Reclaiming New Jersey’s Stature as The Innovation State

A successful innovation ecosystem requires a simultaneous presence of three indicators: capital, talent and business.

NJBIA’s vision is for the Garden State to reclaim its stature as the innovation state; the home of economic vitality, business prosperity, workforce skill excellence and a great quality of life for New Jersey businesses and individuals. To that end, NJBIA has spent years studying key components of successful innovation ecosystems. Our extensive analyses have led us to conclude that creating a successful innovation ecosystem requires a strong, simultaneous presence of three categorical indicators: capital, talent and business. 

Indicators of Innovation within a State: 

Capital is the lifeblood of any business. The amount of cash flow in and to a state dictates the opportunities available to individuals and to businesses. Key capital indicators for purposes of analyzing an innovation ecosystem are a state’s ability to attract: 1) venture capital investment; 2) Small Business Innovation Research (SBIR) & Small Business Technology Transfer (STTR) awards; and 3) National Science Foundation awards. In addition, states must commit to making investments in themselves through 4) state research & development expenditures. 

Talent is another critical component to a state’s ability to create an innovation ecosystem. A highly educated, highly skilled workforce plays a significant role in creating an innovation ecosystem. Top-tier institutions serve as incubators for innovation. In order understand the various talent networks throughout New Jersey and the region, a number of factors are taken into consideration: 1) the number of universities ranked in the Top 100 in each state; 2) net migration of first-time college students; 3) the percentage of a population with a graduate or professional degree; and 4) the rate of new entrepreneurs in each state. 

Without business there is no economy. Having a competitive business climate can make or break a state’s ability to attract and retain innovative businesses. A healthy/competitive business climate can spur innovation, while an unhealthy/uncompetitive climate can deter innovation in a state. In addition to GDP, there are various indicators to analyze when trying to understand a state’s business climate, including: 1) US patents granted to inventors and assignees; 2) the rate of new employer business actualization; 3) net business growth; and 4) tax climate. 

Innovation & the Regional Competition: 

As part of our innovation research, NJBIA released the first “Indicators of Innovation” report in 2019. The study looked at 12 “indicators of innovation” (as stated above) and ranked them among our regional states in order to understand the presence of an innovation ecosystem throughout the region. The study found that New Jersey’s overall regional innovation score ranked fifth, behind Maryland, Pennsylvania, Massachusetts and regional leader New York. 

The initial findings of the updated 2020 study suggest that New Jersey’s overall innovation score has moved little since the original study. Massachusetts and New York continue to be regional leaders, while New Jersey finds itself competing with Maryland and Connecticut. 

Overall, two factors play a key role in New Jersey’s inability to increase its innovation score: the net migration of first-time college students and the state’s business tax climate. 

Net-Migration of First Time College Students: 

Given that New Jersey offers top-tier K-12 public education, the migration of New Jersey’s first-time college students is an integral component to the state’s innovation ecosystem. As such, a net loss in migration patterns signifies a loss in top-tier talent, which results in a negative return on investment for the Garden State. 

According to the National Center for Education Statistics (NCES), in the fall of 2016 (the most recent data available), New Jersey experienced the largest net loss of first-time students in the nation, losing a net total of 28,605 students. In comparison, regional leader Pennsylvania experienced a net gain of 16,816 students. New York and Massachusetts also experienced a net gain of first-time college students, gaining 8,910 and 7,680 students, respectively. Delaware experienced a slight net increase in first-time students, gaining 1,301. Connecticut (-4,547) and Maryland (-6,550) were the only other states in the region (besides New Jersey) to experience a net loss in first-time college students. 

Business Tax Climate: 

Whether a startup or large corporation, companies need a healthy business climate to thrive and grow; one that supports job growth and incentivizes investment. New Jersey’s business tax climate remains challenged and is often referred to as the least competitive tax state in the nation. Ultimately, a poor tax climate can hinder the potential re-creation of an innovation ecosystem by deterring new businesses from coming to and forcing existing business out of the state. 

According to the Tax Foundation, New Jersey has ranked 49th or 50th in the nation for business tax climate since 2010, when comparing corporate business taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes. In 2020, New Jersey again ranked last. Comparably, New York ranked 49th in the nation followed by Connecticut (47th), Maryland (43rd), Massachusetts (36th), Pennsylvania (29th), and Delaware (11th). 

Reclaiming Stature as the Innovation State: 

In the days of Thomas Edison, Nikola Tesla, and Alexander Graham Bell, the Garden State reigned as the “Silicon Valley” of the East, acting as a model of growth and innovation for other states to mirror. 

Today, the Garden State is at a crossroads. New Jersey possesses all the qualities that are needed to reinvent and grow an innovation ecosystem; an ideally centralized location, nationally recognized K-12 academics, quality higher education institutions, and a highly educated, highly skilled workforce. However, the state’s inability to retain and attract top-tier talent along with a poor tax climate are hindering the Garden State from reclaiming its previous glory. 

To reclaim our innovation ecosystem, there must be coordination and a willingness to make tough decisions that, if made today, will reap great short- and long-term returns to the state. Together, government, academia and business can make the vision of revitalizing New Jersey’s innovation ecosystem a reality if we collectively address key indicators of an innovation.