Can New Jersey Compete in the Global ‘Innovation Economy?’

Tara Nurin | June 20, 2014 | More Issues
Analysts argue outdated infrastructure and home-rule laws -- as well as few successful private-public undertakings -- keep Jersey from being a player

The former Bell Labs office building in Holmdel, the largest empty office building in the world, has sat vacant since Alcatel-Lucent left eight years ago.
It may sound more trite than true, but “think globally, act locally” is an apt — though oversimplified — assessment of what New Jersey needs to do to thrive in what’s being called the “innovation economy.”

This new macroeconomic model stresses speed, collaboration, and flexibility. It expects expertise in the so-called STEM fields — science, technology, engineering, and math. It may ultimately reverse conventional paradigms, with companies following high-value workers rather than employees chasing after jobs.

And as was made clear last week at a summit hosted by the PlanSmart NJ land-use think tank, Trenton must make some tough decisions if the Garden State is going to be a global player. For starters, it must upgrade New Jersey’s transportation, power, and IT infrastructure; relax home rule laws; and encourage public-private partnerships.

To be clear, this is not just about the trifecta of usual complaints about the state’s steep taxes, high cost of living, and challenging regulatory environment — though they must be addressed as well.

“Competition for innovation-based economic growth on a national and global level has become so massively intense that states have to get everything right: taxes, talent, trade, infrastructure, and much more,” according to
Stephen Ezell, coauthor of Innovation Economics.

“States don’t control the terms anymore,” he continued, “Companies shop the world to find the optimal locations. That’s the global economic reality.”

Ezell added that two-thirds of U.S. economic growth since WW II is directly attributable to innovation. And because innovation explains 90 percent of the variation in per capita income growth across countries, it’s imperative that states and nations get it right.

And experts who have been working with the state to help “get it right” point out that New Jersey does face some formidable obstacles. “As hard as it is to believe, New Jersey has evolved into an inhospitable place for people and businesses,” lamented noted real estate analyst Jeffrey Otteau.

New Jersey: Advantages and Disadvantages

There’s some good news for New Jersey, but it’s mixed at best.

A report released last week by the Washington, D.C.-based Information Technology & Innovation Foundation (ITIF) ranks the state 10th overall for its knowledge jobs, globalization, innovation capacity, digital economy, and economic dynamism — all of which help determine how quickly entrepreneurs and inventors succeed and businesses start and grow.

But the state’s ITIF ranking has fallen sharply since 2007, when it reached second place behind perennial leader, Massachusetts. Ezell attributes the relative decline to a weakening in NJ’s policies to support business competiveness, as well as to gains in Delaware, California, Virginia, Connecticut, and Utah that have allowed these states to surpass it.

According to the ITIF, New Jersey draws strength from its ability to attract foreign investment and industry, its investments in research and development, its plentiful patents per capita, and its high number of rapidly growing firms.

Yet it shows relative weakness in the digital economy, namely in the areas of e-government (the extent to which the communities have made information available online to citizens), health IT (“the share of eligible prescriptions routed electronically and eligible health records kept electronically”), and intelligent transportation systems (applying information technology to transportation networks).

“We called the Googles of the world,” said Holmdel Mayor Patrick Impreveduto of his efforts to fill the former Bell Labs office building; the largest empty office building in the world, has sat vacant since Alcatel-Lucent left eight years ago. “(They said), ‘Why should we come to New Jersey? Taxes are through the roof.’ And we tried to convince them we weren’t in the middle of nowhere yet they still wouldn’t come.”

But the biggest problem for the “Googles of the world” wasn’t that the building is located in digitally underdeveloped New Jersey or that the state’s taxes remain notoriously high. It was that Bell Labs is located on an isolated plot of land unconnected to transit and not within walking distance of the reasonably priced housing or shops, restaurants, culture, and entertainment that today’s creative employees demand.

“The office of today is a bench,” said Somerset Development president Ralph Zucker, who’s working with Holmdel’s elected officials to transform the Bell Labs site into a mixed-use destination for dining, retail, services, and even housing. “They want one area to live, work, and play and they don’t want to drive from place to place.”

Developers like Zucker say it’s a rare municipal official who’s willing to relax 20th century zoning laws to allow for the higher density and multitenant projects needed to attract 21st century firms — and their employees — that power the innovation economy.

“Many municipalities hold on to industrial or large-lot zoning in the hopes they’ll attract business. But it’s not happening,” said David Fisher, vice president of K. Hovnanian Homes.

The result?

“New Jersey is devolving into wasteland of underutilized suburban places,” said Otteau.

Home, Sweet Home?

Panelists argue that they frequently encounter municipal officials who believe their communities are immune from trends they don’t want to follow. “But we’re different,” these officials protest when confronted with recommendations that they scale down their minimum lot sizes and rethink other impediments to density. This resistance, say planners, adversely affects the housing market and squeezes out millennial workers, who rank access to public transportation high on their list of factors in choosing a home.

And with the international Gen X’ers, Gen Y’ers. and millennials who will drive employment in tomorrow’s innovation economy increasingly choosing jobs based on where they want to live, the companies that employ them are beginning to follow them wherever they want to go.

In New Jersey, it’s also a large matter of where they can afford to go.

“Municipalities have done everything in their power to prevent high-density housing,” said Otteau. But single-family houses that occupy large lots, come with high price tags.

“It’s been devastating to younger families,” he said, before noting that the latest United Van Lines survey reports that two out of every three New Jersey residential relocations are to out-of-state destinations.

Further, the rental market is near capacity, and with 70 percent of the state’s households containing no children, the state’s housing supply, “Does not fit with what young people or older-age households are looking for today.

It’s a ticking time bomb,” he said.

Pricey housing can also be viewed as a secondary tax on businesses, which can more easily lure qualified workers when they pay enough to adequately cover costs of living. So why would a business take on the responsibility of employing workers in a high-price region when they don’t receive any competitive advantage from the location?

Chances are they wouldn’t. Thus, panelists insist, local bodies must pass broader zoning regulations or economically perish.

“The big story line is that collaboration, technology … everything is more connected. So the goal in planning for future development is to build for diverse uses and create sustainable living that allows for aging in place with variety of uses,” Otteau said.

Aging Infrastructure

“Infrastructure improvements benefit everyone,” said Ruby Siegel, a transportation expert with the global infrastructure solutions firm, AECOM . “They speed up the movement of people, data, and power and they provide for continuity and security.”

In a state with as much crumbling infrastructure as New Jersey, many planners, developers, and engineers call for the state and its counties to upgrade infrastructure as a way to entice innovative companies to locate here.

“New Jersey is suffering from an aging crisis in our infrastructure, workforce, housing stock. We’re seeing an increase in tax appeals and rising costs and we’ve come through Sandy and the recession,” said Siegel. “I think government is more motivated than ever to address some of those issues. They’ve done a very good job in incentivizing but there needs to be more linkage between state funding and public policy goals.”

Sam Crane, of the governmental consulting group CraneConsulting, identifies three areas where the state needs to drastically rethink its policies and priorities, lest its residents suffer another infrastructural catastrophe similar to a “Sandy without a storm.”

  • Electrical power: Crane predicts the U.S. will eventually be run entirely on electrical power that’s produced and supplied by the private sector. The government, he says, will have to modernize its physical supply channels and work with power companies to guarantee a resilient electrical system.
  • Water and sewer: “Guess whose systems are now 40 years old?” says Crane, referring to the housing boom of the 1950s and 60s. More efficient and functioning systems are needed, he said.
  • Transportation: “We’re now sitting on a transportation system that’s on the cusp of fail,” he said, before referring to the I-495 corridor in Delaware that “decided to take a walk” earlier this month. He calls on the Trenton to stop using “borrowing and games” to fund transportation and to find a dedicated source of revenue to fund it.
  • These actions will prove costly, he warns. But as David Zimmer, executive director of the Environmental Infrastructure Trust argues, repairs left undone may keep New Jersey from competing effectively in the innovation economy. “It’s better to make the decision than make the decision not to make it.”