Why the Brain Drain Is a Good Thing

There is something phenomenal about the three forces of attraction. They are responsible for turning a collection of individual workers and firms into an integrated creative commons that is much larger than the sum of its parts.

This generates what economists call localized economies of scale. The term economies of scale usually refers to the ability of companies to become more efficient as they grow in size. For example, large car manufacturers are more efficient than small ones. But instead of applying to a single company, these economies of scale apply to all the companies in a geographical area. Larger clusters are more efficient because they have a thicker labor market, a more specialized supply of business services, and more opportunities for knowledge spillover. The effect can be amazing: while individual companies in a cluster do not necessarily become more efficient as they grow in size, all companies taken together become more efficient as the cluster grows. A surprising implication is that as a country, the United States is more productive—and therefore richer—because its innovation sector is concentrated in a limited number of innovation hubs rather than spread out among all cities. This is one of the paradoxes of our knowledge economy. The forces of attraction and the agglomeration of economic activity create differences and inequality among communities. But at the same time, a significant part of America’s economic vitality and prosperity depends on them.

 The three forces of attraction are further magnified by the tendency of engineers, scientists, and innovators to leave established companies to open their own shops. This process of procreation exists in all industries, but it is considerably stronger in the innovation sector, in part because employees of innovative firms tend to be a very special group of people. They may be nerds to an outsider’s eyes, but they are exceedingly creative and entrepreneurial. Often the very success of their employer leads them to leave. In their early years, startups tend to have an irreverent culture and a nonhierarchical work environment. But with success and growth, they inevitably become more formal and less exciting, prompting some of their most entrepreneurial employees to start their own ventures. This spawning process is often facilitated by stock options packages, which, when vested, can turn into seed money for a new business.

This tendency of a company’s smartest employees to start their own ventures is often referred to as brain drain. Companies are aware of the risk of losing their best talent and often fight back. Intel grants sabbatical leaves. Google allows all employees to work 20 percent of the time on their own projects. When key employees threaten to start their own ventures, Google has been known to offer them the opportunity to start their own enterprises within Google. These perks, which are rare outside the high-tech world, are a testament to how crucial a worker’s creativity is in the high-tech sector and how important it is for companies to retain good employees.

But what is costly from the point of view of an individual company is highly beneficial for the community as a whole, because it means more local jobs. Because of the magnetic attraction of clusters, offspring don’t stray too far from their parents. Research shows that the reproductive process is rarely a zero-sum game in which the young companies gain at the expense of their elders. Instead the process ends up resulting in a net gain in employment for the local community. And it gets even better: the children in turn produce their own children. Thus, from the perspective of local governments, attracting a high-tech job today will result in many more jobs in the future.