Presented by NJTC and PricewaterhouseCoopers

Supporting Organization

present

NJTC Technology Economy Report Card 2006

click to review entire report card

By Gregory M. Stoup

The NJTC 2005 State of the New Jersey Technology Economy Report profiled a state holding a competitive position in the nation’s high tech economy. But, that report released a year ago, also showed signs of fatigue in the underlying fundamentals. This year, the analysis was more tightly focused around a specific set of technology capabilities. And, there is now a clearer story emerging.

The theme for this 2006 Report Card is workforce and innovation. This report card provides a measuring stick to gauge the competitiveness of New Jersey’s technology workforce and the health of the economic fundamentals that drive innovation. The story is one of continuing trends, as the New Jersey technology economy continues to restructure itself and rebound from the severe contraction experienced earlier this decade. A recovery is underway, but the pace is measured. Here are some things to note:

• The state continues to benefit from a strong foundation of technical and business talent, but also continues to be challenged by below average performance in the capabilities closely related to the development of new technologies.
• At the broadest level, the 2006 report card portrays a state that is no longer losing jobs at the dramatic pace triggered by the dot-com collapse. In fact, New Jersey’s five-year job growth rate of 5.1 percent outpaced both the national average and that of its neighboring states. But there is evidence that the jobs being created are different than before.
• Per capita income continues to rise but not at as briskly as in the past and slower than in neighboring states.
• Statewide productivity remains high but is also slowing and many of the jobs being added appear to be of the low wage variety.

Within the high technology domain, the story is equally mixed. High tech industry employment has stabilized. However, while several high tech sectors have added to their payrolls, more have continued to trim their workforce. High tech industry productivity remains high but productivity growth is losing momentum. The information suggests that the state’s global technology position is becoming more tenuous and that New Jersey’s industries might not be as competitive as they once were.

However, there are some encouraging signs of growth and perhaps evidence of an emerging competitive advantage. Despite tepid industry performance, the state has displayed strong growth in the employment of technical talent. New Jersey’s science and engineering workforce has expanded by 10.4 percent over the last five years, twice the pace of the national average and far faster than either Pennsylvania or New York. This healthy expansion of technical jobs suggest that the states traditional industries, those that typically lie outside the high tech domain, are making significant investments in the human capital required to improve existing infrastructures and build new capabilities. Having such a broad base of technical skills means New Jersey businesses can be more agile in the transition to new markets and speed the diffusion of new technologies throughout the company. There is also some evidence that the state has a healthy small business foundation, with many technical experts pursuing their start-up ambitions from their own homes. Not only do these findings suggest the existence of a less-visible set of capabilities, they remind us that industry metrics don’t tell the whole story and that perhaps we need to rethink how we assess New Jersey’s technology competitiveness.

Although the state’s talent story is upbeat and promising, the same cannot be said of New Jersey’s technology development capabilities. Perhaps the most striking finding in this report card is that the state’s innovation infrastructure lacks much of the dynamism it once had. Investments in basic research, although on the rise, continue to lag the nation and statewide patent production is spiraling downward. Furthermore, risk capital flows to state technology companies remain stuck at modest levels. The causes underlying these challenges are many and complex. In part, New Jersey is trapped by a tepid national economy – many of the state’s growth curves now piggyback on the national trend. For a state that once pioneered and propelled national growth, it is somewhat unsettling that it many important areas New Jersey now appears to be following the national trends rather than drive it.

The story for this Report Card, then, is that the New Jersey technology landscape is still undergoing a transformation.

• The state’s high tech industries remain competitive but are under assault by a more menacing global economy.
• The state’s industries continue to produce globally competitive products and services, but occupy a less dominant position in the national and global market.
• The New Jersey workforce has the technical skills to compete but is not yielding the discoveries or developing the cutting edge technologies necessary to secure and maintain competitive advantage.

Action will be required to change the current direction. Some choices may require a new perspective and a rethinking of past assumptions to better suit an emerging environment where competitive capabilities are distributed more broadly across the landscape. Due diligence demands that state leaders continue to monitor progress, develop support mechanisms to nurture emerging strengths and make a commitment to provide sustained attention to address current weaknesses before the downward inertia renders such actions infeasible.

New Jersey is approaching a moment of truth. How the state responds to these challenges and the choices civic leaders make today will determine New Jersey’s place in the global economy.

Gregory M. Stoup is the president of SEI Consulting. Mr. Stoup’s firm was hired by the NJTC and partners PricewaterhouseCoopers and PSE&G to compile relevant economic data and issue the 2006 Report.