“(Globalization means) communities and workers competing against each other to absorb even more of the costs of the world’s most powerful and profitable corporations.” — David Korten, When Corporations Ruled the World
Wisconsin is on the verge of “absorbing” at least $3 billion to lure Foxconn — formally Hon Hai Precision Industry Co. Ltd. — into building and staffing a proposed $10 billion plant in southeastern Wisconsin.
The Taiwanese company — one of the world’s largest electronics manufacturers — would produce liquid-crystal display screens for computers, TVs and other electronic devices.
The massive factory complex would be located in either Racine or Kenosha county — in House Speaker Paul Ryan’s home district — and draw heavily on water from Lake Michigan.
In addition to massive incentives from the state, the deal requires changes in state governance, reconfiguring the physical environment of the plant site and eliminating environmental safeguards.
Republicans are willing to give all of this to a company with a dubious record of making its promised investments and an appalling record on workers’ rights and safety.
The ‘Eagle’ has landed
In campaign style, Gov. Scott Walker and the state’s Republican leaders are vigorously promoting what they’ve dubbed the “Flying Eagle” deal. They say it could lead to an economic transformation of the state, including the jobs produced by the construction of the building, which is projected to be three times the size of the Pentagon; the creation of a local supply chain; and the development of local businesses to serve the needs of the company and its growing workforce.
Walker insists that the Flying Eagle will result in the public gaining a fair return, including at least 3,000 — possibly up to 13,000 — jobs with an average salary of $53,900; $880 million in new tax revenues; and the morphing of the state into a high-tech powerhouse.
“We are calling this development ‘Wisconn Valley,’ because we believe this will have a transformational effect on Wisconsin, just as Silicon Valley transformed the San Francisco Bay Area,” Walker said after announcing that Foxconn had chosen Wisconsin over other states bidding for the project.
But critics say the project will drag the state farther toward the economic model of Mississippi, where tax breaks for corporations and the wealthy have left schools, hospitals and other social needs chronically starved. Those are the same policies that have been championed by Wisconsin’s GOP leaders — policies that have chronically made Mississippi the nation’s worst state on a variety of factors, from health care to student achievement.
In fact, Democrats often refer to the current state of Wisconsin as “Wis-issippi.”
Warning signs abound
In the midst of all the jubilation and hype, it’s important to remember that Foxconn has earned a reputation for failing to meet its pledges. The business publication Crain’s warns, “Foxconn Technology Group … has a history of big promises with little to no payoff in the United States.”
Foxconn abandoned the commitments it made to Harrisburg, Pennsylvania, where CEO Terry Gou promised that its small 50-person operation would be expanded into a manufacturing facility with 500 workers. Its announcement generated an “intense buzz” that was “created by a chief executive known to promise projects all over the world that never quite pan out,” The Washington Post reported.
Promises of new or expanded investment by Foxconn also have been broken in Brazil, China, India, Indonesia and Vietnam.
“There’s a pattern here,” observed Alberto Moel, a senior analyst with Bernstein Research in Hong Kong.
Bloomberg News noted that Foxconn’s total commitments now stand at $27.5 billion, which is more than Hon Hai has spent in the past 23 years.
The Foxconn deal is highly complex — a mind-boggling, interlocking set of puzzle pieces. It’s been negotiated by local lawmakers with no experience in such dealings, and it’s being zipped through the State Assembly at a breakneck pace. That speed is giving legislators little chance to gain an overview of the Foxconn package, much less understand the full range of its implications, state Rep. Jonathan Brostoff, D-Milwaukee, told WiG.
The non-partisan Fiscal Legislative Bureau estimates that — under the most optimistic scenario — state taxpayers won’t begin to recoup their investment in Foxconn for 25 years.
That $3 billion from the state is not the total amount that the project will cost Wisconsin taxpayers, either. The deal also would involve major infrastructure investments, such as a $252 million upgrade of the I-94 corridor in southeastern Wisconsin. In addition, the package would require considerable outlays by local governments of the eventual site. Madison Mayor Paul Soglin has estimated that those subsidies will be in the $600 million to $1.2 billion range.
Read the fine print
Foxconn’s advocates maintain the company will provide jobs averaging $53,875 a year. But claims of average wages are often misleading, because they include much higher executive salaries, said Kasia Tarczynska, a researcher with the watchdog group Good Jobs First.
A key Republican leader said the starting wages in Wisconsin would be $13 to $15 an hour, meaning an annual salary in the $26,000–$30,000 range — far less than the touted “average salary.” But the deal makes no guarantee to taxpayers about salaries.
Additionally, the proposed deal contains no provisions about labor rights, worker protections, training, and a host of other vital worker concerns, Wisconsin AFL-CIO leader Stephanie Bloomingdale said in outlining what a fair agreement would look like.
Out-foxing the state on the environment
The Flying Eagle deal will hardly be good for eagles — or any other wildlife and the rest of the environment. The Department of Natural Resources will find its wings clipped when it comes to enforcing environmental safeguards to protect natural space and wildlife.
Foxconn would be permitted to build on rivers or lakebeds and to link up artificial bodies of water with natural waterways. The natural course of streams could be changed without state approval.
Foxconn and its contractors also would be allowed to fill in wetlands without analyzing the impact with the state.
Incentives game has cost states hundreds of billions
The state’s package for Foxconn makes the then-controversial $250 million “incentive” for the Bucks’ new arena look like chump change. At $3 billion, it’s almost 50 times any previous incentive package offered by the state. In fact, the Foxconn deal would be the 4th largest involving taxpayer dollars in U.S. history.
One of the many possible side effects of such a large deal would be to ramp up interstate competition for jobs, which already cost the states $110 billion annually. That money overwhelmingly goes to the world’s largest and most profitable firms.
Nationally, incentives average $2,457 per job, according to the W.E. Upjohn Institute. But Walker’s proposed deal with Foxconn would cost the state from $219,000 to $587,000 per job overall, depending on the number of jobs created, according to the Wisconsin Budget Project. Each year for 15 years, the annual subsidy could run from $17,300 to $39,270 for each job.
To put this in perspective, recall that Foxconn amassed $2.26 billion in profits in 2016. This provided a substantial jolt to CEO Terry Gou’s net worth, which is now estimated at $10.5 billion.
So, it’s not as if Foxconn needs the taxpayer dollars. They make their demands because they can — it’s the way they play the game.
Workers as ‘animals’
The colossal incentives being demanded are far from the only thing on the minds of Foxconn critics.
One massive red flag is how the company treats its workers.
Gou has compared workers to animals, and his treatment of them has followed suit.
In the wake of a spate of suicides among Foxconn workers in 2010 at its biggest plant in China, the company acquired a reputation as one of the worst violators of worker rights on the planet. The suicides put a worldwide spotlight on the conditions at the giant factory in Shenzen, where employment peaked at 450,000. That’s the plant where Foxconn makes iPhones for Apple.
Employees routinely worked for 14 or 16 hours a day at a feverish pace. They were forbidden to speak with other workers, and they were forced to live in squalid, overcrowded dormitories.
Foxconn responded to the crisis by erecting nets to prevent workers from jumping to their deaths. But realizing that step only underscored the seriousness of the problem, Foxconn and Apple embarked on a series of public-relations moves, such as suicide-prevention programs.
Critics said the programs were designed to reassure Apple consumers rather than to fundamentally change conditions.
“It’s not a good place for human beings,” a worker who quit told author Brian Merchant. “There is no improvement since the media coverage.”
Open-ended concessions possible under Walker’s deal
At this point, Walker and his administration are focused on a “memorandum of understanding” with Foxconn, and it’s not clear they will insist upon a formal, legally binding contract, Brostoff said.
The memorandum of understanding alone would not be sufficient to obligate Foxconn to follow through with the agreement, according to legal scholars. The MOU represents “a desire to proceed on the transaction,” but is not contractually binding, said Nadelle Grossman, associate professor at Marquette University Law School.
“A court wouldn’t be able to enforce it as a contract.” Grossman said. “The consequences wouldn’t be contractual, they would be more of a public relations issue.”
The MOU contains a clause that calls upon the state to make “other changes deemed necessary by both parties to fully implement the project,” a provision that Brostoff argues permits the Walker administration to make open-ended concessions to Foxconn without legislative oversight.
Undermining long-term growth
Wisconsin’s schools have already been gripped by a financial vise for many years. Adding the burden of the long-term $3 billion-plus debt to Foxconn will intensify the eagerness of conservative legislators to further the budget-cutting of education and social services.
The cuts already enacted have been severe. Between 2005 and 2014, spending by Wisconsin school districts declined by 5.4 percent per student after taking inflation into account, according to a Wisconsin Budget Project report. In contrast, the national average for school spending per student increased by 4.2 percent over this period, the report said.
Also taking heavy hits have been the state’s university and technical-school systems.
Ironically, say those questioning the Foxconn deal, the slashing of educational budgets actually undermines the creation of a highly skilled workforce critical to long-term economic development.
“The focus is on luring employers from other states with strategies that do not lead to rising incomes because they do not make the workforce more productive,” concluded a 2012 study by the Economic Policy Institute on education and economic development. “Even worse, the focus drains resources from the most important, proven, path to increasing productivity: investments in education.”
Where are we headed?
Gov. Walker and his allies in the Assembly (64 Republicans to 35 Democrats) and Senate (20-13) — GOP ranks bolstered by flagrant gerrymandering — are likely to prevail despite increasing reports examining the stupendous tax breaks, Foxconn’s record of unreliability, and numerous unanswered questions.
However, from the standpoint of Wisconsin taxpayers, the Flying Eagle project may experience a rough landing even if it takes off as promised. As reported widely in Bloomberg News and other media, Foxconn has shifted to a heavy reliance on robots to replace human labor, which is likely to hold down employment at the new plant.
True, Foxconn’s subsidies will increase only as Foxconn jobs grow in number, the Wisconsin Policy Project conceded. “Nevertheless, the structure of the proposed deal would allow Foxconn to do very well by investing in automation, rather than trying to maximize the new jobs tax credits,” the Policy Project argued in a new report.
Under one possible scenario that could be imposed on Wisconsin by Foxconn, “If Foxconn creates a factory that uses state-of-the-art robots and only creates 3,000 new jobs, while still spending at least $9 billion for capital costs at the new facilities, the cost per job could exceed an average of $587,000.”
With that prospect and a host of other defects, Foxconn may eventually prove to be a major headache for Walker and his allies instead of the golden opportunity that they are so enthusiastically touting.