Entrepreneurs, Innovators, and Immigrants

Stephen DeAngelis

January 27, 2010

Back in September of last year, Bill George, a professor of management practice at Harvard Business School and author of the new book, 7 Lessons for Leading in Crisis, wrote an article for BusinessWeek in which he discussed his ideas for creating sustainable jobs [“Putting America Back to Work,” 28 September 2009 print issue]. Among other things, George wrote:

“Instead of clinging to yesterday’s economy, we should use this opportunity to rally around the cause of making the U.S. fully competitive. But what will it take to create sustainable jobs? We need to refocus on America’s great strengths: innovation, entrepreneurship, small business, and new company formation. These were the engines that drove job growth in the 1980s and ’90s. We can do it again by unleashing these powerful forces. The biggest job creators are small businesses and companies that are expanding, like my former company, Medtronic, which has created 35,000 jobs in the past 25 years. Yet our national policies, unlike those in many European and Asian nations, often work against them.”

As George mentions, he is the former chair and CEO of Medtronic. Currently he serves on the boards of ExxonMobil and Goldman Sachs and, previously, he has served on the boards of Novartis and Target. His business credentials, in other words, go beyond the classroom. Later in his article, he recommended that the U.S. invest heavily in “renewable energy, information technology, and health care—three of America’s greatest strengths.” He also recommended that the country renew its investments in human capital. He wrote:

“With so many workers who lack the skills for tomorrow’s jobs, we should institute massive retraining and education programs to prepare workers for the high-tech jobs where the U.S. has a competitive advantage.”

I don’t disagree with anything George writes. I, too, believe that “innovation, entrepreneurship, small business, and new company formation” are needed to create more good paying, sustainable jobs. Although we need to do everything we can to keep American’s fully employed, one thing that George doesn’t mention is how “new blood” might be able to help us do that. Hiring immigrants may not sound like a good way to create sustainable jobs in the U.S., but don’t be too quick to judge. Before discussing the possible benefits of hiring immigrants, let’s face the fact that doing so could be controversial. A December article in BusinessWeek notes that U.S. businesses are still looking for good foreign talent despite the fact that “continued hiring of workers from abroad may stoke controversy” [“Still Wanted: Foreign Talent—and Visas,” by Moira Herbst, 21 December 2009 print issue]. She reports:

“Even as job losses in the U.S. mount, employers have stepped up the hiring of skilled workers from abroad, according to data from the U.S. Citizenship & Immigration Services. The acceleration in recent weeks has put companies close to exhausting the 65,000 visas allotted each year for foreign hires under what’s known as the H-1B program. Some 61,500 visas had been used as of Dec. 8, and the last visas are likely to be claimed within weeks. Once that happens, companies won’t be able to use the program to bring in additional workers until October, the start of the government’s fiscal year.”

Herbst quotes an associate professor of public policy at Rochester Institute of Technology, Ron Hira, who probably reflects the thinking of many Americas. “With 15.4 million people unemployed in the U.S.,” he states, “employers should be able to find qualified workers here.” The fact, however, is that hiring immigrants often reflects their entrepreneurial character, not just their job qualifications. The Wall Street Journal asserts that “it’s crazy to drive away talented young scholars” [“Immigrant Scientists Create Jobs and Win Nobels,” by Susan Hockfield, 20 October 2009]. She writes:

“Of the nine people who shared this year’s Nobel Prizes in chemistry, physics and medicine, eight are American citizens, a testament to this country’s support for pioneering research. But those numbers disguise a more important story. Four of the American winners were born outside of the United States and only came here as graduate or post-doctoral students or as scientists. They came because our system of higher education and advanced research has been a magnet for creative talent. Unfortunately, we cannot count on that magnetism to last. Culturally, we remain a very open society. But that openness stands in sharp contrast to arcane U.S. immigration policies that discourage young scholars from settling in the U.S. Those policies come at a high price. Graduate and postgraduate student immigrants are essential to creating new, well-paid jobs in our economy. Of the 35 young innovators recognized this year by Technology Review magazine for their exceptional new ideas, only six went to high school in the United States. From MIT alone, foreign graduates have founded an estimated 2,340 active U.S. companies that employ over 100,000 people. Amazingly, if as incoming students they had told U.S. immigration authorities that they hoped to stay on as entrepreneurs after graduation, they would have been turned back at the border. Our immigration laws specifically require that students return to their home countries after earning their degrees and then apply for a visa if they want to return and work in the U.S. It would be hard to invent a policy more counterproductive to our national interest.”

At a time when the U.S. is continuing to shed jobs, welcoming people with the skills and disposition to create hundreds of thousands of jobs simply makes sense. Dr. Hockfield is not a reporter; she is president of the Massachusetts Institute of Technology and a noted neuroscientist whose research has focused on the development of the brain. She certainly advocates, along with Professor George, aggressively developing “more homegrown talent”; but, she notes (with more than a little frustration) that the U.S. has lost its lead in education. “In education, the world is accelerating while we are standing still,” she writes. This post, however, is about jobs, not education. Dr. Hockfield concludes by noting that the two subjects are intricately interwoven.

“Today, discovery and innovation increasingly spring from a creative network of the finest talent everywhere across the globe. From new advances in medicine to scientific breakthroughs that spawn new industries and sustainable jobs, the work of science and engineering is being done by individuals who can live almost anywhere. To be part of that global creative network we must inspire more young Americans to pursue scientific careers, and we must rapidly reform U.S. immigration policies that drive away talented young scholars who would otherwise decide to live, work and innovate here. We should be proud of our Nobel Prize winners. But we should also craft policies that make it more likely that future Nobel laureates will do their work inside the U.S.”

In later Wall Street Journal article, the paper argues that “immigrant entrepreneurs are an engine of jobs and growth. We need more of them.” [“Start-up Visas Can Jump-Start the Economy,” by Paul Kedrosky and Brad Feld, 2 December 2009] Kedrosky and Feld write:

“While fast-growing companies have long been the main source of new jobs and innovation, this country makes it outrageously difficult for immigrants to launch new companies here. This doesn’t make any sense. After all, Google, Pfizer, Intel, Yahoo, DuPont, eBay and Procter & Gamble are all former start-ups founded by immigrants. Where would this country be today without their world-changing innovations? Immigrants have not only founded big, well-known companies. Foreign-born residents made up just 12.5% of the U.S. population in 2008. But nearly 40% of technology company founders and 52% of founders of companies in Silicon Valley. Yet we don’t seem to care.”

Like Dr. Hockfield, Kedrosky and Feld are not reporters either; they are investors. Mr. Kedrosky is a senior fellow at the Kauffman Foundation and an investor. Mr. Feld is a managing director at Foundry Group, a Boulder, Colo.,-based venture capital firm that invests in start-up companies in the U.S. Analysts have predicted that the U.S. recovery will be jobless; that is, that unemployment will remain high for several years. Kedrosky and Feld argue that it doesn’t need to be that way. They continue:

“In the 21st century those opportunities don’t wait for our interminable, employment-based visa programs. As a result rather than saying ‘Come and create jobs here’ we, in effect, tell them to shove off. Come back when you have a few million in sales— at which point they will be rooted elsewhere and creating jobs somewhere else. That needs to end now. Immigrants who come here to create companies create jobs. We need the jobs.”

Rather than relying on H-1B visas, Kedrosky and Feld recommend creating a new type of visa they call a “start-up visa.” They explain:

“It might work like this: If immigrant entrepreneurs want to start a company in the U.S. and are able to raise a moderate amount of money (perhaps as little as $125,000) from an accredited U.S.-based venture capital firm or qualified U.S.-based angel investors, we should let them start a company here. It could be a couple of founders with an idea—that’s it. We would give visas to the founders and welcome them in to our country. Would it work every time? Of course not. It would fail more often than not. Start-ups often fail. But having failed, the immigrant entrepreneurs could try again, and again. And as long as they are trying, raising money, creating jobs, and making sales, we would let them stay here. Founders of new companies are precious for a vibrant economy, and we should welcome them. Indeed, the country would be better served to find more of them. Some will say a start-up visa program will be abused. They will say that it will become a way to end-run immigration rules, to jump the queue if you have money. There are at least two answers to these objections. First, to get such a visa you would have to raise money from real investors. Second, Canada and other countries already allow entrepreneurs to start a company in their country. Shouldn’t the U.S. stop worrying so much about keeping these people out, and start worrying about bringing them in?”

They agree with Dr. Hockfield that we should welcome foreign scholars and that “science and engineering graduates should get visas stapled to their diplomas” because they are the individuals who are going to “create jobs, innovate, and grow the economy.” The message, they write, should be: “Uncle Sam wants you, if you’re a prospective entrepreneur.” In a recent op-ed piece, former Tennessee congressman Harold Ford, Jr., while chiding Democrats for losing the public’s confidence, agreed that immigrants can play a critical role in our economy [“Democrats, Get Down to Business,” New York Times, 25 January 2010]. He writes that America “should reform [its] immigration policy to ensure that those who contribute to [the U.S.] economy, especially foreign math and science graduates of American universities, have a clear path to citizenship.”

 

While Kedrosky and Feld want to welcome foreigners who seek investment money in the United States, there is already a program that offers visas to foreigners willing to invest in U.S. companies [“Immigrants invest in U.S. businesses in exchange for visas,” by N.C. Aizenman, Washington Post, 10 January 2010]. Aizenman writes:

“The number of foreigners willing to invest $500,000 to $1 million in a U.S. business in exchange for a visa roughly tripled in the past fiscal year, as dozens of cash-strapped enterprises and local governments scrambled to attract wealthy foreign backers through a previously obscure provision of immigration law. Under the EB-5 visa program, immigrants who can demonstrate that their investment created or preserved at least 10 U.S. jobs after two years are granted legal permanent residency along with their spouses and children. Although immigrants are allowed to establish businesses under the program, most prefer to invest in ‘regional centers’ — public or private enterprises that are certified by the government to receive funds from EB-5 investors and that can count jobs indirectly created by the investment toward the 10 required. The minimum outlay mandated is $1 million, but immigrants can reduce that to $500,000 by investing in a regional center or establishing businesses in areas designated as economically disadvantaged.”

At a time when small businesses are still having difficulty raising capital, hooking up with a foreign investor seems like a good idea. These are obviously not economically disadvantaged individuals who are going to be a drain on scarce government resources. They are people who can help create jobs for people who will pay taxes and bolster local economies. Are there downsides to the program? Aizenman admits that even “some avid proponents of the EB-5 program … worry that a profusion of fraudulent or ill-advised ventures might soon flourish alongside legitimate ones.” On the whole, however, the benefits seem to outweigh the risks. Another point made by Aizenman is that we are not talking about big numbers. He reports:

“Stephen Yale-Loehr, a professor at Cornell University’s law school and executive director of a trade association of regional centers, said the number of EB-5 visas being granted falls well short of the maximum 10,000 allowed each year.”

In a surprising twist for Congress, where it has been said that the aisles are getting wider and politicians arms are getting shorter, the EB-5 program has attracted cross-aisle, bipartisan support. The reason: the politicians realize that the program creates jobs. I suspect that there are a lot of unemployed workers who would gladly have an immigrant employer if he or she could promise a steady paycheck and livable wage.