Michigan lawmakers, badgered by Gov. Snyder, recently set the stage for unprecedented corporate tax breaks designed to lure a factory to Michigan for Taiwan-based technology firm Foxconn. When the firm announced last week it was building a massive $10 billion facility in Wisconsin, not Michigan, Snyder and most legislators barely made a peep about the loss.
What remains below the radar is that Michigan dodged a bullet on this whole dubious deal, and is better to show for it. The Wisconsin pact, which will provide somewhere between 3,000 and 13,000 jobs in time, serves as the ultimate example of destructive competition between states for a single business site.
It also demonstrates that officials in most states have reached the point that they are willing to do almost anything, regardless of the damage to their state’s budget, to attract that one big facility that allows for a splashy ribbon-cutting ceremony with dozens of politicians edging their way into the camera angle.
President Donald Trump played a significant role in steering Foxconn, the world leader in manufacturing high-tech components for electronics firms – Apple, Hewlett Packard, Sony and Nintendo — to Wisconsin. More specifically, the factory that will make display screens for iPhones and possibly auto dashboards is planned for the congressional district of House Speaker Paul Ryan.
Politics is at play here and it could be that Trump, who has already belittled Snyder once before for failing to endorse him in 2016, enjoyed the outcome as a means of sticking it to the Michigan governor once again.
While Trump trumpeted the Foxconn announcement, experts who are far more savvy in the global tech field warned that the company vaguely seeks up to $3 billion in government subsidies and tax breaks in the Badger State before they break ground. But Foxconn’s track record on living up to promises is not particularly good.
Many states genuflected to the Foxconn CEO, billionaire Terry Gou (above), offering eye-popping incentives. Beyond Michigan and Wisconsin, those included Ohio, Pennsylvania, Illinois, Indiana and Texas. In the long run, the losers may be the winners in this charade.
Here are some key factors to consider:
- The incentive package offered by Wisconsin equals roughly $15,000 per worker, per year over the course of the 15-year incentive – a total of $225,000 per job. That’s well above the national average economic development incentive package of about $2,400 per job, per year.
- Dustin Walsh of Crain’s Detroit Business points out that the state’s unemployment rate is near a historic low of 3.1 percent. There is no readily available, skilled workforce. If Michigan had landed the vaunted Foxconn facility, the result would likely have been that the Taiwanese company would poach workers from surrounding factories and plants. This is not job creation, Walsh noted, it’s job reallocation.
- Foxconn has factories in China and another dozen countries globally, yet the stated $10 billion investment for southeast Wisconsin is more than the firm’s parent company has invested over the past five years combined. Meanwhile, at up to $519 per citizen, Wisconsin’s pledge for corporate aide is more than the cost of buying an iPhone for every man, woman and child in the Midwestern state.
- In 2011, Foxconn announced plans to invest $12 billion in Brazil, creating 100,000 jobs. Brazil is still waiting, according to Alan Singer, a Hofstra University professor. Closer to home, in 2013, Foxconn promised it would invest $30 million and hire 500 workers for a new high-tech factory in Pennsylvania. The factory was never built and the jobs never came. Three years ago, Gou signed a deal with the government of Jakarta, Indonesia’s capital and its biggest city, to invest $1 billion and employ local workers to make electronics. That never happened. Worse yet, in the past year, the Foxconn CEO has engaged in a PR spree, announcing plans for sprawling factories in India, China and Wisconsin that amount to $27.5 billion of commitments – more than the parent company, Hon Hai, has spent for capital expenditures in the last 23 years.
- Michigan officials still hope for a shot at a second U.S. Foxconn factory, but the incentives approved by the Legislature three weeks ago, which were loudly criticized as blatant corporate welfare by critics, fall far short. At the same time, the Good Jobs package pushed by Snyder would venture into unprecedented territory by allowing Foxconn to pocket 100 percent of its employees’ state income tax withholdings for 10 years, if it creates at least 3,000 jobs. Walsh calculates that the income tax transfer amounts to just $113 million over 10 years, if Foxconn would provide 3,000 jobs. Meanwhile, 100,000 job openings of various skill levels currently are available on the state government Talent Connect website.
- Any jobs created could be temporary. Foxconn may be more devoted to replacing workers with automation and robotics than any other major manufacturer around the globe. As part of a three-phase plan, the company is producing 10,000 robots a year and hopes to automate 30 percent of its factories by 2020 with “Foxbots.” It has already automated away 60,000 jobs at one of its factories.
- As Foxconn prepares to negotiate the specifics of the Wisconsin deal, it should be noted that, in China, the manufacturer is accustomed to receiving a truckload of government aide that is inconceivable by American standards. The benefits that the Chinese national and provincial governments give to Foxconn (and in turn, Apple), go way beyond tax breaks. For one expansion project, the government financed construction of the company’s new factory, supplied housing for workers, offered discounts on utility bills, eliminated corporate taxes, and assisted with training and recruiting employees.
- Lost in the state-by-state tax giveaway competition is the fact that Foxconn certainly ranks as one of the world’s worst corporations regarding its treatment of employees, based on its militaristic approach to the workplace. How bad is it? The company has a grim history of suicides at its factories, particularly in 2010, when 18 workers jumped from the tops of Foxconn buildings, resulting in 14 deaths. The manufacturer infamously responded by erecting suicide safety nets at some of its facilities. This past weekend, about 150 workers gathered on a rooftop of a three-story Foxconn site in Wuhan, threatening to commit suicide by leaping to their deaths to protest working conditions.
Beyond all of this, Michigan state Rep. Tom Barrett (R-Potterville) warns that targeted tax breaks for specific companies have reached ludicrous heights. Long-term tax favors and other special treatment, many dating back to the Granholm era, now roughly equal all of the revenue generated by the state’s business tax, according to Barrett. After the massive $1.8 billion business tax cut implemented in 2011, the balance sheet on corporate taxes is now nearly neutral, with as much waived as collected.
What that means is that amid all the political talk in Lansing of jobs, jobs, jobs, Michigan workers have seen their wages stagnate for decades while they have simultaneously emerged collectively, overwhelmingly, as the providers of tax revenue that funds the overall state budget.