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Business climate ranks high.

National Study Puts State Ninth, Lauds Job Growth

BELIEVE IT OR NOT, ARkansas is in the top 10 in a national ranking.

The state has been bruised and battered by a series of national studies grading the financial stability of the state, environmental policy and health -- most ranking Arkansas near the bottom. But it so happens that Arkansas has one of the best climates in the country for small business growth.

In fact, Arkansas is No. 9 on that score, according to a study by the Corporation for Enterprise Development, a Washington, D.C.-based research center. The study was released in May and was featured recently in The Wall Street Journal.

Entrepreneurs seeking a healthy business climate surely will look fondly upon Arkansas after this revelation, but the story behind the ranking is more complex.

In understanding the Development Report Card, it's important to realize that many of the measures used are indexes rather than strict rankings. For example, Arkansas was 40th in adult literacy, but that doesn't mean it was 40th in the actual number of literate adults; instead, it is measured on a percentage basis.

Arkansas posted some very impressive marks in the study, ranking first nationally in short-term employment growth, air quality and financial disparity between rural and urban areas.

The state also finished 49th in teen pregnancy, the number of scientists and engineers in the work force and the number of science and engineering graduate students.

The study is divided into four main items: economic performance, business vitality, development capacity, and the tax and fiscal system. With the exception of the last category, overall letter grades were given for performance.

In general, Arkansas earned modest to excellent scores in every area but development capacity, which includes state weaknesses such as college education attainment (45th) and additional technology measures such as university research and development (48th) and the number of patents issued (48th).

The Grades

Here's the 1993 report card:

* B -- Economic Performance: "Arkansas' grade is led by the best short-term employment growth in the nation and above-average long-term employment growth. Although job quality is weak and poverty high, rural-urban disparities are small."

* A -- Business Vitality: "Arkansas' stalwart business vitality is capped by average (and improving) export industries, high capital investment and a low rate of business closings. A high rate of change in the number of new firms offsets moderate standings in industrial diversity and dynamic diversity."

* F -- Development Capacity: "Despite moderate infrastructure and strong high school graduation rates, Arkansas has weak human resource and failing technology and financial resource grades."

"I'm basically dumbfounded by this survey," says Bob Wimberley, state director of the National Federation of Independent Business. "I agree that this state ranks in the top 10 of the best places to start a small business. What surprises me is that we rank in the top 10 with the usury law in place. If we're ranked ninth now facing the usury law we have, we ought to be No. 1 in the country."

Wimberley is talking about the Arkansas law that caps interest rates for loans to five points above the federal discount rate. It is seen by many as a tremendous boon to consumers, who enjoy some of the lowest rates in the country. But many businesses say it discourages banks from making loans, which, they say, is bad for business.

Indeed, the study ranks Arkansas 16th in its measure of commercial bank deposits, but 45th in the ratio of loans to deposits -- the true measure of lending.

"The atmosphere in Arkansas is right for business, but the fiscal climate is not there," Wimberley says.

After serving as a doormat for the Green Index, a measure of progressive environmental policy, the state Department of Pollution Control & Ecology is pleased that the state's air quality was ranked first by the Development Report Card.

"For several years now, Arkansas has been one of only a half dozen states meeting all the federal air quality criteria," says Doug Szenher, public affairs supervisor for PC&E. "That's something that we have tried to tout for some time.

"The point we have tried to make with the Green Index is they tend to just look at legislation only as the basis for a state's policy. The approach we have taken in Arkansas is to pass fairly broad legislation and leave it up to the agencies to decide the specifics."

The Economic Report Card wasn't a complete environmental rave, however. The state ranks 40th in hazardous waste generation and 27th in Superfund dump sites.

Brain Drain Highlighted

The state's biggest failings in the study fell in the areas of technology and education.

Julie Welch, a spokesperson for the Arkansas Science & Technology Authority, says she can't deny the legitimacy of most of the statistics used, but she does dispute whether they are true indicators of "development capacity."

The number of patents issued, for example, strikes Welch as an inappropriate statistic because secrecy-minded inventors rarely seek patents and a very small percentage of patented inventions become money-makers.

Welch says the Economic Report Card has changed the ways it measures technological issues in the past few years. Previously, she says, Arkansas was receiving A's in the technology field.

She also notes that Arkansas is heading in the right direction with the recent dedication of a biomedical research center, a new university chemistry building, a new engineering building and another on the way.

Those steps are intended to slow the state's celebrated "brain drain" -- the flight of talented, science-minded students to colleges and careers in other states.
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Title Annotation:Arkansas
Author:Haman, John
Publication:Arkansas Business
Date:Oct 25, 1993
Previous Article:Entergy reveals enterprising side.
Next Article:'You ain't seen nothin' yet.' (economic growth in Northwest Arkansas)

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