To Erode our Economy: Turn Away Immigrant Entrepreneurs

Map of United States and North America
Adam Gault | OJO | Getty Images
Map of United States and North America

The best-known aphorism in economics holds that there is no such thing as a free lunch. There is, however, one glaring exception: immigrant entrepreneurs. This group of people seeks to come to the United States to start companies, create jobs, and add wealth to the economy. Yet America, once a magnet for aspiring entrepreneurs from all over the world, is increasingly turning them away.

At a time when the country is struggling with persistently high unemploymentand even skill shortagesin some areas, one can think of few better ways to erode our own economic future.

Recently, the Kauffman Foundation received an email from a European entrepreneur—let’s call him Jay—who participated in our Global Scholars program this year. This program, completely funded by foreign governments, brings in potential entrepreneurs from other countries to study and experience American entrepreneurship, develop networks, intern with entrepreneurial companies and take their skills back to their home countries. Importantly, we find that a good number of these individuals seek to remain in the United States to either start their own companies or join other startups. Even when they decide to return home, the entrepreneurial networks that have arisen out of the program are a boon to American companies.

But Jay, an engineer who landed a job with a U.S. startup during the program, is being denied re-entry to the country. In his case, the denial stems from a third party error related to the type of visa he acquired. Once the mistake was discovered and rectified, however, American immigration officials still refused to allow Jay back in. As he put it: “I am trying to bring in money from Europe to the States. Why not let me enter the country?!”

This is not an isolated example. Last year, we received a call from a technology startup whose Finnish co-founder was stuck in Europe because the United States refused to grant him a visa. And in surveys of Indian and Chinese entrepreneurs, entrepreneur-turned-academic Vivek Wadhwa has found that an increasing number of them are leaving the United States to start their companies. In some cases this reflects more promising opportunities in their home markets, but in others it reflects silly immigration policies.

True, the plural of anecdote is not data, but it is difficult to ignore the continuous amassing of such anecdotes and, in any case, some researchers have found more systematic evidence. Immigration attorney Malcolm Goeschl has investigated the adjudication process for H-1B visas conducted by U.S. Citizenship and Immigration Services (USCIS). He found that, while the law on the books is generally conducive to allowing American entrepreneurs to hire immigrant co-founders and employees, implementation of that law is far less friendly. In recent years, Goeschl observed, USCIS “has made it increasingly difficult for startups and small companies to hire highly qualified foreign nationals through H-1B sponsorship.” The Administrative Appeals Office usually does not reverse these decisions, and immigration lawyers say denials for small companies have risen.

This is sheer madness. Ample academic research has demonstrated that immigrant entrepreneurs make disproportionate contributions to the American economy. Wadhwa found that, from 1996 to 2005, immigrants founded or co-founded one quarter of technology and engineering companies in the United States, creating thousands of jobs in the process. Historian Thomas McCraw has written about the enormous role immigrants played in the rise of American finance, helping create the world’s most sophisticated financial system. Recently, in the wake of Steve Jobs’ death, several commentators have pointed out that three of his four parents (birth and adoptive) were children of immigrants.

Choose whatever justification you like—we have always been a nation of immigrants; immigrant entrepreneurs create companies, jobs, and wealth; many successful entrepreneurs were either immigrants or their children. If you are of a more utilitarian bent, you might point out that American universities educate a huge number of foreign-born students—they earn well over half of science and engineering Ph.D.s—but then we send them home. The cost-benefit calculation doesn’t compute.

This is not a passing issue, but one that will only exacerbate our economic difficulties if we persist with shortsighted immigration policies. A recent report by the World Economic Forum and Boston Consulting Group highlights a “global talent risk.” In a globalized knowledge economy, the scarcest resource for which nations compete is talent. But by denying entry to Jay and millions of other potential job-creators, the United States is shooting itself in the foot.

At minimum, the United States should create a “startup visa” for immigrant entrepreneurs—legislation to do exactly this has already been introduced in Congress. Increasing the number and allocation of H-1B visas would also be a good idea, and Goeschl additionally suggests that, to preclude misguided implementation, Congress should provide crystal-clear guidance to USCIS so that immigration officers stop discriminating against startups and small firms. Granting visas to foreign students who graduate from American universities would also increase the supply of talent in the U.S. economy.

Immigrant entrepreneurship is as close as this country can come to a free economic lunch, and the changes suggested above would have immediate benefits at a time when economic growth is imperative. If we’re so hungry, why are we passing on free lunch?

Dane Stangler is research director at the Kauffman Foundation, a sponsor of Global Entrepreneurship Week (Nov. 14-20).