Arkansas Needs New Plan for Good Jobs (Market Forecast)

I was recently asked to comment on developments in the state’s ongoing quest to land a large vehicle assembly plant to be located at the Marion site.
Specifically, it appears yet another Japanese corporation is choosing an alternate site and passing Arkansas by.
Whether this turns out to be true is not really the issue.
The lesson that is important to learn from yet another potentially failed courtship is how truly difficult and competitive the traditional economic development game has become.
Landing what economic developers refer to as a “super project” requires huge dollar investments on the part of local, county and state governments.
This puts poor states at a significant disadvantage.
One important but often neglected question is what are the opportunity costs of engaging in the bidding war?
Most of the economic impact studies I have seen regarding the cost-benefit relationship of pursuing a large plant like the truck assembly plant Toyota executives chose to site in San Antonio, Texas, over Marion show the effort is worthwhile.
That is, the benefits of spending tax dollars to woo a plant your way are more than compensated for in resulting tax revenue. Besides the actual Toyota or Hino plant for example, it is often the co-location of smaller manufacturers and support industries to the larger plant that tip the balance in favor of public investment.
But these studies seldom discuss what the potential benefits of placing tax dollars in other efforts might have done to create jobs or produce future revenue streams for the state.
So what does this mean for Arkansas?
Simply, given our relative disadvantage in competing with wealthier states we need to be smarter about how we pursue economic development.
I realize this is cliché, but we need to think outside the box.
Thankfully, it is my impression that this is exactly what is happening.
For example, the not-for-profit group, Accelerate Arkansas, has been very successful at working with the state legislature to pass legislation which places Arkansas at the forefront of facilitating the development of knowledge-based industry.
The state’s leading economic development agency is also redefining itself under new leadership. Taken together these are encouraging steps.
Necessity is the mother of invention after all.
The most difficult part of the process seems to be our willingness to discard the old failed strategies and adopt new strategies that are perhaps novel and untested.
What is clearly not in question is our need to do something.
Several years ago I was fortunate to have been part of a group that included researchers from the Milken Institute tasked with creating a blueprint for the state to accelerate the creation of a knowledge-based economic sector.
One aspect of the work was to determine the opportunity costs of failing to successfully create knowledge-based companies and jobs in Arkansas.
The baseline case represents business as usual.
The alternative represents Arkansas’ successful creation of a knowledge-based sector on par with the national average in terms of percentage or total employment.
Obviously, failure to create knowledge-based or other high-wage jobs like those associated with automotive assembly plants implies Arkansans will lose ground to people in other states in terms of per capita income.
Falling behind also implies it will be much more difficult to catch up. The single biggest factor in a state’s ability to adapt to transitions in the macro economy is the quality of its workforce.
Places with labor that is both highly trained and highly trainable have continually overcome economic adversity when market forces turn against them.
Training the current workforce and educating the future workforce require public investment.
Those tax dollars are much harder to come by if taxpayers are relatively poor.
Finally, it would be all too easy to point out that the state is currently running a large tax surplus and suggest that this is evidence that the state economy is fine.
Short-term anomalies in revenue collections should not lull us into complacency regarding the need to prepare Arkansans for increasing competition from foreign workers, either Chinese or Mississippian.
Many states have been experiencing a strong revenue growth in the last few years. However, declining housing markets and volatile oil prices are eroding consumers’ ability and willingness to spend.
Declining consumer spending coupled with rising expenditures such as Medicaid could quickly reverse the fiscal imbalances evident in state treasuries.
In the end, the challenge remains the same.
We must simultaneously create high-wage employment opportunities and a highly productive, highly educated workforce to successfully fill those opportunities.

(Jeff Collins, Ph.D., is an economist and partner in Fayetteville’s Streetsmart Data Inc. The company produces a quarterly report on all aspects of real estate in Northwest Arkansas. More information may be obtained by calling 872-1000.)