From 1995 to 2005, 52 percent of Silicon Valley’s technology and engineering companies were founded by immigrants. The majority came to the United States as students. They ended up staying after graduation and on average founded companies 13 years after their arrival. They also filed 25 percent of America’s global patents, significantly boosting U.S. competitiveness. Their contributions to the new American economy are vast, and their importance is clear.

But because of the burgeoning economies of countries like India and China and flawed U.S. immigration policies, the proportion of immigrant-founded companies is likely to be significantly lower over the next decade. This doesn’t mean there will be greater opportunities for native-born Americans: It means that there will be fewer startups; that entrepreneurship will be booming instead in countries like India and China; that Silicon Valley will face unprecedented competition from American-educated and -trained talent that, rather than staying in the land of opportunity as so many have done for so long, returned home.

The research team I work with at Duke, Harvard, New York University, and the University of California-Berkeley has been studying the impact of skilled immigration on American competitiveness. We have looked at trends in outsourcing; research and development, innovation, and entrepreneurship in India, China, and the United States; and the reverse migration of skilled talent from the United States to India and China. Over the course of five years, we have conducted surveys of thousands of technology and engineering companies, interviewed hundreds of company founders, surveyed thousands of foreign students and returnees, and made several trips to India and China to understand the on-the-ground realities in those countries. Most recently, we completed a survey of 250 entrepreneurs who returned to India and China to start their ventures there. And our research and analysis lead to one conclusion: America must revise its immigration policies if we are to remain the world’s leading incubator of entrepreneurship.

America’s New Immigrant Entrepreneurs

Our current immigration policies have left companies and entrepreneurs hamstrung. Limits on visas for skilled and exceptional workers have prevented businesses on our shores from finding the talent they need to keep up with rivals abroad. Foreign nationals who graduate with advanced degrees or who seek a new place to start a business increasingly don’t see America as the launching pad for their dreams—and we’re not offering them sufficient incentives to convince them otherwise. If we are to revive our innovative capacity, we need to find new ways to bring immigrant thinkers and entrepreneurs to America.

How essential have immigrants been to our economic success? In 2006, we surveyed 2,053 firms founded nationwide over the previous ten years. We found that 25.3 percent had a chief executive or lead technologist who was foreign born. We estimated that in 2005 immigrant-founded tech companies generated $52 billion in revenue and employed 450,000 workers. In some industries the percentages of immigrant founders were higher. The percentages of all startups that were founded by immigrants in various sectors include: semiconductors, 35.2 percent; computers/communications, 31.7 percent; software, 27.9 percent; and innovation, 25.9 percent.

To understand the educational background of these immigrants and what brought them to America, we interviewed 144 company founders in 2007. We learned that immigrant technology-company founders tended to be highly educated: Fully 96 percent held bachelor’s degrees, and 74 percent held graduate or postgraduate degrees. Three-quarters of these advanced degrees were in science, technology, engineering, and mathematics (STEM) fields. The vast majority of these company founders didn’t come to the United States as entrepreneurs; 52 percent came to study, 40 percent came to work, and 5.5 percent came for family reasons. Only 1.6 percent came to start companies in America. Clearly, many saw opportunities once here that they had not envisioned.

To understand the intellectual contribution of immigrants to the United States, we studied U.S.-originated international patent filings by U.S. resident inventors. In 2006, foreign nationals residing here were named as inventors or co-inventors in 25.6 percent of patent applications filed from the United States. Immigrants were critical to the success of some of America’s largest companies. For example, they contributed to 72 percent of the total patent filings at Qualcomm, 65 percent of the total at Merck, 64 percent of the total at General Electric, and 60 percent at Cisco Systems. Overall, more than 40 percent of the international patent applications filed by the U.S. government also had foreign-national authors.

This all sounds wonderful, but there’s a dark side to the story. There is a massive backlog of skilled immigrants and their family members—more than a million people in all—awaiting legal permanent resident status in the United States. The reason for the increasing backlog is that only 120,000 visas are available per year in the key visa categories for skilled workers. Additionally, no more than 7 percent of the visas can be allocated to immigrants from any one country. So immigrants from countries with large populations like India and China have the same number of visas available—8,400—as those from small-population countries like Iceland and Costa Rica. In addition, a 2003 survey found that the process of applying for permanent residence is so arduous that 17.4 percent of new legal immigrants became depressed as a result of the visa process. Approximately 21.7 percent of new legal immigrants and 34.5 percent of “employment principals” either planned to leave the United States or were uncertain about remaining. Contrary to the age-old story about wanting to make it in America, people were wanting to go home.

To learn why returnees went home and how they were doing, we located, via the online social network LinkedIn, 1,203 highly skilled Indian and Chinese workers who had worked or received education in the United States and subsequently returned to their home country. Among the strongest reasons cited by these immigrants (average age low thirties, more than 85 percent with advanced degrees) for originally coming to America were professional and educational-development opportunities. They returned home for a host of reasons. While visa status was not the most important factor, one in four indicated that considerations regarding his or her visa or residency-permit status contributed to the decision. (In fact, 27 percent of Indian respondents and 34 percent of Chinese held permanent-resident status or were U.S. citizens.) For this highly select group of returnees, career opportunities and quality-of-life concerns were the main reasons for returning home. The desire to care for aging parents and to be closer to friends and family were strong incentives. Indians in particular perceived the social situation in their home country to be significantly superior.

The move home also served as a career catalyst. Respondents reported that they have moved up the organization chart by returning home. Only 10 percent of the Indian returnees held senior-management positions in the United States, but 44 percent found jobs at this level in India. Chinese returnees went from 9 percent in senior management in the United States to 36 percent in China. Opportunities for professional advancement were considered to be better at home than in the United States for healthy majorities of both groups. They also felt that opportunities to start a business were significantly better in their home countries—a finding that should be a wake-up call for us.

We then wanted to gain insights into the next generation: foreign nationals currently enrolled in U.S. universities. This cohort is critically important because the majority of engineering Ph.D.s and close to half of master’s degree students in this country are foreign nationals.

We used the social networking site Facebook to find 1,224 foreign nationals who are currently studying at U.S. universities or who graduated in 2008. The unnerving overall consensus among respondents was that the United States was no longer the destination of choice for professional careers. We learned that most students in our sample want to stay, but not for very long. Only 6 percent of Indian, 10 percent of Chinese, and 15 percent of European students said they want to stay permanently. The largest groups of respondents—55 percent of Indian, 40 percent of Chinese, and 30 percent of European students—want to return home within five years.

Why these numbers? More than three-quarters of these students express concern about obtaining work visas, and close to that number worry that they will not be able to find jobs here in their field. Also, only 7 percent of Chinese students, 9 percent of European students, and 25 percent of Indian students believe that the best days of the U.S. economy lie ahead. Conversely, 74 percent of Chinese students and 86 percent of Indian students believe that the best days for their home country’s economy lie ahead.

A Pro-Entrepreneurship Immigration Agenda

Gone are the days when the United States was the only land of opportunity, when the world’s huddled masses flocked only to its shores. There are new opportunities and new risks. We will be competing and collaborating at the same time, which means that we will need to accept that the new world realities go beyond providing visas; we will need to make immigrants feel welcome and provide them the same support and encouragement as other countries like Chile and Singapore do. To remain the world leader in entrepreneurship and innovation, we need to cultivate our human capital. We suggest four specific ideas to reverse our current worrisome course.

Raise the H-1B Visa Limit

Most of the debates on skilled immigration focus on H-1B visas, which allow U.S. employers to employ foreign individuals in occupations that require a high degree of specialized knowledge, such as engineering, mathematics, and medicine, among others. We admit only 65,000 workers per year on these visas and an additional 20,000 graduate students. These numbers need to be increased to keep pace with demand from the expanding technology industry.

But how much should they be increased? Opponents of immigration argue that if we increase these numbers too dramatically, this will lead to cheaper labor entering the United States and create downward pressure on engineering wages. This could indeed be a problem if we bring in too many workers at the lower end of the scale. If you flood the market with workers with any skill, you end up hurting that profession—if we brought in 100,000 doctors, dentists, or plumbers, it would cause salaries to drop in those fields and create unemployment. Moreover, it would discourage Americans from studying these professions. Still, doubling the current quota, based on skill and salaries paid, and giving preference to the graduates of American schools, would solve some of the most urgent problems with the H-1B program. It would reduce the salary distortion and provide a way for corporations to increase their odds of getting who they really want.

Open Our Doors to More Skilled Workers

There are more than one million workers and their families stuck in “immigration limbo”—on temporary visas waiting for green cards, which would grant them lawful permanent residence. These workers can’t start companies, justify buying houses, or grow deep roots in their communities. Once they get in line for a visa, they can’t even accept a promotion or change jobs. They could be required to leave the country immediately if their employer lays them off, so they keep their lives in a “holding pattern” while they wait for visas.

The simple solution is to increase the numbers of visas that are offered to skilled workers in the EB-1 through EB-3 categories from 120,000 to around 300,000 per year. (EB-1 visas are granted to multinational executives and managers, outstanding professors and researchers, and those with extraordinary ability in science, education, business, and the arts; EB-2 visas cover those with advanced degrees or exceptional abilities in the sciences, business, and the arts; EB-3 visas run the gamut of unskilled, skilled, and professional workers.) And we need to remove the per country limits. How about a one-time increase in the numbers to 500,000 to clear the backlog? If a move like this proves politically difficult, then the conversion of temporary visas to permanent residency could be tied to the purchase of a house.

Invite Entrepreneurs to Plant Roots Here

Another solution is to allow skilled workers to get a green card if they start a company that employs Americans. Senators John Kerry, Richard Lugar, and Mark Udall have proposed what they call the StartUp Visa Act. Their proposal targets three groups in particular: entrepreneurs living outside the United States sponsored by an American investor with a minimum investment of $100,000; workers on an H-1B visa or STEM graduates from U.S. universities who have an annual income of at least $30,000 or assets of at least $60,000 and have had an American investor put at least $20,000 in their ventures; and foreign entrepreneurs whose business has generated at least $100,000 in sales from the United States.

Recipients of the visas must also meet some goals within two years of being issued the visas. For the first group, their startup must have created five new American jobs and either have raised more than $500,000 in financing or be generating more than $500,000 in yearly revenue. For the second and third groups, their startup must have created three new American jobs and either have raised more than $100,000 in financing or be generating more than $100,000 in yearly revenue.

Give Green Cards to Graduates

According to the National Academy of Sciences, nearly one-third of all American Ph.D.s in science and engineering are awarded to foreign-born students. It makes sense to encourage these students to stay in the United States after graduation. One solution: Let’s give green cards to those graduates. Currently, it is difficult for STEM advanced-degree graduates who are here legally to stay if they want to. Department of Homeland Security rules stipulate that foreign students with STEM degrees can stay for just over two years for practical training after graduation. But students cannot be unemployed for more than 90 days during that time. And once their visa expires, they have to leave the country.

As our research found, more than three quarters of foreign students in the United States express concerns about getting a work visa—worries that no doubt contribute to their decision to leave. By granting these hard-working graduates green cards, we can keep them on our shores, instead of seeing them take their education and skills to other countries.

One hates to imagine a world 40 or 50 years into the future when skilled workers are chasing the “Chinese Dream” or the “Indian Dream.” We may be headed there unless we take action now.