Wisconsin is taking a big leap of faith and cash to lure Foxconn. Far from providing a model to bring back manufacturing jobs, it's offering a master class in corporate welfare.
Considering that Washington state handed Boeing the largest state tax break in U.S. history, a move I supported at the time, you might find it odd that I would pick nits with Wisconsin’s subsidy-fueled “win” of a Foxconn factory. But who better to critique the kettle’s color than the pot?
Late last month, the Taiwan-based electronics manufacturer announced the deal at a White House ceremony trumpeted by President Donald Trump and attended by Wisconsin’s union-busting Republican Gov. Scott Walker. It promised a $10 billion investment to build its first major U.S. factory, creating 3,000 jobs. This seemed to validate Trump’s promise to return manufacturing jobs to the U.S., even though his earlier Carrier stunt turned to ashes.
Details of Wisconsin’s, er, bargain for the flat-screen plant are now more transparent. The state would give Foxconn more than $3 billion in incentives, not including other local incentives. It’s more than forgoing tax revenue. Wisconsin would be required to pay the company from $200 million to $250 million a year. Foxconn would avoid an environmental impact statement and sidestep a number of environmental protections imposed on other companies, including requirements that protect wetlands. Wisconsin must police whether Foxconn is living up to its promises — in a state where Walker has made sport of making war on state employees.
Foxconn commissioned an Ernst & Young report saying it could ultimately create 13,000 jobs — if so, the cost of the package would only be $230,700 per worker. A large network of suppliers could follow. Could. As the state legislature considers the
ransom incentive package, Foxconn dangled the possibility of a second plant in Wisconsin.
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But as the Tech Crunch blog noted, Foxconn CEO Terry Gao “is in the habit of promising big and rarely delivering.” This is also a company, making devices for such giants as Apple and Amazon, that was notorious for employee suicides at its high-pressure factories in China. It is also on a serious race to replace humans with robots and could become the first major manufacturer with so-called dark plants — factories that operate entirely automated, no need to even turn on the lights.
These are all reasons to be skeptical of subsidies that pick winners — typically multinationals with huge profits — at the expense of existing tax-paying companies.
Skepticism has certainly grown here as Boeing has shed significant numbers of jobs after winning the nearly $9 billion package to build the new 777. Some lawmakers want to claw back some of the money, but don’t expect Boeing to accept that. Part of Boeing’s tax-incentive package from Washington state has been ruled an illegal subsidy by the World Trade Organization.
There is an important difference between the two situations, however. Washington was trying to retain one of its most important industries, aerospace. It’s impossible to prove a “what might have been,” but the state arguably succeeded, albeit with flaws. Wisconsin doesn’t have a world-class flat-screen cluster supporting tens of thousands of jobs that it needs to protect from poachers.
The Wisconsin paradox is that Walker refused $810 million in federal help for a higher-speed rail line between Milwaukee and Madison. Why? Because it came from Obama and because Republicans have a strange anti-rail fetish (Florida’s and Ohio’s governors did the same).
In addition to offering more transportation options — including one with far fewer greenhouse gas emissions — the rail project would have provided large numbers of construction jobs, as well as good operating and maintenance jobs. The trains would have been assembled there, too, with the potential of billions in contracts to build trains for other states. Spanish railcar maker Talgo eventually reached a settlement for being stiffed by the state. At least one of Wisconsin’s trains came to the Northwest for the Amtrak Cascades.
Flat screens, by contrast, are commodity items that can be made anywhere and easily automated. Most manufacturing jobs aren’t coming back and fewer will be created. But maybe enough of the white working class will believe Trump and Walker’s TV announcement to keep on believing.
Today’s Econ Haiku:
The Avon lady
Got kicked out by a vulture
No, he didn’t blush