Investing in Immigrants - Chlamydia, Lollipops, & the Fortune 500
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Foreigners at American universities account for the vast majority of the country’s patents in science, technology, engineering, and math (STEM) according to Patent Pending, a recent study conducted by the Partnership for a New American Economy – an organization co-founded by New York City Mayor Michael Bloomberg, Boeing CEO Jim McNerney, and a host of other civic and corporate leaders representing 35 million Americans and $1.5 trillion in annual revenues.
Foreign nationals contribute disproportionately to the international patents filed by companies like 3M, DuPont, Honeywell, Intel, Medtronic, Proctor & Gamble, Qualcomm, and Texas Instruments – incidentally, all companies founded by immigrants to America. Even the US government depends on foreign talent for two of every five of its patents.
If any American knows the value of patents, it’s one of the Partnership’s co-chairs Steve Ballmer, CEO of Microsoft (NASDAQ: MSFT), who not only paid $1.1 billion ($1.2 million per patent) to buy AOL’s patent portfolio last year, but is also dealing with a potential ban on Xbox sales due to potential patent infringement. The patent problem springs from the $12 billion purchase of Motorola’s smartphone business (largely for its 17,000 patents) by Google (NASDAQ: GOOG). However, even while the titans battle over ownership and use, both are united on the need for more talent. Echoing Mayor Bloomberg’s statement that current American immigration policy is “national suicide,” Executive Chairman of Google, Eric Schmidt told CNN:
Of all the crazy rules in our government, the craziest bar none is that we take the smartest people in the world, we bring them to America, we give them PhDs in technical sciences, and we kick them out to go found great companies outside of America. This is madness.
Patent Pending goes into detail about the formal system of madness that has evolved over the years, and points out that the most valuable immigrants, the inventors and researchers that opt to become entrepreneurs, are actually relegated to the most difficult and arbitrary visa category (not to mention the most uncertain and the one with the least available spots). Yet advances in STEM and their related ventures have produced three times more jobs than any other sector over the last decade.
Recently, the New York Times covered the array of innovations highlighted by the study, such as the cavity-fighting lollipops created by a former communist Chinese professor. His firm C3 Jian now employs almost 50 (mostly native born Americans), and has raised over $80 million in capital for further expansion.
In another case, a chlamydia vaccine developed by an Indian researcher comes at a particularly needed hour as the Center for Disease Control and Prevention has reported that cases of the sexually transmitted disease have risen 27%, and the rate of new infections is twice as high among those aged 55 and above. (It seems aging hippy Baby Boomers and cloistered senior retirement villas are turning out to be dens of inequity ripe for their own series on Cinemax.) After surviving the byzantine and expensive American immigration system for almost a decade, the vaccine was completed and the University of Texas licensed the team’s discovery to Merck (NYSE: MRK) – a company founded by a German immigrant. Among other investments, the university has used the profits to fund four new researchers.
Similar royalty and licensing deals generate almost $500 million in revenue for the top ten research universities in America– a figure up three-fold since 1995. Considering that Stanford earned $65.5 million last year from these sorts of arrangements, it would be interesting to see if the twelve institutions of the cash-strapped University of California system could at least triple their collective $104.4 million revenues they currently generate if they adopted their Palo Alto cousin’s management and model.
Pacific Biosciences (NASDAQ: PACB) is one of the champions to come out of Cornell University – and one of the 2,000 companies to be created every decade based upon university research (such as Sun Microsystems, a West German and Indian immigrant co-founded venture which Oracle recently acquired for $7.4 billion). In Ithaca, an American physicist saw the potential in the discoveries made by an East German biochemistry student that was realizing the century old quest of modern biology: observing microscopic biological changes in real time. Today, the firm’s revenues of $34 million and its 300 employees based in Menlo Park, California are also fulfilling the Prime Directive by producing machines that can observe DNA without changing it. PacBio has become one of the small upstarts popular with both analysts and scientists – and has been profiled as a top buyout candidate this year (due in part to its products and weak financials). Meanwhile, the company plans to raise $150 million more (which will nearly double its current market capitalization) as the sector begins to consolidate.
STEM advances should be a reminder to the immigration mandarins that PacBio’s cornerstone technology began as an idea in the head of a foreign student almost two decades ago. Moreover, as new discoveries become more complex it is likely that patents will continue to take a decade (or longer) to be granted – and it is not unusual for them to take another decade or two to result in a profit. However, this is not to say that a foreign worker is a burden throughout the three decades it may take to bring their game-changing idea to fruition. Immigrants are a good investment – even if they are not one of the foreign-born MIT entrepreneurs that now collectively employ over 100,000 Americans.
The American Enterprise Institute, a right-of-center DC think tank, recently tracked the economic impact of immigrants on the US economy. Rather than finding that immigrants competed with native born workers, the data indicated that new arrivals complemented the existing labor force (both skilled and unskilled). Moreover, the average immigrant generated almost twice as much in taxes as he received from government services, programs, and other expenses. Also, as education increased, migrants’ burden on government finances decreased and their contributions grew two- and three-fold for those with bachelor’s and advanced degrees.
A RAND study even found that of government health care spending at the federal, state and local level only 1.25% is spent on illegal immigrants – about $11 in taxes per US household. (Again it is those randy elderly that account for the largest share – immigrants tend to be younger than the population average and healthier.)
The Partnership also pointed out in a report issued last year that one-fifth of Fortune 500 companies were started by immigrants, and another one-fifth by a child of immigrant parents. Not only do immigrants produce more Fortune 500 titans per capita than the native born population, but the AEI study also concluded that depending on the visa, a single foreign worker generated 1.8 to 4.6 new jobs for native born Americans.
One patent promising “electricity without wires,” was developed by an MIT team led by Marin Soljacic, a Croatian with a MacArthur genius grant. “WiTricity” has far-reaching implications for mobile, automobile, and medical technology, and the Watertown, Massachusetts start-up has received millions from Japan’s Toyota (NYSE: TM) and Germany’s Audi to expand its US-based operations. Like selling jeans to prospectors, selling parts and systems to electric vehicle pioneers might be the most lucrative occupation in the new automobile frontier. Toyota certainly thinks simplified recharging could give their future models an edge, though the company’s media folks indicate that they believe they have uses for technology far beyond their transportation interests.
But Soljacic isn’t the only Croatian in town.
[continued in "Investing in Immigrants - Going Long on Immigrants Since 1776"]
hukgon has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services recommend Google, Microsoft, and Pacific Biosciences of California. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
