Will Immigration Overhaul Jump-Start America’s Entrepreneurial Engine?

Buried in the 800-plus pages of the Gang of Eight’s Senate immigration overhaul are provisions that may help spark a resurgence of entrepreneurial activity that this country sorely needs.

Until the Great Recession of 2008-09, 500,000 to 600,000 new businesses were formed every year in the United States. In 2009 and 2010, that number fell to the 400,000 range, a disturbing trend for at least two reasons.

As I have written with Carl Schramm in Better Capitalism (Yale University Press, 2012), startups are important because they have been responsible, at least until recently, for virtually all net new jobs. The drop in the rate of business formation is a major reason why the U.S. economy has failed to generate jobs during this recovery at anywhere close to the pace of prior recoveries.

Entrepreneurs are critical for another reason: they have a strong record of commercializing revolutionary technologies. Think of the telegraph, telephones, airplanes, cars, air conditioning and computers — all technologies that help define our modern society. And what do they have in common? Each was brought to market by entrepreneurs.

There is a vigorous debate among economists about the future of innovation in this country. Some say our best days are behind us; all low hanging fruit has been picked. Others counter that the doubling of computing power every 18 months or so (“Moore’s Law”) will spawn dramatic innovations in a broad range of industries — health care, education, retailing, automobiles, to name a few — and that the best is yet to come.

America’s willingness to take in more — a lot more — immigrant entrepreneurs should play a major role in which innovation scenario actually plays out. Vivek Wadhwa has shown through a series of studies that immigrants have founded or co-founded a quarter of successful high-tech companies in the U.S., and have the same share of patents.

With this kind of job- and innovation-creating record, one would think that U.S. policy makers would be tripping over themselves, especially during this sluggish recovery, to make it as easy as possible to attract immigrant entrepreneurs, giving them legal resident status so they can build their businesses and hire other Americans. The U.S. is competing against other countries, such as Chile and Canada, which also are trying to attract entrepreneurs.

Too few elected officials have been engaged in this issue, until the introduction of the Gang of 8’s proposal. Some quick history here is useful to know how the Senate compromise came to recognize a critical role for immigrant entrepreneurs, although for reasons laid out shortly, I believe that the compromise doesn’t go far enough.

In 2010, then-Senator John Kerry (now Secretary of State) co-sponsored a bill with then-Senator Richard Lugar that would have created a new “startup visa.” It was conditioned on $250,000 in outside investment, and the number of such visas was subtracted from other visa categories. A bipartisan group led by Senators Jerry Moran (R-Kansas) and Mark Warner (D-Va.) introduced successive versions of a more general Startup Act in subsequent years, which included a significant expansion of the number of visas for immigrant entrepreneurs (eventually 75,000 in one of latest versions) and less restrictive financial requirements (as little as $100,000 in capital investment, and the hiring of at least two U.S. employees with one year). If the entrepreneur hires at least five Americans, he or she could gain a permanent work visa (green card).

The Gang of Eight proposal takes the basic framework of the immigrant provisions in the Startup Act bills, creates both a temporary and permanent entrepreneur visa, and borrows similar financial criteria from the Act for the temporary one only (increasing the minimum number of U.S. employees to three).  However, when it comes to a permanent entrepreneur visa, the Gang of Eight proposal tightens up: it would require the entrepreneur to prove that he or she had attracted at least $500,000 in outside capital or had generated at least $750,000 in U.S. revenue, while meeting a five-employee threshold. In addition, and perhaps most importantly, the bill would cap the number of permanent entrepreneur visas at 10,000 annually.

In light of the substantial economic benefits that immigrant entrepreneurs could provide to this country, there is a case for relaxing the financial criteria and upping the numbers of individuals in this status. Two months ago, the Kauffman Foundation released a study indicating that the one-time admittance of 75,000 immigrant entrepreneurs authorized by the Startup Act would generate conservatively an additional 50,000 to160,000 jobs per year, and increase total output (GDP) by 0.5- 1.6% by the end of the first decade.

 These are enormous benefits. They would be even greater if more entrepreneurs were allowed into this country under less restrictive conditions than would apply to permanent entrepreneurs in the Gang of Eight proposal. If policy makers want a true resurgence of entrepreneurial activity in this country, they ought to keep this in mind when considering the entrepreneur provisions of an immigration overhaul.

For more information about the immigration proposal and about BGov, go to www.BGov.com

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