The Foxconn Boondoggle Was Even Worse Than We Thought
Let’s start with a confession. Earlier this week when Andrew Egger compared the unraveling Foxconn deal to the operatically shambolic Fyre festival, I worried that the comparison was unfair. My bad.
Now comes an extraordinary deep dive investigation by Bloomberg BusinessWeek that paints a stunning picture of a politically driven deal that is melting down. While Foxconn’s story lacks the drama and supermodels of the Fyre festival, it more than makes up it for by the scale of its boondoggle. Touted as the “Eighth Wonder of the World,’; and the “one of the great deals ever” by President Trump, Foxconn has become a $4.5 billion cautionary tale of the dangers of corporate welfare and Trumpian industrial policy.
Despite repeated promises and an avalanche of taxpayer cash and hype, no one now expects the company to create anywhere near the 13,000 jobs that were promised. In fact, those promises appear to have been hollow from the beginning.
As a Wisconsinite, I’ve followed the progress of Foxconn from the beginning, and thought the taxpayer subsidies were ill-advised, even as I hoped that the deal would somehow lead to the revitalization of the state’s economy and the creation of thousands of high-wage manufacturing jobs in my backyard. But it all turns out to be worse than even the critics might have thought.
Austin Carr reports that “insiders describe a chaotic environment with ever-changing goals far different from what Trump and others promised.” He writes:
The only consistency, many of these people say, lay in how obvious it was that Wisconsin struck a weak deal. Under the terms [Governor Scott] Walker negotiated, each job at the Mount Pleasant factory is projected to cost the state at least $219,000 in tax breaks and other incentives. The good or extra-bad news, depending on your perspective, is that there probably won’t be 13,000 of them.
Like other cases of corporate welfare (think Amazon’s HQ2 madness), the deal was driven by a bidding war with other states who vied with one another in offering taxpayer subsidies to the massively profitable Taiwanese company. So, ultimately, the deal was shaped more by politics than market forces, and therein lay the problem.
Despite railing against government “picking winners and losers,” Trump and Wisconsin Republicans embraced a version of state capitalism or corporatism where the lines between politics and the free market were erased. Dumb and reckless decisions followed.
As Carr’s story makes clear, the Foxconn deal was, from the start, always “nakedly political.” Fittingly enough, it all began with a call to Wisconsin’s lead jobs agency from the office of boy genius Jared Kushner, who pushed the idea.
Goaded by Trump, Wisconsin’s GOP found the deal irresistible, even to the point of ignoring Foxconn’s problematic track record:
Foxconn has a history of overpromising and underdelivering on major deals. In Brazil in 2011 and India in 2015, it pledged to invest billions of dollars and create tens of thousands of jobs after [Foxconn Chairman Terry] Gou courted each country’s leaders, but each project fell far short. In 2013, Foxconn said it would invest $30 million and employ as many as 500 people at a Pennsylvania factory that also never fully materialized. Multiple former executives say Gou makes big promises to secure favorable terms and is unsentimental about reneging on or abandoning them as costs dictate.
In contrast with Gou, I’m sorry to say, my fellow Wisconsinites come off looking like rubes.
“My impression of him was, what a nice person,” says Scott Neitzel, who led negotiations for the Walker administration. “An extremely genuine, down-to-earth tycoon.” When asked if the state looked at Foxconn’s history, WEDC Chief Executive Officer Mark Hogan says, “We didn’t spend a lot of time on that because, in the end, we got to know these people so well.”
Apparently not. In late January, Gou’s right-hand man, Louis Woo, told Reuters that Foxconn was planning to downsize the planned LCD plant, shifting their plans from manufacturing to research.
“In terms of TV, we have no place in the U.S.,” he said. “We can’t compete.”
Foxconn walked that back after a phone call between Gou and Trump, saying that “after productive discussions,” Foxconn was “moving forward with our planned construction of a Gen 6 fab facility, which will be at the heart of the Wisconn Valley Science and Technology Park. This campus will serve both as an advanced manufacturing facility as well as a hub of high technology innovation for the region.”
As Egger noted here on The Bulwark, this sounded good, “except that it doesn’t address Foxconn’s central problem: the competitive disadvantage of hiring manufacturing jobs in the U.S.”
Once again, the statement seemed driven more by a desire to kiss the president’s ring than by business realities. So what will Foxconn do? Short term, they are likely to maintain a sort of Trumpian Potemkin village in Wisconsin to keep up the appearance that the company is doing Trump’s bidding. But almost everyone Carr spoke to for his article “predicted there will never be anywhere near 13,000 workers in Wisconsin Valley.”
Politics, as it turns out, is a poor substitute for the free market. Republicans used to know that. Now they are paying the price for forgetting it.