Wednesday, August 25, 2010

Geographic Mobility And Innovation

The talent churn within a region is just as important, if not more so, as the flows between regions. A provocative post from Mike Madison reminded me of the connection:

Here's my plug for a change to PA law that would positively impact the local economy: Abolish the enforceability of employee noncompetition agreements. Adopt a rule that essentially mirrors the law in California -- where noncompetes are unenforceable, except in a small number of exceptional cases -- and abolish the current PA rule, which makes noncompetes enforceable so long as they are "reasonable" in duration, geographic scope, and (job) market scope.

Folks familiar with the literature will recall Annalee Saxenian's work comparing the California high tech economy with its counterpart in Massachusetts, along with other, related work by Ron Gilson that associates historical differences in growth rates in the two states with their different approaches to noncompetition agreements. Massachusetts, like PA, has enforced them.

Mike is referencing Saxenian's book "Regional Advantage". She is also the author of "The New Argonauts". The liberal movement of talent between firms is scaled up to the migration between nation-states. The knowledge exchange acts as a catalyst for innovation and economic development, in both countries. A recent example concerns China and Canada:

When the [internationally educated professionals (IEPs)] return to their countries of origin, there is often an assumption that this reverse-migration amounts to "brain drain," a phenomenon that is historically associated with poor and developing countries. While some authors have observed certain benefits of the trend to transnational migration, such as bilateral trade and investment, most researchers believe that this reverse-migration has defeated the objective of using IEPs to enhance Canada's knowledge economy and innovation performance.

However, at Ryerson's International Research Institute, our extensive research and fieldwork with the Chinese community in Canada suggests that the transnational entrepreneurial activities carried out by the IEPs may benefit Canada as well as China, and thus this transnational flow offers opportunities for a healthy circulation of knowledge between both countries

First, the Chinese transnational entrepreneurs (TE) are highly skilled and educated, professionally established and likely to have educational credentials and work experience in both China and Canada--indeed, in some cases, individuals have a multinational resume of education and work experiences beyond the two countries. Rather than clearly repatriating to China, an increasing number of these professionals have adopted a transnational lifestyle with Canada as their home base. A key difference between the transnational and the returnee segments of the immigrant community is that the transnational entrepreneurs are more likely to maintain a strong desire to engage Canada in their cross-border entrepreneurial endeavours in addition to choosing Canada as their home base.

Second, given the TEs' skills and educational backgrounds, their business tends to entail knowledge flows and technological innovations. Depending on factors such as the types of the industry and nature of the innovation, a TE may choose to engage China in a variety of ways. In other words, TEs have followed different mechanisms to link Canada and China in crossborder innovation activities. Evidence shows that Canada can reap broad benefits from such cross-border activities by: ...

Scaling things back down to Mike's suggestion, I applied the brain circulation model to the Google Diaspora. Google benefits from top talent leaving to work for other competing companies. Jealously guarding your best employees can stifle growth.

Daily, I read about applications of this framework. Today, Manpower is claiming the recent xenophobic mood swing is threatening the recovery:

The global staffing and employment services company says employers, governments and trade groups need to collaborate on strategic migration policies that can alleviate worker shortages. Skilled work is usually specific to a given location: the work cannot move, so the workers have to.

"Countries should be developing policies which facilitate positive migration to fuel economic growth through providing skilled workers where they are needed, rather than creating barriers to immigration," Manpower Chief Executive Jeff Joerres said in a statement.

The shortage of skilled workers is the No. 1 or No. 2 hiring challenge in six of the 10 biggest economies, Manpower found in a recent survey of 35,000 employers. Skilled trades were the top area of shortage in 10 of 17 European countries, according to the survey.

With unemployment so high (and likely structural in nature), liberalizing immigration policy does not appear to be forthcoming. The opposite is happening and the labor market will get tighter. I'll write it again. Discouraging geographic mobility is a detriment to economic development.

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