NJBIA releases 2022 Indicators of Innovation report

The New Jersey Business & Industry Association’s 2022 Indicators of Innovation report finds that while the Garden State slipped slightly in score and position from the 2020 study, N.J. has taken key steps to improve its future standing.

The seven-state comparison shows New Jersey currently tied with Connecticut for fifth place with 41 points. In 2020, New Jersey was fourth overall with 44 points.

The report examines how New Jersey’s innovation economy compares to other states in the region. It analyzes data for 12 indicators (each is scored from one to seven) in three major areas – capital, talent and business – while offering a series of recommendations to improve competitiveness in building a more robust innovation economy.

“While New Jersey’s standing in the region has decreased somewhat, some of the recommendations made in our 2020 Indicators of Innovation report have only been recently put into place,” said NJBIA Director of Economic Policy Kyle Sullender. “As a result, we hope to see some improvement in certain areas of the innovation economy going forward.”

The 2022 results come as the Garden State is betting big on its innovation economy and ecosystem, which Gov. Phil Murphy has prioritized and NJBIZ has chronicled extensively.

Earlier this year, New Jersey cracked the top 10 in venture capital dollars invested per state, according to PitchBook. More recently, HAX signed a 10-year lease in Newark for its U.S. headquarters. Those accomplishments come along with a slew of programs, initiatives and grants being spearheaded by the New Jersey Economic Development Authority to accelerate the innovation economy in the Garden State.

Digging in

Despite experiencing fast growth in venture capital deal flow during the pandemic, the NJBIA report found that New Jersey, with just $4.8 billion, continues to trail states like New York ($149.4 billion) and Massachusetts ($120.2 billion) in assets under management. The study also noted that New Jersey receives significantly less than regional states from two of the nation’s largest sources of early-stage/high-risk funding for startups and small businesses.

It was also the only state in the region to see its R&D investment decrease from 2010 to 2020 (-38.5%).

To combat that, NJBIA says that two of its 2020 recommendations are already in progress: increasing funding for the New Jersey Commission on Science, Innovation and Technology (CSIT), and forming public-private partnerships with state capital and venture capital funds.

As for talent indicators, NJBIA notes that New Jersey continues to lead the region – and the nation – in so-called brain drain, or net loss of first-time, degree-seeking undergraduate students leaving to attend schools in other states. In 2020, N.J. had a net loss of -27,556 students and ranked fifth for the percentage of population that holds a graduate or professional degree (17.1%).

In 2020, NJBIA recommended addressing this issue by increasing public-private partnerships (P3s). Those efforts launched earlier this year, with the organization joining forces with the New Jersey Council of Community Colleges for the NJ Pathways to Career Opportunities Program.

“There are still several indicators where New Jersey very much remains an outlier regionally and nationally — notably in business tax climate and net migration of first-time, degree-seeking undergraduates,” said Sullender. “Those are areas where New Jersey continues to need great improvement.”

On the business indicators front, New Jersey took the top spot in the region in Net Business Growth with an increase of 4,516 new private establishments in 2019— well ahead of second-place Massachusetts (641). But, the Garden State still continues to have the worst business tax climate in the nation, according to the Tax Foundation’s Business Tax Climate Index, ranking last for seven consecutive years.

Another indicator of a healthy innovation ecosystem is patent activity. New Jersey ranked fourth in the region with 9,056 patents granted to investors and assignees in 2021. Massachusetts was first with 17,795 patents.

To address these business indicators, NJBIA recommends the establishment of a Government Efficiency Regulatory Review Commission to determine where state rules and regulations are creating outsized burdens on New Jersey businesses. Legislation to achieve that passed the state Senate and Assembly, but was vetoed by Murphy.

The NJBIA maintains that recommendation to help improve the state’s business climate.

Other suggestions include amending the current Angel Investor Tax Credit to provide more incentives for investment and the implementation of Path to Progress reforms, which were spearheaded by former Senate President Stephen Sweeney.

“As in past reports, we encourage multiple recommendations in the three areas which can help put New Jersey on a path to becoming an innovation leader within the region,” said Sullender. “Addressing continuing obstacles, especially regarding our tax climate, can help result in a stronger innovation ecosystem for the state.”