Governor Scott Walker and Donald Trump claim their $3 billion subsidy to Taiwanese electronics giant Foxconn will create thousands of jobs in Wisconsin. But when you dig into the numbers, the Foxconn deal looks like one of the biggest swindles in American history, a scandal waiting to happen.
While it is Governor Walker and not Trump who is really cutting this deal, it sets a dangerous precedent, which could affect every state.
To understand how big the threat is, it is important to understand just how bad the Foxconn deal really is, and to look closely at what they’re proposing. The magnitude of the public expenditure is stunning. It is not really a tax break, but a direct public subsidy of $3 billion dollars.
Bribing big companies to stay or leave, and therefore allowing profitable corporations to exact public resources while shifting costs onto everyone else, is often what passes for economic strategy at the state and local level these days.
But as destructive and self-defeating as the subsidy game is already at the state level, the Foxconn deal shows Trump wants to supersize these giveaways to a national, billion-dollar scale never seen before.
The Foxconn Trap
The Foxconn deal, which is on track to be approved by Wisconsin’s GOP-majority lawmakers, would be the most expensive subsidy deal ever paid by an American state to a private company to create jobs. It was announced July 26th at the White House in a press conference featuring Trump, Wisconsin Gov. Scott Walker, and Foxconn CEO Terry Gou.
Trump has touted the deal as proof that he is bringing jobs back to the U.S., taking so much undue credit that the Washington Post fact checkers gave him “three Pinocchios.”
Taiwan-based Foxconn makes iPhones and semiconductors in plants across Asia, and is infamous for exploiting child labor, calling its own workers animals, and creating conditions so wretched that one of its factories had to be outfitted with suicide nets. It also has left behind a long string of broken economic development promises.
Wisconsin’s Open Wallet
Because Gov. Scott Walker and conservative legislators in Wisconsin have already virtually eliminated taxes for manufacturers starting in 2011, they propose to cut huge checks of up to $311 million per year to Foxconn for 15 years.
This does not include additional state benefits like a huge highway expansion, nor what it will cost local governments in southeastern Wisconsin will shell out in property tax abatements and free public services. Racine seems to have won out in a bidding war with Kenosha to draw the plant.
There is very good reason to doubt that Foxconn will be held accountable for creating the jobs it’s promising. The deal was negotiated in secret by the CEO of the Wisconsin Economic Development Corporation (WEDC), Scott Walker’s scandal-ridden economic development agency.
Walker partially privatized Wisconsin’s economic development agency early in his first administration, and the results have been disastrous. WEDC will be in charge of verifying the jobs Foxconn is promising to create, but a recent state audit found that the agency is still unable (or unwilling) to accurately track whether the jobs they are paying corporations to create actually exist.
This week, Citizen Action of Wisconsin released a new analysis of WEDC’s own track record over the past three years. Even if we accept WEDC’s flawed data, their track record is astonishingly bad for the state. 60 percent of corporate recipients have not created the jobs they pledged in return for loans and tax credits, and that nearly 15,000 fewer jobs have been created than promised.
Walker and Trump claim their $3 billion giveway to Foxconn will create at least 3,000 jobs, which could grow “up to” 13,000, at a new factory that builds flat-panel displays. But we have many reasons to doubt this will actually occur, or that Foxconn will ever be held accountable after they receive the cash.
First, the notion that corporate subsidies increase employment or raise wages is not evidence-based. A comprehensive study by the W.E. Upjohn Institute for Employment Research, which analyzed corporate subsidies data going back to 1990, found that “incentives do not have a large correlation with a state’s current or past unemployment or income levels, or with future economic growth.”
Second, even if you accept the premise that corporate tax subsidies are the road to economic growth, the numbers reveal a one-sided deal that is stacked against Wisconsin. The average cost per job in the U.S. in corporate tax subsidy deals is $2,400 per job, but Walker’s Foxconn deal could cost at much as $54,200 per job.
Even in the rosiest scenarios, which are highly unlikely, Walker is paying over 6 times more per job than the national average. No wonder so many other states are worried that other corporations will demand the kind of deal Foxconn is getting from Wisconsin.
Another way of looking at it is that if Governor Walker was competent enough to pay Foxconn the average amount paid by other states per job in typical subsidy deals, Wisconsin could create not the 13,000 direct jobs they are touting, but over 78,000 jobs!
It’s like paying $900,000 for a $150,000 house you might not get to live in.
Based on his own analysis of the numbers, distinguished professor of economics Michael Hicks said the Foxconn deal “isn’t just bad, it might well be the worst large economic development deal in history.”
A Raw Deal
This deal is so stacked against the people of Wisconsin, and so overgenerous to Foxconn, that leaders in other states fear that it will become the new standard, and will be demanded by companies like Amazon which recently instigated a bidding war for its new corporate headquarters by at least 23 major cities.
It’s a dangerous precedent for a new and unpredented era of ravenous corporate raiding of state and local treasuries, all across the country.
But progressives should not take the bait that some Democratic leaders in Wisconsin have by using the conservative talking point that making this kind of deal is too costly.
Scott Walker asserts that the Foxconn deal would create 13,000 direct jobs and an additional 22,000 jobs in the supply chain, for a total of 35,000 jobs. But even these rosy and highly unlikely projections pale in comparison to the benefits of a direct economic investment.
How far could taxpayer dollars, wisely spent, go to create real jobs?
According to a study by economist Robert Pollin and his colleagues at the University of Massachusetts, a $3 billion dollar investment in education would create on average 87,300 jobs, in health care 58,800 jobs, and in renewable energy 51,300 jobs.
If we are serious about rebuilding the middle class, and opening it up to all the people who are shut out of opportunity, we do need to make massive new investments which dramatically expand the number of family supporting jobs.
Progressive need to turn around the whole economic debate in America, by making the case that there are much better ways to create good jobs than continuing to allow ourselves to be fleeced by big exploitive corporations like Foxconn.
No More Sweetheart Deals
The Foxconn deal exposes the utter bankruptcy of the current group-think among conservative politicians, and way too many Democrats, that we can create a strong economy by bribing corporations with sweetheart economic development deals.
Despite the steep decline in family supporting jobs across the United States, conservative politicians in the states have told us for years that there is no money for big job creation initiatives. Claiming their states are “broke,” they have made damaging cuts to education, health care, renewable energy, and other prosperity-building investments, while also pursuing policies designed to drive down wages.
But when big multinational corporations shake down state and local governments demanding lavish tax breaks in return for jobs, conservative politicians (and all too many Democrats) are quick to open the public coffers.
A few years ago the New York Times investigative report calculated state and local governments hand out over $80 billion dollars every year in such corporate subsidies. This is public money that could have been used to transition to a clean energy economy, rebuild our crumbling infrastructure, make college affordable, and many other public investments that would boost prosperity.
As I laid out in my State Assembly testimony against the Foxconn deal, Progressives all across this country need to force a debate about whether we should take control of our own economic future.
We can either make bold new direct investments in opportunity and the clean energy conversion we need to prevent a climate genocide, or continue to hand public resources over to giant multinational corporations who are only interested in extracting wealth from local communities to enrich themselves and their Wall Street backers, before leaving for the next big payout somewhere else.