Arkansas sees Utah's success as a model for its own economic development

Arkansas Commerce Secretary Hugh McDonald (left) feels that his state should look to Utah as a model for economic development — especially in the high-tech arena. He feels the growth is possible under the administration of Gov. Sarah Huckabee Sanders (right), who has twice cut corporate tax rates in an effort to attract entrepreneurs to the state.

Lara Farrar 

This news article was originally published in Arkansas Business. Used with permission.

During speaking engagements and interviews in his first few months in office, Arkansas Commerce Secretary Hugh McDonald repeatedly mentioned one state he felt Arkansas should turn to as a model for economic development: Utah.

Specifically, what McDonald was referring to is how Utah, which has a population about equal to Arkansas’, has been able to become one of the top states in the country for entrepreneurs and for high-tech industries, ranging from Internet startups and biotech firms to pharmaceuticals, defense contractors and fintech companies.

And in other areas, according to national survey after national survey, Utah ranks at or near the top. In its latest “Best States” rankings, U.S. News & World Report listed Utah as first for its economy and fiscal stability, fifth for education and fourth for infrastructure. Overall, U.S. News ranked Utah as first in the nation in its 2023 “Best States” survey. (Arkansas ranked 45th in the survey.)

In 2020, Utah also came in first as the best state to start a business, according to Forbes. The 2023 “Rich States, Poor States” survey listed Utah as first in the country for economic outlook.

“We look to Utah as a state that has been at this for a while,” McDonald told Arkansas Business. “They have been successful, and we want to try to learn from their successes and implement those things that have worked [in Utah] here in Arkansas.”

Following Utah as an example, McDonald and other commerce officials are working to create an ecosystem that draws in startups, venture capital dollars, entrepreneurs and a skilled workforce that would diversify the state’s economy from one largely driven by agriculture to one that is also powered by a strong high-tech sector.

“One of the things I want to do with the Arkansas Economic Development Commission is to refresh its economic development strategy,” McDonald said at a Little Rock Rotary Club meeting earlier this year. “I want to place greater emphasis on entrepreneurship and small business. We want to build that [entrepreneurial] network, that ecosystem and support it as a state a lot better.”

There are some factors that have helped Utah achieve economic success in the tech and entrepreneur space that Arkansas probably won’t be able to replicate. For one, Utah is not too far from Silicon Valley. The state has benefited from its proximity to San Francisco-area entrepreneurs and companies looking to move somewhere more affordable.

“We are way cheaper than the Bay Area or Silicon Valley,” Phillip Dean, chief economist at the University of Utah’s Kem C. Gardner Policy Institute, said. “We now have an ecosystem like Silicon Valley that is growing here.”

Utah raised its national and international profile with the 2002 Winter Olympics in Salt Lake City, which leaders say contributed to significant growth.

“Utah, we kind of flew under the radar for a long time,” Lance Soffe, director of targeted industries in the Utah Governor’s Office of Economic Opportunity, told Arkansas Business. “The Olympics in 2002 was the start of us being recognized, and it has gone nowhere but up since then.”

It seems unlikely that Arkansas will land an event on the scale of the Winter Olympics any time soon. And recruiting from the West Coast is difficult, as former Gov. Asa Hutchinson learned. Early in his tenure, he shifted his strategy from trying to lure California tech companies to supporting homegrown firms.

But there are other ways that state leaders believe they can follow Utah’s example.

Emphasis on Research

Utah’s universities have a long history in Internet-related research. In 1969, the University of Utah in Salt Lake City became the fourth node connected to ARPANET, the first version of the Internet.

Word processing application WordPerfect was developed at Brigham Young University in Provo, Utah, and University of Utah professors founded computer graphics firm Evans & Sutherland in the late 1960s.

That early research created a pipeline of students who graduated and started their own companies, helping the IT sector to organically develop. University of Utah alumni include John Warnock, co-founder of Adobe Inc., and Ed Catmull, co-founder of Pixar.

The crucial role universities in Utah have played in research, as well as training future entrepreneurs, is a foundational component for the sustainable growth of technology sectors, according to business leaders.

They believe it’s something that other states, like Arkansas, can replicate.

“We had some very strong entrepreneurs coming out of our universities, and that led to additional kinds of high-tech development,” Kelvyn Cullimore, president and CEO of BioUtah, a life sciences trade association, said. “The research universities are a real fundamental piece in what we do.”

The University of Utah’s reputation in research factored into a standoff last year over who would become the next chancellor of the University of Arkansas. Daniel Reed, a computer science professor from the University of Utah, reportedly had the backing of the UA System president and powerful business leaders, including the Walton family, who believed Reed would help advance research and development on the Fayetteville campus.

The job went to Charles Robinson, who had been serving as interim chancellor and vowed to continue building on the U of A’s Carnegie Foundation status as an institution with “very high research activity.”

Robinson took over after the U of A logged a record $184 million in research expenditures in fiscal year 2022. This year, the university broke ground on a one-of-a-kind silicon carbide chip research and fabrication facility and started building the 144,000-square-foot Institute for Integrative & Innovative Research (I3R).

“There is already a lot of groundbreaking research happening on our campus, but we are always looking for ways to improve,” Robinson told Arkansas Business in December. “We are creating new positions for tenured and tenure-track faculty, which will boost our research output across all disciplines as well as meet the teaching needs of a growing student population.”

Elsewhere in Arkansas, some universities are starting new programs that would allow graduates to work in cutting-edge tech sectors. The University of Arkansas at Pine Bluff is establishing a Center for Biotechnology and Nanosciences to “help advance the economic and research productivity of the state, region, nation and global community,” according to its website.

Under McDonald’s leadership, the Arkansas Economic Development Commission is trying to focus education on workforce development. Officials with the AEDC say a goal of Gov. Sarah Sanders’ administration is to “reshape the state’s workforce to meet the demands of different industry sectors.”

“A key to meeting this challenge is to create an education system driven by the needs of employers,” an emailed response from AEDC said.

This year, Utah lawmakers passed a bill for the creation of the Utah Innovation Lab, a nonprofit that allocates government funds to provide seed money to startups. Cullimore, who testified on behalf of the bill, said it sends an important message to universities that there is support for research.

The $15 million fund “will be managed in a way that targets the translation of intellectual property from the universities in the state to be an investable concept,” Cullimore said. “Not only is the signaling important in that regard, but it opens the door for additional funding to come in outside of the legislative appropriations.”

Utah has not relied on incentives or subsidies to draw businesses in. Cullimore, who has also served in local government, said he believes avoiding subsidies is a strategy that works long-term.

“It’s not always the case, but companies that go where the greatest incentives are, are under-capitalized,” Cullimore said. “And if you are under-capitalized you are going to struggle. Post-performance incentives attract a better type of company.”

Helping Founders

Entrepreneurial support organizations have also played a key role in Utah, particularly a nonprofit called Silicon Slopes, which has also become the moniker for an area around Lehi, Utah, where dozens of tech companies have offices.

Founded in 2015 by a group of tech executives, Silicon Slopes serves several purposes. It created a brand for Utah’s entrepreneurs and startups. That branding brought in more companies, and it also piqued the interest of venture capital investment, which was still siloed in Silicon Valley.

“The whole goal was to bring capital attention or awareness, and to bring talent, and for the state to be recognized as a technology hub,” Clint Betts, Silicon Slopes CEO, told Arkansas Business. “Our goal was pretty simple: brand the state.”

The results have been strong. U.S. News & World Report ranked Utah ninth for venture capital investment in its 2023 “Best States” survey.

To bolster the Silicon Slopes brand, the organization created a “world-class tech summit,” Betts said. The annual summit draws in tech giant heavyweights, like Meta CEO Mark Zuckerberg and Apple CEO Tim Cook. The 2023 Silicon Slopes Summit, happening this week (Sept. 27 & 28), features executives from Google, Yahoo, ESPN and Time.

“The summit is a big deal,” Betts said. “The fact that we are attracting Zuckerberg and Cook, I think that put us on the map as much as anything else as an organization.”

In terms of government support, Betts said the state has “done really, really well with putting the entrepreneur at the center of the community and the ecosystem.”

“Putting entrepreneurs at the center and having entrepreneurs lead [development], it has really helped the community accelerate super, super far,” Betts said.

Those working to build Arkansas’ high-tech sector say this is an approach that the state can adopt.

“We have to realize that economic developers don’t create companies — entrepreneurs create companies,” said Lee Watson, founder and CEO of the Forge Institute of Little Rock, which works to create public-private partnerships for economic and national security initiatives. “The economic development establishment is critically important to the mix but so is everyone else.”

Watson continued: “Academics are a critical stakeholder. Investors are a critical stakeholder. Corporate institutions are critical stakeholders. But at the end of the day, all of their jobs are to do those things that support the entrepreneur.”

To help provide such support, AEDC in June announced it was restructuring its Small Business and Entrepreneurship Development Division to consolidate and better leverage its resources across the agency. The agency said that in contrast to previous economic leadership under Hutchinson, “a new emphasis has been placed on small business and entrepreneurship,” adding that “nurturing and supporting innovators, tech startups, as well as mom-and-pop businesses is critical for economic development.”

Arkansas is also steering funding toward entrepreneurs. McDonald said this month that the state is funneling $45 million it received from the federal government to venture capital firms to fund startups based in Arkansas.

In Utah, economic officials say they’ve been reactive, instead of proactive, allowing industries to organically grow, then providing whatever support is needed to help them continue to flourish. Lower taxes and fewer regulations have also helped.

“We have done everything we can through different avenues to accelerate [growth] and foster it and to make sure regulations don’t get in the way,” Soffe of the Utah Governor’s Office of Economic Opportunity said. “Different industries come in and talk to the governor, and we also go out and visit on-site and listen to what is needed and ask, ‘What can we do? Is there anything that is getting in your way?’”

Lower taxes have been part of Sanders’ plan to encourage business growth. In her first year in office, the Republican governor has twice cut the state’s individual income tax and corporate income tax rates.

Sanders’ goal is to phase out the state income tax. She has said it puts Arkansas at a competitive disadvantage with neighboring states like Texas and Tennessee, which don’t have an income tax.

Outside the Office

Beyond Utah’s focus on research and business-friendly government policies, the state has worked to promote its natural resources and outdoor recreation activities.

A 2021 survey, spearheaded by the University of Utah’s Kem C. Gardner Policy Institute, found that access to outdoor recreation is the “number one factor for tech sector employees to live and work in Utah.”

“From my front door, I can be skiing in 22 minutes,” Soffe said. “I can ride my mountain bike out my front door. I don’t mean get into a car. That is one of the biggest carrots for the younger generations, the software developers and IT workers.”

Arkansas has taken a similar approach, highlighting its natural amenities to lure new workers. A key component of Sanders’ administration is to grow the state’s outdoor economy to create more jobs and help attract more skilled workers. After taking office in January, she created the Natural State Advisory Council to promote the economic impact of outdoor infrastructure investment.

Outdoor amenities have been an important selling point in regional recruiting efforts, as well. In 2020, the Northwest Arkansas Council launched its “Life Works Here” campaign that offered entrepreneurs, tech workers and others in creative industries a $10,000 cash incentive to relocate to the area — along with a free bike to join the area’s rapidly growing cycling community. Within a couple of months, more than 20,000 people applied.

Cullimore, and others who have witnessed Utah’s explosive growth, say it developed over several generations, cautioning other states to not expect new sectors to immediately thrive. Quality of life, education and support for entrepreneurs are key components — but so is gauging the national perception of a state and working to rebrand if necessary.

“Spend the money to rebrand,” Cullimore said. “When companies are thinking about where they are going to go right now, what would make them think of Arkansas?”

He continued: “I would say having a good 30-year plan based on where you want to go and the industries you want to attract, and that should not be wishful thinking, but based on what kind of resources Arkansas can offer to help that. Focus on what [the state’s] strengths are. What is it that we do well? What can we develop and do well? Have a good plan and understand it’s just going to take time to get there.”

Lara Farrar is a technology and telecom writer for Arkansas Business in Little Rock.