September 20, 2016
Is U.S. Losing the War for Talent?
by Vivek Wadhwa
Of 191 "unicorns" worldwide, 42 are in China and eight in India. There were almost no blockbuster technology start-ups in Asia a decade ago.
Apple is facing accusations that it copied Chinese innovations in the iPhone 7. Indeed, China’s smartphone manufacturers released dual-camera systems and handsets without headphone jacks long before Apple did. And the stickers and animations that Apple is adding to iMessage look like a direct knockoff from China’s WeChat. This is quite a twist from the days when Apple accused the Chinese of copying its inventions. The reality is that America’s most innovative company is no longer the world’s most innovative company. Entrepreneurs all over the world are producing innovations that rival what you see in Silicon Valley.
This is also evidenced in the numbers of billion-dollar technology start-ups, or unicorns, that are sprouting up all over the world. Of the 191 unicorns worldwide, 42 are in China and eight in India, according to CrunchBase. Yes, more than 105 are in the U.S., but you would hardly have found any blockbuster technology start-ups in Asia as recently as a decade ago. Today, Chinese Internet companies, such as Alibaba, Baidu and Tencent, are among the most innovative and valuable few in the world.
The world’s entrepreneurs used to dream of coming to Silicon Valley because it was the innovation capital of the world and there were few opportunities elsewhere. This is no longer the case, as I learned during my recent trip to New Delhi. There are start-up incubators sprouting up all over India, and the quality of the start-ups is second only to those in Silicon Valley and China, which are running head to head.
See also: Insurtech Ecosystem Emerging in Asia
I spoke to about 50 entrepreneurs at local incubators and meetups. Unlike earlier generations, very few had interest in moving to the U.S. Most said they believed the greatest opportunities were in India. As technology designer Himanshu Khanna said, “Why should I move to Silicon Valley when I have a market 10 times as large here?” Five years prior, Khanna had asked me to sponsor him for a long-term U.S. visa, which he could not get.
The tide has surely turned.
For decades, the U.S. invited the world’s best and brightest to come and study at its universities and provided them with temporary work visas. But it placed tight limits on the numbers of permanent-resident visas for those who wanted to stay, so the lines grew longer and longer. My research team at Duke, Harvard and NYU documented that there were, as of October 2006, more than a million skilled workers in “immigration limbo” in the U.S., with only 120,000 green cards being made available every year for their work categories. Ten years later, I estimate the number of skilled workers in limbo is roughly 1.5 million. I explained in my book, The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent, that this would lead to a reverse brain drain. That is exactly what happened.
Hundreds of thousands of highly skilled workers as well as the graduates of top American universities have returned home because of America’s flawed immigration policies. They are in leadership roles at top research labs and at the unicorns in China and India. America has lost an entire generation of entrepreneurs and innovators and bolstered its global competition. That is also why the proportion of immigrant-founded start-ups in Silicon Valley fell from 52% in 2005 to 44% in 2012 and is probably even lower today.
It is in this context that the Obama administration announced its last-ditch effort to reverse the tide. On Aug. 26, the Department of Homeland Security (DHS) proposed a rule to allow foreign entrepreneurs to enter or remain in the U.S. and work at qualifying start-ups. This uses the parole authority under which the president, through DHS, can permit certain individuals to temporarily stay in the U.S.
But the president’s immigration authority is very limited, and this is a very short-term and very constrained fix. The start-up entity must have been formed within the three years before an application for entrepreneurial parole; the entrepreneurs must own at least 15% of the entity; only three foreigners can be employed by the start-up; and the applicant must prove that the start-up has “substantial potential for rapid growth and job creation” by receiving investments of capital totaling $345,000 or more from established U.S. investors with a history of substantial investment in successful start-up entities or at least $100,000 in grants or awards from local, state or federal government entities.
This is not a slam dunk for entrepreneurs wanting to come to the U.S. — and it provides no clear path to permanent residency. Also, to become effective, the rule must undergo a 45-day notice and comment period in the Federal Register. Nevertheless, if it takes effect, it will be better than nothing: it will probably lead to several hundred start-ups moving to the U.S. and creating tens of thousands of jobs here.
See also: A New Frontier for Venture Capital
What are needed even more badly are DHS rules that let foreigners on temporary work visas change jobs rather than be subject to abuse by their American employers. Present rules prevent employees from changing jobs while they wait for their green cards, which often take one to two decades to arrive. This disadvantages both the workers on temporary visas and American workers, because it allows employers to artificially depress salaries. The foreign workers also cannot start companies, so those who could have created jobs here are getting frustrated and returning to their country of origin.
Immigration has become a toxic subject in the U.S., thanks to the xenophobia being served up in the election campaigns. Though the use of presidential executive privilege is no substitute for lack of governance on Capitol Hill, we do need to enact rules to improve the dire situation. The country’s competitiveness is at stake now more than ever. To quell the social disenchantment that is creating resentment toward immigrants, we need economic growth and job creation and we need to welcome those who would bring about both.