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Harvard University Asia Center

Modern Asia Series Fall 2000

"Brain Drain or Brain Circulation? The Silicon Valley-Asia Connection"
Professor AnnaLee Saxenian
September 29, 2000

Modern Asia Series, Harvard University Asia Center
South Asia Seminar, Weatherhead Center for International Affairs
Rapporteur: Ann Marie L. Davis


 

As a specialist of regional economies and development, Professor AnnaLee Saxenian opened her lecture with the caveat that her primary research focuses on the Silicon Valley and not on East Asia. She clarified, however, that there is a fundamental link between Asia and the Silicon Valley, which is conveyed by a common joke among technologists that the Valley was built on "ICs." Rather than "Integrated Circuits," this expression refers to the influx of "Indians and Chinese," who have become the primary actors in an apparently clear case of "brain drain" in the Silicon Valley. Over the past three decades, a new wave of high-skilled immigrants, particularly from Asia, has flocked to contribute their skills and talents to the more advanced economy in Silicon Valley.

Contrary to the evidence of "brain drain," Saxenian proposed that this expression no longer conveys the full story of foreign-born residents working in the Silicon Valley. Rather, she suggested that the expression "brain circulation" would be more evocative of more recent trends whereby immigrants, particularly from Asia, study and work in the U.S. for a certain amount of time and then return or commute regularly between their Asian homes and the Silicon Valley. Instead of draining their native economies of human skills and resources, this new breed of "circulating" immigrants has brought back valuable experience and know-how to their local economies. By creating a new link between their homelands and the Silicon Valley, these immigrants are transforming the organization of production in Asia, as well as in the U.S. and around the globe.

Saxenian proposed to make her case for the new phenomenon of "brain circulation" by dividing her lecture in three parts. First, she planned to examine evidence of "brain drain" in the Silicon Valley, documenting both the scale of foreign-born Asian presence there and assessing its contributions to the local economy. Second, she intended to use Taiwan as a case study to demonstrate the mechanisms by which "brain circulation" has lead to significant economic development in various regions of Asia. Third, she planned to discuss the potential of "brain circulation" in India and China, the two large Asian countries where "circulating" immigrants could have a tremendous impact on future development.

 

Evidence of "Brain Drain" in the Silicon Valley

The origins of the high-skilled immigrant presence in the U.S. date back to the mid-1960s. Prior to this, Saxenian explained, immigrants of all skill levels were limited to the U.S. by strict national quotas. Although legislation before the 1960s had allowed for successive increases in quotas, an amendment to the Immigration and Nationality Act (INA) passed in 1965 finally repealed the national origins quota system and thus became the most far-reaching revision of immigration policy since the First Quota Act of 1921. The revision fostered a significant shift in immigration patterns. The number of skilled workers opting to extend their residency in the U.S. accelerated rapidly, for instance, throughout the 1970s, 80s and 90s. By 1990, one-third of the population of engineers in the Silicon Valley was foreign born, primarily from Asia. Among these Asian-born immigrants, roughly half are Chinese (including mainland China, Taiwan, and Hong Kong), twenty-three percent are Indian, and the remaining smaller percentages include Filipinos, Japanese, and Koreans. Saxenian forecasted that the 2000 U.S. census would reveal roughly the same percentages, although probably Chinese and Indian populations would be much larger.

Saxenian explained that these immigrants in the Silicon Valley are more highly educated than their native-born counterparts and more highly represented in professional and technical occupations. Their wages, she claimed, are at least as high as their counterparts who are engaged in managerial occupations back at home. The Silicon Valley immigrants come to the U.S. under a common trajectory: originating from the most elite engineering universities in India, China, and Taiwan, and enrolling in graduate programs across the United States. Large amounts of U.S. funding in science and engineering (that many U.S. students were not interested in) encouraged the influx of high-skilled Asian students particularly in the 1970s and 80s. By 1990, close to fifty percent of all [graduate-level] science and engineering degrees awarded in the U.S. were awarded to foreign-born students.

Saxenian added that the 1965 INA amendments not only encouraged an influx of foreign students, but also supported a growing number of visa renewals for students interested in pursuing work after graduation. Six years later, after their working visas expired, the foreign-born workers became eligible to apply for green cards. In the 1970s and 1980s, a significant number of these immigrants were "sucked up" by the booming Silicon Valley economy.

Saxenian explained that like their lower-skilled predecessors to the U.S. (Korean grocers and Chinese textile workers, for example), the Asian immigrants to the Silicon Valley have been very competent at creating effective ethnic organizations and networks of mutual support. Many of the engineers came together initially to promote their careers within the Silicon Valley, but increasingly they support the burgeoning efforts of entrepreneurs in their community. By the mid-1990s, foreign-born engineers had organized more than a dozen extremely vibrant professional associations whose memberships have now reached anywhere from 400 to 1400 people. These associations have become very sophisticated in terms of their knowledge of technology and the labor market, their ability to advise, mentor, and promote business connections, and their capacity to provide capital to one another. Despite their understanding of the need to integrate into the mainstream, Saxenian emphasized, these Taiwanese, Chinese, and Indian groups have all organized separately into very tight ethnic communities.

Saxenian claimed that the success of these networks is reflected in their increasing rates of entrepreneurship. According to a survey she made by counting surnames (for lack of a more accurate way to measure ethnic backgrounds), 3,000 of the technology firms created in the Silicon Valley since 1980 are run by Indian and Chinese entrepreneurs. Accounting for over thirty percent of the total number of technological start-ups, reaching $19 billion in sales, and creating 70,000 new jobs, these businesses have made significant contributions to the local economy.

The rate of entrepreneurship, Saxenian added, has increased dramatically over the last two decades. Indians and Chinese started about eleven percent of the companies in Silicon Valley in the early 1980s. Currently representing thirty-two percent of the total number of companies, twenty percent of sales, and sixteen percent of jobs, these companies tend to be smaller than the average Silicon Valley company. Nevertheless, according to data Saxenian examined on IPOs (companies that have just recently gone public), Indian and Chinese companies tend to go public at the same rate as "mainstream" companies, which suggests that, at least in one sense, they are equally successful.

Considering the enormous impact that the growing immigrant population has had on the local economy, Saxenian explained, the Silicon Valley seems to exemplify a classic model of "brain drain." She countered, however, that by promoting strong economic and professional ties with their home countries, the Silicon Valley experience contrasts dramatically with that of their lower-skilled predecessors. Fostering the transfer of skills, technology, and organizational know-how, Saxenian argued, a new model of "brain circulation" has created a phenomenon of "transnational and technical communities." Moreover, through the expansion of transnational networks and entrepreneurial activity back in Asia, this new transnational community has surpassed the ability of most multinational corporations to transfer skills and human resources quickly and flexibly. When considering the phenomenon of globalization, Saxenian claimed, most scholars tend to overlook the role of transnational communities and focus primarily on multinationals and market flows.

 

Taiwan: A Case Study

In the 1970s, Taiwan was a poorer country seen primarily as a source of cheap manufacturing labor for most U.S. multinationals. Accordingly, Taiwan exhibited a classic first-world-third-world relationship with the West: while capital and technology resided chiefly in American, European, and Japanese corporations, cheap labor was found in Taiwan. In contrast, Saxenian explained, by the 1990s Taiwan had become one of the world’s most sophisticated manufacturers of semiconductors and personal computers and third in the world after the U.S. and Japan in IT hardware production. Saxenian showed data indicating that currently Taiwan is the leading producer of laptop computers and is moving quickly into wireless communications and information appliances. Her data also indicated that the rate of production has been growing quickly in China also. Saxenian attributed this growth almost entirely to Taiwanese manufacturing investment in the mainland.

Saxenian explained that a common reaction to Taiwan’s growth during the past thirty years has been to analyze how the region moved from cheap labor in the 1970s to world leadership in IT manufacturing by the 1990s. Various literature has been produced emphasizing the role of the state’s investment in technology, research capabilities, and education over the decades, Saxenian explained, but less research has emphasized the key role policymakers played in creating a bridge between Taiwan and overseas workers in the 1970s and 80s. State policymakers, many of whom were PhD-level engineers educated in the U.S. themselves, established ties with Taiwanese working in Bell Labs and IBM on the east coast, for example, and, more importantly, with those working in big Silicon Valley companies on the west coast. The Taiwanese technocrats sought policy advice from overseas workers and consequently steered industry away from Asian-style developmental state models and towards American-style market-oriented models. Rather than choosing direct intervention, the state facilitated more competitive growth by setting up a venture capital industry in 1985 (long before other regions in Asia), launching the Hsinchu Science-Based Industrial Park, and investing in research and education. This cross-Pacific interaction, Saxenian argued, played an essential role in creating the groundwork for the Taiwan miracle.

The next big development encouraging economic ties between the U.S. and Taiwan occurred in the late 1980s and 90s, which reversed the flow of "brain drain." At that time, Saxenian explained, not only was the economy beginning to pick up in Taiwan, but also various agencies began to aggressively promote the return of skilled workers. While many workers decided to move back and initiate start-up ventures in the homeland, even more began to commute frequently between Taiwan and the U.S. With this new exchange of information, technological skills, and human resources, a new community of engineers was created that bridged the Silicon Valley and Taiwan. Illustrating this point, Saxenian pointed out that over half of the companies in the Hsinchu Science-Based Industrial Park have been started by Silicon Valley returnees. She concluded that in terms of economic and IT development, Taiwan has been able to emulate the success of the Silicon Valley thanks to this new phenomenon of "brain circulation."

 

Implications of "Brain Circulation" for China and India

I. INDIA

According to recent data on foreign doctoral recipients, Saxenian explained, the vast majority of [Asian] graduates since the 1970s has been Taiwanese. Since 1990, the number of doctoral recipients in engineering from mainland China has increased tremendously, and the number from India has increased steadily also. The number of Taiwanese graduates has basically stabilized and even declined in the 1990s, while the number from South Korea continues to "chug along." Considering such data, Saxenian predicted that of all regions in Asia, India and mainland China show the most potential to emulate Taiwanese-style "brain circulation" and development.

Saxenian said that although accurate data would be necessary to confirm her suspicions, the situation in India in the year 2000 still seems characteristic of net brain drain. She speculated that current flows of human capital between the U.S. and India have benefited the Silicon Valley more substantially than the other way around. Presumably, the growth of the software industry, especially in the south of India, has exacerbated this phenomenon of brain drain. As the software industry continues to grown there, an increasing number of Indians become aware of opportunities abroad and seek experience in the IT industry away from home.

Although Saxenian predicted that net brain drain in India will continue for sometime, she emphasized that non-resident Indians (NRIs) have played a key role in establishing the software services industry back at home. Although in the late 1980s investment in India was considered risky, she explained, a number of senior-level engineers in the Silicon Valley played an important role in convincing senior management to invest there. In this capacity, Saxenian reckoned, the NRIs have already begun to play a significant role in bridging India and the Silicon Valley.

Nevertheless, software production in India is still a low-service industry that exploits cheap labor. While the price gap has declined from a ratio of roughly ten to one in the early 1990s down to four to one in the year 2000, India’s cheap labor resources are still being exploited particularly by large American multinational firms.

Having suggested this asymmetrical relationship, Saxenian stressed, however, that even during the past three years she has seen an explosion of ties between the U.S. and India– especially in places such as Bombay and Bangor. Stimulating public interest, the Indian government has started promoting information technology as well as India’s future role as an "IT superpower." At the regional level, interest and competition in information technology has resulted in increased efforts to upgrade the environment. Additionally, some of the most successful entrepreneurs in the Silicon Valley have been retiring, returning to India, and aggressively establishing new branches of the The Indus Entrepreneur (TIE), a Silicon Valley business group, in Southern India and England. The Indian government has been initiated policy encouraging venture capital; the amount of transnational traffic has been on the rise; and the number of Internet startups has been growing also. Although relatively small in number, a handful of entrepreneurs has started returning home to start their own businesses. Although Indian industry remains largely export-oriented (almost none of the software businesses serve the domestic market), India’s advantages include language skills and legal infrastructure. While obstacles of future growth include inadequate infrastructure and a corrupt bureaucracy, Saxenian concluded that a framework is already in place for India.

II. CHINA

As mentioned earlier, compared to other Asian ethnic groups, the majority of immigrants from mainland China only started to come to the U.S. since 1990. Chinese mainlanders in the Silicon Valley have had less time to mobilize than their counterparts from Taiwan or India. Nevertheless, Saxenian stressed that this group has a large constituency, and its confidence is growing quickly. Although entrepreneurs have not returned to mainland China on the same scale as Indians and Taiwanese, the government in Beijing has been aggressively promoting high tech development. In contrast to the Indian government, which aims mainly to encourage development by clearing regulatory burdens, Beijing has sponsored a very active policy of linking universities and companies and encouraging the commercialization of university research.

Also, Beijing has been very adept at building infrastructure. Considering the increasing number of science parks in Beijing, Saxenian said that an analysis of China’s high-tech industry might even be based on a study of China’s new buildings! To the mainland’s advantage, the physical infrastructure is in good shape: the roads works, telecommunications are relatively advanced, and low-wage manufacturing is already established in the south of China. A factor that will play a unique role in mainland development is Taiwanese investment, which has been growing rapidly there. Taiwanese investment, Saxenian explained, can be divided in two categories: a) personal computers in the South and b) the semi-conductor industry. Political ties between Shanghai and Taiwan have been developing very quickly also. Finally, in contrast to India, China already has both a hardware sector as well as a software sector.

As for the potential for "brain circulation" between mainland China and the Silicon Valley, the state has played a particularly strong role in developing economic and technological exchange. In contrast to India where "bridging activities" have been established primarily by entrepreneurs in the private sector, the state has been at the forefront of forging relations in China. Delegations not only from Beijing but also from various cities and local governments visit the Silicon Valley repeatedly. Although there is currently less of a reverse flow back to the mainland, Saxenian concluded that the Chinese community in the Silicon Valley is still very young. The future will depend not only on the development of relations between China and the U.S. but also between mainland China and Taiwan.

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