More Immigration Is Good for Business

America should welcome talented foreigners with big ideas.

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To many Americans, immigration connotes under-the-table housekeepers, itinerant laborers and drug runners bolting from the Border Patrol in the southwestern desert.

That's one reason Congress has done nothing to deal with an estimated 11 million foreigners in the United Stated illegally, or with a range of outdated immigration policies. The deadlock over immigration may finally ease, however, with Congress signaling a new willingness to take up reforms this year. A bipartisan group of senators has agreed on the outlines of legislation, with President Barack Obama preparing to lay out his own plans for reform. The new push comes from the decisive role Hispanic and other minority voters played in pushing Obama over the top in last year's presidential election.

The political battle over immigration will still be tough and controversial. One problem is that many voters conflate illegal immigration with policies meant to let more foreigners into the country legally. They're really two totally different issues, and a large body of evidence shows that legal immigration is good for the U.S. economy. In fact, limits on legal immigration may even be a factor holding back job growth and making America less competitive.

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Perhaps the biggest contribution immigrants make to the U.S. economy is starting new businesses. Research by the Kauffman Foundation, which promotes entrepreneurship, shows that immigrants are twice as likely to start a new business as native-born Americans. That gap has widened over the last 10 years. Among ethnic groups, Latinos have the highest rate of entrepreneurship by far.

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Scenes from an immigration rally in Washington, DC, one of dozens of rallies held nationwide. April 10, 2006

New businesses are vital to a dynamic economy because they grow faster and create more new jobs than established businesses. That's especially true when big, global companies are cutting back and consolidating, as many U.S.-based multinationals have done over the last five years.

New businesses can be broken into two different types: low-tech and high-tech. Low-tech firms started by immigrants tend to be Main Street-style businesses: local contractors, nail salons, delicatessens or convenience stores. While not exactly the Exxons or Apples of the world, such firms do employ millions of Americans, including lower-skilled blue-collar folks and young people working for spending money or college tuition. There's been a distinct shortage of such jobs over the last few years.

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A bigger worry may be a declining rate of high-tech startups by immigrants in Silicon Valley and elsewhere. Immigrants have been the brains and guts behind important American companies such as Intel, Google, Yahoo!, eBay and many others. Through the 1980s and '90s, immigrant-backed startups were so common that they barely attracted notice, adding to the strong growth that prevailed during those two decades.

But more restrictive immigration policies following the 2001 terrorist attacks may now be creating a "reverse brain drain," according to Kauffman and others. A 2012 Kauffman study found that the rate of high-tech startups by immigrants has dropped substantially in Silicon Valley and stagnated in other parts of the United States.

That doesn't mean native-born Americans are starting more high-tech firms and making up the difference. It means innovative people from India, China, Europe and other places are spending time in the United States—often to go to school—then going back home to create businesses there. And the firms they're creating often specialize in fields such as bioscience, high-tech manufacturing, digital innovation and other areas that ought to be national priorities generating global economic leadership.

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From an economic perspective, the highest priority may be allowing any highly skilled or educated immigrant to stay in the United States, instead of setting a ceiling on the annual number of visas that can be extended to qualified immigrants. There are proposals in Congress to raise the annual quota, but such measures have long been connected to the much thornier debate over what to do about the 11 million illegals in the country. Business groups have long urged Congress to decouple the two issues and fast-track a bill opening the door to more smart and capable foreigners.

More broadly, the economy would probably benefit from other measures that allowed more people to come to America, spend money here, settle here and make a direct contribution to the U.S. economy. There are valid worries about terrorists or criminals slipping in, and about more people draining a social-welfare system that's already overtaxed. Establishing such safeguards ought to be part of a thoughtful package of reforms.

It wouldn't hurt if politicians and other leaders pointed out that a burgeoning population usually accelerates economic growth, especially if a high birth rate helps keep the nation young. We may need new limits on government subsidies, but we also need a lot of new workers to help pay for Medicare and Social Security as the baby boomers retire. More immigrants would mean more people to share the burden.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.