6. Universities and Economic Development

A rising tide lifts all boats is a saying that can be applied to economic development.

Jobs. Better-paying jobs. An increase in average income. A higher standard of living. An increase in the wealth of an area. This is the language of economic development. Public officials in this community, in this state, and elsewhere make economic development a priority because the citizens they serve benefit from it and put a high value on it. In addition, as the economy grows, tax revenues grow and provide resources to fund the public services demanded by citizens.

How does a university fit into the economic development picture?

Universities have long been viewed as important to economic development. In the early years of the 21st Century, however, universities are seen as more than important; they are viewed as critical to economic development.

Since many persons both on and off campus are unfamiliar with economic development as it relates to universities, this is an important subject to address in strategic planning. This chapter will address the enlarged expectation of universities in economic development by referring to a number of recognized authorities and recognized studies.

Universities and the National Economy

In an earlier day, when the role of universities in the national economy was discussed, universities were credited with providing opportunities for citizens to develop themselves and advance economically. It was readily conceded that these educated persons were, by their presence and the larger contributions they were capable of making, beneficial to society. Further, at some campuses, faculty conducted research which occasionally produced scientific breakthroughs in medical fields, industrial processes and production, agriculture, and other areas. It was recognized that these breakthroughs improved life in unanticipated ways. But universities were not broadly perceived as pivotal, as keys to the economic success of a region or of the nation.

All Across this country one encounters a growing expectation that universities should play a greater role in the economic development of their regions and states. That expectation is present here as well. I want to tell the business and civic leaders that UALR expects to play an enlarged role in advancing the prosperity of the region and state.

We treasure the Fortune 500 companies that are here and anticipate a stronger relationship with them, to our mutual advantage. We have a niche with the knowledge-based companies, particularly with our CyberCollege, that we will continue to develop. We love small businesses and recognize that they not only employ a significant percentage of the workforce in Arkansas today but they will also – some of them – become Fortune 500 companies tomorrow. Assistance to small businesses will also continue to be a niche for UALR.

&#8212UALR Chancellor-Designate Joel E. Anderson, December 12, 2002

Today, it is striking to see how often national leaders view higher education in a global perspective and define the role of universities as a key to economic competitiveness. Three examples will be noted.

The U. S. Department of Commerce is the department of the federal government with major responsibility for promoting the economic competitiveness of the United States, and recently the department’s Assistant Secretary of Commerce for Economic Development wrote:

At the U.S. Department of Commerce and the Economic Development Administration, we believe that universities have a critical role in securing America’s future innovation, economic competitiveness and prosperity in a global economy.

Universities are the ideal location to connect knowledge creators with knowledge commercializers through technology incubators, entrepreneurial development curricula and nurturing relationships with community-based venture funds.[1]

Alan Greenspan, the highly respected chairman of the Board of Governors of the Federal Reserve System, in a speech in 2004 said:

Our system of higher education bears an important responsibility for ensuring that our workforce is prepared for the demands of economic change. America’s reputation as the world’s leader in higher education is grounded in the ability of these versatile institutions to serve the practical needs of the economy by teaching and training, and more significantly, by unleashing the creative thinking that moves our economy forward.[2]

A global perspective also highlights a quantitative dimension, as noted by Microsoft founder Bill Gates in his speech to the education summit of the National Governor’s Association in February 2005:

The percentage of a population with a college degree is important, but so are sheer numbers. In 2001, India graduated almost a million more students from college than the United States did. China graduates twice as many students with bachelor’s degrees as the U.S., and they have six times as many graduates majoring in engineering.

In the international competition to have the biggest and best supply of knowledge workers, America is falling behind.[3]

A short five decades ago one rarely heard such statements about higher education. Today, universities across the nation are repeatedly challenged to strengthen the nation’s hand in the global marketplace. When universities meet this challenge from national leaders, they simultaneously elevate their communities and their states because today the community, state, national, and global economies are extensively interwoven.

Not all universities accept the challenge. A recent policy paper of the Association of Governing Boards of Universities and Colleges discussed such reluctance. It noted concerns on campuses that to stress economic development could weaken the ideal of learning for learning’s sake, including basic research.[4] However, the century-plus record of the land-grant universities, with their strong practical bent toward agriculture, should be reassuring and in fact would appear to belie such concerns.

Cities and the National Economy

In the case of UALR, given its location in the state’s largest city, it is important to recognize the central role of cities in the national economy.

A recent massive scan of economic performance variables in 100 metropolitan areas across the nation, including Little Rock, for the decade of the 1990’s documented that

“…urban areas contain the nucleus of the U.S. economy. Cities disproportionately house the nation’s assets, and play key roles as drivers and hubs of economic growth.”[5]

The national economy is made up of numerous regional economies, each with a dominant city. These regional economies develop within states, and sometimes across state lines, around cities such as Little Rock, Tulsa, Memphis, St. Louis, and Chicago. For example, in the central part of Arkansas there is a six-county regional economy pivoting around Little Rock that is labeled a Metropolitan Statistical Area (MSA) by the U. S. Department of Commerce.

No commentator has done a better job than Neal Peirce of capturing in words the image of the metropolitan region as an area integrated around and energized by a city. He has referred to such a region as a “citistate” and offered the following perspective in a recent visit in Little Rock:

From the sky, a metro region looks like a single entity—a densely interconnected mass of roads and homes, stores and plants, one environmental area, one labor market, and people scurrying back and forth daily across invisible political lines.[6]

The importance of cities is magnified in the new knowledge-based economy because of the “benefits of agglomeration” in cities where people and ideas cluster and interactions intensify.

Knowledge factors build upon themselves and get converted to economic value through face-to-face contacts, dense business networks and shared resources that cities particularly provide. The urban environment is extremely well suited for spurring innovation, which is favored by the diversity of ideas, and consequently by the diversity of people, interconnected and integrated in urban networks.[7]

Cities are more important than ever to the economic performance of nations as enhanced productivity increasingly flows from physical concentrations of personal, knowledge and business networks.[8]

Universities in Cities

Universities make major contributions to economic development by supplying college graduates. A study, The Changing Dynamics of Urban America, commissioned by CEOs for Cities and quoted above offered this additional finding about the relative economic impact of high school graduates and college graduates:

Educational levels were the single biggest driver of economic growth, but high school degrees are not enough.

Having college graduates proved highly significant to economic growth. Roughly, for each 2% growth in the proportion of college graduates, income growth increased about 1%.

A 2% increase in high school graduates yields only 0.2% income growth.[9]

What makes a 1 percent increase in economic growth so impressive is that a small minority of citizens (24.4 percent in the nation, 16.7 percent in Arkansas) hold a bachelor’s degree.

Beyond supplying college graduates, a university can be a significant factor in a local economy. UALR’s annual budget in 2004-2005 totaled $109 million, not including an additional $20 million in grants and contracts. UALR employed 1,283 people full-time, with an additional 1,080 employed part-time, many of them students.

UALR is a major employer that is not going to move out of state.

The university is a significant presence in the local community simply because it is located in the community and bases its operations here. But its economic impact and contributions go far beyond employees and paychecks. The president of the Urban Land Institute has summarized this reality by describing universities as “powerful economic drivers, technology centers, employers, developers, and investors.”[11]

A university located in a declining area of a city has a major opportunity for economic impact, and this role for urban universities was recently explored in detail and advocated in the Joint Study by the Initiative for a Competitive Inner City and CEO’s for Cities 2002, entitled Leveraging Colleges and Universities for Urban Economic Revitalization: An Action Agenda:

Colleges and universities have long been important to urban and regional economic growth. They have also been one of the most valuable assets for urban communities in advancing education, health, and social service needs of urban residents. However, urban academic institutions are equally well positioned to spur economic revitalization of our inner cities, in great part because they are sizable businesses anchored in their current locations. Unleashing the local economic development capacity of these institutions should be a national priority.[11]

The joint study developed a list of six strategic areas in which university resources can be leveraged for economic growth in declining areas of a city. These included:

  • purchasing of goods and services
  • employment
  • developing real estate
  • creating business incubators
  • advising business and building networks
  • workforce development

This joint study has particular relevance to UALR as this university develops a plan in partnership with other community representatives for the revitalization of the University District, the section of the city in which the campus is located.

A university in a city makes another contribution that recently has come to the fore. The faculty and other professional personnel of a university are part of the “creative class” of a community which, according to author Richard Florida, is a key to economic growth. He contends “that regional economic growth is driven by the location choices of creative people—the holders of creative capital—who prefer places that are diverse, tolerant and open to new ideas.”[12]

Florida, author of the study entitled The Rise of the Creative Class, has developed a creativity index for 268 regions and grouped them by size. In his analysis of data on the regions for 2001, Little Rock fared well, ranking 62nd overall out of the 268 regions and 6th best out of 32 in the regions of 500,000 to 1,000,000 population.[13]

Arkansas, The New Economy, and UALR

Fortunate for current strategic planning at UALR, three recent studies have presented the implications of the new knowledge-based economy for the people of Arkansas. The first two had a statewide focus. The third focused on the 11-county central Arkansas region. These three studies provide up-to-date analyses of economic development assets and liabilities, with attention to the role played by universities, including UALR specifically.

All three reports paint a picture with a challenging future for Arkansas in the global economy of the 21st Century. According to the first of these reports, “In the new economy, the things that matter most are college, graduate science and engineering degrees, research, intellectual property, new business starts and expansions, and participation in global commerce.”[13]

Task Force for the Creation of Knowledge-Based Jobs

In 2001, the director of the Arkansas Department of Economic Development established the Task Force for the Creation of Knowledge-Based Jobs as part of the effort that year to formulate an economic development strategy for the state. The Task Force was established in recognition of the growing importance of knowledge-based companies in Arkansas and across the nation.

The Task Force offered state leaders an admirably concise analysis of the conditions conducive to starting, building, and expanding knowledge-based businesses.

According to the analysis, the primary assets of such companies are intangible—the knowledge and expertise of employees and the information embedded in computer-based technologies—and are therefore highly dependent upon a well-educated workforce, persons who are comfortable and proficient with information technology. Such companies thrive on research, intellectual property, commercialization, and an environment congenial to innovation. Employees in such businesses are paid substantially above the average pay levels in Arkansas and other states.

The Task Force stressed the importance of strengthening instruction in mathematics and the sciences, and it offered a novel recommendation—that the entry-level academic requirements for scholarships be maintained, “but for those students majoring in math, science or engineering, consideration be given to maintaining the scholarship with a grade point lower than required for other disciplines.”[15]

The Task Force also urged that priority for university resources focus on degree programs that will make the largest contribution to the economic development of the region, and it took favorable note of UALR’s CyberCollege:

The establishment of the Donaghey College of Information Science and Systems Engineering (the CyberCollege) at the University of Arkansas at Little Rock is seen as another major positive step toward meeting the employment needs of information technology companies in Central Arkansas.[16]

The report also noted that the CyberCollege and its programs had been planned with extensive consultation with local business and industry leaders.[17]

Milken Institute Report

The second study was carried out by the Milken Institute, which in September 2004 issued its report entitled Arkansas’ Position in the Knowledge-Based Economy.[18]

The report stated at the outset, “A fundamental transformation is occurring in the world: a shift toward knowledge-based economic activity as the foundation of sustained comparative advantage.”[19]

The Milken Institute Report gives a very valuable and highly detailed analysis of Arkansas’ strengths and weaknesses in the new, high-tech, knowledge-based economy. It offers a point-by-point comparison and ranking of Arkansas among the 50 states.

It repeats an all too familiar story. With an overall ranking of 49th on the State Technology and Science Index, Arkansas is playing catch-up and needs to try harder, run faster, and play smarter than other states.

The Milken Report stressed that Arkansas needed to educate a technologically skilled workforce; to expand support for research, intellectual property, and commercialization; and to provide an environment congenial to innovation.

Two references to UALR in the Milken Report should be noted.

In the first of these, the Donaghey College of Information Science and Systems Engineering (the CyberCollege) is identified as one of the “critical programs and initiatives that nurture the development of a technologically skilled workforce in Arkansas.”20

The other reference to UALR was in a discussion of how to boost the critical areas of research and science in Arkansas by developing research clusters:

Attempting to develop a research cluster from the ground up is both risky and expensive, which means that the three most viable candidates are the University of Arkansas in Fayetteville, the University of Arkansas Medical School in Little Rock, and the University of Arkansas-Little Rock, even if other candidates such as Arkansas State University in Jonesboro might establish itself as such further in the future.[21]

AngelouEconomics Report

Recognizing that regional cooperation is essential to being competitive on the worldwide marketplace, business and civic leaders in 11 central Arkansas counties with a combined population of almost 1 million have formed an organization with the name Metro Little Rock Alliance (MLRA). The organization retained the services of AngelouEconomics, a consulting firm in Austin, Texas, to assist in developing an economic development strategy for the 11-county region. In October 2004, the consulting firm issued its final report.[22]

The AngelouEconomics report included analyses and recommendations reminiscent of those noted above in this chapter, urging priority attention, for example, to workforce development and education, entrepreneurship, and quality-of-life factors.

In a list of seven priority recommendations, the second listed by AngelouEconomics was, “Invest and expand UALR to become a premier higher education institution.” The report urged support for CyberCollege and for an expansion of engineering offerings.[23]

Source of Internal Tension?

Major developments in universities rarely affect faculty in all academic disciplines equally. With the increased emphasis on the role of universities in economic development, which for the foreseeable future appears to favor science and engineering disciplines with greater attention and resources, there is potential that faculty in other academic disciplines at UALR will feel left out. There is even greater potential for tension where, as at UALR, the university and the region are playing catch-up in putting in place the infrastructure for engineering education, research, development, and commercialization.

University faculty, across the board, contribute to economic development by providing not only graduates but also expertise and various forms of direct assistance that strengthen the K-12 schools, maintain safe and healthy communities, improve the performance of government agencies, and foster a vibrant arts community. Leaders on and off campus need to recognize and acknowledge this broad, holistic contribution the academic community makes to economic development.

One might see a parallel with the concerns once felt by faculty in liberal arts disciplines at land-grant universities about the close connection of their campuses to agriculture and its practical and commercial aspects. In part because of that connection, agriculture in America has prospered. At the same time, the liberal arts disciplines on those campuses have not been left out. They have survived and prospered.

In the literature, particularly Richard Florida’s research, on what is needed for a community to gear up for the knowledge-based economy, the vital role of the creative class, which includes academics across the board, is noted. Today it appears that all academic disciplines should benefit from the expanded role of universities in economic development.

Selected Planning Implications

It is both gratifying and sobering that universities have come to play such crucial roles in the economic well-being of the community, state, and nation. A great deal is at stake in the performance of universities, which places heavy responsibility on faculty and administrative leaders on campuses.

Three overarching implications emerge from a reading of this chapter:

  • In Arkansas, UALR must play a larger role in enabling the community and the
    state to compete in the global, increasingly knowledge-based economy. Policies,
    programs, and resource allocations must be shaped accordingly.
  • In central Arkansas, regional cooperation is essential if the region is to prosper in
    a day of worldwide competition. UALR must play a helpful role in turning talk of
    regional cooperation into reality.
  • In Little Rock, UALR has an opportunity to play a significant role in revitalizing
    the section of the city in which the university is located. In addition to connecting
    academic programs to revitalization issues where appropriate, the university’s

    business activities and transactions should be aimed at neighborhood
    revitalization whenever possible.

There are a number of specific implications:

  • The university should and will continue to make a fundamental contribution
    by providing a significant component of the community’s creative class—its
    faculty and professional staff as well as a number of students. As the university

    grows stronger and larger in any of its academic disciplines, this fundamental
    contribution will grow larger as a byproduct.

  • The university should increase student retention and graduation rates and thereby
    infuse the population of Arkansas with more college graduates.
  • The university should ensure that graduates in all curricula possess an appropriate
    level of proficiency in the use of computer-based technology.
  • The university should expand engineering, strengthen the sciences and
    mathematics and then expand research and graduate more students in these fields.
  • The business curriculum should give more attention to entrepreneurship and the
    law curriculum should give more attention to intellectual property.
  • The Small Business Development Center should continue strengthening its
    capability to assist technology-oriented small businesses.
  • The university should move forward with community partners in developing plans

    for revitalizing the University District.


  1. David A. Sampson, Assistant Secretary of Commerce for Economic Development, “Our Universities: Accelerators for Economic Growth,” Economic Development America, Winter 2004, pp. 4, 5.[back to text]
  2. Alan Greenspan, Speech, Boston College Finance Conference, March 12, 2004. http://www.federalreserve.gov/boarddocs/speeches/
    [back to text]
  3. Bill Gates, Speech at Education Summit on High Schools, National Governors Association, February, 2005. http://www.gatesfoundation.org/MediaCenter/Speeches[back to text]
  4. Association of Governing Boards of Universities and Colleges, “Ten Public Policy Issues for Higher Education in 2005 and 2006,” Public Policy Paper Series No. 05-01, May 2005, p. 16-17.[back to text]
  5. CEOs for Cities, The Changing Dynamics of Urban America: Executive Summary, March 30, 2004—a study conducted by Robert Weissbourd, RW Ventues, and Christopher Berry, Harvard University, p. iii, p. 1. (http://www.ceosforcities.org/research/2004). CEOs for Cities is a national leadership organization of business CEOs, mayors, university CEOs, and nonprofit CEOs. This group commissioned a project that began with development of a massive database of economic performance variables in 100 cities and metropolitan areas, including Little Rock, for the decade of the 1990’s.[back to text]
  6. Neal Peirce, “Shine a Regional Spotlight on Arkansas’ Future,” UALR Magazine, Fall/Winter 2004-2005, p. 24.[back to text]
  7. The Changing Dynamics of Urban American, p. 14.[back to text]
  8. The Changing Dynamics of Urban America, p. 16.[back to text]
  9. The Changing Dynamics of Urban America, pp. 6-7.[back to text]
  10. Richard M. Rosan, President, Urban Land Institute, “The Key Role of Universities in Our Nation’s Economic Growth and Urban Revitalization,” speech at St. Louis University, April 10, 2002.[back to text]
  11. Leveraging Colleges and Universities for Urban Economic Revitalization: An Action Agenda, Joint Study by Initiative for a Competitive Inner City and CEO’s for Cities 2002, p. 2.[back to text]
  12. Richard Florida, The Rise of the Creative Class, New York: Perseus Books, 2002, p. 223.[back to text]
  13. The Rise of the Creative Class, Appendix B, Table 1, p. 353.[back to text]
  14. Report of the Task Force for the Creation of Knowledge-Based Jobs, September 2002, p. 8.[back to text]
  15. Report of the Task Force for the Creation of Knowledge-Based Jobs, p. 22.[back to text]
  16. Report of the Task Force for the Creation of Knowledge-Based Jobs, p. 24.[back to text]
  17. Report of the Task Force for the Creation of Knowledge-Based Jobs, p. 12.[back to text]
  18. Milken Institute, Arkansas’ Position in the Knowledge-Based Economy, September 2004, by Ross DeVol, Kevin Klowden, Jeffery Collins, Lorn Wallace with Perry Wong and Aremen Bedroussian. Prepared for Accelerate Arkansas and supported by a grant from the Winthrop Rockefeller Foundation.[back to text]
  19. Arkansas’ Position in the Knowledge-Based Economy, p. 1.[back to text]
  20. Arkansas’ Position in the Knowledge-Based Economy, p. 188.[back to text]
  21. Arkansas’ Position in the Knowledge-Based Economy, p. 14.[back to text]
  22. AngelouEconomics, Central Arkansas Economic Development Strategic Plan/Report 3: Recommendations, October 2004.[back to text]
  23. Central Arkansas Economic Development Strategic Plan/Report 3: Recommendations, pp. 7, 9, 16.[back to text]