Innovation is generally viewed as an almost universally positive thing. Economists, dismal scientists that we are, often point out its negative impact on certain job categories and the environment, when downstream effects are left unchecked. But it’s good for our brokerage accounts, 401k’s, businesses, and investments.
Immigration, interestingly, also has its effect on jobs and the environment, but, unlike innovation, is quite a polarizer. It is viewed very negatively on local levels in the short run, but positively in the longer historical perspective. So, let’s explore the link between these two things, and at least attempt a balanced view.
Innovation is directly linked to productivity, and in the last two decades it transformed industries and businesses where science, engineering, math, and technology have been playing key roles. Fracking invention revolutionized oil extraction and put the US back on the map as one of the leaders in the industry. Biotech and AI brought huge advancement to medicine, finding a cure or making giant steps in its direction, for many previously deadly maladies. Cars today have more electronics than mechanical engineering in them. Agriculture is getting an immense productivity boost from the Internet of Things, Robotics and Satellite technology. The effectiveness of charity and non-profits goes way up when grants are tracked through smart contracts on Blockchain. Banking, shipping, retail, anything, really. It would be hard to find an industry that has not benefitted from innovation lately, in the “old” and “new” economy alike. Some faster than others, but the pandemic crisis has forced even the worst of laggards out of the swamp.
Who’s driving it? If we assess it in the number of patent filings, science and technology graduations, top positions at the top 50 VC firms, founders and CEOs of high performing technology companies – the share of immigrants of first or second generation in them is disproportionately high, double the rate of natives in some cases. And if we look at the US map, states that have higher concentration of foreign-born workers have seen a higher rate of acceleration in productivity growth over time. National Bureau of Economic Research found a “causal impact of immigration on innovation,” having analyzed it for the US county by county, and the more educated the immigrants, the stronger the effect. So, if you profit from innovation or enjoy its benefits as a consumer, bring more talent in from everywhere.
But, if immigration drives innovation, why are protectionist measures so popular? Blocking people, companies, and mobile apps (TikTok in the US, Gmail in China, LinkedIn in Russia, etc.) has the same impact on markets and economy as any protectionism – competition goes down, prices go up. So – why? Simply put, it is due to local optics and short-term effects on local budgets, most significantly – on public schooling costs, especially in areas where less educated, lower income newcomers dwell. Over time, the cost of educating immigrants brings high rewards to the economy through small business, job creation, and tax revenue, but on the ground level and in the moment that is often hard to see. The deeply rooted ‘othering’, the fear of invaders who are different, is not helping, either.
Data shows that the highest rates of immigrant workers in proportion to the natives accumulate both at the lowest AND the highest ends of the jobs spectrum. The middle – in personal services, media, management, which is often heavily dependent on communication skills and cultural references – is comfortably occupied by the locals. Comfortably, that is, until innovation takes over through Artificial Intelligence, Blockchain, Chat Bots, Internet of Things, and other advancements that don’t need visas. In a way, immigration competes with the low and the high end, while innovation threatens the middle of the workforce. So, the World Economic Forum’s call for a reskilling revolution goes to all categories of workers: those who have their jobs taken over by technology, and those who see theirs lost to cheaper labor and offshoring.
The overall percentage of immigrants in the US population, when last measured, stood at 13.1%. It is the largest such population worldwide. Percentage-wise, it has not been this high since 100 years ago, and then – the immigration quotas of 1920s squashed it. If history were to repeat itself, and immigration flows were to dry up due to politics and this pandemic, what effect would this have on innovation? Last time, invention rates at US firms and universities fell during the trough in immigration by more than 50% for some of the key areas and industries of that era.
If this happened again and the US lost its edge, who would benefit? India, China, and Canada, most likely, according to NABE. Over time, positive effects of entrepreneurial and gifted human capital working in countries of their origin, can lift national productivity rates there, and may lead to broader distribution of wealth and progress across the globe, diluting its concentration in the United States, which may or may not be seen as a good thing.
So, whether you are in the US, the EU, or elsewhere, you get immigration flows that your economy earns and deserves, and the equation still stands: Immigration=Innovation. Our advice is: either fear and hate it, all of it, because one produces and drives the other, and if you are not up, you are out; or, upskill and love it for all the amazing growth it brings to your skills and your investment portfolio.