The National Interest, March 22, 2012
One of the least attractive elements within the troubled U.S. immigration system deals with immigrant investors. It is an unsuccessful, squalid little program. But the Obama administration loves it and is trying hard to sell it to the world.
The name is EB-5, because it is the fifth class of the employment-based programs for immigrants.The basic arrangement is that the alien—who could not be admitted to the United States under any other circumstance—invests at least half a million dollars. If the money stays invested for two years, he and his family get a collection of green cards.
The applicant might even get most of his money back, but that seems a secondary matter; the real attraction is the set of green cards. He does not have to run a business, only put the money into a government-approved investment for a minimum of two years. Despite slippery talk by U.S. Citizenship and Immigration Services (USCIS), this is a program for passive investors, not entrepreneurs.
Setting aside the question of taste—it’s tacky to sell visas to otherwise unqualified immigrants—the program is full of problems.
While $500,000 gets you into the program, what kind of legitimate investment of that sum would produce ten full-time, continuing jobs in the U.S. economy, as the program demands? Can you buy a farm or factory—or consulting firm—that employs ten for that price? The government fuzzes that hurdle by saying that you can use “any reasonable methodology” to produce an estimate of the indirect creation of ten jobs. This is also an awkward way to raise capital for the developer; thus, only the least attractive investments are available to the applicant.
The program also excludes potentially more valuable labor by operating inside the numerically limited, employment-based part of the immigration system for which there are no more than 140,000 visas a year. So for every investor or investor’s child that enters, the government must deny (or postpone) a visa for a truly needed worker (or his or her child). My sense is that the United States needs bright people more than relatively small chunks of short-term investments.
Out of Scale
Speaking of small investments, it is useful to compare the huge scale of foreign investment in the United States generally with what EB-5 contributes. The increase in foreign investment was $1.9 trillion in 2009, according to the Commerce Department. Compared with the $191 million I estimate was the increase in solid investments caused by EB-5 that same year, that would amount to the program contributing one penny for every $100 in new foreign investment. Even if that level of EB-5 investment has increased tenfold in the years since then, it still would account for about a dime for every $100 in additional foreign investment.
Another way to look at the scale is through the eyes of a serious venture capitalist, who would laugh at the prospect of seeking capital in tranches of half a million dollars.
Other English-speaking nations, such as Australia and the United Kingdom, have set much higher investments in similar programs; Canada is contemplating increasing its minimum beyond the current C $800,000 (U.S. $807,000).
Few Success Stories, Many Scandals
NASCAR officials, with their checkered flags, are very good at what they do, but I would not want them monitoring health care. Similarly, it does not make much sense to have a bunch of immigration officials monitoring investment schemes, which is what is going on in the EB-5 program.
As a one-time publicist for government agencies, I am surprised by the total lack of success stories coming out of this program. After twenty years of investing, one might expect some useful drug would have been found, or some desolate coal town converted to an arts-and-crafts resort, or some successful computer app written. But apparently nothing like this has happened.
Meanwhile, as documented in my Center for Immigration Studies report, EB-5 has generated large numbers of financial disasters and scandals. These include, among many others, bankrupt dairy farms in South Dakota, a questionable sewage treatment plant in the Mojave Desert, banned Iranian money proposed to refurbish Washington’s Watergate Hotel, and a bit of economic sleight of hand and Wall Street-area gerrymandering that made the front page of the New York Times.
Investors Not Interested, Officials Wary
There is a ceiling of ten thousand immigrant visas a year in the EB-5 program. The latest data available, for FY2010, indicates that there were 2,480 admissions in this class, consisting of 864 principals and 1,616 spouses and children. These were conditional entrants, and only 274 principals that year graduated to full green-card status. This was the program’s most popular year to date and probably was exceeded to some extent in 2011 because USCIS is actively promoting the program.
Meanwhile, USCIS officials appear to be wary of the program, denying various kinds of EB-5 applications at rates ranging from 11 percent to 45 percent in fiscal year 2010 and the first half of 2011. This is an agency that normally reports approval rates of 90–95 percent. The leadership of the agency is taking a number of steps, including changing the decision-making structure, to reduce the denial rates.
EB-5 is a badly designed program run by a bureaucracy unqualified to referee investments. It does little good for the U.S. economy and brings in immigrants that would otherwise be barred—displacing actual talent from the immigrant stream. Let’s let it die.