditional IT provider of software, hardware, and break-fix services is coming to an end. Today's IT companies are more focused on services and how those services are delivered. "We will be more concerned about how data arrives at the desktop or virtual PC than we ever have in the past," said Mr. Johnson. "This shift from on-site IT services to remote delivery has created a host of opportunities for startup companies." Arkansas had already begun to experience some successes from IT- based startups, he said, including Windstream and Allied Wireless. HP was also bringing a new support center to Conway, Arkansas. "All of these help to build the underlying foundation on which a knowledge-based economy is built," he said. The Battelle study identified "enterprise systems computing "as one of Arkansas' nine strategic focus areas, pointing out that industries in the state related to enterprise systems employed over 35,000 people in 1,700 establishments. 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. 122 See the summary of the presentation by Carole Cramer in the Proceedings chapter in this volume. 123 Battelle study (2009) op. cit., pp. 18-20, ix.
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42 BUILDING THE ARKANSAS INNOVATION ECONOMY Optics and Photonics Describing the Battelle study at the conference, Jerry Adams of the Arkansas Research Alliance noted that it identified optics and photonics as one of its nine recommended strategic focus areas. At Arkansas State University, the Arkansas Center for Laser Applications and Science (ArCLAS) operates the largest collection of lasers and support equipment in the United States mid-south region. At the University of Arkansas, Fayetteville, optics research is a key aspect of its physics department and its microelectronics/photonics program. Researchers at the University of Arkansas at Little Rock are focusing on optics in the university's applied science Ph.D. programs in physics. The principal focus of optics research at these university sites is the use of lasers for materials development, processing and manufacturing. Several Arkansas companies are engaged in optics and photonics research and at last four have received federal SBIR or STTR grants.124 LEARNING FROM OTHER STATES Arkansas' leaders often draw on the experience of other U.S. states and localities in developing policies to promote the growth of knowledge-intensive industries. Success of particular policies and programs in other states may not be directly replicable, but some of the principles underlying state innovation policies could be adapted to the Arkansas context. 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) pp. ix, 23. Invotek, based in Alma, Arkansas, is currently marketing an eye-safe laser pointer. 125 "Scholars Program Copies Georgia's Model," Innovate Arkansas (August 22, 2011). 126 Governor Mike Beebe's Strategic Plan (2009) op. cit. p. 26. 127 A 2006 study prepared for Accelerate Arkansas at the University of Arkansas at Little Rock contained an extensive survey of state and metropolitan strategies for success in the new economy. Gregory L. Hamilton and Teresa A. McLendon, Closing the Gap: Ann Examination and Analysis of Per Capita Personal Income in Arkansas (August 2006) pp. 32-44.
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OVERVIEW 43 Arizona At the Conference Dr. William Harris, President and CEO of Science Foundation Arizona, described some of Arizona's state-level initiatives to support research. Dr. Harris noted that he had previously served as founding director general of Science Foundation Ireland (SFI), a $1 billion program for strategic R&D investments in that country, and had served with the European Commission to develop the European Research Council. This European experience, he said, has informed his work on developing Arizona's innovation strategy. On the basis of his European work, he identified five key best practices: · Invest strategically at the state level in university-industry partnerships. · Operate with speed and flexibility, and work opportunistically. · Strive for world-class standards for STEM K-12 performance/education. · Build partnerships with industry. · Listen to R&D-driven business entities to support the protection of intellectual property. California Although California leads the world in many areas of science and technology, Susan Hackwood, Executive Director of the California Council on Science and Technology (CCST) warned that global changes threaten to erode the state's science, technology and educational infrastructure.128 Dr. Hackwood cited in her conference remarks a number of "erosion factors" that are destabilizing the so-called "closed-business model" traditionally employed in California -- in which targeted R&D leads to targeted product/process development in a discrete organization. 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. As a result, "your main competition could be anyone 128 Chartered by the state legislature, CCST is comprised of over 200 of the state's leading science and technology experts. Designed to bridge the gap between "those who know science and technology and those who create and enforce the state's laws and policy," CCST produces reports on the state's scientific and technological activities and supports scientific activity and education. Its sustaining institutions are six state universities, and six national laboratories are sustaining members. Recent analytic work includes studies of California's energy future; use of information technology to integrate genetic/genomic test results to promote personalized healthcare; preparation of elementary school teachers to teach science; nanotechnology in California; and reform of California's STEM education structure. See the summary of the presentation by Susan Hackwood in the Proceedings chapter in this volume.
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44 BUILDING THE ARKANSAS INNOVATION ECONOMY on the planet and your main market is everywhere on the planet. Your inefficiencies are discreetly outsourced." She noted several specific trends: · Development of new pharmaceutical products has stagnated during the past decade because "corporate pharma is not conducive to innovation," which often arises from small and more nimble companies. · The state's workforce retention and workforce competitiveness are being challenged by the competition by other countries and regions for skilled workers. · State and federal policies, such as United States export controls on technology, tort and labor laws, and over-regulation of industries, can unwittingly retard innovation. · The quality of California's K-12 education is "very poor," state funding of the university system is declining, and the numbers of science and engineering degrees has leveled off.129 Arizona used Ireland's model to create Science Foundation Arizona (SFAz), a public-private partnership jointly funded on a 50-50 basis by the state and industry. 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) program said that his organization provides businesses in the state with advice, commercialization services and capital, and 129 See the summary of the presentation by Susan Hackwood in the Proceedings chapter in this volume. 130 Fifty-six percent of the funds were committed to "strategic research" and another 17 percent to graduate-level research fellowships. See the summary of the presentation by William Harris in the Proceedings chapter in this volume. 131 Examples of new R&D partnerships generated by SFAz included initiatives in concentrated solar energy and energy storage, mining, pharmaceuticals and the development of jet fuel from algae. See the summary of the presentation by William Harris in the Proceedings chapter in this volume.
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OVERVIEW 45 serves as a portal to public and private resources.132 The goal of i2E is to create new, home-grown companies in the state of Oklahoma. "What we want to do," said Mr. Thomison, "is to build from within." Referring to the "three-legged stool" described by Mr. Bendis, he said that i2E focuses on just one of the legs: growing companies within the state. "We are in Oklahoma to help people there," he said, "and we want to leverage our in-state resources to the maximum degree." To increase the number of successful small firms, Mr. Thomison said, his organization collaborates with universities to provide commercialization services, including assistance in marketing, finance, and competitive strategies. The goal was to teach young businesses how to gain access to capital, good management, and networking. Mr. Thomison said that his organization also helps Oklahoma firms recruit talent needed to grow their company. In most technology-based start-up companies, he said, the leader and founder is the technician or scientist. "These leaders know the technology and the product, and that's extremely important," he said. "But it takes a team to pull off a commercialization." The Oklahoma Center for the Advancement of Science and Technology (OCAST) has found that it must begin by recruiting a CEO and a vice-president of marketing. As the company approaches commercialization, it must also hire a chief financial officer to position the firm to seek venture capital. This positioning includes demonstrating credible resources and creating a capital plan. To date, OCAST had helped create 433 client companies. Of those, 140 had raised $359 million in equity funding 66 percent of it from outside the state and 44 had received $38 million in grants. For 2009, the impacts on the state included $43.4 million in payroll, $115.6 million in reported revenues, and 251 new jobs. The combined companies had developed 336 new products. IN CLOSING As documented in the proceedings of this National Academies symposium, Arkansas' political, academic, and business leaders are seeking to foster greater awareness of the challenges facing the state and are taking a number of steps to foster the development of a knowledge-based economy. 132 I2E website, http://www.i2E.org/about Created in 1987, OCAST is a state government agency responsible for technology-based economic development. As of late 2011 OCAST had helped create 433 client companies, 140 of which had raised $359 million in equity funding (66 percent from outside Oklahoma). The combined companies have developed 336 new products. One OCAST innovation was to hire a "CFO in residence," in effect a CFO capable of serving a number of start- ups 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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46 BUILDING THE ARKANSAS INNOVATION ECONOMY Many of these efforts have been based on commissioned studies that offer frank assessments of the challenges the state faces, inter alia, in primary education, financing the formation of new businesses, and securing federal research funding. The symposium presented a number of initiatives that are under way to address these challenges. 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. The proceedings, found in the next chapter, provide detailed summaries of the presentations by the state's business, political, and academic leaders, along with those of senior U.S. government officials and national experts. They highlight the challenges, accomplishments, and opportunities facing Arkansas today.