06/26/2010 05:12 am ET Updated May 25, 2011

Lies, Damned Lies, & Immigration or: How Our Immigration Policy Hurts Startups and Hurts America

The new anti-Hispanic law in Arizona makes Thomas Friedman's excellent 4/3/10 piece Start-Ups, Not Bailouts worth another look. Two data points he cites are:

• "Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less... That is about 40 million jobs."
• "Roughly 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants."

Politicians fret over job numbers in the hundreds of thousands. Immigrants contributed ten million. And not low-wage, low-benefits jobs either. Startup jobs are high-qualityoften technology and service-sector jobs, often at middle or upper middle-class earning levels.

Illegal immigration is the most dishonest political debate today. Democrats reflexively pander to Latinos for votes. Republicans (and some Democrats) blame the victims--poor people willing to leave their families to come here and work for less pay. What's wrong with working hard, and providing a great product at a lower price? Nothing, if you ask our politicians' allies in the business community. So our politicians are in the tortuous position of tacitly supporting illegal immigration while loudly criminalizing the workers.

Anyone who sincerely wanted to use policy to reduce illegal immigration should start by crafting legislation based on changing actual behavior. The demand side (employers) can easily be reached and influenced by policy. The supply side (workers) is almost totally beyond reach. It is utterly illogical, therefore, to target policy to the supply side.

We could slash illegal immigration to this country anytime we wanted by vigilantly pursuing employers instead of workers. If the penalty for hiring illegals is just a fine, it becomes a business decision. But if the penalty is jail time, illegal immigration will come to a screeching halt. How many people are willing to risk jail time to save their company a few dollars?

Politicians know this, of course. They just never talk about it in public. They prefer the debate the way as is: confusing, polarizing, and easy to demagogue on one side or the other--or both as John McCain does.

The fight over immigration is related to the fight against communism during the Cold War. Sure, Communism was totalitarian, but we support plenty of totalitarian regimes; America regularly toppled Democratic regimes and installed anti-Communist dictatorships. We hated Communism for its oppression of freedom, but also its destruction of value. The Soviets thought they could legislate prices. They installed price controls; they also had chronic shortages and a vibrant black market. Their economy shriveled and collapsed. Governments cannot conquer the forces of supply and demand. But that is precisely what we're attempting with our ludicrous, mendacious immigration policy. We have created our own Soviet-style black market: for labor.

The demand is there. Business doesn't want the supply restricted, so our politicians just pretend to restrict it. No one wins. If we actually restricted demand, by jailing employers, we would damage our economy terribly. Politicians know this; they just never say it.

Why don't we stop with all the lying, and let immigrants in? Regulate it. Stop pretending there's anything wrong with businesspeople hiring diligent laborers who will work for less. Let employers sponsor any worker and argue for why that worker should be given citizenship. Such a vetting mechanism would naturally promote the best and hardest-working.

This is the capitalist approach. Yet many Americans still fervently support "price controls" on immigrant labor. Why? Some of it's pure racism (no one talks about European immigrants). But much of the reason politicians shun honest debate on this subject is that you can't depress wages on just one class. It's like real estate: dramatically lowering prices in one part of town will to some degree reverberate across town, as abutting neighborhoods are pressured to do likewise. In other words, letting the floodgates open would ultimately have at least some impact on wages beyond those of manual laborers. However, the efficiency of America's entire economy would increase, more than making up for the wage deflection in certain sectors.

But our politicians are simpletons, or think we are. They don't want to have an honest discussion. They would rather talk about fences and crime and terrorism.

Immigration has defined my entire life. My parents left Mozambique with nothing but their wits in search of a better life for their kids. They moved to England in the 1970s, saw the classism there, and left for America soon after. With all their net worth tied up in the net present value of their future wages, they got white-collar jobs and became citizens. They continually stressed the importance of education. My father talked to us about college every day from elementary school on. It worked: my sisters attended Harvard and Swarthmore, and I went to Harvard Business School. My parents produced one doctor, one lawyer, and one MBA.

I've raised $21M for my online education company Knewton. We believe we're going to change the world, making education simultaneously better and more affordable. We plan to spread high-quality education everywhere, including the inner city and the developing world. We're lining up huge deals with textbook companies and schools to do just that. If we're right, we'll be a big company that will produce lots of jobs and tax revenues for America. We'll create more of Friedman's jobs and educate some of next generation's entrepreneurs. Already, we've created 40 full-time jobs and 30 part-time jobs. We'll add an estimated 30 full-time jobs this year.

America has never produced enough mathematicians, engineers, or scientists. But we had a competitive advantage importing them from the rest of the world. We were the recipient of the rest of the world's brain drain. The hardest-working, most entrepreneurial, daring, competitive talent from around the world flocked to America. We produced only 10-20% of the engineers we needed--so we imported them, along with entrepreneurs like Andrew Carnegie and Google's Sergey Brin. How much value do you think that Brin alone--just one immigrant--has produced for America and the world? Open the floodgates and more will come. America accelerated the tech boom in India by forcing all that talent to stay there, when we could have let much of it come here.

Some don't want immigrants coming here "competing for American jobs." But why not let top engineers come here and take some jobs? We aren't producing enough engineers anyway. It's either/or. You can't complain about keeping American jobs for Americans while decrying the loss of jobs overseas. Otherwise you're tacitly arguing that American business ought to artificially prop up wages indefinitely in the United States, and gradually become uncompetitive. How would that help anyone?

Like businesses, nations are only as strong as their human capital. If you can "promote from within," great. If not, go outside. If America can produce enough scientists, engineers and entrepreneurs, fine. But it never has. And whereas we used to value immigrants and their contributions, now we seem only to demonize them.