By Vivek Wadhwa (@wadhwa), Washington Post and BusinessWeek columnist, author and former entrepreneur with appointments at Duke, Stanford, Emory, and Singularity University
From all appearances, Silicon Valley is booming, but it’s a deceptive image. The sources of innovation that have always powered the Valley are seeping away, taking with them the lifeblood of a giant technology wealth machine. A steady stream of immigrant innovators are saying good-bye to America and heading home.
Rents and salaries are soaring in Silicon Valley. The tables are full for breakfast at Buck’s in Woodside and The Creamery in San Francisco, with venture capitalists quizzing young masters of the digital universe in search of the next Facebook or Instagram.
Across the Bay Area, free lunch is served, preferably organic and local. But many talented individuals no longer find the United States an attractive place.
While everyone remains busy counting the many billions in future IPO earnings or big buyouts by Google and Microsoft, few have noticed that the immigrant entrepreneurs who have increasingly driven technology sector growth in Silicon Valley are leaving for greener pastures.
Google, Instagram, Tesla, Yammer, Sun Microsystems, and PayPal all count immigrants among their key founders. So signs that the tide of immigrant founders flowing into the U.S. technology sector has reversed must be taken seriously by anyone who cares about maintaining the country’s global leadership in this economically critical area.
Legal Red Tape
AnnaLee Saxenian, Dean of the School of Information at University of California, Berkeley, documented that in 1998, Chinese and Indian computer scientists and engineers were running one-quarter of the region’s high-tech firms. In that year alone, these firms accounted for nearly $17 billion in sales and more than 58,000 jobs.
In 2006 and 2007, I worked with Saxenian to update this research. We surveyed 2,052 tech companies founded between 1995 and 2005.
The proportion of immigrant-founded companies in Silicon Valley had increased to 52.4 percent. Nationwide, the proportion was 25.3 percent, and these companies generated sales of $52 billion and employed 450,000.
That research received significant media coverage. Not surprisingly, we began to receive emails from young immigrant entrepreneurs. Rather than telling us how great it was to launch a business in Silicon Valley, or the United States in general, a significant portion of those missives contained tales of visa hell and immigration limbo.
From their viewpoint, the free-flowing ideation and the fast company formation of Silicon Valley did not match the legal red tape required for people not born in America to start and run a business in this country.
During the spring and summer of 2012, our research team conducted a follow-up survey of 2,042 tech companies with at least $1 million in revenues, the latest and most comprehensive survey to date on the topic. As in previous surveys, we included a significant cohort of companies from Silicon Valley and the Bay Area.
Our research team found significant decline in the percentage of technology companies headed by immigrants in Silicon Valley and signs of the beginning of a drop in other parts of the country.
The drop, reversing more than two decades of increases, is troubling. More troubling still, the drop occurred precisely when the country should have experienced rapid increase in immigrant entrepreneurship.
During the late 1990s and the early 2000s, the U.S. government dramatically raised the number of immigrant tech workers allowed to enter this country with H-1B visas from roughly 65,000 to 195,000, in response to the Y2K crisis and a boom in the technology industry.
These visas are the most common pathway to permanent residency in America for skilled immigrants. Silicon Valley remains the premiere destination for skilled workers in the United States.
Outside of Wall Street, engineers and technologists in the Valley earn the highest salaries of almost any profession. There should be a large upswing in immigrant entrepreneurship in Silicon Valley, yet the very opposite appears to be occurring.
Many factors contribute to this drop. The slowdown in the U.S. economy has contrasted with still-growing economies in China and India, the home countries of the largest percentages of immigrant founders. This is compounded by the challenges that immigrant tech founders face in obtaining visas.
Indian and Chinese H-1B holders face waits of 10 years or more to attain a green card or permanent residency. Once starting the process, they can stay. Current U.S. immigration law allocates no more than 7 percent of the permanent residency visas to any one nationality, and Chinese and Indian immigrants comprise far more than half of the skilled immigrant labour pool.
The result is a massive, growing bottleneck that chains skilled immigrants to employer-sponsored jobs. To make matters worse, their spouses are often as qualified as visa holders, yet prohibited from working in the United States at all.
This bottleneck has created an enormous pool of highly skilled workers and families waiting for green cards—with no guarantees. The workers could wait for green cards for the most productive parts of their career and be forced to leave with nothing.
U.S. laws mandate that if an H-1B worker gets laid off, he or she must leave the country immediately. Even skilled workers who start companies that may provide employment to U.S. workers can’t secure U.S. work visas.
Entrepreneurs who pay taxes and provide much needed U.S. technology jobs are forced to shutter businesses due to Draconian immigration policies. For example, Anand and Shikha Chhatpar started two companies that employed several workers and paid more than $250,000 in taxes. Yet the U.S. government forced them to stay in India, where they have created jobs.
Many other talented immigrants that do obtain the right to work in the United States via H-1Bs are trapped in barren career trajectories that undersell their talents. These workers can only work for the companies that sponsor their visas. Employers know they’re less likely to lose these workers than more mobile American citizens, so they offer lower salary increases and keep them in less challenging jobs.
That same immigrant is legally prevented from engaging in any outside work, stifling the creative impulses of some of the most highly skilled workers in the U.S. economy, sometimes permanently.
Other governments have taken notice of U.S. immigration-policy failings. Australia, a country of 22 million, hands out nearly as many employment-based green cards for permanent residence each year as does the United States.
The United States, Canada, Germany, the U.K., and Israel, among others, have set up streamlined visa policies to award skilled technology workers a fast path to permanent residency. Chile has taken the radical step of offering $40,000 to fund startups relocating to the country, along with subsidies for office space and initial employee hires.
The irony of all this is that the United States remains the overwhelming destination of choice for founding a company. The start-up ecosystem and institutional knowledge of how to start companies runs deep, allowing for lightning-fast transition from idea to product to sales.
As Alex Salkever and I explain in our book “The Immigrant Exodus”, with only a few simple changes to policies, the U.S. government could reverse this decline. The changes would cost U.S. taxpayers practically nothing and would accelerate job creation and innovation without taking away jobs from native-born Americans.
One simple programme — a start-up visa for foreigners to launch companies in this country— could quickly create hundreds of thousands new jobs.
For now, the United States has a protectionist labour market for technology skills. By opening up this labour market, we would ensure that Silicon Valley and other tech hubs continue to provide the spark needed to dig the economy out of its deep hole.
About the author
Vivek Wadhwa is vice president of academics and innovation at Singularity University; fellow, Arthur and Toni Rembe Rock Center for Corporate Governance, Stanford University; director of research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering, Duke University; and distinguished visiting scholar, Halle Institute of Global Learning, Emory University. He is the author of “Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent.”