In this week’s MakingChips podcast episode we discussed the Bloomberg news article, “Inside Wisconsin’s Disastrous $4.5 Billion Deal with Foxconn”, by Austin Carr (no relation to our very own Jim Carr).
In exchange for more than $4.5 billion in government incentives, Foxconn agreed to build a high-tech manufacturing hub on 3,000 acres of farmland south of Milwaukee and create as many as 13,000 good-paying, blue-collar jobs as early as 2022. According to Carr, this huge tax break, brokered by then-Wisconsin Governor Scott Walker and Foxconn Chairman Terry Gou, and backed by President Trump, was supposed to create a manufacturing paradise, but through interviews with 49 people familiar with the project he uncovers details of a chaotic operation that will clearly fall short of its original promises and intent.
The deal with Foxconn, a leading iPhone maker in China synonymous with overseas manufacturing, represented the largest public subsidy package to a foreign company in US history. It also marked a possible turning point in US manufacturing, signifying blue-collar jobs were coming home, starting with the Mount Pleasant facility and its LCD TV production. President Trump even called the deal, “the eighth wonder of the world”.
However, while Foxconn originally agreed to build a Generation 10.5 plant capable of producing large glass displays, by May 2018, the company confirmed it would build only a Generation 6 factory that would make smaller panels, saying this was necessary in order to compete with manufacturers in China. Then, in a Jan. 30, 2019, interview with Reuters, Foxconn Chairman Gou’s special assistant, Louis Woo, said Foxconn was reconsidering its plans for an LCD factory in Mount Pleasant and now plans to use its campus to house research and development teams with a much smaller emphasis on manufacturing.
Like most of us in the metalworking nation who are reading this news, in this week’s podcast Jim wondered if there was any penalty on Foxconn for being given tax incentives and not bringing the jobs? Luckily Wisconsin’s deal with Foxconn was contingent on job creation, which isn’t always the case.
In a Jan. 30, 2019, joint statement, Assembly Speaker Robin Vos, R-Rochester, and Senate Majority Leader Scott Fitzgerald, R-Juneau, blamed Democratic Governor Tony Evers for Foxconn’s change of direction, contending that Evers, who defeated incumbent Republican Governor Scott Walker in November, has created a “wave of economic uncertainty” with his new administration.
Vos and Fitzgerald also stated, "From the very beginning, we looked out for the best interest of the taxpayers of the state. Not a dollar would be paid out until jobs in the Foxconn development area were created. The incentive package is based on fulfilling the contract."
However, these statements are a bit murky, as examined in a Politifact article published Friday, February 1. According to Politifact, while it’s true that job-creation incentives have not kicked in due to Foxconn’s change of direction, those incentives only represent a portion of the state-level support offered, and Foxconn is already benefiting from the sales tax break on construction materials. In addition, Vos and Fitzgerald seem to ignore costs to local taxpayers.
As for Governor Evers’ administration being at fault for Foxconn’s flip-flop? That’s less likely. In another noteworthy NBC News Op/Ed article, Rep. Pat Garofalo (R) District: 58B, points out corporate tax incentives that don’t create the jobs they promised, such as this one between Wisconsin and Foxconn, are nearly as old as the United States itself. Garofalo does a great job presenting an historical view of the practice beginning with a 1791 deal granting then-U.S. Treasury Secretary Alexander Hamilton a 10-year tax exemption in New Jersey to build a manufacturing campus, which was panned by critics and turned out to be an economic flop.
So, to answer Jim’s question, and all those in the metalworking nation who may be wondering what this all means: it looks like the Foxconn factory jobs touted by Trump last June will not come to pass. And, while Foxconn will still benefit from many of the incentives it brokered during the original deal, it will be penalized in some ways for not living up to its original promises of good-paying, blue-collar manufacturing jobs.