War For Talent: Silicon Valley

Labor protectionism is ascendant. A microcosm of this mood swing can be found in this BBC News story tracing the liberalization of immigration in the United Kingdom. The journalism is excellent and the associated broadcast is worth a listen. It raises the question, "Is there a limit to the benefits of attracting foreign-born talent?"

We know through experience that a nation's tolerance for newcomers falls far short of infinite. Some periods are more xenophobic than others. The populism stemming from the latest financial crisis threatens to derail global geographic mobility at a time when many wealthy countries can least afford it.

The best American example of this policy paradox is Silicon Valley. This region's dependence on foreign-born talent is renown. The economic implosion of California (the birthplace of US immigration law) is now revealing systemic neglect of local human capital:

Foreign-born talent, particularly in science and engineering, has been a linchpin of the Valley's success in past decades, but that dynamic is at risk, Hancock believes.

Fully 60 percent of the Valley's science and engineering workforce was born outside of the United States, mostly from India, China and Korea, according to the Index.

But "some who have lived and worked here for years are beginning to 'go home,'" observes Tom Friel, retired board chair of the executive search firm Heidrick & Struggles.

"This is a troubling trend, exacerbated by our dysfunctional national immigration policy agenda, and if not addressed will have significant negative impact on our future as a region."

In addition, the percentage of foreign-born students earning science and engineering degrees in Silicon Valley has declined since 2003, dropping from 18 percent to 16.6 percent in 2007. The influx was hit first by tightened restrictions under Homeland Security after Sept. 11, Hancock said.

Friel stressed the importance of supporting education and training for the local population, "natural and immigrant alike," and doing whatever possible to keep the region attractive to talent from around the world.

At the same time, he said, "I don't think it's realistic or healthy to continue to rely on such a large inflow of engineering and science talent from abroad, particularly from Asia. This inflow has been the source of much of the Valley's historic edge in innovation, but conditions for these immigrants, support for their education, financing for their business ideas, have improved in their home countries and declined here."

Even as attracting and retaining top talent remains important to the region, California's investment in higher education is declining. While the total number of science and engineering degrees has leveled off, the percentage conferred to foreign students has been sliding in both the state and nation as a whole, the report notes.

"California state policy has become a hindrance to our innovation potential, not only because of our failure to invest but also because our government is not addressing important problems," Hancock said.

Friel added, "Many in the region, including some in our local and state leadership, somehow have come to believe that we occupy this position of leading economic region by divine right rather than hard work, prudent investment and sound policy.

"Nothing could be more wrong or more dangerous for our future in my view than this sense of entitlement and complacency.

"What we have been able to do historically, other countries and regions can also do and are beginning to show that they can and will."

This scenario is similar to that of Nevada or Florida, all the boomtown communities growing fat off of in-migration. Silicon Valley has been a net-migration loser for quite a few years. In terms of voting with one's feet, the dominant pattern is that life is elsewhere. As for schools, why spend more money on education when brains are so anxious to move in from China and India? Perhaps no region in the entire United States benefited more from US immigration policy than Silicon Valley.

Read the report yourself. The picture is dire if immigration to Silicon Valley were to dramatically decline for any reason. As for the domestic production of such talent, I'll point you towards Thursday's post. The hotbed of innovation par excellence was built on brain imports not only from other countries, but other states.

The marriage between local universities and regional economic development initiatives could undermine boomtowns accustomed to substantial in-migration of college graduates. The spillover from research is attracting the likes of Google. A new round of winners will be the cities that have invested heavily in deriving a talent dividend organically. It isn't a strategy that other places can simply adopt and quickly get back into the game.

There is substantial spillover from research universities into Silicon Valley (e.g. Stanford). That, too, is immigrant driven. The growing populist backlash is bad news. However, recent history suggests a more moderate response is the most likely outcome. Keep your fingers crossed, Silicon Valley.