Ruminations on Foxconn
The giant electronics manufacturer Foxconn has announced it will locate in Wisconsin. It supposedly plans to spend $10 billion to create a “campus” to build LCD panels. The politicians were, of course, tripping over themselves to get in on the photo op. But I wonder if the old adage applies: “If is sounds too good to be true...it probably is.”
The announcement was held at the White House. Foxconn CEO Terry Gou, President Trump, Governor Walker, and House Speaker Paul Ryan were in attendance. Trump, with typical arrogance, said it wouldn’t have happened if he hadn’t been elected President. Walker said the deal would transform Wisconsin. This deal may boost the image of the politicians but it is uncertain if the economic benefits will be worth the cost to the people of Wisconsin. There are many questions about this deal that need to be addressed before Wisconsin risks 3 billion tax dollars on the project.
One wonders why the largest contract electronics manufacturer in the world is interested in Wisconsin. Foxconn has huge factories in China, India, and other places where the labor costs and environmental standards are much lower. The company has a terrible reputation for abusive labor practices. The Republicans claim their agenda (anti-union, tax cutting, environmental standards destroying) is creating a business climate that creates jobs. But is attracting the world’s largest sweat shop what we want for Wisconsin? Are we winning the the race to the bottom?
Apparently Wisconsin did win the race for the largest bribe. Foxconn has a history of announcing big deals that never happen. In 2011 the company said it would invest $12 billion in Brazil and create 100,000 jobs. According to the New York Times, Foxconn never came close to that level of investment. In 2013 Pennsylvania was suppose to get a $30 billion deal but it never happened. Foxconn told CNN that they are still interest in Pennsylvania but that state hasn’t offered enough to make the project “economically viable.” Apparently the bride was not big enough.
Walker is offering $3 billion in tax breaks over 15 years and exemptions from environmental requirements. Many experts say this price is not worth it. The project is suppose to create 3000 permanent jobs with the potential for 13,000 total. This is $1 million per permanent job. Over 15 years this is $66,000 per job. Essentially the state is paying for Foxconn’s labor costs.
On wonders about how long the jobs will last. Frequently these deals do not produce the number or quality of jobs initially claimed. If a government subsidy is required then the project may not be economically sound. A multi-billion dollar company like Foxconn should have enough resources and ability to raise capital without milking local government. Government should not be engaged in providing venture capital or subsidizing shaky deals.
The factory will probably be highly automated and again may not produce the optimistic job numbers. CNN quotes Christopher Balding, a professor of economics at Peking University, “...if they’re going to be doing it in the U.S., it’s not going to be people on production lines building TVs, it’s going to be a small number of people watching robots build TVs.” Recently Foxconn laid off 60,000 employees in India due to automation.
The Milwaukee Journal reports this is not just a factory they are proposing. It is a company town complete with housing, stores, and service businesses spread over at least 1,000 acres. Is recreating company towns part of Walker’s transforming of Wisconsin? How many of the state subsidized jobs will be in the company store, cafeteria, housing rental agency? How many will be security guards to keep the workers in line?
What happens when the technology changes? Is the LCD screen going to go the way of the cassette tape, VCR, or music CD? What will the state do with a 1000 acres (1 ½ square miles) of empty space when Foxconn moves on? Hope for another mega-corp to take its place?
Big deals and flashy headlines obscure better, alternative strategies for improving the economy. The Milwaukee Journal says the subsidy package is 50 times bigger than any of the state’s previous giveaways. Promoting 50 diverse, home grown deals would provide more economic diversity and stability than one huge risky gamble. A better strategy would be to invest in making Wisconsin a great place to live and work for everyone. We would be better off spending $3 billion to promote home grown business, help the 140,000 existing businesses, and funding the vital public services needed for everyone to thrive.
The Foxconn deal is not part of a sustainable, coherent economic development strategy. It is a one time photo op. Bribing companies is not a sustainable program that builds on the strengths and needs of Wisconsin. The failed G-Tech mine is another example of this flawed strategy. Carl Davis, research director at the nonpartisan Institute on Taxation and Economic Policy says, “This is not a comprehensive strategy for economic development. If Wisconsin were going to offer this kind of subsidy for every employer within its borders, the state would be bankrupt.”
Unfortunately a special session of the legislature is already meeting to authorize the deal and may pass it before this article is published. It is ironic that the state legislature and governor can’t agree on a state budget but can rush to give away $3 billion. They can’t agree to adequately fund schools, highway repairs, healthcare, or the university. But this deal will probably sail though the legislature with little opposition and no time for serious analysis or public input.
Rushing important decisions is a recipe for failure. Good Jobs First is a nonpartisan, nonprofit research group that tracks economic development subsidies. Its director, Greg LeRoy, says about the deal, “We can only describe this as a gift from Wisconsin taxpayers to Foxconn shareholders. This is a guaranteed loser for the state.” I suspect he is right.