How does $150B in GDP and 250,000 new jobs sound?

From our print edition

By Tom Bergeron
Somerset | Oct 19, 2017 at 1:00 pm

Talking Points is an occasional feature in ROI-NJ, which recaps key speakers at business gatherings across the state. This report summarizes the presentation Senior Partner Steve Van Kuiken of McKinsey & Co. gave at Opportunity NJ’s Affordability Summit, held Sept. 18 at First Baptist Church of Lincoln Gardens in Somerset.

Steve Van Kuiken’s presentation was one of the most anticipated of Opportunity NJ’s Affordability Summit last month.

His recap of the report prepared by global consulting firm McKinsey & Co., “Re-seeding the Garden State’s economic growth: A vision for New Jersey,” kept the audience of hundreds of state business, association and government leaders captivated for more than 30 minutes.

“We started asking ourselves: Why is the New Jersey economy struggling?” he said. “We have a rich history of leadership in the national economy, and we wanted to understand what’s holding back growth and what opportunities the New Jersey economy has.”

Van Kuiken said the basic premise of the study was to understand the drivers of growth of the state economy moving forward.

“What we hope is that all of you will come together around the opportunities that the New Jersey economy holds and have a constructive debate. We’re here to provide some of the facts.

“This is an independent report; it’s nonpartisan. We don’t recommend policy prescriptions. What we are is recommending business opportunities.

“These are not all about spending a lot of money; some of this is about the community coming together and the right kind of leadership in the state, which is why it is important for all of you.

“We believe, by focusing on six opportunities, the state can add $150 billion in GDP and 250,000 jobs over the next 10 years. That is a realistic goal for the state.”

The following are Van Kuiken’s comments, edited and/or paraphrased for space purposes.

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  • Nurturing young businesses

The chart: Number of incubators in key states

New York 179
Massachusetts 70
Pennsylvania 42
New Jersey 15

The comments

Young businesses are the net job creators in any economy; we’ve not done enough to encourage young businesses. We can’t grow these jobs without these kinds of incubators in our state. We need to be setting up these incubators and innovative hubs. We need to be cooperating and working closely with the great university system we have in the state. This is where the private sector financing the public sector and the social sector need to come together.

The call to action

We need mentoring and networking programs for these young businesses. We need streamlined access to funding, and we need to help these young businesses navigate the more than 500 municipalities that are creating some of the regulatory challenges in the patchwork of confusing regulatory and tax laws they are navigating.

  • Addressing workforce imbalance

The chart: The net migration of millennials (ages 18-35) out of state

Low-skilled (high school diploma or less): 4,000
Medium-skilled (some post-high school): 23,000
High-skilled (college graduates): 4,000

The comments

We have an oversupply of high-skilled workers and an oversupply of low-skilled workers. We don’t have enough of our middle-skilled workers, those with more than a high school education but less than a college education.

Health technicians, construction services, plumbers, electricians, vehicle management. This shortage of middle-skilled workers is holding back growth in our economy. And it’s leading to underemployment of high-skilled workers, because we’re not using them as we should be. This is a huge gap in our economy.

The call to action

We need integrated education training programs, so people are getting occupational training at the same time they are getting educated. We need financial aid for occupational training or incentives for middle-skill training, so companies that take low-skilled workers and get them to the middle-skilled level get incentives to do so.

We need more industry and university partnerships. Educational to employment. Let’s make sure the curricula in our education systems are guided toward the kinds of jobs that we need in the New Jersey economy.

  • Creating the infrastructure of the future

The chart: Money spent on car repairs due to bad roads

New Jersey $601
New York $403
Pennsylvania $341
Massachusetts $313

The comments

On average, our bridges are 51 years old. The lifespan of bridges is 50. We’re pouring tons of money into maintaining an old infrastructure. We have this great industry around warehousing and distribution and yet we have huge congestion problems.

CEOs in the state have said one of the biggest challenges in recruitment is the transportation system. They said people didn’t want to deal with the transportation issues.

The call to action

We need to focus on future-oriented infrastructure. Many other states are doing this. One is optimizing capital spending for transportation in the most heavily used corridor. So, it’s not spreading it broader, it’s focusing it very strategically, it’s rebalancing traffic flow. We need to keep investing in transit-oriented development, building around train stations and encouraging revitalization of our urban centers.

  • Tailoring incentives for growth

The chart: Average paid per deal (New Jersey pays more than 5 times more than others to attract or retain jobs)

New Jersey $170,000
Pennsylvania $30,000
New York $30,000
Massachusetts $10,000

The comments

New Jersey paid far more for each good job. There could be many different reasons for this, and some of these are good policy reasons, but it also probably reflects a focus on keeping jobs in the state, as opposed to fostering new jobs and focusing on younger businesses with incentives for younger businesses.

When it comes to incentives, the return is higher on younger businesses. Older firms, older than 10 years, on average cost $175,000 (to attract or retain) jobs. With younger firms, it costs about $110,000.

The call to action

Focus incentives on sectors that we can build. The economy in Nashville, Tennessee, has had a terrific turnaround based on fostering young businesses and the right kind of incentives in two sectors they have been focused on: the entertainment industry and health care technology.

  • Focusing on high-growth potential industries

The chart: Identifying the growth clusters in New Jersey

Cyber: IT and computer technology
Logistics: Wholesale trade
Biotech: Pharmaceutical medical products and biotech

The comments

Those three industries stand out as industries that we already have strength in, that are high-growing and that we should be doubling down in as a state.

Computer services: We talk about cybersecurity. We already have 14 of the leading cybersecurity firms based in New Jersey. We’re positioned between New York and the financial services industry and D.C., the government sector, where cybersecurity is a huge and growing sector.

Logistics: We have the third-largest port, the 14th-busiest air freight hub and 40 percent of the country’s population lives within a day’s drive. If you think about the last mile, and how distribution is moving to same-day delivery, there’s no better place to be positioned for warehousing and distribution than New Jersey, right between Philadelphia and New York, with easy access to Boston and D.C. and these great population centers.

Biotech: We have five research universities. Rutgers has the largest university-based cell and DNA repository. We have 13 teaching hospitals and four medical schools. We have a terrific history of pharmaceutical and medical innovation in the state. We have Merck, we have Johnson & Johnson, we have great innovators in the global economy.

The call to action

Computer services: We have 80,000 programmers in the state; we have 110,000 software developers. Doubling down in this industry is a huge opportunity for the state and would build on the strengths that we have.

Logistics: With our port and with our air freight possibilities, we should be building that out. That should be a big focus for us.

Biotech: Our biotech firms in 2015 got just over $400 million in venture funding. That’s 7 percent of the funding that the firms in Massachusetts got. Massachusetts has been eating our lunch in biotech, and we shouldn’t allow that. This is an industry that the state should be focusing on to build.

  • Making the best of new disruptive technologies

The chart: There are 12 disruptive technologies. Four have a strong presence in New Jersey*

3D printing
Advanced materials
Advanced oil and gas exploration and recovery
Advanced robotics
Automation of knowledge work
Autonomous and near-autonomous vehicles*
Cloud technology*
Energy storage
Internet of Things*
Mobile Internet
Next-generation genomics*
Renewable energy

The comments

There are disruptive technologies coming that are going to both destroy jobs in the economy and, at the same time, create jobs. We want to focus on those that might create jobs for us.

The Internet of Things: The sensor technology that’s getting put into remote machinery, it’s getting put into the warehouses and manufacturing centers and it’s tracking and gathering the data and providing ways to predict maintenance problems and change the way business works. The Internet of Things could be a great driver of innovation in the state, especially given our focus on warehouse and distribution.

Cloud technology: This aligns well with computer services. The idea that now you can put all of your computing power into the cloud and cloud services is growing rapidly. It would be a natural place for us to invest.

Autonomous and near-autonomous vehicles: Back to warehousing and distribution. It’s a growing area. Let’s not let autonomous vehicles take jobs away from us, let’s add jobs through autonomous vehicles.

Next-generation genomics: Precision and personalized medicine. We should be a leader in biotech and pharma. We would argue that genomics and precision medicine and personalized medicine would be a terrific place for us to focus.

The call to action

Whether these are the right four or not, we believe we should be focused on these disruptive technologies, because we have immediate needs to address but we can build for the future.

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In conclusion

New Jersey has a rich history in innovation, pharmaceuticals, finance and computer services. And we are still an economic powerhouse among states: No. 8 in GDP; No. 11 in total employment; No. 2 in median household income; and we have 21 Fortune 500 companies

What’s challenging us? Sixteen of 19 leading industries are growing slower than the U.S. economy; a GDP growth that has been flat since 2007; and half of U.S. employment growth the last 10 years.

We have had 20 years of productivity decline, while the cost of doing business is growing faster than the U.S. average. Even more, our peer states are innovating on many topics that we are not.

If we step back from it, New Jersey, given our location, our wealth, our intellectual capital, should be a leader in the U.S. economy. However, we do have issues around productivity. Cost of doing business. Our rate of growth. These are things that need to be addressed, and many of these things do not require big investments.

The main thing is the public, the private and the social sector need to come together and have a dialogue around these types of topics and build some consensus around what it is we can do to address them.

I do think our goal should be $150 billion in GDP and 250,000 jobs. It’s completely achievable, but it’s going to take the people in this room and others to come together around the right set of issues to address this and re-establish our leadership.