By Steve Kelman

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What immigration has to do with innovation

Last week I blogged about the spread of startup mania in China. The unique success of innovative startups in the U.S. economy compared to anyplace else in the world (except perhaps Israel) reflects the diverse, jostling, even chaotic nature of U.S. society, with so many different ideas, viewpoints and approaches.

China's government wants to achieve similar startup successes there, but the government enforces a very different culture, one that is much more top-down, uniform and disciplined.

I recently finished a fantastic book that reminded me about the relationship between innovative culture in the United States and a topic some would consider far distant: immigration. "The Founders and Finance: How Hamilton, Gallatin and Other Immigrants Forged a New Economy" was written by Thomas McCraw, the longtime business historian at Harvard Business School who died in 2012. It is mostly the story of Alexander Hamilton and Albert Gallatin, two of the first secretaries of the Treasury of the United States. (Hamilton served under Washington, Gallatin under Jefferson; for non-U.S. blog readers, and perhaps some Americans as well, Hamilton's portrait is on the $10 bill.)

These two men played a significant role in getting the new nation on a good economic path -- by paying back the Revolutionary War debt, establishing a banking system, getting infrastructure built and incubating a manufacturing industry. The story will probably be at least vaguely familiar to Americans from their high school or college courses in U.S. history.

But the thrust of the book -- and why I found it so compelling -- lies elsewhere. The subtheme, introduced at the beginning, is that both Hamilton and Gallatin were immigrants. Hamilton was born in the West Indies and came to the American colonies when he was 15. Gallatin was born in Geneva, Switzerland, and arrived at age 19.

America has, of course, always been a country of immigrants in a basic sense, starting with the first settlers. During the colonial period, however, most of the people living in America were British -- and they were mainly from a few areas of Britain and had been in the New World for generations. Mass immigration from other nations and cultures came later, but as Hamilton and Gallatin illustrate, there were some immigrants arriving in the decades before independence.

So what, in McCraw's view, connects the fact that Hamilton and Gallatin were immigrants with the innovative contributions they made to the new republic? If you read his account, you will see the same kinds of factors that encourage a society to be innovative.

First, the men brought exposure to and at least some skills in banking and finance from their experiences in their home countries. Those skills were not common in America at the time, where farming and trade were the dominant occupations.

The men also brought new ideas that might otherwise not have been present. Indeed, many regarded Hamilton's ideas about banks and a sound currency as strange -- particularly the Virginia planters, who were such an important force among the native-born. Many of them distrusted banks as tools of oligarchy and believed that farming, not industry, was God's chosen occupation.

Finally, because they were less rooted in the traditions of the place where they lived, Hamilton and Gallatin were less wedded to traditional ideas (such as the superiority of farming) and to local loyalties. This made them more willing not only to advocate new ideas but to mix different perspectives into a broader one.

McCraw notes that of 55 delegates to the Constitutional convention, eight were immigrants and seven of them signed the final document, compared with only 32 native-born framers. The immigrants had a wider, broader perspective from their wider, more diverse experience.

We see in this early immigrant contribution a pattern that continues to this day with America's uniquely strong record of innovative startups. Immigration is, of course, controversial today, as indeed it has been at least since the waves of Irish came in the 1840s. And immigration can create problems with too much diversity, too much jostling, too much chaos and not enough forces to tie us together.

But as far back as Hamilton and Gallatin, we see that immigration has been a crucial part of the American success story. If you like innovation, you should like immigration.

Posted by Steve Kelman on Mar 12, 2015 at 4:22 PM


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