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Author: Uri Dadush
Originally published by the Policy Center for the New South
The Entrepreneurship of Migrants was one of the topics under discussion in the UN Global Forum, which just concluded in Marrakesh with the adoption of a Global Compact on Migration.
Immigrants are often entrepreneurs, and entrepreneurs have a large impact on the economy. This is because in most economies, the private sector accounts for 90% of all jobs, and every firm, large and small, originates from the work of an entrepreneur. Entrepreneurs are special people. They have high hopes but low expectations: they are willing to work hard for a long time and for very little to achieve a high return one day. They accept the possibility that there may be no return at all to their efforts. Reflecting their crucial economic contribution, society rewards entrepreneurs highly when they do succeed.
Why do we believe that migrants are more entrepreneurial than natives? Partly, the belief reflects common observation. Partly, the belief recognizes that the decision to pick up and leave all that is familiar is a risky one. Migration is, by its nature, an entrepreneurial decision, and is risky. One way to measure that risk is the return rate of migrants. During the great migration from Europe to the US in the 19th century, when crossing the ocean was very expensive indeed, it is estimated that over 30% migrants returned to their country of origin.
Not all migrants take the same level of risk. So, an illegal migrant takes a far bigger risk than a legal one. A refugee is forced to move and so is not necessarily a risk-taker (he or she takes a bigger risk by staying). A refugee that, tragically, chooses to take to an open boat across the Mediterranean is taking a far bigger risk than one that remains in a camp. Even when they take a risk migrating, migrants are not necessarily risk-takers once they are settled in their adopted country. Sometimes, the opposite is the case. In the United States the story goes that you can tell an illegal immigrant from the way they drive, always staying well below the speed limit.
The theory that migrants are entrepreneurs is part of the folklore. Sergey Brin founded Google and before him Andy Grove, another immigrant and refugee, founded Intel. The immigrant’s rags to riches story is a part of the American Dream. But the folklore is not always a good guide to economic policy. For example, longitudinal studies which only recently became available show that the French Dream is more real than the American Dream. If you are born in a family in the bottom 20% of income, you are more likely to rise to the top 20% of income in France than in the United States.
Attempts to verify whether migrants are, in fact, more entrepreneurial than natives are bedeviled by measurement difficulties and confounding factors. One way is to measure the proportion of migrants who are self-employed. It turns out that a smaller share of migrants is self-employed than the native population. But this may have more to do with visa rules, which allow in very few entrepreneurs, than with the entrepreneurial propensities of immigrants. If you only allow people to come that have a job or are likely to get a job, you are unlikely to allow in many entrepreneurs. On the other hand, there are also migrants who suffer from discrimination in the workplace and have no alternative but become entrepreneurs.
Another way to measure entrepreneurship in migrant communities is to examine the progression of firms owned by migrants and those owned by natives. Do the former grow faster and add more employees? Studies along these lines are inconclusive. A third way to measure migrant entrepreneurship is to examine highly entrepreneurial communities. Here, studies of Silicon Valley typically show that migrants account for twice as many start-ups as their share in the population. However, migrants in Silicon Valley are far more likely to be graduates in science and technology than the general US population, and – when that is accounted for – the difference largely disappears.
Despite the confusing and mixed empirical evidence, I remain convinced, personally, and based solely on my personal experience, that migrants are inherently more likely than natives to be entrepreneurs mutatis mutandis, when all differences are accounted for.
In any event, this is not the most important question for economic policy. Let’s assume that the proportion of entrepreneurs is the same among migrants as in the general population. Or even that it is lower than in the general population. The relevant question for economic policy is : are the migrants that are entrepreneurs on a level playing field with native entrepreneurs? If they are not, there is an evident loss of opportunity for society, and that opportunity is big because of the special role that entrepreneurs play.
The value of the policy guide on migrant entrepreneurship presented at the Global Forum by UN Agencies is that it identifies important areas where the playing field for migrant entrepreneurs is not level. The migrant entrepreneur may not be able to start a business because of visa and other restrictions, may have only very limited contacts, has no credit record and so has even less access to finance than does a native entrepreneur, and he or she may not even have adequate command of the language. The message of the guide is that these constraints are essentially market failures that inhibit entrepreneurial activity, and its detailed prescriptions show how policy can correct them to some degree.
We have too few entrepreneurs, and the many that exist among our immigrants should not be lost on society.
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