October 3rd, 2012
12:01 PM ET

Why Silicon Valley is losing its luster

By CNN Global Public Square

For more “What in the World,” watch "Fareed Zakaria GPS" on Sunday at 10 a.m. and 1 p.m. ET

Silicon Valley has been a key driver of U.S. growth in the last two decades. Just look at the rise of Apple, Google, and Facebook, and all the jobs and opportunities and new communities they’ve created. But the “secret sauce” behind this success might be running out.

A new book caught my eye this week. It’s called The Immigrant Exodus by Vivek Wadhwa, a former tech entrepreneur who now studies and lectures on immigration. He has some fascinating findings. Wadhwa says between 1995 and 2005, more than a half of all Silicon Valley tech companies were founded by immigrants. But when Wadhwa updated his findings to 2012, he found the proportion of immigrant-founded companies had dropped by a sixth – from 52 percent to 44 percent.

Now, that might seem like a small drop, but it’s actually a ratio that should be rising, not dropping. You see, the tens of thousands of highly skilled immigrant engineers from the mid-1990s are now in prime position to found companies. According to the 2012 “Open for Business” study, immigrants are twice as likely to start a business as native-born Americans. And yet Silicon Valley is seeing a decline in immigrant-founded companies.

Silicon Valley tends to be a harbinger of things to come in the national economy. Immigrant-founded companies nationwide accounted for the creation of nearly half a million jobs between 1995 and 2005.

So why are we seeing a “reverse brain drain”?

On the one hand, we’re now seeing a tangible impact of what I call the “rise of the rest.” The U.S. remains a pre-eminent power, with the best institutions of higher learning and research in the world. But increasingly, if you’re an immigrant from India, China, or Brazil, you can find competitive opportunities for growth at home, too. As these economies continue to develop, they will invest more in research and infrastructure, making businesses more attractive.

But another development – one which we control – is even more worrying. We’re losing our huge advantage in immigration, especially in skills-based immigration. Our system is broken. Wadhwa points out that we allocate 140,000 “green cards” (or permanent residency status) to people who are here on work visas. These green cards allow workers to jump ship from working for a company, to starting something on their own; to being entrepreneurs who create jobs.

But the law stipulates that no nationality can claim more than 7 percent of these cards. Now, given that half of the applicants are Indian and Chinese – the same communities that are dominant in Silicon Valley – we have a problem.

The irony is that for once, both President Obama and Governor Romney seem to agree we need to fix the problem. But even then, our politics are failing us. A bill last week to expand the number of green cards allotted to foreign students in the STEM fields – science, technology, engineering, and mathematics – was voted down in Congress.

On a recent primetime special on CNN – “Fixing Immigration” – I pointed out that both Canada and Australia now have larger foreign-born populations than the United States. Both those countries revamped their immigration systems to attract and keep the best and brightest foreigners. But we’re closing the door to many of the smartest potential entrepreneurs in the world. If we want job creators, let’s stop kicking them out of the country.

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Topics: Economy • Technology • What in the World?

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