"Brain Drain": A New Paradigm

One of the unintended consequences of the global meltdown has been a shifting of skilled labour away from the traditional centres of commerce towards secondary and developing markets.   Whereas there was initially some noise in the U.S. around whether TARP banks should and could continue to hire employees that required H-1B visas (see here on TARP and work visas), otherwise there has been very little attention paid to the Brain Drain phenomenon and the effects of the redistribution of human capital.  The debate about immigration typically conjures up images of uneducated and unskilled workers chasing the American Dream and little thought is given to the thousands of graduates from America’s top universities who no longer find themselves able to stay in the U.S. post-graduation.  The top MBA programs, in particular, are facing a changed environment where they can no longer promise the opportunities on Wall Street or in Silicon Valley that had previously attracted the best and brightest (or, perhaps, the most ambitious and privileged) from around the world (see here on the reduction of foreign MBA students).  So who gains and who loses in this new reality?  Are Americans better off no longer having to worry about foreigners competing fairly for U.S.-based positions?  Or is the growing xenophobia draining America of critical brain power needed for the effort to get the economy and industry growing again?

From the perspective of countries outside the U.S., the results of the closing of the American skilled labour market are particularly beneficial. Countries like Canada, Australia and Israel, not to mention China and India, have suffered from Brain Drain for years as many of their most talented graduates sought degrees and positions in the U.S. (see OECD map of global Brain Drain).  Wall Street, in particular, was not only gobbling up the top students in the U.S. but it was feeding itself on the best human resources from around the world (Freakonomics highlighted the reversal of this trend as a “silver lining” of the crash back in November 2008).  Now, however, not only are there fewer opportunities for U.S.-based foreign graduates, but those that had been working in the U.S. for years are suddenly finding themselves without work visas or Green Card sponsorships and are being forced to look at their home markets.  Furthermore, the opportunities for experienced professionals to move from traditionally less desirable markets to the U.S. have all but disappeared.  Even for those foreigners who have the ability to remain in the U.S., a shift has occurred whereby their home economies have become stronger and may now have better employment prospects.  For one or a combination of these reasons, many regional financial and industrial centres are seeing top talent returning home, bringing an unforeseen but very welcome boost in human capital.

In a world that has seen gradual moves towards the free movement of labour (the E.U. is a prime example, NAFTA a less successful one; on international migration trends see the OECD), the skilled labour situation in the U.S. is another example of how the Great Recession will alter the way the world’s most talented professionals consider their employment options.  First, of course, will be the move away from finance as the ultimate career for top students regardless of area of study.  There has been a lot of speculation on the recalibration of career choices as mathematicians are no longer clamouring to become “quants”, political scientists reconsider law school, and electrical engineers are less inclined to repackage themselves as traders (see NYT on career choices).  Second, whereas being accepted to a top U.S. MBA program was until very recently seen as the gateway to a job on Wall Street, these students are not only not choosing finance in the same numbers as before but, even when they do, often they are unable or unwilling to stay in the U.S.  Finally, this is equally true of nascent entrepreneurs, who find themselves with the uncertainty of not knowing whether they will be able to remain in the U.S. long enough to build a viable start-up and are, therefore, prudently looking elsewhere.  This is further enhanced by a changing landscape in which VC and angel investors, themselves increasingly international, no longer look only to Silicon Valley and Route 128 for their next success but are setting up shops in Bangalore, Beijing, Dubai, Tel Aviv and Barcelona.

The benefits to the home countries are clear and are already being felt.   Expats are returning home in record numbers, bringing experienced, global talent to companies that would otherwise might have very little chance of recruiting these top professionals (see Forbes on China and the AEI on India).  In addition, because of the dislocation caused by the current recession, professionals from all countries are finding themselves faced with an altered sense of normalcy that has encouraged many to consider career choices that would have seemed too risky or unconventional (or banal) as recent as two years ago. Consultants who had previously been working in the U.S. are suddenly able to pursue their dreams of returning to Africa or Asia or South America to work in economic development; former Wall Street investment bankers are deciding that entering the family business back home is a viable alternative;  High Tech professionals are taking the seed idea that seemed nothing more than a dream and are launching it on their own, with much lower overhead and with the advantage of being experienced fish in a much less experienced pond.  There are also those skilled workers in the U.S. who hail from other developed countries that have not suffered nearly as much as the U.S., e.g., the Canadian banking system is considered the strongest in the world and the Australian economy and financial system has done significantly better than the U.S. (see the WSJ on Australia’s strong economy).  For many, Toronto and Sydney have become soft landings as they head home whereas for others these world-class cities are becoming the first port of call, even before NYC (or London).  The idea of giving up the hard-won privilege of working in the U.S. is no longer sacrilege as many foreigners leave, either by their own volition or because they no longer having visas (on the reverse brain drain).

What does this mean for America?  The knee-jerk reaction has been that this will only help Americans keep the jobs that exist and reduce competition for those looking at whatever new opportunities appear. This, however, is a blinkered approach.  Whereas there might be some very short-term gains from having the competition culled of foreigners, the negative impact will be longer term and far greater.  Entrepreneurs will not give up on their ideas just because the U.S. no longer offers them an incubator, they will simply build their companies elsewhere.  U.S.-based financial firms that will no longer sponsor work visas will not deter the ambitious for entering or staying in the field, they will simply do it off-shore and help the growing international competition become even stronger. 

U.S. policy makers should not pander to the protectionists and xenophobes and should continue to make the U.S. the preferred destination for the most talented individuals from around the world.  If the barriers to entry are made onerous enough they will achieve their aim – fewer and fewer will want to enter.  The U.S. cannot assume that other nations will not take advantage of this situation, making their countries increasingly attractive to those who are looking to repatriate or immigrate.  America and Americans can do a lot on their own but they achieve so much more in collaboration with the “value added foreigners” who have been integral in building the incredibly dynamic U.S. market.  The world’s best talent will not give up on realising its visions and dreams – if the U.S. closes it doors, there are already many other countries that have eagerly opened theirs, and have conspicuously laid out the welcome mat.