Gov.-elect Sarah Huckabee Sanders talks to Commerce Secretary Mike Preston (center) and Hugh McDonald, the former Entergy Arkansas Inc. CEO who she will nominate to lead the Commerce Department.
Coming out of nearly a decade of retirement to lead a government agency isn’t easy in the best of times.
But Hugh McDonald, the former president and CEO of Entergy Arkansas Inc. and now Arkansas’ commerce secretary, has a vision to guide him. It’s a vision for how Arkansas can become one of the top states in the country to attract talent and, in turn, create business opportunities and generate economic growth.
That vision will require him, and the state, to face big challenges. The largest, McDonald said, is reshaping the state’s workforce to meet the demands of sectors ranging from agriculture and mining to high tech, manufacturing and tourism.
“We are in a race for talent,” McDonald added. “Everybody is in a race for talent.”
Refashioning Arkansas’ workforce “is the No. 1 challenge,” he said. “It is not going to happen overnight. There is no silver bullet.”
It’s no silver bullet, but there is a key to meeting that challenge, he said, and that is creating an education system driven by the needs of employers.
“For too long, we focused on the customer being the student,” he said. “Not to be pejorative, but the students are the widgets that are produced at our two-year or four-year institutions, and those institutions have to be linked at the hip to the employers, and the employers are screaming for all kinds of different talent.”
Despite the obstacles, McDonald expresses confidence about Arkansas’ future. “Arkansas is a hidden gem,” he said. “We want to make the state of Arkansas the No. 1 place to start a business in the country.”
Moving the Number
McDonald sat down with Arkansas Business in a Department of Commerce conference room with sweeping views of downtown Little Rock and the Arkansas River. The 64-year-old spoke about his new role, his vision and the greatest obstacles the state faces to boost its economy, attract businesses and create a diversified workforce.
McDonald, who has been on the job for about 90 days, was Entergy Arkansas CEO from 2000 until he retired in 2016. He joined Entergy in 1982 as an engineer at a nuclear plant in Louisiana. He’s originally from North Dakota.
As commerce secretary, McDonald oversees divisions including the Arkansas Economic Development Commission, the Division of Workforce Services, the Office of Skills Development, the Development Finance Authority, and the State Bank Department.
Gov. Sarah Huckabee Sanders, who announced McDonald’s nomination in December, said he would help her administration “responsibly phase out the state income tax, foster an environment for our businesses to create thousands of higher paying jobs and grow our state’s economy, while attracting businesses nationwide and worldwide to make Arkansas their home.”
It’s still early days and plans are fluid, but McDonald, in discussing changes needed in education, said that two-year trade and technical colleges are an integral part of those plans. His team is talking to leaders at those schools to link more closely with industries across the state to tailor coursework to employer needs. “We don’t need welding programs in every [two-year college],” he said.
“If they [vocational colleges] don’t have close partnerships with the employers in their region, we have got a real gap,” he said. “We have to be more strategic and link those colleges to the needs of the employers.”
“Our workforce participation rate in Arkansas is 57.4%. It should be above 60%. How do you move that number? Part of it is aligning workforce needs with employer needs, the demand side with the supply side.”
Encouraging young people to pursue four-year degrees still is important “to help the overall per capita income of the state,” but “the other 70% of the kids who may go to two-year colleges or less, we really need to double down on that,” McDonald said.
In February, the Sanders administration announced the creation of a workforce cabinet, led by Tyson Foods Inc. executive Mike Rogers, to create a strategic plan to enhance the labor market. That cabinet will also focus on exposing parents, students and teachers to alternative pathways for career advancement, McDonald said.
It’s also crucial to create a holistic state strategy for workforce training instead of a siloed approach, McDonald said. He envisions a statewide apprenticeship program where high schools and vocational colleges serve as feeders to send students into training opportunities with employers.
He said creating workforce training opportunities in small communities is a way to reinvigorate rural areas, “to keep those communities thriving.”
“We have got to look at any and all strategies to get kids and adults into the workforce faster,” he said.
McDonald is not alone in his concerns about the U.S. labor force. Last month, Beth Cobert, acting president of the Markle Foundation of New York, said “deliberate action” to teach employees new skills is needed to boost productivity in regions of the country that are lagging behind. The Markle Foundation works to expand quality jobs to Americans regardless of educational attainment.
Cobert was speaking during a panel discussion organized by the McKinsey Global Institute focusing on reinvigorating productivity in the United States.
The discussion followed the February release of a McKinsey Global Institute study that found that since 2005, U.S. labor productivity has grown at a “lackluster” 1.4%. Returning U.S. productivity to a long-term trend of 2.2% annual growth would add $10 trillion in cumulative GDP over the next decade, the equivalent of every U.S. household seeing a cumulative income gain of $15,000 over that period, the study said.
“We have to bring people in who have not gotten the jobs. It takes action across the system to make a difference,” Cobert said, adding there must be “new forms of apprenticeship programs” and strategies to enable people to “build skills over a lifetime.”
Heartland Entrepreneurship
McDonald also discussed the opportunities for entrepreneurship in middle America, a phenomenon addressed by Rebecca Fannin in her book “Silicon Heartland: Transforming the Midwest from Rust Belt to Tech Belt.”
Fannin explores how entrepreneurs are re-emerging in a middle America where prosperity was once defined by legacy industries like agriculture, coal, oil and manufacturing.
“Remote regions that were nearly forgotten when the money and power shifted to Silicon Valley — and to China — are being rebooted,” she wrote.
Arkansas presents its own examples. In Mississippi County, Envirotech Vehicles Inc., an electric-vehicle maker once based in California, is working to open a manufacturing facility. In central Arkansas, The Venture Center of Little Rock has become a global player in recruiting startups in the financial technology, or fintech, space.
Other entrepreneurial support organizations have popped up in northwest and central Arkansas.
“There is huge opportunity in the middle of the country, the heartland,” McDonald said. “We should make talent retention, talent attraction of entrepreneurs, or high wage professionals, a strategy of the state.”
Attracting more entrepreneurs and venture capital money is another priority for the state’s Commerce Department, he said.
In March, the Development Finance Authority issued a request for proposals after receiving $46 million from the federal American Rescue Plan Act. The ADFA is seeking to partner directly with venture capital firms to disperse the money to startups. More money will be allocated to small businesses.
“We are sort of in a once-in-a-lifetime opportunity with the new federal money coming in,” McDonald said. “It is a game changer.”
In recent years Arkansas had a higher opportunity share for new entrepreneurs compared with the rest of the U.S., according to data from the Ewing Marion Kauffman Foundation. The opportunity share is a metric that measures new business creation.
But people operating entrepreneurial support groups in Arkansas said attracting entrepreneurs is still difficult. One obstacle: controversial state laws proposed around topics including banning critical race theory in schools and prohibiting affirmative action.
“I get it, and I hear it,” McDonald said. “There are those issues, but that is for the policymakers; that is their wheelhouse. I was hired to recruit businesses. I was hired to create jobs, create more capital investment, to get our arms around workforce development and to tell a good story.”
An entrepreneurial ecosystem, supported by early-stage investment, needs to be linked to the state’s major industries to have the greatest impact, McDonald said. “Historically, we have seen venture capital supporting firms [here] and then they move to Boston or California.”
Entrepreneurship “has got to be just like workforce,” he said. “It has to be tied to employers.”
During public appearances, McDonald frequently refers to data indicating Arkansas had more people as a ratio of the state’s population move here than leave in 2021, making it the most “moved in state” in the country that year. That data came from a migration report from Hire a Helper, which tracks moving statistics in the United States.
McDonald said his agency does not know the specifics of who is moving here and where they come from. But he said a key ingredient to economic development is simply marketing Arkansas as an affordable place to raise a family.
“Part of it is not just where you are going to come to work, but also where you are going to come to live,” he said. “Arkansas is sort of a hidden gem.”
McDonald referred to a March 15 Wall Street Journal article about the growing popularity of northwest Arkansas. It highlighted the Life Works Here program created by the Northwest Arkansas Council, which awarded $10,000 and a bicycle to remote workers who moved to the area. At the end of 2022, the council made a recruitment trip to Silicon Valley to try to lure laid-off tech employees.
“Today, the area’s growth is increasingly being driven by transplants who move to the region but don’t work for any of the big national companies based there,” the article said.
Tapping into a blooming labor market that can work remotely is another strategy for the state.
“It’s a great story on how they are attracting talent,” McDonald said. “We need to target people who have some sort of an Arkansas connection to come back home. Look at the opportunities to have a quality of life here that is unmatched anywhere. It is the quality of life in Arkansas that gives us an advantage.”
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