The late Sam Walton was 65 years old when he kept his promise to dance on Wall Street if Walmart made a pre-tax net profit of 8 percent. An AP photographer took this photograph on March 15, 1984.
October 24, 2016
The once tiny town of Centerton, west of Bentonville, is a vortex of development. In what were once pastures, new streets appear like crop furrows, and single-family brick homes sprout like corn. Along State Highway 102, the main drag, new retail alters the vista with every season. The population rises faster than Walmart’s stock price. A community of 491 in 1990 tops 12,000 today.
Such transformation is not that unusual in northwest Arkansas, where the presence of three Fortune 500 companies has flooded the area with cash, credit, jobs and brainpower. As a result, concern in the Little Rock region that the northwest is leaving it behind seems justified. Can anything be done?
The answer to that question requires understanding exactly what is happening in northwest Arkansas and why. It’s a matter of economic geography — the study of the spread of economic activity across physical space. Economic geographers try to understand why some places become hotbeds of wealth and activity, while others do not.
Historically, the Little Rock area has been the economic powerhouse of Arkansas. Its advantages are built in — a favorable central location along a navigable waterway. Most places in the United States that developed into major cities had similar characteristics, particularly proximity to easy transport, whether seaport, river or rail-hub.
But in the information age, such advantages are no longer the most important drivers of economic growth. A region has to be a hotbed of skills, ideas, and people eager to apply them to matters of business. California’s Silicon Valley is the perfect example of what economic geographers call an “agglomeration” of activity and wealth. It began when Stanford University opened a technology-oriented office park there after World War II. That drew Hewlett-Packard and other firms. Highly skilled people came to work for the firms. A growing pool of skilled labor drew in even more firms. Eventually, the region reached critical mass and growth became a circular, self-reinforcing reality.
Now the Natural State has its own economic agglomeration in northwest Arkansas. Not that long ago, it was a rural area that much of the country associated with hillbillies and moonshine (despite the fact that the state’s flagship university was there). At that time, without a river or sea port or even an interstate, it hardly bore the natural markings of a center of economic growth. But it turned out to have a singular advantage in the form of Sam Walton, who opened a retail store in Bentonville and built it into a global empire. In the most recent fiscal year alone, it had total revenues of $482 billion, pulled in from all corners of the globe. Tyson Foods also found great, if somewhat lesser, success. Add in J.B. Hunt Transport, and that makes the region home to the 1st, 66th and 416th ranked firms in the current Fortune 500 list.
These three behemoths exert a sun-like gravity, drawing other firms to the area. For instance, more than 1,300 companies that supply products to Walmart have opened their own offices in the region, just to have the advantage of physical proximity. All this activity brings new people with valuable skills to the area, nurturing a local labor pool that in turn helps draw even more firms to the area.
And the economic energy shows no sign of abating. According to the Center for Business & Economic Research (CBER) at the University of Arkansas’ Walton College of Business, in 2015, real GDP in northwest Arkansas grew by 4.4 percent. The most recent (2014) per capita personal income was $50,686, above both the state and national average. And as of August 2016, unemployment was only 2.8 percent.
Numbers like that raise a tough bar for Little Rock. By way of comparison, the Little Rock metro area had real GDP growth of 1 percent in 2015. Per capita personal income for 2014 was $40,925, and the unemployment rate as of August 2016 was 3.4 percent.
The Little Rock metro area remains the most populous in the state, with 729,135 people in 2014 compared to 501,653 for northwest Arkansas. Yet economic geography doesn’t seem to offer much hope for Little Rock to turn the tables. The story it tells is that economic agglomerations form through some accident of history (i.e. the birth of Sam Walton) and continue through circularity and self-reinforcement. Does that mean Little Rock can do little but hope for a future Sam Walton to set up shop in the capitol city?
Not according to Katherine Deck, director of the CBER. While admitting that the success of Northwest Arkansas owes much to the presence of Walmart, Tyson and Hunt, she added that much of the recent success is actually the result of careful, coordinated planning and investments.
“With recent success, if you look at the past few years, it’s the result of very careful planning to make sure that the region has amenities that will attract workers. … Combining those investments that make this a nice place to live with the already strong base of employers has meant that we have seen continued population growth and continued employment growth.”
Downtown Bentonville is a perfect example, Deck said, adding that it has transformed just in the past five years.
“It goes back to that strategic thinking. There are specific investments being made in all of the downtown areas throughout northwest Arkansas, with the idea of making them … vibrant places where people would want to live, work, and play.”
Such planning and investments involve public and private resources working together. For instance, Deck said that in Springdale, Tyson Foods recently moved a number of jobs downtown with the specific goal of providing a workday population there that could support restaurants, retail, and other subsidiary businesses.
It seems ironic that the region of Walmart, which some blame for the death of small town squares, may now create a blueprint to revive them. But Little Rock is not a small town. It’s an urban area with a politically and racially diverse population. Furthermore, any region that wants to copy the northwest Arkansas model, but without three Fortune 500 companies, may find itself with a chicken-and-egg problem. Without investments to create a more livable area, how will the region attract big employers? And without big employers, where does a region find the revenue for public and private investments? The circularity of economic geography cuts both ways.
“It is important to understand that these things are not independent at all,” Ms. Deck said. “It’s the fact that the (northwest Arkansas) economy is clicking along and has been clicking along that makes these investments even possible. … For a region that doesn’t have (three) Fortune 500 companies, that doesn’t mean you can’t have economic success. If we look at Little Rock … the core industries [i.e., government] are by their nature slower growing, but more mature in some sense. And they certainly allow for some strategic investments to make that community a better place.”
To that point, government employment in the Little Rock metro area amounted to 69,200 jobs as of August 2016. Education and health services provided another 53,100 jobs. Together those sectors accounted for more than 1-in-3 non-farm jobs in the area.
But it’s a different sector, Ms. Deck said, one that has been strong in northwest Arkansas, that would be worth investing in, with the hopes of growing its share of the employment pie.
“If I were Little Rock, I would be focused on the professional and business services jobs — lawyers, accountants, architects — that make good salaries and are knowledge based … and trying to make sure that the state capitol is a hub for those jobs.”
Little Rock is home for Michael Pakko, the chief economist and state economic forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock. Like Ms. Deck, he notes that the “professional and business services” sector has been an important part of northwest Arkansas’ recent strength.
“It’s in northwest Arkansas where we’ve seen rapid growth in some service sectors,” he said, “particularly business and professional services, which gets at the whole nexus of Fortune 500 companies that are located there and the businesses that have sprouted up to provide business services to those larger companies.”
But northwest Arkansas and Little Rock are different, he says, and comparisons are difficult.
“I think [Little Rock’s] doing fairly well. … We’ve pretty much established a path of trend growth that is not spectacular, but things are moving in the right direction. Compared to the growth rate of northwest Arkansas, it’s growing slowly. But it’s growing faster than most other parts of the state, and commensurate with the rest of the country.”
One of Little Rock’s advantages is its more diverse corporate base, something Dr. Pakko called the “bedrock of the economy.” Less dependency on the health of a few huge firms could make Little Rock less vulnerable in a future downturn.
“But really in both cases,” he said, “and all around the state and the nation, for that matter, a lot of the job growth that takes place, takes place in the smaller firms that are growing because they’re part of a vibrant local economy.”
For that reason, the kind of coordinated investments that Katherine Deck advocates could well drive growth in the Little Rock metro area. In fact, the region has seen recent public and private investments intended to “water” the entrepreneurial ecosystem, from the Arkansas Regional Innovation Hub in North Little Rock, which offers entrepreneurs a place to work and collaborate, to The Venture Center, a downtown incubator which helps startup companies attain viability.
Efforts like these are meant to make Arkansas competitive in the technology-driven, knowledge-based economic geography of the future. And they may also help Little Rock stay competitive with northwest Arkansas in the economic geography of the Natural State.
But it’s important to remember that public investment has its limits, according to Dr. Pakko. And in trying to help small businesses thrive, it is not only what you put in but also what you take away.
“To the extent that the business environment is one that’s friendly to small firms, where there’s assistance to firms becoming established and thriving, [public investments] can always help. But the danger with any sort of targeted assistance to firms, in particular, is in making bad investments. We don’t want to be in a position of trying to pick winners and guessing wrong. The best policies that can help small businesses are basically to get obstacles out of the way—red tape and things like that.
In the longer run those are the kind of policies that can help facilitate economic growth the most.”
The Little Rock area does have things to learn from northwest Arkansas, he said, such as how various jurisdictions and municipalities within the region act cooperatively rather than competitively.
It’s a state of mind that has trickled down to the level of individuals. In talking to outsiders, Ms. Deck said, many of her region’s residents now say they are from northwest Arkansas, rather than Fayetteville or Springdale or Rogers.
“For the Little Rock area,” Dr. Pakko said, “one of the challenges is getting over the mindset of being in competition with the community next door. It’s an integrated metropolitan area economy, so what’s good for North Little Rock is good for Little Rock, is good for Conway and Benton and Bryant and all of those.”