Immigration has always been the engine that drives the American economy. In Silicon Valley, foreign-born entrepreneurs have founded half the region’s startups in recent years - and kept the U.S. economy moving forward. So what happens if that innovation engine stalls? We’re about to find out.
A new study shows the number of immigrant-founded startups in Silicon Valley has tumbled from 52.4% to 43.9% since 2005. The study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University.
Wadhwa has authored numerous studies on the topic of entrepreneurship and immigration. He says the findings of his new study are discouraging - but not surprising:
“I had a hunch this would happen. I predicted five years ago that if we didn’t fix our immigration policies we would have a reverse brain drain. Then the Kauffman Foundation came to me to update my research from 2006 because they were seeing entrepreneurship stagnate in the U.S. They were not seeing any significant increase and the economy badly needs it.”
What did surprise Wadhwa is how drastically immigrant entrepreneurship has slowed.
A Shocking Decline
“I was shocked,” he says. “I thought maybe immigrant startups in Silicon Valley would drop to about 50% or 49%, because it’s only been six or seven years since I did my last research and numbers don’t shift that rapidly. But when I saw the early numbers come in at the low 40s I was shocked.”
Wadhwa increased his sample size but the numbers didn’t budge. They show the immigrant innovation engine in Silicon Valley has sputtered to a halt. This is not good news for the national economy.
Anti-immigrant groups have questioned Wadhwa’s research, claiming the number of immigrant-founded startups is down because the number of American-founded startups is up.
Nice try. Not true.
“That’s not the case at all,” Wadhwa says. “We’re not having more native-founded startups, we’re just having fewer startups.”
But what about the tech bubble all these analysts are hyperventilating about? What about SocialCam and Airtime and Pinterest and Evernote? What about 99Dresses?
Mostly hype, Wadhwa says. It may look like a big fireworks show in Silicon Valley but it’s a sparkler in the driveway compared against past eras. “This so-called boom in startups is pretty weak compared to other periods.”
America's Loss Is The Rest Of The World's Gain
Meanwhile, the super-companies of the future are launching in other countries.
“We will have thousands and thousands of entrepreneurs starting their companies in other countries when they could have been starting them here,” Wadhwa says. “And they will be competing with us. We will wake up five to seven years from now and see Google-like companies coming out of India and China, founded by people who came out of Silicon Valley but had to return home.”
He points out that the impact of Google extends far and wide, because people leave Google and start new companies of their own. And when all that innovation is happening elsewhere, Wadhwa says, “then we’ll ask ourselves, ‘What were we doing? Why didn’t we have them here?’”
Stupidity Is The Problem
“Because of our stupidity and our immigration policies,” Wadhwa believes.
Wadhwa says every Silicon Valley company and VC he’s asked - without exception - has told him that the difficulty in hiring immigrants is hurting them.
He thinks three policy changes would quickly ease the problem.
- Make more green cards available.
- Untether H-1B visas from employers and allow immigrants to carry them from job to job.
- Create a “startup visa” and issue it to immigrants who want to start companies here.
Wadhwa points out that other countries issue startup visas and estimates that if the U.S. did the same, there would be tens of thousands of new startups here in short order.
Instead, Capitol Hill is busy stringing barbed wire. Recently Congress shot down the STEM Jobs Act, which would have increased the number of green cards available to foreign-born graduates with advanced science, tech, engineering and math degrees.
“Our politicians are acting like juveniles and not fixing our problems,” Wadhwa complains. “And I’m pessimistic because the problem should have been corrected by now and it has not been corrected. This is a landslide of a drop. This will become a national problem.”
It already is.
Lead image courtesy of Shutterstock.