We’re hearing more and more about the brain drain, and how it’s such a drain on American innovation and productivity. Our best and brightest from the most prestigious universities are not going to build rockets or invent new eco-efficient energies after graduation; they’re shuffling around money or doing leveraged buyouts as Excel monkeys. I personally do not blame them, and I think in this job market to chastise smart grads for pursuing lucrative opportunities instead of some higher calling is downright ridiculous. It’s simply a matter of incentives; high tech firms that add real value couldn’t compete with finance. But I think that’s starting to change, and a new brain drain is upon us.
This morning Obama released a proposed budget for 2013. In there was a clause to treat carried interest as ordinary income, not capital gains. There is a government assault taking place on high finance and those who run it, and Dodd Frank and other regulations are already starting to neuter finance. Bonuses are being cut left and right from prestigious front office i-banking and trading positions, analysts and associates are getting axed left and right, and few hedge funds are seeing returns the way they did in the pre 2008 era. In other words, there’s a very real sense starting to kick in amongst young people, and especially amongst those like myself just graduating, that the glory days are over.
Many smart students and recent grads are seeing this trend, and are breaking into tech and starting their own firms. When you take away the incentive of a lifetime of six figure bonuses, finance starts to look a lot less appealing. Students from MIT, Stanford, Carnegie Mellon, and increasingly top less non-technical schools like the Ivies and “new Ivies” want to get into tech. And not tech 1.0 microchip producers in Silicon Valley, but 2.0 social web tech firms. Some are even turning down lucrative finance offers to make this move (make sure to check out this piece by Penn student Patrick Leahy). This morning I spoke on the phone with Steve Cheney, who runs business development at GroupMe and is a noted tech blogger. Steve started in 1.0 tech and lateralled into banking, joining the famous tech coverage group at Morgan Stanley, before getting involved in social and mobile web at GroupMe. One of the things Steve told me that stuck out is that he is getting a high volume of calls from people from the finance, legal, and consulting professions looking to move into tech, sometimes as many as five or six people per week. Many of these people have MBAs or JDs and years of experience.
There is a major shift of brainpower happening here. To see why, follow the incentives; people will follow the incentives, which are in many case money and prestige. However, I think people, especially Gen-Y and those a few years older, want to work in a more creative environment with a flatter structure. I wrote more about this in my last post, and concluded that the ideal of Gen-Y is not to make it to the top of a pre-existing structure, but to build your own and watch it grow. While the last brain drain, and the one that is still happening to an extent, was hailed as “bad” and “unproductive,” I feel this newer one that is emerging is neither. I think we should be excited, and encourage young people to build products of value that make people’s lives better.
However, there’s still much skepticism over the value of a lot of social tech, and whether or not it creates lasting value. Jeff Hammerbacher, an early employee at Facebook and Harvard grad who left the company to pursue things he felt were more noble, said that: “the best minds of my generation are thinking how to make people click ads, and that sucks.” To an extent, this can be true. Social media and tech firms looking to quickly monetize have made ads an integral and possibly overly central part of their business models. While many of the services provided by social tech are trite, there are a growing number that provide significant value in our daily lives. City dwellers are using AirBNB to help pay their rent while providing affordable hotel alternatives to lean travelers, companies are using analytic and metric services to maximize their web spending, artists are using Instagram to promote their work to a wider audience, traders are using StockTwits to leverage their knowledge and share ideas in real time. All of these things are good, and driving innovation and job growth. There are of course the “facebook for cats” and other loopy ideas that are creating talk of a major bubble about to burst. But the market naturally allows the good stuff to rise to the top, and sifts out the crap. I don’t think we need to be afraid of this new brain drain.