Unlocking the Path to Prosperity with Entrepreneurship and Innovation: A Conversation with Professor William Kerr

By TAP Staff Blogger

Posted on January 28, 2014


Professor William Kerr, associate professor at Harvard Business School, sat down with TAP to discuss his work with international firms, his focus on entrepreneurship and innovation, and his recent research on high skilled immigration.

TAP: What brought you to your current position as associate professor of business administration at Harvard Business School?

WILLIAM KERR: After completing my undergraduate studies, I entered the professional world for several years, wanting to learn more about business and experience its opportunities. Having never been outside of the United States, or really even very far from my home state of Alabama, I also wanted to see the world. This was the mid and late 1990s, and many countries were restructuring their telecommunications markets to allow for more competition. In a series of consulting projects, I worked with governments in South Africa, Singapore, and elsewhere about how they could encourage more entrepreneurship in these sectors and achieve stronger economic growth. These deregulation projects often involved thinking about the economics of individual firms (incumbents and entrants), at the same time as thinking about the whole picture of industry or economy. This was fascinating, and I got hooked. I left the professional world to pursue a Ph.D. in economics at MIT with a focus on economic growth, and then came to Harvard Business School (HBS) as the ideal balance of studying the behavior of firms and the economy as a whole.

TAP: Your research focuses on entrepreneurship and innovation – what initially interested you about these topics?

KERR: First, entrepreneurship and innovation are about the power of what can be! We have long used a definition of entrepreneurship at HBS that Howard Stevenson (Sarofim-Rock Professor of Business Administration, Emeritus, at HBS) developed in the 1980: “The relentless pursuit of opportunity without regard to resources currently controlled.” I push my students about whether this is the right definition (e.g., it does not necessarily link being an entrepreneur to founding a new firm), but in the end I love the license it provides to think about entrepreneurship and innovation in many venues. One can be an entrepreneur of a church, university or large company, in addition to the Silicon Valley start-up.

The second part of my interest relates to the economy as whole. A quick lesson that emerges in the study of economic growth is that innovation and technical progress are the key determinant of long-run development, along with concomitant strengthening of education and human capital for workers. At many times, other features are important for growth (e.g., savings and the provision of capital investment), but these other channels run out of their long-run kick if we do not generate better ways to use the resources that we have and push out the technological frontier. Entrepreneurship and innovation are about unlocking the paths to prosperity.

TAP: You recently wrote a paper based on studying the impact of skilled immigrants on the employment structures of U.S. firms. What was your most surprising take away from this research?

KERR: I went into this project without much of a clue as to what we would observe (but with great anticipation to see the data). There were many accounts in the press and policy circles that were fundamentally conflicting in what they suggested the impact of skilled immigrants would be for the other workers in their firms: job creation or job loss for natives? Does it hurt or help younger or older workers differentially? Etc. And, I had seen through my case studies and professional work at least one instance of all of these perspectives … but how did they add up? I worked previously on the topic using city-level data, but the economics of the firm were a very different matter.

The surprising take-away for me from the project was that the many conflicting accounts may be looking at the same data point and seeing it in different ways. Perhaps the most prominent example of this is our finding that the hiring of young skilled immigrant groups has limited effects for the employment of older U.S. natives, while at the same time there is strong growth in the employment of younger natives. On one hand, there is no systematic decline in older worker employment in raw counts, and this provides some support for employers and their focus on the broad growth of the firm. On the other hand, if you are an older unemployed U.S. worker seeking to land a job in one of these firms, your perspective could be quite different. Both in this project and throughout my recent work on this debate, I have become increasingly aware that perspectives and interpretations of facts may be more at issue than the facts themselves. (But we still need a lot more facts to anchor the debate!)

TAP: In your paper, “U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence,” you make the case that high-skilled immigrants are a very important component of U.S. innovation and entrepreneurship. What makes high skilled immigrants so valuable?

KERR: There are several basic factors at play, and let’s loosely depict them in quantity and quality terms. To begin with the quantity dimension, the sheer counts of immigrants involved in U.S. innovation and entrepreneurship are staggering. For example, first-generation immigrants account for about a quarter of our bachelor’s level workforce for innovation and entrepreneurship; at the Ph.D. level, these shares approach 50%. My view is that one simply can’t understand the dynamics of U.S. innovation and growth without considering this part of the labor market in detail.

Quality is a second factor. Here, as the paper discusses in greater detail, there are much bigger debates about “best and brightest.” My reading of the evidence comes to two basic conclusions. First, most of the impact from skilled immigrants comes through their stronger training and education related to innovation disciplines. Thus, higher rates of patenting among immigrants are not due to an inherent set of skills or aptitude that the average immigrant somehow possesses above and beyond the average U.S. native, but the advantage accumulates through education and career choices over time. Second, most every field is marked by a set of superstars that form an exceptional tail of talent. These superstars are disproportionately in the United States, and immigrants are a disproportionate share of this group for the United States. This descends from a selection effect where the U.S. and its universities, institutions, entrepreneurial clusters, etc. are exceptionally attractive for this global talent. I don’t yet know which of these two dimensions is more important, but they both provide gains to the U.S. economy.

TAP: What are one or two imperative aspects Congress must consider as it approaches high skilled immigration reform this year?

KERR: First, a starting point for me is to always push back against the fallacy of a fixed number of jobs in the economy. For much of history, we have continually faced worries about losing forever jobs to new technologies, global trade, or similar. And yet a fundamental lesson of economic growth is that the number of jobs is not fixed but can expand to build a bigger economy. Don’t fall into the trap with immigration reform of believing there are only a fixed number of jobs, and so immigrants must push someone out of one.

Second, recognize that while point number one holds over the long-run, there can be pain or displacement in the short-run for some workers due to immigration. I believe in the end that the pie overall gets bigger, but I also believe that it is blithe to think that no one gets hurt. The economics of immigration often emphasize both of these features will occur together, and there should be support for those who are hurt. If we are truly making the pie bigger, than some of the surplus can be spread around.

TAP: What topic do you most enjoy teaching your MBA students?

KERR: I enjoy most when I have an opportunity to teach, mentor, or even just talk with MBA students out of the classroom. The HBS classroom is very dynamic, and it is a true pleasure to learn from the students every day during the class sessions. But I enjoy most working with students on their own projects and the start-ups that they plan for post-graduation. It is super cool—talk about seeing the future—but the less-formal venues of these field studies also allow one to learn much more about their personal backgrounds, goals and struggles, and so on.

TAP: Fun Question: You’ve worked with firms worldwide in business development and corporate entrepreneurship. What is your favorite international city and why?

KERR: My wife is from Finland, and we spend usually two months a year in Helsinki in a small one-bedroom flat with our two kids. So, for the purposes of marital harmony, let’s put Helsinki on the list! My other choice is Hong Kong, which was home base during the years I worked in Asia. A truly unique and magnificent city, and a place where I still have dear friends. The more I travel, the more my favorite spots are those that seem like home.