Foxconn’s Con: Seeking Whopping Subsidies for Wisconsin, Michigan Manufacturing Jobs…If They Happen

Trump got a splash of good press in July when Apple supplier Foxconn announced a plan to bring as many as 10,000 jobs to the Wisconsin and invest $10 billion over 5 years. He’d hinted at a manufacturing deal a few weeks earlier.

However, given how states have fallen all over each other to give everything from auto plants to WalMart stores huge handouts, plus Wisconsin governor Scott Walker’s keen opposition to labor rights, there was every reason to doubt that this was much of a pro-worker development, or any kind of development other than PR. Techcrunch, in a late July story Foxconn’s long con, was dismissive:

Foxconn CEO Terry Gou and President Trump recently announced a plan to bring 3,000 jobs to Wisconsin at what appears to be a flat screen manufacturing plant.

The political press ate it up, alternatively excoriating the program for costing too much in tax breaks and crowing a win for Wisconsin’s conservative governor, Scott Walker.

I wouldn’t encourage either party to hold their breath.

Gou is in the habit of promising big and rarely delivering. Four years ago business journals crowed about a plan to bring a Foxconn flat screen manufacturing plant to Pennsylvania in 2013. The result? Foxconn opened an empty office in Harrisburg and nothing further has been done.

This behavior is not new. Foxconn has signed letters promising to build factories in Indonesia (2013), Vietnam (2007), and Brazil (2011). None of these were completed according to the original pie-in-the-sky spec. Reuters had this to say about the Brazil adventure:

When Taiwan’s Foxconn Technology Group agreed in April 2011 to make Apple products here, President Dilma Rousseff and her advisers promised that up to $12 billion in investments over six years would transform the Brazilian technology sector, putting it on the cutting edge of touch screen development. A new supply chain would be created, generating high-quality jobs and bringing down prices of the coveted gadgets.

Four years later, none of that has come true…

“It’s not a promise. It’s a wish,” said Gou in January when the idea of a US factory was first floated. I worry that this announcement, too, is a “wish.” Either way, Foxconn – and not the state – wins.

OpenDemocracy went through the math from the Wisconsin side:

Foxconn’s shoddy record isn’t the only red flag associated with this proposal. The electronics manufacturing giant has grown accustomed to major handouts from governments and, if their track record is any indication, they expect these freebies to keep flowing the entire time they’re in the country. In order for this plan to become a reality, the Wisconsin state legislature would need to approve $3 billion in corporate incentives to defray capital costs and workforce development costs. The math is startling: Wisconsin will pay out $230,000 in tax dollars for each one of the 13,000 jobs. This means Wisconsin taxpayers will shell out $66,000 per year to subsidize jobs that will pay less than the state average income. In a state experiencing its lowest unemployment rate in 17 years, it’s difficult to imagine there would be political will to pass this legislation…

It’s also worth asking what kind of jobs the Foxconn deal will create. Wisconsin Governor Scott Walker’s entire political career has been framed by his battle against organised labor. With funding from the Koch Brothers and other deep-pocketed out-of-state donors, he’s waged an unceasing battle against public sector unions, including teachers and other civil servants. He also helped make Wisconsin a ‘right to work’ state, which will make it much more difficult for Foxconn’s employees to join a union if they decide to. Under Walker’s watch, union membership has plummeted faster than in any other state in the country.

And an August report in the Madison State Journal said state legislators weren’t exactly wild about the scheme. Walker is pressuring the legislature to approve the Foxconn plan as part of approving the state budget, which means accepting a pig in a poke. Some lawmakers want to do more due diligence, which means voting on the Foxconn spending separately. From the article:

Republican lawmakers are split over how to move forward with a plan to send $3 billion to an electronics manufacturing giant promising to create 13,000 jobs in Wisconsin as questions surfaced about how the plan would affect the next state budget that is a month overdue.

Taiwanese technology company Foxconn wants to spend $10 billion to build LCD panels on a 20-million-square-foot, 1,000-acre campus of more than a dozen buildings in southeastern Wisconsin by 2020. Gov. Scott Walker signed an agreement to have a contract in place by the end of September.

But doing so requires approval from a Republican-controlled Legislature that still hasn’t passed a 2017-19 state budget. And despite a suggestion from Assembly Speaker Robin Vos, R-Rochester, on Tuesday that the Foxconn deal would have “almost zero” impact on the next state spending plan, questions surfaced from Democrats and Senate Republicans about whether more vetting was needed.

USA Today, using the fact that Michigan Governor Rick Snyder is also playing footsie with Foxconn as a news hook, raised doubts about the deals yesterday with its story, Analysis: Foxconn considers another plant in Midwest, but at what cost?:

Michigan Gov. Rick Snyder, on a nine-day trade trip in China, told the Associated Press there is a “strong possibility” Foxconn will come to Michigan after it chose neighboring Wisconsin for a $10 billion display panel plant with 3,000 employees that could swell to 13,000…

But the Wisconsin deal comes with a major caveat: It requires up to $3 billion in subsidies from state taxpayers — or $231,000 per job for 13,000 jobs. Put another way: state lawmakers are mulling a subsidy package nearly 50 times bigger than any previous one.

“Throwing money into incentives makes a slippery slope,” Steve Deller, a professor of agriculture and applied economics at the University of Wisconsin-Madison, told the Milwaukee Journal Sentinel. “(People) get so wrapped up in the winning game, in the headline of ‘we got it’ that they lose sight (of the) pretty steep price. Hard to say because we don’t know what the package looks like.”

Compounding skepticism, an analysis this week by the nonpartisan Legislative Fiscal Bureau concluded Wisconsin may not break even on incentives to Foxconn for at least 25 years.

The good news is the proposed giveaway to Foxconn is getting enough well deserved critical scrutiny that it may not get done. The bad news is that if this deal, which has the earmarks of being unserious from the outset, falls apart, it will be used to blame anti-business interests and deflect attention from sounder approaches for creating good jobs…like the glaringly obvious need for more infrastructure spending.

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28 comments

  1. Vatch

    Yves, thank you very much for shining some light on the dark orifices of the Foxconn con in Wisconsin.

    Aside from the highly questionable finances of the “deal”, there are major environmental questions about this:

    http://www.wisconsingazette.com/news/scott-walker-s-foxconn-deal-waives-all-environmental-regulations-and/article_f263fe4e-7562-11e7-a248-b3514604f779.html

    Environmental groups are among those with reasons not to like his plan. It would allow Foxconn, without permits, to discharge dredged materials, fill wetlands, change the course of streams, build artificial bodies of water that connect with natural waterways and build on a riverbed or lakebed.

    Foxconn would also be exempt from having to create a state environmental impact statement, something required for much smaller projects.

    “Building economic strength, creating jobs, and protecting Wisconsin’s vulnerable natural resources are not mutually exclusive endeavors,” Kerry Schumann, executive director of the Wisconsin League of Conservation Voters, said in a prepared statement.

    “We all love Wisconsin.” she continued. “We want Wisconsin’s economy to be as healthy as its drinking water, air, lakes, and rivers.

    “We were surprised by Gov. Walker’s radical exemptions for Foxconn. A rollback of such an extreme nature is unnecessary. Wisconsin League of Conservation Voters asks legislators to get the job done right — protect their constituents’ public health and water resources by rejecting the sweeping anti-conservation exemptions in the Foxconn bill.”

    1. Ox

      Foxconn is known for driving its workforce so hard that many commit suicide. Their response?

      They installed nets to catch workers who try to jump off of some of their buildings.

      Here in the US its unlikely they will create many new jobs because they will likely have all the elements in place (“specialized knowledge”) to legally bring their own (and pay them whatever they want.) I expect they may be subcontractors.

      Little noticed in the 1990s because NAFTA served as a distraction, the services changes could eventually affect 80% of all jobs. Because “services” scope is defined very broadly. The original agreement focused on longtime US goals, such as ending “state owned enterprises” – monopolies like public healthcare, water and higher education. But services are much bigger than just them.

      One popular definition is “Everything you cannot drop on your foot.”

      The 1990s deal – signed Dec 8, 1994, (and Feb 26, 1998 for financial services) includes provisions that require one way privatizations- and eventual cross licensing of virtually all professions, apparently, seems to have become impossible to get rid of -as its part of a much broader international agreement. The long delayed pay-back to the “poor” nations MNCs for embracing globalization.

      Barring some miracle in the captured media, the 2000s are potentially shaping up to become a very bad time to be an American worker.

      1. roddy6667

        The suicide rate at FoxConn is much lower than in China or America in general. They have 930,000 employees and 14 suicides. These deaths are mostly concentrated in older workers from very rural areas. Old people, separated from their families and homes by a thousand miles can have a lot of trouble adjusting. There is no evidence that FoxConn drives their employees to death. Often a reference is made by some about “slave wages”. If two people from the same household both have jobs at FoxConn, they are middle class in China. It only takes $9000 USD/YEAR HOUSEHOLD INCOME to buy a middle class lifestyle (measured by western standards) in China. They are not spending the money in America.

        1. Yves Smith Post author

          Suicide rates “in general” are not the relevant comparable. A high percent of people who commit suicide are older men who are unemployed and/or broke. The relevant comparable would be people who are working full time, better yet, age adjusted. Comparing work-related suicides to suicides in general is invalid. You need to compare workplace suicides to suicides in other workplaces.

          Now it may well be that Foxconn still does not score badly if its suicide rate were compared to a relevant universe, but you haven’t come close to making that case.

          Foxconn is considered to be a plum employer in China. A relevant comparable for the US might be clerical workers (to the extent there are still any) in prestigious US firms, say legal secretaries, which is also often a long hours job.

          Similarly, working Foxconn’s insane hours and living in a dorm is most decidedly NOT a middle class lifestyle. And you assume a two income household when that isn’t the case with Foxconn, and I suspect households with two full-time earners is an outlier in China. Plus many Foxconn workers take the job to send some money back to their families, so even though they are presumably banking a nearly all of their paychecks, it’s an open question as to how much the typical Foxconn worker nets.

        2. Vatch

          @Roddy6667, please see my short comment on August 9, 2017 at 9:15 pm, which supports what Yves said. The suicide rate at Foxconn is higher than normal for the non-rural working age population.

  2. Carolinian

    SC loves to give out incentives….maybe they could come here (kidding!?)

    Admittedly the roads and other improvements they built for BMW gave my part of the state a boost but no word of BMW employees jumping out of factory windows, if they have any. I am told that it is hard physical work.

    1. Altandmain

      Having worked in the automotive industry, it is hard labor.

      Here in Canada though, many of the plants have decent pay. To their credit they put a very strong amount of emphasis on worker safety.

      Pay isn’t too bad, but not the best. At my old plant, they killed off the defined benefits plan for a defined contribution plan. Actually pay isn’t bad when you consider that most plants locate themselves where living costs are low. You are far better off in a low cost plant making a bit less than if you are in a really high cost of living big city where the pay is perhaps 20% higher, but the rent is double or triple. Plants usually locate themselves where there is major transportation (Ex: railway, highway, and ships). They also need low utility costs and low land value.

      There are exceptions. Tesla workers are not very well paid, not in a safe plant, and they are in Fremont, California, I would guess the living costs are high.

  3. Left in Wisconsin

    There is no way this deal won’t get done. Which is not to say Foxconn will necessarily follow through. But the state is going to do its part.

    The rhetoric here is unbelievable (except not). Foxconn promises to bring to WI the same kind of factory they staff in China with people off the street and somehow this a “game changer” that will make WI some kind of “hi-tech” hub. It’s laughable.

    But if there is one single thing our R-led state government is committed to, it is providing tax breaks to companies that promise to bring jobs.

    My hope is that this deal will be one too many, and that others (though not us, sadly) will start to come to their senses about such “deals.” But it is just a hope. No real evidence in support.

  4. Paul Harvey 0swald

    I live in Wisconsin. The Legislative Fiscal Bureau report was release recently – I heard about it on the radio this week. What kind of dope puts money in with a break even point 25 years out? And that’s if Foxconn sticks with their maximum13,000 jobs – on top of the fact that the campus is planned for the corridor between Milwaukee and Chicago*. Not all these jobs will go to Wisconsin residents. If the grand total falls below 13,000, the break even date moves further out, naturally.

    My take on this is Governor Walker is so desperate to make some headway on his +250,000 jobs campaign promise that he will entertain any deal with shiny new jobs on it, no matter what we have to pay for them. The general reaction to the deal on the whole as far as I can tell is receptive, however. So, nice play Governor Walker.

    *About a 90 mile stretch between actual city limits, but there are plenty of suburbs all the way through. The Illinois state line would likely be much closer, and the Chicago DMA is certainly much larger.

    1. RUKidding

      It’s sad, annoying and frustrating how little most citizens really understand about these financial shenanigan “deals” that look like ________ politician “got” some company to “create jobs” in your state/locale/etc. Typically the numbers really don’t pencil out for all concerned. I guess some citizens get a job, but then they’re paying for it via their taxes, loss of services, etc.

      One of the other “kickers” with these deals is that, typically, no one ever really tracks what happens after the deal is struck. For example, does the company stay put for the amount of years originally promised? Does the company actually create – and continue to employ – the number jobs originally promised? Or does the company get “stolen” away to another state/country who offers them a better deal? Of course, there are never (to my knowledge) any prohibitions put on the company for leaving too soon (if there’s anything even like that in the fine print).

      These deals generally are pretty flmsy and don’t deliver what citizens think is being delivered. And then: no real follow up, no consequences if the final job situation is not as advertised. The companies, like Foxconn is famous for, literally get away with murder.

      Too bad. No doubt Scott Walker’s fans will be delirious with joy.

      1. Livius Drusus

        Yeah I know a lot of people who think Walker is a genius because of this deal. They all champion the race to the bottom to see which states can give out the most amount of corporate welfare while suppressing labor.

    2. Mike G

      I’ll bet dollars to donuts that “13,000 jobs” highlight number includes construction of the plant — jobs that will end in a couple of years or less.

  5. Gorgar Tilts

    What is to be gained by counter-signalling 13,000 new jobs, no matter how much they cost?

  6. Tim

    Wisconsin may not break even on incentives to Foxconn for at least 25 years.

    It took the article long enough to get to the punchline, but that is it.

    25 Years? In technology that is an epoch.

    The odds of the plant still being open by then is very low, and it would only because there are still no unions and they managed to find another product to fabricate there.

    THat’s almost as bad a deal as my Poway unified district paying 1 billion for a non-re-negotioable $100 million dollar loan. Ok, it isn’t even close, but it still bad.

  7. Summer

    Whenever I hear Foxconn, I remember this (from 2010):

    http://www.pcworld.com/article/197312/article.html/
    Foxconn Plans Safety Nets, May Raise Pay After 12th Suicide
    “Foxconn Technology Group suffered its 12th suicide attempt so far this year late Wednesday night, on the heels of a media tour to the company’s main factory in China and pledges by customers Apple, Dell and Hewlett-Packard to investigate the issue.

    Foxconn, the trade name of Taiwan’s Hon Hai Precision Industry, has already put measures in place to prevent more suicides and is working on additional plans, such as installing nets on buildings designed to catch people attempting to jump, according to a company representative in Taipei, who asked not to be named because of the sensitive nature of the issue.

    So far, 12 Foxconn employees in China have attempted to commit suicide by leaping from tall buildings on the company’s sprawling campuses, and 10 have succeeded…”

      1. citizendave

        The section under “Analysis” is interesting. It states that the suicide rate as a percentage of Foxconn employees was lower than the rate for the general population of China or the United States. That doesn’t mean it wasn’t a sweat shop or labor camp.

        1. Vatch

          The analysis includes this:

          However, the above comparison is misleading and neglects the other really relevant information— 44% of all suicides (in the same database) occurred among those aged 65 or above and 79% among rural residents; on the contrast, most of Foxconn suicides are committed by non-aged people and non-rural residents.

          1. citizendave

            I had a few jobs that were hellish. In those days I was working for temp agencies, and the jobs were typically of the sort that one could tolerate for a day or two or three. One in particular was a vision of Hell. Probably many jobs are far less than optimal, but we take them because they are available, they are willing to hire us, and we need the money to pay the cost of living. But we would never be heard to say “I love my job!” It is horrendous to contemplate that so many people endure terrible working and living conditions every day.

            It is interesting to contemplate how Foxconn will act toward their American employees. How far will they push against our culture and laws, to extract every cent of value from the work force? The Republican-controlled government in Wisconsin — if they are still in power when the factory begins production years hence — would surely side with the company in any dispute.

  8. citizendave

    The two counties south of Milwaukee are Racine and Kenosha. Kenosha county’s southern border is the Illinois state line. The I-94 corridor runs from Chicago up to Milwaukee, where it turns west toward Madison. We live in Racine, near “ground zero” for the Foxconn con. From the proposed suspension of all important environmental regulations, to the potential for an adverse effect on taxes, I’m not happy about it at all.

    Today’s Racine paper has an article which elaborates on the likely return on investment of $2.85 billion in state tax credits. The non-partisan Legislative Fiscal Bureau estimates the breakeven date at 2042-43, but because the area is a short drive from Illinois, with 10% Illinois workers the breakeven would be pushed to 2044-45, or well beyond 2045 if up to 50% of workers reside in Illinois.

    Another article a few days ago pointed out that other big employers are already competing for workers. Amazon is operating a huge fulfillment center on I-94 in Kenosha County, where they recently held a job fair featuring on-the-spot hiring of applicants, hoping to retain workers for the holiday season. Another company said they have been bussing workers in from Milwaukee.

    Racine no longer has the state’s highest unemployment rate, now ranking second after Beloit.

    As always, I expect the fiscal benefits to accrue to a small number of wealthy people, at the expense of the workers and the rest of us who reside in the area and the state.

    1. flora

      I wonder how much that land will be worth 20-25 years from now. To me this looks like a sweetheat real estate deal more than anything else. (time to take off my lovely aluminum foil bonnet.)

      1. citizendave

        It seems probable that the valuation of all real estate in the area will rise. But if those jobs materialize — there is much speculation about robotic assembly lines — they will typically be in the $12-14 per hour range, which is what Amazon is paying at their fulfillment center. We think that pay scale here would translate into renters, rather than home buyers.

        I think the real untold story is Shock Doctrine-esque, regarding the suspension of environmental safeguards. The Patriot Act looked like an off-the-shelf right wing law-and-order agenda that was just waiting for an excuse to enact it into law. That law was whipped together in a matter of days. Suspending environmental rules for the sake of a business waving fists full of dollar bills is a great excuse for establishing a legal precedent dreamed of by the conservative movement. The high cost to the state in incentives per job created, mentioned in the article above, is a head-scratcher — until you consider that the real point is to have a plausible excuse to get rid of all those pesky environmental rules and regulations. By conservative logic, articulated by Scott Pruitt at EPA and his ilk, suspension of environmental safeguards will be a financial bonanza for businesses. Wisconsin has a very long tradition of placing a high value on environmental quality. The founder of Earth Day was Senator Gaylord Nelson of Wisconsin, to name one person. Despite our Republican-controlled state government, ditching our environmental protection laws would be a tough sell — unless there were some kind of shock.

  9. Livius Drusus

    How do you prevent this sort of “race to the bottom” competition between states? This is one of the biggest problems with the American economy today. It is bad enough that we have a global race to the bottom with countries like China and Mexico but we also have an internal one between the states.

    I honestly hope that NC readers have some ideas because this is an issue that really angers me.

  10. Reify99

    I think it’s more about cronyism and crapification of standards than the actual plant. This state is rampant with this kind of effort right now. CAFOs, concentrated animal feeding operations, the would be massive iron mine up north, etc.

    If the crapification sticks then the next one will meet less resistance even if this one fails. And yes, Lambert, I still pin my feeble hopes on the SCOTUS taking up the gerrymandering case. Got to start somewhere.

    Otherwise the liquid (CAFO) manure just keeps getting sprayed on all of us here.

    And of course Scotty wants to talk it up to get a third term. Whether it flies or fails. He’s as reliable as stink on poop.

  11. rps

    Excerpt from The Journal Sentinel: Foxconn subsidies could mean heavy borrowing for local municipalities–
    “But local governments will almost certainly have to put up huge undisclosed subsidies of their own through a financing program known as tax incremental financing. Changes to that program will have to be made to ensure that local governments can finance the sewer lines, streets and other infrastructure to be built in what are now undeveloped fields, according to the memo of understanding with the state.

    the memo signed by Walker and Foxconn executives would lift caps on TIF (tax increment financing) deals and extend them for longer durations. Expedite government permit reviews for the project.
    Expand a tax credit program known as enterprise zones that the state uses for its biggest jobs deals.
    TIF allows local municipalities to reach deals with developers to subsidize projects.

    Under the program, a village or city would borrow money to build infrastructure and help make a project happen and then use the property taxes on the newly built private structures to pay off the loans…..”

    From Wisconsin’s TIF Manual: “When a development is considered, there is usually substantial risk involved for the developer. As a reward for taking the risk, a developer will expect a certain level of return on the project, called profit. Even if a profit is expected from a project, the return may not be large enough to make the risk worth taking for that developer. TIF can alter the profit picture by shifting some of the costs of the development from the developer to the taxpayer.”

    Bottom line, the TIF districts involved will be diverting a big chunk of their property taxes for at least two decades and more. Private industry has bellied up like overfed hogs at the TIF trough and rerouting the property tax honey pot to pay for their potential ‘risk’ of failing. Ain’t socialized capitalism for private developers great……

  12. Altandmain

    This is a good argument for state ownership of corporations.

    Why give so many tax breaks just to attract the corporations? Why not just make a publicly owned company? Norway has many. Singapore has many. China of course has many SOEs.

    1. JTFaraday

      I agree. For that amount of money, why not go all the way and compete with Foxconn? Too hard? Assuredly too hard for Scott Walker.

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