You are on page 1of 9

---------- Forwarded message ---------From: Richard Herman <richard.t.herman@gmail.

Date: Fri, Oct 31, 2008 at 2:00 PM
Subject: Re: Your Comments on My White Paper
To: Scott Shane <>

Dear Professor Shane:

Thank you for contacting me. I wish you had earlier contacted me or any of my colleagues who
work on immigration-related economic development issues in Northeast Ohio or nationwide.
It is my understanding that Michael Goldberg of Bridge Capital made an e-introduction to us
several months ago in response to your inquiry of him on an immigration investment program for
a research project you were working on.
As you may remember, I responded to you both by offering to speak with you. I did not receive
a response.
I do appreciate your response below intimating that increasing immigrant entrepreneurship,
talent & capital would be a significant economic multiplier for the region.
However, I'm not sure how you can properly assess ROI of economic development investments
in promoting immigrant entrepreneurship, innovation, capital-attraction ---- when your earlier
stated position on "immigrant entrepreneurship" is a misinterpretation of the data.
First, you state in your "Illusions" book that "Immigrants are not more likely than the native
born to start their own business." You state this in the context of debunking a "myth" about
immigrant entrepreneurial performance and discrediting the "story" that increasing and
supporting immigrants will boost start-up activity in the U.S.
Your position does not comport with the vast amount of research on this issue.
Immigrants are far outpacing native-born Americans in self-employment and the creation of
incorporated enterprises, both in terms of the rates of new business creation and in terms of
percentages of total population. Please see:
In your book, which provided much of the basis for your White Paper, you cite the following
articles to support your conclusion that "immigrants are not more likely than the native born to
start their own business":

P. Reynolds, "Labor Force Participation and Residential Tenure," in Handbook of

Entrepreneurial Dynamics, ed. Gartner, et al., 62-77; J. Sanders and V. Nee, "Immigrant Self
Employment: The Family as Social Capital and the Value of Human Capital," American
Sociological Review 61 (1996): 231-49; S. Hipple, "Self-Employment in the United States: An
Update," Monthly Labor Review, July 2004, 13-23.
The Hipple article deals only with "self-employment," and explicitly excludes data related to the
formation of incorporated enterprises.
The Reynold's article also supports its findings on a "self-employment" study by the Center for
Immigration Studies, an organization with a long-standing anti-immigrant bias (Its executive
director, Paul Krikorian has a new book out as well: The New Case Against Immigrants: Legal
and Illegal"). Referring to the full spectrum of immigrant entrepreneurship, Reynold begins this
article with the statement: "All over the world, immigrants are more likely to participate in new
business creation than natives." (Light, 1997, Waldinger 1990, etc.)
I could not locate a copy of Nee, Sanders article on the net, but a request has been made to Dr.
Nee to share a copy.
Second, I am not sure how you can properly evaluate ROI on investments to promote
entrepreneurship in the region when your position appears to be that less entrepreneurship is a
good thing in the national economy (e.g., fundamentals of economy are sound when there is less
entrepreneurship and more employment at large corporations).
"Fortunately, Americans are Becoming less likely to Start Businesses
Small Business Trends, Startup Trends," Scott Shane, January 28, 2008
In light of the massive job loss in America, the fiasco of financial market de-regulation, and the
closing and downsizing of large employers, it seems that promoting entrepreneurship should be a
priority as a way to diversify our employer-base, create financial security and individual
Third, you vastly overstate the costs of making Northeast Ohio a welcoming destination for
immigrant talent, entrepreneurs and capital. I'm not sure how you came up with the $5,000 cost
to recruit/resettle each immigrant, now am I clear on which immigrant demographic you were
analyzing (e.g., refugee vs. Ph.D.) . Your White Paper did not evaluate any immigrant attraction
or integration programs. There are many such programs for you to review and evaluate. Without
evaluating such programs, I'm not sure how you can make a cost projection. Since much of
your paper and book is based on your own research, I would encourage you to share it with those
who are interested. I would be particular interested in hearing of any programs that have used
your hypothesis to recruit "attractive" entrepreneurs who are venture-capital ready, especially to
a region with work-skills and educational attainment on the low-end of the scale.

For the fraction of the costs that are currently spent on economic development in NEO, we could
implement an effective immigrant talent attraction & welcoming initiative. NEO is blessed with
many existing resources to do immigrant talent attraction and integration. However these
resources are not coordinated. It is not a question of sufficient financial and other resources, it is
a question of will, fear, and misinformation.
Fourth, and in addition to the issue surrounding immigrant entrepreneurship, I disagree with you
on your analysis on the low-priority/low-ROI assessment of the role that high-skill talent and
technology research plays in the creation of high-growth, new-economy enterprises. I think it is
critical that the economic development organizations in the region collaborate around these
The importance of deep pools of high-end tech talent (which is predominantly foreign-born) and
tech research (which largely emanates from, or in cooperation with, universities) to building a
self-sustaining tech ecosystem in Northeast Ohio should be reflected in the funding priorities of
the region's foundations.
In this regard, you grossly underestimate the value of immigrant high-tech talent, innovation, and
entrepreneurship on "attractive" entrepreneurial activity.
Attracting mobile immigrant talent to the region is likely the most cost-effective way to quickly
upgrade the region's workforce, increase worker productivity and enhance employer
competitiveness, which will in turn attract new employers and entrepreneurs, as well as create a
spill-over effect of high-tech employees starting their own companies in the region that they are
employed in.
Conversely, without adequate skill levels in the local workplace, high-growth tech entrepreneurs
will be less likely to relocate to NEO.
Please see:
Working Paper 06-05, April 2006
Dashboard Indicators for the Northeast Ohio Economy:
Prepared for the Fund for Our Economic Future, Federal Reserve Bank of Cleveland
by Randall Eberts, George Erickcek, and Jack Kleinhenz
"Our analysis suggests that a skilled workforce is the primary driver of
economic growth. Of the eight factors, this factor is the most highly correlated
with growth in three of the four areas of economic activity investigated: output,
per capita income, and productivity
The Dashboard paper also highlighted the importance of promoting inclusion of minorities,
including Asians, Latinos, African Americans, immigrants and others not fully represented in the

I understand the scope of your paper. You were looking at projects that would give the biggest
bang for the buck in developing "attractive" high growth companies.
However, because of your assumptions referred above, I believe you grossly under-valued the
role of immigrants in creating high-tech innovatino, "attractive" high growth companies, in insourcing foreign direct investment into the U.S., creating jobs and generally creativing more
vibrant, globally-connected, destinations. As a result, you miss the opportunity in attracting and
welcoming this demographic, and dismiss (wihout analyzing or even identifying) specific
immigrant talent attraction/welcoming programs as "too costly" and therefore low ROI.
-------In terms of the immigrant talent piece, there is increasing amount of appreciation and willingness
to collaborate in the region:
Immigration Initiative of the Great Lakes Chambers of Commerce Coalition,
(30 chambers of commerce, 12 states)
State of Ohio's newly-issued Economic Development Plan:
There is increasing activity on securing licensure from the Department of Homeland Security to
operate a Foreign Investor Regional Center (see previous references to Wooster's Economic
Development EB-5 initiative).
A team in Northeast Ohio has worked to build a coalition of venture capitalists, scientists, and
entrepreneurs in applying for a local chapter of the worldwide TiE organization. TiE (originally
"The Indus Entrepreneur" association is based in Silicon Valley, was formed by Indian Immigrant
technology entrepreneurs in the 1990s, and now has over 50 chapters and 12,000 members
worldwide. It is one of largest global networks of technology entrepreneurs and their partners in
the world.
There is something else to build-on. Likely over 1/2 of the companies in the BioEnterprise
portfolio and nearly 1/3 of the companies in the JumpStart portfolio have immigrant
founders. Over 6,000 international students attend Northeast Ohio colleges and universities,
contributing over $100,000,000 per year in tuition and living expenses. Silicon Valley knows the
value of international talent attending its universities.
There is something else to build-on. Look at the hundreds of immigrant professionals and their
families (largely Chinese and Indian) moving into the region, and settleing in the school-rich
suburbs of Solon, Strongsville, Broadview Heights, Twinsburg, etc. These families speak of
Northeast Ohio in glowing terms, appreciating the educational amenities that are so important to
immigrant families (as well as low cost of living).

FFOEF should be evaluating ways to collaborate on this and similar other issues as a way to
accelerate the formation of "attractive" entrepreneurial activity in Northeast Ohio. As stated
earlier, considering the well-documented role that immigrant talent plays in the new economy
( )
NEO needs policies that prioritize and welcome the inclusion of immigrant talent,
entrepreneurship and capital.
While the philosophy of the $100 million dollar economic development fund in Detroit, the New
Economy Initiative, is vastly different from FFOEF, it is interesting to see that talent and culture
play a big role in its mission to spur attractive job-creating economic activity in SE Michigan.
The following may also be helpful to you in understanding the role that non-tech immigrant
entrepreneurship plays in urban renewal and to the broader question of economic vibrancy of the
1.) Michael Porter: "Large numbers of immigrants and their businesses in U.S. cities often spark
growth in jobs and household incomes and even broader economic activity in those
locales.Porter found that the 5.5 million immigrants who live in inner cities are key catalysts
to economic growth and urban investment. The immigrants 'change the very face of
entrepreneurship in inner cities' and 'provide a much-needed shot of economic vibrancy to
distressed neighborhoods,' said Porter. USA Today, November, 2005
2.) A study from the Urban Affairs College at Cleveland State University found encouraging
immigration might therefore be a component of a broader strategy to reverse neighborhood
blight, increase housing and consumer demand, and supply a new entrepreneurial base for the
future. Immigration and Urban Development Implications for Greater Cleveland, Professor
Sanda Kaufman, Ph.D., et al. , Maxine Goodman Levin College of Urban Affairs, Cleveland
State University, March 2003
3.) Kauffman Foundation: "Immigrants far outpaced native-born Americans in entrepreneurial
activity last year." 5/23/06;
4.) Dashboard Indicators, Federal Reserve Bank-Cleveland/Fund for Economic Future, 4/06,
immigrants "have a high propensity to start new businesses and be self-employed; they use
relatively small amounts of public services and transfers; they do not generally cause
unemployment among native citizens, and..immigrants are important contributors to the
revitalization and economic development of many urban communities and neighborhoods. They
account for much of the growth of minority small business. Policy initiatives should address
business development needs of immigrant groups by promoting educational and entrepreneurial
training, providing assistance with business development plans, language training, financial
literacy, and providing affordable housing near the concentration of ethnic businesses."

5.) National and local economists selected by the Fund for Our Economic Future and Voices &
Choices found that competitive economies: "Encourage immigrants to settle in the
region." Voices and Choices Summary, February, 2006.
6.) One of the FFOEF partners, Nortech, has said that "if we want to compete in the global
economy we have to remember and rebuild our ties with the rest of the world, and encourage
rather than discourage immigration to the region." Tech Futures Project, 2005.
7.) Please also see: Op-Ed, Immigrants Can Revitalize the Region," 8/25/06, Plain Dealer; as
well as an article by Silicon Valley guru, Guy Kawasaski, who spoke in Cleveland. "How
Cleveland can "Kick Silicon Valley's Butt" 6/6/06. Of the 8 steps Kawasaki identified for
Cleveland to move forward, #2 is "Encourage Immigration: "I am a third-generation Japanese
American. My family moved here to drive a taxi and clean white people's homes. If I had a
choice between funding someone from a family who moved here from Vietnam whose father and
mother run a 7-Eleven versus a descendant of a Mayflower passenger with 'IV' in his name, I'll
give you half a guess as to my preference. You need to encourage smart, hungry, and aggressive
people to immigrate from around the world.if you want to cover your ass, you need to open
your kimono because trust-fund kids don't make good entrepreneurs."
Your comments indicate a dichotomy between government and foundations. In reality,
foundations are now filling the void left by local government unwilling or unable to do
significant economic development. At the same time, policy formation of these formerly public
activities is done in a rather insular way. For this reason to encourage open dialogue and
participation across the community, please feel free to post your comments, and mine, on the
web if you wish.
I do sincerely hope that we can continue and build upon this conversation of immigrant
attraction, integration and economic development.
Richard Herman
Richard T. Herman & Associates, LLC
Attorneys at Law
815 Superior Ave, Suite 1910
Cleveland, Ohio 44114
216-696-0104 fax
"Providing Immigration Counsel to Global Talent & World-Class Companies"

On Fri, Oct 31, 2008 at 7:00 AM, Scott Shane <> wrote:
Dear Mr. Herman,

I am emailing you in response to your comments on my white paper.

I wish you had written me directly about it, rather than sent out a broadcast email because your email
badly misinterprets the white paper in two ways.

First, the white paper never says that the Fund would fail to get a return from an investment in the
programs that you say I "oppose". In fact, the paper explicitly says that the return would be positive for
many of those programs. For instance, contrary to your interpretation, the report explicitly says that the
return to investment in programs to enhance immigration would be POSITIVE in terms of the creation of
"attractive" entrepreneurial ventures. What is clearly stated in the report and shown in the power point
slides is that programs to enhance immigration, to stimulate university and hospital research, and
increase the amount of inventive activity in the region would ENHANCE the amount of "attractive"
entrepreneurship in the region.

However, the Fund asked me to prioritize possible interventions on the basis of the magnitude of the
returns to investments in them. It turns out that, while investments to encourage immigration, stimulate
research, and increase inventive activity, would generate positive returns, other investments, such as
those to encourage the formation of venture capital firms, attract C-level start-up talent, stimulate the
formation of angel groups, and increase the amount of pre-seed grant money would have higher returns.
The fact that some things have higher returns to investment in the creation of high growth ventures should
not be surprising because the odds that everything has an equal return are very low.

Moreover, it is important to note that the report explains that several beneficial interventions are better
suited for the government than for the Fund. Those include transitioning out of large scale manufacturing,
increasing the share of industry in high technology, increasing the number of college graduates and
increasing the pool of management talent. Again, all of these things are GOOD for stimulating "attractive"
entrepreneurship. They just are things that would be better done by the government because the scale of
them is simply too large for the FEF.

Second, the white paper never says that those items identified as having a low return, or even no return
at all, in encouraging "attractive" entrepreneurial activity are "bad" and should not be done. They could
be very valuable in stimulating other things that are desirable helping disadvantaged groups, increasing

employment in the region, helping to save dying companies, and so on. For instance, cutting taxes is
very unlikely to generate a lot of high growth new companies. However, it may be very valuable to the
region because it will give everyone more cash to spend.

However, I was only asked to explain what creates more "attractive" new ventures, not what would make
NEO a "better place." A number of things described in the reports that you cite in your email such as
improving amenities in the region or reducing taxes might make NEO "a better place." They might, for
instance, enhance the growth of older, more established companies and create jobs. My report doesn't
disagree with that position. Rather, it doesn't talk about that position because I wasn't asked to examine it.
I was only asked to look at how to get more "attractive" new ventures and to prioritize those methods in
terms of ROI.

I am writing to you directly rather than responding in the blogosphere because any response to your
comments would require me to say that you misunderstood the report. If I did that, I fear that at least
some people would think that you did misinterpret what I said, and I have no desire to point that out to the

So you might consider posting/emailing a reinterpretation of my white paper based on this information,
and save me from having to post these points in the blogosphere.

In short, I don't think my position is as far from yours as you think. Rather, I think you just missed the
scope of the report.


Scott Shane
A. Malachi Mixon III Professor of Entrepreneurial Studies
Department of Economics
Weatherhead School of Management
Case Western Reserve University
11119 Bellflower Road
Cleveland, OH 44106
Tel: (216) 368-5538

Fax: (216) 368-5039


Think you know something about entrepreneurship? Take the quiz: