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On Silicon Valley and H-1B Visas
Facebook COO Sheryl Sandberg at the Fortune The Most Powerful Women Conference in Washington, DC, October 16, 2013. (Datuna Otfinowski/Fortune Most Powerful Women/Flickr)
Facebook COO Sheryl Sandberg (Datuna Otfinowski/Fortune Most Powerful Women/Flickr)

On Silicon Valley and H-1B Visas

Irwin M. Stelzer

“Apple would not exist without immigration,” warns Tim Cook, Apple’s CEO. His colleagues in the board rooms of Silicon Valley agree, and tremble at the rumored issuance of a Trump executive order that might reduce the number of H-1B visas issued to skilled foreign workers. These titans of the Valley rely heavily on such visas to allow them to import software engineers and other highly skilled foreigners. They fear that the president’s recent efforts to limit immigration, and a forthcoming order designed to end abuses that allow seemingly unqualified immigrants to benefit from the visa program, might deny them access to these workers, who they say they must have if their innovation machine is to continue rolling in high gear. Indeed, they want the number of such visas increased so they can overcome the shortage of trained American workers. Otherwise, they threaten to take their operations overseas to gain access to skilled workers.

My lawyer friends would remark that these free-market enthusiasts do not come to this issue with clean hands. The market has not produced American laborers with appropriate skills in sufficient quantity in part because the Valley’s firms got together to reduce the market’s ability to perform the function of any free market—increase supply in response to increased demand by raising prices, in this case wages paid to skilled workers.

It all began about half-dozen years ago when the now-sainted Steve Jobs threatened Google co-founder Sergey Brin—“If you hire a single one of these people [Apple engineers], that means war.” And if a tiny company such as Palm dared to “poach,” Jobs would initiate patent litigation that would bankrupt the company. Eric Schmidt, then Google CEO, swung into action. He lined up Adobe, Intel, two Disney subsidiaries and Intuit to join him and Apple in a “no recruit” agreement that would in effect prevent competitive wage offers from driving up the pay of the workers who were in short supply. Schmidt reportedly went so far as to agree to the firing of a human resources person at Google who solicited an Apple employee. To Mark Zuckerberg’s and Sheryl Sandberg’s credit, Facebook declined an offer from Google to join the anti-worker cartel. Sandberg, Facebook’s chief operating officer then as now, responded to an invitation by saying that she would not “limit Facebook’s recruitment or hiring of Google employees.”

A laughable feature of this conspiracy among the highest-placed executives in the highest-tech firms in the world was an agreement to avoid creating “a paper trail over which we can be sued later”, in the words of Schmidt. They would instead restrict themselves to the use of emails. The idea of a private server had not yet made its appearance. Instead, sitting on the conspirators’ email records were exchanges confirming their willingness to suppress their employees’ wages, emails awaiting discovery when the Department of Justice got wind of the conspiracy and brought suit.

To make a longer, more titillating story short (for a fuller version see my “High-Tech Chutzpah,” TWS, October 27, 2014), the conspirators settled the case after the presiding judge warned them that they likely would be found guilty and incur a huge liability, $9 billion by one estimate. The payment, in excess of $400 million, was to be divided among 64,613 Valley engineers, no problem for the companies since at the time four of the defendants—Apple, Intel, Adobe and Google—were sitting on cash piles totaling $230 billion. The conspirators, of course, got off scot-free; shareholders had to bear the cost of the company payments.

In most price-fixing cases, the parties spend a not insignificant amount of time honing their skills at doing laundry, carpentry and other non-high-tech chores as guests of the federal government. But Obama had a soft spot in his heart for these supporters, and so, as they say in the trade, they walked.

The broader lessons are these. When businesses want some special privileges, such as visas, they should be made to pay for them so that they can balance the cost of employing against the cost of paying more to American workers. In the case of H-1B visas, a bidding process should be set up. If nothing else, the bidding process would direct visas to the companies that can make the best use of them, and in this case drive up the cost of using foreign labor relative to the cost of training home-towners.

And when reacting negatively to some Trump proposal that seems to violate the conservative principle of non-intervention in free markets, first determine whether the intervention might have been justified as an offset to a market imperfection—superior bargaining skill by defense contractors facing bureaucrats with no skin in the game; or currency manipulation by trading partners; or insensitivity to the cost of regulations by top-level regulators who can only benefit from the increase in staff and power associated with an expansion of their reach. Trumpism is not the only imperfection in the world in which we find ourselves.

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