Foreign Policy: Insourcing
he U.S. presidential election quickly seems to be turning into a battle of "who-outsources-least." President Barack Obama has taken to referring to Republican candidate Mitt Romney as an "outsourcing pioneer" during his tenure at private equity firm Bain Capital. The Republican National Committee has countered with a new website accusing Obama of enriching foreign firms and workers with U.S. stimulus money.
The concern over outsourcing certainly hits a political nerve among the electorate — and it makes sense during a time of high unemployment. But if the campaigns want to really focus on what accounts for America’s sluggish economy, they should spend less time focusing on who is sending jobs overseas and more on who can actually bring skilled workers into the United States — or keep them there. America’s real outsourcing crisis is not firms moving manufacturing to other countries, but the thousands of potential entrepreneurs and job creators who are prevented from setting up shop in America because of immigration laws.
After years of stalemate, recent weeks have seen a number of developments give hope to advocates of U.S. immigration reform. First, Obama stirred the pot with an executive order on June 15 calling on federal law enforcement to stop prosecuting the offspring of illegal immigrants — children who likely would have qualified for the perennially politically challenged DREAM Act, which would establish a path to citizenship for upstanding people brought into the country by illegal-immigrant parents. Obama’s order at least ensures that these young people can remain in the United States and work without fear of deportation.
Then, the U.S. Supreme Court struck down key parts of Arizona’s SB 1070, a draconian piece of legislation that turned the entire state into a "stop-and-frisk" zone for anyone unlucky enough to possess nonwhite ethnic facial features. The law also forced the hand of law enforcement agencies, essentially mandating arrest for anyone who failed to produce the precisely required papers. (In fact, a similar law in Alabama snared Japanese and German automotive executives tending their stateside factories. It made for a funny news story, but incredibly shortsighted economic policy.)
However, the most important reason to revisit immigration reform has largely remained off the political radar: namely, that high-skilled immigrants could provide a tremendous boost to the U.S. economy in a very short period at virtually no cost to taxpayers. It’s taken as a truism in American politics that start-ups and small companies drive the majority of the country’s new economic growth and job growth. The pundit class has repeated ad nauseam that the economy and unemployment numbers will likely make or break Obama’s reelection campaign. But frozen by fears of a nativist backlash, both Obama and Romney have refused to discuss immigration as an economic issue.
Maybe they should. Research indicates that immigrant entrepreneurs have achieved astonishing inroads in launching technology start-ups in the United States. Foreign-born immigrants dominate the ranks of technology entrepreneurs in Silicon Valley. In U.S. postgraduate programs in hard sciences, foreign-born students comprise more than 50 percent of classes focused on science, technology, engineering, and mathematics (STEM). And these students want to remain and build businesses in America — if the country lets them. So it seems like a no-brainer. Let in more high-skilled immigrants to stoke the U.S. economy and pander to a fast-growing political base. In fact, the only constituencies that arguably would not benefit from America’s allowing in more skilled workers would be countries like China, India, and Brazil, which are currently benefiting the most from the legions of U.S.-educated and U.S.-trained workers who are returning home and boosting innovation and entrepreneurship there.
A simple set of changes to existing immigration policies would go a long way toward driving immediate entrepreneurial growth. The United States should make it easier for the more than 500,000 highly skilled foreign workers who are in the country on work visas and who are trapped in "immigration limbo" to start companies and stay permanently. It should also make it easier for foreign entrepreneurs in high-growth sectors (technology, biotech) to relocate to the United States from abroad. And the U.S. government should make it easier for advanced-degree holders in science- and technology-related disciplines to secure the right to work in the United States.
In my research I have found that, between 1995 and 2005, over 50 percent of technology companies started in Silicon Valley included at least one co-founder who was foreign-born. Nationwide, 25 percent of technology companies founded in this period had a foreign-born co-founder. An even higher percentage, in both cases, had a foreign-born person as a member of senior management. The largest percentage of these co-founders came from India and China (both mainland and Taiwan). These immigrant-founded companies generated $52 billion in revenues and created 450,000 jobs over this 10-year span. They likely paid billions of dollars into U.S. government tax coffers as well.
Less than 2 percent of these entrepreneurs came to the United States specifically to start a company. Most came for work or family reasons. And already there are more than 1 million skilled immigrants and their families currently residing in the United States on temporary work visas. They are already acclimated to American culture and, with immigration reform, could be freed to start companies. But present laws don’t even allow them to work for start-ups that they found.
Students are increasingly seeing greener pastures abroad and are returning to their home countries after they graduate. This is largely because it has become harder and harder for them to secure work in the United States after they get their degree. In effect, the country is training students — often with government subsidies and grants — and then telling them to go to other countries to generate economic value or start a company. The United States has a pool of skilled workers who would be the envy of countries the world over and is telling them they can’t stay. New York Mayor Michael Bloomberg wasn’t exaggerating when he described the U.S. immigration policy as "national suicide."
It’s worth examining how the system works in other countries. If a tech start-up wants to launch in Chile, the government rolls out the red carpet. Entrepreneurs get $40,000 grants, free office space, and expedited visa clearance. There are no strings attached — provided the entrepreneur relocates to Chile and spends at least six months launching his or her idea. Australia, Britain, Canada, Germany, and Singapore all offer variations on this theme as part of aggressive efforts to recruit entrepreneurs. For its part, the Chinese government has pursued a particularly aggressive effort that includes awarding coveted city residency passes, free ownership of apartments, prestigious university posts, and outright cash grants to highly skilled returnees. Contrast this with Silicon Valley, where many foreign-born entrepreneurs spend a considerable amount of time, energy, and money worrying about their immigration status and the whims of the Department of Homeland Security (which has subsumed the immigration enforcement functions of the U.S. government).
The net effect is simple. Entrepreneurs may still prefer to locate in the United States due to the tremendous pools of accomplished workers and intellectual capital. But more than ever before, they are considering relocating their operations to, or founding their company in, other countries, which have made it clear there are real options beyond the erstwhile Land of Opportunity.
Poster children for this trend are emerging. Facebook co-founder Eduardo Saverin may have garnered notoriety as a tax dodger when he renounced U.S. citizenship prior to the company’s initial public offering. But Saverin, who has lived in Singapore for some time, countered that Singapore is actually an environment more conducive to launching Internet companies focused on Asia. He’s absolutely right.
The United States can begin to stop the bleeding by making it easier for skilled immigrants who are already in the country to stay — let’s think of it as a kind of white-collar DREAM Act. The fastest path to economic development is with the existing class of resident immigrants. And smoothing the road (without subsidies) for technology start-ups and their foreign-born founders or workers exerts minimal societal cost. Putting these reforms in place could go a tremendous way toward boosting the U.S. economy. In fact, we’ll see the impact within just a few years. You wouldn’t think that making these smart choices requires a visionary leader — but today it does.
In an ideal world, the campaign debate would not be about how to keep immigrants out and jobs in, but how to bring in the people who can create jobs in America.