Yichuan Cao/Sipa USA via AP Images
Luminaries and politicians including former Wisconsin Gov. Scott Walker and former chair of Foxconn Terry Gou attend the groundbreaking ceremony for the ill-fated Foxconn factory, June 28, 2018, in Mount Pleasant, Wisconsin.
The over/under on job creation for the Foxconn project in Mount Pleasant, Wisconsin, was always approximately zero, and I would have taken the under every time. The ballyhooed deal officially blew up this week, when the Taiwanese electronics manufacturer—famed for producing Apple’s iPhones in an immense Chinese factory so dehumanizing that it drove workers there to suicide—dramatically downsized its promised $10 billion commitment in the plant by more than 90 percent, and reduced its jobs promise to 1,454, down from 13,000. The new targets just delay the inevitable pullout, leaving behind an enormous debt for local officials and ratepayers, who prepared themselves for an industrial revolution that will never come.
History was an appropriate guide here. Foxconn had promised a factory in Brazil in 2011 large enough to create 100,000 jobs; it didn’t happen. It promised a $30 million plant in Pennsylvania in 2013; it didn’t happen. It promised a $1 billion investment in Indonesia in 2014; it didn’t happen. Former Foxconn chair Terry Gou was notorious for these big pronouncements and no follow-through.
None of this mattered to former Wisconsin Gov. Scott Walker, who in 2017 backed up a truck for Foxconn, agreeing to what would become a whopping $4.8 billion in incentives for the planned facility. It was a model for a style of economic development that has little distinction from bribery, a corporate welfare payoff to return manufacturing jobs to the United States. It would have cost hundreds of thousands of dollars per job, calling into question its utility. But the factory proved to be just as much of a mirage as Foxconn’s previous pronouncements.
Initially, Foxconn said that the facility would build leading-edge liquid crystal displays for flat-screen TVs. That quickly changed to smaller flat-panel displays, mostly made by robots, with the jobs in the facility reserved for “knowledge” workers who’d come up with uses for the products. Then it was tipped off that Chinese workers would probably take those knowledge jobs. By the end of 2019, a grand total of 281 people were employed by Foxconn in Wisconsin, and most of them in weird no-work jobs. All of the buildings completed on the site to date are intended for storage.
Now Foxconn claims that the plant could build “data infrastructure hardware” like switches for servers, hardware for cloud computing and artificial intelligence, or even electric vehicles. None of the supply chains for any of these products are set up yet; what Foxconn’s most likely to build in the future are more ideas for what to build in Wisconsin.
I don’t know exactly what Foxconn gets out of these routine announcements and rollbacks, although receiving eye-popping subsidies on the deals you don’t make may increase what you can command on the deals you do. Fortunately, Foxconn won’t get all of the billions Wisconsin initially agreed to. Democratic Gov. Tony Evers was able to renegotiate the contract; the nearly $3 billion in state performance-based subsidies for the company have been whittled down to $80 million, and all of this can be recovered if Foxconn fails to deliver (meaning the state won’t be on the hook for anything). But to say that Wisconsin dodged a bullet with this disaster neglects the significant funds already expended.
As Greg LeRoy of Good Jobs First, which assiduously tracks economic-development subsidy deals, explained this week, while the state tax credits and benefits were all back-loaded and variable, the local subsidies were all front-loaded and fixed. That said, the state has spent over $200 million in sales and use tax exemptions, state road improvements, and grants to local governments for workforce training.
The locals have picked up a much higher tab. The village of Mount Pleasant and Racine County, according to Good Jobs First’s calculations, have sunk almost a billion dollars into the Foxconn project, and most of what they have to show for it at this point is a half-constructed dome. Mount Pleasant had spent, as of 2019, $152 million to seize properties through eminent domain, and another $8 million to relocate those families. Some of those properties were seized for a planned widening of existing roads (to help get manufacturing components to and from the plant) that was eventually abandoned. Beyond land acquisition, the village and county obligated money to cover water and sewer lines to the facility, new road construction, and more. Ratepayers ponied up $117 million plus interest for a power transmission line to the plant and a substation. One estimate tallies up the state, local, and ratepayer expenditures at $1.34 billion.
The only saving grace in this complete disaster is how obvious it makes the case that corporate welfare deals like this are rotten.
A $911 million tax increment financing district was put together to fund the investments in the Foxconn project. (For context, the village’s annual budget is $15 million.) Like other businesses in the district, Foxconn is supposed to pay for this through tax revenue, and their agreement said that minimum payments of $30 million a year must be made starting in 2023, regardless of the status of the project. Good luck with that. There is no guarantee that Foxconn will pay, and they’d have to be tracked down in international tax court if they didn’t. Besides, stiffing countries and localities is kind of what Foxconn does.
The state was on the hook in the original deal for 40 percent of any debt incurred by the local entities if the deal were to blow up. LeRoy believes that obligation should be 100 percent and fall entirely on Foxconn, a lucrative and well-funded multinational. “It has been apparent for a long time that a revised state agreement was coming, and that Foxconn was not going to suffer any real penalty for its egregious shortfalls,” LeRoy said in a statement. Foxconn claims to have invested $900 million in Wisconsin.
The only saving grace in this complete disaster is how obvious it makes the case that corporate welfare deals like this are rotten. As Wisconsin candidate for U.S. Senate Tom Nelson told the Prospect in a statement, the Foxconn debacle “illuminates the blinding difference on how to do economic development and how not to. Instead of shoveling billions at foreign corporations who break their promises, we should be investing in Wisconsin homegrown domestic manufacturing that has provided good paying union jobs for a century in my community.”
Subsidy deals like Foxconn’s don’t create very many jobs or bolster local economies even under the most successful outcomes. Politicians may love to cut ribbons and say, “I created these jobs,” but rather than offering bribes to corporate giants, they’d be much better off improving their education, health care, and transportation systems, making them more attractive to businesses. That would have the dual benefit of making their cities and states nicer to live in. Wouldn’t that be a concept.
