America is losing its allure for foreign tech entrepreneurs

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 are 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. And 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 startups, 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 startups in Asia as recently as a decade ago. Today, Chinese Internet companies such as Alibaba, Baidu, and Tencent are amongst the most innovative and valuable few in the world.

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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 startup incubators sprouting up all over the country, and the quality of the startups is second only to those in Silicon Valley and China — which are running head to head.

I spoke to about 50 entrepreneurs at local incubators and meetups. Unlike earlier generations, very few had interest in moving to the United States. Most said that 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?” Khanna had asked me to sponsor him for a long-term U.S. visa five years earlier, which he could not get.

The tide has surely turned. For decades, the United States 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. My estimate is that the backlog has now increased to more than 1.5 million. I explained the consequences of this in my book, The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent: that it would lead to a reverse brain drain.  And this 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 startups in Silicon Valley fell from 52% in 2005 to 44% in 2012 and is probably even lower now.

It is in this context that the Obama administration announced its last-ditch effort to reverse the tide.  On August 26, The Department of Homeland Security (DHS) proposed a rule to allow foreign entrepreneurs to enter the United States and work at qualifying startups. This uses the parole authority under which the President, through DHS, can permit certain individuals to temporarily enter the United States.

But the President’s immigration authority being very limited, this is a short-term and constrained fix. The startup entity must have been formed within the three years before an application for entrepreneurial parole; the entrepreneurs must own at least 15 percent of the entity; only three work visa applicants can be employed by the startup; and the applicant must prove that the startup 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 startup 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 startups moving to the U.S. and creating tens of thousands of jobs here.

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 of their own, so those who could create jobs here are getting frustrated and returning home.

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Immigration has become a toxic subject in the United States, thanks to the xenophobia being served up in the election campaigns. Though the use of Presidential executive privilege is no substitute for governance on Capitol Hill, we do need enactment of rules to improve this dire situation, because the country’s competitiveness is at stake now more than ever. To quell the social disenchantment that is creating resentment of immigrants, we need economic growth and job creation; and we need to welcome those who would bring about both.

Vivek Wadhwa is Distinguished Fellow and professor at Carnegie Mellon University Engineering at Silicon Valley and a director of research at Center for Entrepreneurship and Research Commercialization at Duke. His past appointments include Stanford Law School, the University of California, Berkeley, Harvard Law School, and Emory University. Follow @wadhwa.