How Will New Jersey Regain its Reputation for Innovation?

The state has been outpaced by other states that, early on, saw the shift away from the kind of large, single-company research labs on which New Jersey built its reputation.

by Hugh R. Morley, The Record (Hackensack / April 21, 2015

(TNS) -- What can New Jersey — once the home of storied inventors like Thomas Edison and the Bell and Sarnoff labs — do to get its innovation mojo back?

That question held center stage at a forum of business and civic leaders in Newark last week that outlined a way to jump-start New Jersey’s struggling economy by tapping into the traits that once made the state a thriving, innovation powerhouse.

The success of Bell Labs, created in 1925 with a staff of 4,000 scientists and engineers, has become a symbol of New Jersey’s former stellar, and now greatly diminished, technological prowess.

The laboratory’s string of groundbreaking discoveries, ranging from laser spectroscopy, cosmic microwave background radiation, the first orbiting communications satellite (Telstar), a solar battery cell and the UNIX operating system that transformed the Internet, garnered eight Nobel prizes and 32,000 patents — a daunting legacy that hangs over the state’s efforts to restore its reputation as a high-tech center.

Consultants from the Brookings Institution, the Washington, D.C., think tank, told the forum that the state’s best approach would be to nurture “advanced industries” — R&D-intensive sectors driven by workers skilled in science, technology, engineering and mathematics, known as STEM. And by focusing on urban areas, they said, the state would create hubs of high-tech knowledge and activity that would attract companies.

The strategy could be carried out with some investment, but much could be done by realigning existing resources to promote collaboration between colleges and businesses, by ensuring that training and education are aligned to the needs of high-tech employers and by creating innovation “ecosystems,” said the consultants, who criticized the practice of handing out huge tax incentives as New Jersey has done.

“You can throw tax incentives at companies to move a mile across a municipal border. Really dumb!” said Bruce Katz, a specialist in urban economic recovery at Brookings. “Or you can invest in the future, in innovation skills and ecosystems in more urban kinds of settings. And within three years or five years, your return on investment will be very, very high.”

The strategy has the benefit of enabling New Jersey to capitalize on its existing strengths — a strong education system, skilled workforce and many technology companies, the consultants said. Yet they left little doubt that the state, having let its innovation sector decline, faced challenges in seeking to raise it back up.

“This is a story of emergency, frankly,” Mark Muro, a public policy analyst at Brookings, told the forum, which was held by New Start New Jersey, a non-profit created recently to stimulate discussion about how to revive the state’s economy.

Slipping in several sectors

Brookings’ research showed that in 1980, New Jersey had 16 industries in which the density of skilled workers was 1½ times that of the nation. By 2013, the research showed, there were just four: pharmaceutical manufacturing; scientific research and development services; medical and diagnostic laboratories; and basic chemicals.

“It’s a very competitive world out there,” Muro said. “A lot of states are working real hard to get a piece of what you have. Tennessee, Colorado. Governors are all over this — declaring this as a central point of their economic strategy, working out ways to invest in innovation.”

The New Start initiative is only the latest in a string of efforts to try to regain the state’s glory days of innovation, and capitalize on the skilled workforce and proximity to New York City, hoping to counter the reality that many states are much cheaper places to do business.

New Jersey has been slow to match talk with action, outpaced by California, Massachusetts, North Carolina and other states that early on saw the shift away from the kind of large, single-company research labs on which New Jersey built its reputation and created sturdy innovation hubs in line with the new trend toward university-based private-public collaborations.

Brookings’ proposal, which was conceived to help metropolitan regions enhance innovation, grew out of studies that showed advanced industries have a disproportionately large impact on helping stoke production and job creation. Brookings defines advanced industries as those that spend at least $450 per employee a year on R&D and have at least 20 percent of their workforce in STEM — science, technology, engineering and math — occupations.

“Since the recovery, these advanced industries have fueled the economy,” said Katz. “We think a very small portion of the American economy, or the New Jersey economy, drives everything else.”

The advanced-industries sector generally pays well, a key criteria given New Jersey’s high cost of living. The state’s existing advanced industries, which employ about 600,000 people directly or in support jobs, pay an average salary of $105,000, compared with $59,000 in the overall economy, Brookings said.

The focus on urban areas has the dual benefit of meeting the desires of the growing number of workers and employers who want to work and live in cities and creating the kind of work environment needed by modern, entrepreneurial companies, Muro said.

“Those are places where information can flow, where workers can collaborate, [where] it is easier to put together complex products and services with a dense array of providers,” Muro said. “There is an inherent economic efficiency of these urban centers, or innovation districts.”

While the focus on urban areas as technological hubs is relatively new, much of the institution’s proposal echoes parts of earlier proposals made by state officials.

Two years ago, Governor Christie created a Council on Innovation, a coalition of businesses and academic institutions that Lt. Gov. Kim Guadagno said works closely with InnovationNJ, an affiliate of the New Jersey Business and Industry Association. The council has created several committees that have worked on topics like intellectual property, aligning curriculum with the needs of employers and improving the state’s ties with nine federally funded research laboratories in the state.

In 2007, then-Gov. Jon Corzine promoted a $450 million bond issue to be spent on paying scientists and technicians for 10 years to work on stem-cell research, but the plan was defeated by voters.

Earlier plans faltered

And 13 years ago, the Harvard economist Michael Porter told then-Gov. James E. McGreevey in a public policy forum in Princeton that the state’s business, government and education sectors should forge a tight relationship based on new technology and innovation. The effort should focus on four sectors, Porter said: pharmaceuticals, information, telecommunications and financial industries.

Yet the state, beset by fiscal woes, has, with some exceptions, failed to enact the plans, as those industries have declined. Since Porter’s comments in 2002, employment has fallen about 18 percent in New Jersey’s pharmaceutical-manufacturing sector, nearly 20 percent in the telecommunications sector and 11 percent in the financial services industry. The information sector has lost nearly a third of its jobs.

Michael Walker, a spokesman for Prosperity New Jersey at the time of the Porter presentation, recently said that some preliminary initiatives were taken to use his ideas, but they were curtailed by McGreevey’s resignation from office two years later.

Before that, McGreevey sought to merge the University of Medicine and Dentistry of New Jersey with Rutgers University and New Jersey Institute of Technology to create a biomedical powerhouse that would attract federal and corporate research dollars and spur the state economy. He abandoned the effort amid resistance from some college officials and concern over the $1.2 billion price tag.

Christie, with a similar goal, in 2013, merged the state’s medical school with Rutgers and Rowan University, which supporters say will bolster financing and opportunities for life-sciences research.

Profound changes in the economy since the state’s innovation heyday have made progress difficult, said James W. Hughes, dean of Rutgers University’s Edward J. Bloustein School of Planning and Public Policy.

From World War I to the late 1980s, New Jersey was the “epicenter” of American innovation, at first fueled because AT&T, with a legal monopoly, had vast resources available for research at Bell Laboratories.

“They had so much money that they let a lot scientists work just on basic science, hoping it would have some impact eventually,” said Hughes.

Sarnoff Laboratories in Princeton, which was owned by RCA and invented the color TV, took a similar approach, enjoying a virtual monopoly on the electronic market until Japanese competitors moved into the U.S. in the 1970s, Hughes said, adding that Exxon did extensive energy research in Florham Park.

The work was done in large campus settings with thousands of scientists working side by side, Hughes said. But corporate campuses have gone out of style, and onetime major innovators have declined, merged, or moved out as globalization has tightened competition, Hughes said.

University model

That has dramatically diminished the amount of corporate financing available for research, said Melanie Willoughby, co-chairwoman of InnovationNJ.

“Companies are no longer able to afford spending the amounts of money that are necessary to do the innovative work,” she said.

Instead, she said, in a shift begun in the 1970s, corporations look to universities to do research, often sponsored by the corporations or government, adding that the strategy has been successfully adopted by California, North Carolina and Massachusetts, which have built clusters of innovation around academic facilities.

“We are not talking about a disaster movie here,” said Carl Van Horn, director for the John J. Heldrich Center for Workforce Development at Rutgers University, who is a member of the New Start New Jersey advisory board. “But we are talking about something that needs serious attention.”

©2015 The Record (Hackensack, N.J.) Distributed by Tribune Content Agency, LLC