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'It's a huge subsidy': the $4.8bn gamble to lure Foxconn to America | Cities
Dominic Rushe
Wisconsinites joke that there are two
seasons in Wisconsin: winter and construction. As traffic crawls down
the Interstate 94, sandwiched between endless columns of orange cones,
construction is in full bloom.
Mount Pleasant, a sleepy village of about 26,000 people in Racine
County, halfway between Milwaukee and Chicago, is developing into one
enormous construction site as it prepares to become home to a $10bn
(£7.6bn) state-of-the-art flat-panel display factory for Foxconn, the
Taiwanese electronics company best known for making Apple iPhones in China.
President Trump was present for the groundbreaking on 28 June, and
the plant is due to be completed in 2019. Already there is so much
orange along this corridor of the I-94 it looks like an particularly
dour installation by the environmental artist Christo.
The Foxconn deal, the biggest tech-firm tax break of the Trump
presidency so far, was announced at an all-star press conference at the
White House last year where Donald Trump
was joined by Wisconsin’s governor, Scott Walker; Foxconn’s chairman,
Terry Gou; and House speaker and Wisconsin senator Paul Ryan.
Trump, characteristically, took all the credit. “Everybody wanted Foxconn,”
he said. “Frankly, they weren’t going to come to this country. I hate
to say it, if I didn’t get elected, they wouldn’t be in this country.
They would not have done this in this country. I think you know that
very well.”
But what probably sold Foxconn on Mount Pleasant were the massive tax
breaks Wisconsin offered to seal the deal – breaks that could end up
costing the state $4.8bn if the project hits all of its targets. It’s the latest giveaway in a series of corporate welfare cheques cut for highly profitable tech companies and the largest to a foreign firm ever in the US.
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So-called megadeals – defined by lobby group Good Jobs First
as subsidies valued at $50m or more – are becoming increasingly common
in the US as states line up to hand cash to big corporations, especially
those in the sexy tech sector, in return for the promise of jobs.
According to Good Jobs First, there were typically fewer than a dozen
megadeals per year through 2007. Since 2008, that rate has more than
doubled to an average of 25.
The benefit of such deals to taxpayers, especially in an economy with low unemployment, is increasingly being questioned.
Donald J. Trump
(@realDonaldTrump)
Thank you Foxconn, for investing $10 BILLION DOLLARS with the potential for up to 13K new jobs in Wisconsin! MadeInTheUSA🇺🇸 pic.twitter.com/jJghVeb63s
Foxconn’s deal has proved especially controversial. A recent poll
by Marquette University Law School showed 49% of Wisconsinites believe
the state is paying more in incentives than it can get back, while 38%
believe the state will at least break even.
In order to do so, Walker will have to make good on the promise that
Foxconn will help create 13,000 new jobs in the region and transform an
area still feeling the cold winds that followed the hollowing out of the
US manufacturing industry.
Foxconn itself has been more circumspect on the number of jobs it will create, saying in a press release
it will “create 3,000 jobs with the potential to grow to 13,000 new
jobs”. Even if 13,000 new jobs are created, Wisconsin would be paying
$346,153 per job at a subsidy of $4.5bn. An astronomical sum, but
nothing compared to the $1.5m per job cost if the deal ends up creating
just 3,000 new positions.
The math may seem off, but some – certainly not all – of Mount Pleasant’s residents are delighted.
The scale of the Foxconn project is vast. Rural two-lane farm
roads will become a six-lane road system with paths for bikes and
pedestrians (you don’t see anyone walking here at present). A “smart
corridor” is being constructed ready to take robot trucks when they
finally become mainstream. The Foxconn site currently has one traffic
stop; when it’s finally finished, it will have 12. Approximately 42
miles (68km) of water pipes are being added, alongside 26 miles of gas
pipes and 28 miles of telecom wires.
“It’s like building a city,” says Brett Wallace, Foxconn project director at the Wisconsin Department of Transportation.
When it’s finished the Foxconn campus will occupy approximately 22m
square feet (2m sq metres) – more than twice the size of the Pentagon,
the world’s largest office complex – making it by far the largest
project in the state and one of the largest manufacturing campuses in
the world.
“Wisconsin is very good at making things,” says Dave DeGroot, Mount
Pleasant’s village president. Sitting in the village hall, DeGroot and
his team look like lottery winners who have yet to cash the cheque.
DeGroot, a lifelong resident, is palpably excited about the changes that
are coming.
“Frankly, we went through generations of losing,” he
says, hitting a Trumpian note. “For the longest time people have felt
they had to leave here to get on with their lives. The best thing about
this project is we are going to stop that brain drain.
“After I graduated in 1980 we were in a recession. Most of my
schoolmates booked out never to come back. Now they’d have something to
stay for.
“This isn’t just a manufacturing factory, it’s an economic system. It’s like nothing we have seen in this country before.”
He sees a future where Foxconn suppliers and other tech firms are
drawn to the area, turning the area into “Wisconsin Valley” – an answer
to California’s tech dominance and a promise of a new, hi-tech future
for the midwest.
The impact is already being felt. Property values have soared in
parts of Racine County. The price of multi-family homes has risen 59% as
investors have moved in anticipating a boom in rentals and house
prices.
“This is exactly what Racine needed,” says John Crimmings, vice
president of First Weber Realtors and a long-time area resident. “The
midwest was hit very hard by the recession. A lot of people got hurt
very badly. If there is a bubble this time, it’s about creating jobs.
That seems more sustainable.
“We are going to have rush hour and traffic jams. There is going to be a lot of change and you can’t make everybody happy.”
He is right about that. Tempers are running high locally. DeGroot was forced to apologize after he refused to hear one objector at a meeting last year and said he would throw her “out on her can” if she kept speaking.
Some residents face evictions as Foxconn takes their land. Walker and Scott Pruitt, the embattled head of Trump’s Environmental Protection Agency, have rolled back federal limits
on lung-damaging smog pollution rules in the area and in nearby
Illinois, a move that is likely to exacerbate air quality issues in a
region already suffering from pollution-linked asthma attacks and heart
disease.
Conservation groups are furious that Foxconn has been
granted access to 7m gallons of water per day from Lake Michigan,
calling it an “unprecedented betrayal” of the Great Lakes Compact, a 2008 agreement that was intended to preserve the Great Lakes basin, repository of about one-fifth of the world’s fresh surface water.
This region of the midwest has long been used to the tradeoff between
jobs and environment. And the seismic change Foxconn promises is too
good to miss, DeGroot says.
But will locals benefit? Randy Bryce,
the Democratic iron worker hoping to take retiring House speaker Paul
Ryan’s Senate seat in the November midterm election, is sceptical. His
office is a few miles from the plant in the industrially decayed county
capital of Racine.
“The people that are pushing this – Governor Walker and the
Republicans – are the people who have made it almost impossible for the
people of Wisconsin to benefit from it,” says Bryce.
Under Walker, Wisconsin has moved aggressively to roll back labour
protections and hiring rules meant to ensure vulnerable groups get jobs
at the Foxconn plant.
The unemployment rate is already low in the region, standing at just
over 3%. Wisconsin has launched a drive to bring workers to the state,
and many are expected to commute from nearby Illinois. Locals –
especially vulnerable locals – are unlikely to benefit from the deal,
says Bryce.
Nor are the jobs guaranteed. Foxconn made similar promises of huge job creation in Brazil and Pennsylvania that failed to come to pass.
At the SC Johnson Integrated Manufacturing and
Engineering Technology (iMet) Center in nearby Sturtevant, people are
more positive. The college is gearing up for the recruitment drive of a
lifetime. Staff are already being bombarded with calls from employers
looking for graduates with the tech skills to tackle jobs in hi-tech
industries.
Over coffee at iMet, Jenny Trick, executive director of the Racine
County Economic Development Corporation, trots out her very long to-do
list. She is currently assessing local services, schools and medical
facilities to see how they will cope with the influx of new people.
“It’s a lot,” she says. “It’s like eating the proverbial elephant one
bite at a time.” But she believes it will be worth it. Over 500
contractors turned up at the first jobs fair after the deal was
announced. Foxconn’s arrival is creating an unprecedented buzz in the
area.
Trick expects the deal and what follows to be transformative for
Racine’s tax base. Foxconn alone will spend $1.4bn a year in the area,
she says. Restaurants, local contractors, shops – all will benefit. “If
we all pull together this will be a huge success,” she says.
But even after nine years of jobs growth, some people in Racine have
been left behind. Ingrained poverty and the poor state of education have
failed to help those at the bottom end of the ladder.
In the state capital of Madison, Democratic congressman Mark Pocan is
“greatly sceptical” of a “sketchy” deal that he believes will not
ultimately benefit the local area, let alone the state of Wisconsin.
“It’s a huge subsidy to give to any company, especially for a state the
size of Wisconsin,” he says. “Most people in Wisconsin believe they are
going to be paying for this for 25 years or more.
Rep. Mark Pocan
(@repmarkpocan)
*and will be one of the largest corporate giveaways in state history at nearly $4.5 billion
Guess making up for your failed campaign promise on job creation comes at any cost, right? https://t.co/FGsDsRTa0K
“If you asked people how they would stimulate
Wisconsin’s economy, I’m sure you would get a lot of ideas, but I don’t
think that one of them would be, let’s give $4.5bn to a foreign company
to create something in a corner of a state where a lot of people from
outside the state will probably work.
“We have some of the worst roads in the country, we have had huge
cuts to education. I don’t think this matches most people’s priorities.”
The state didn’t have the money to spend in the first place, says
Pocan, and if it did he believes it would have been better off
encouraging job growth at the grassroots level, spending on retraining
people, developing small businesses and fixing infrastructure.
This is a deal cut to please big business, not Wisconsin, Bryce
argues. “It is all about [Republican] donors,” he says. “It shows that
they’re all about helping their donors not the people in the state.”
Trump took Wisconsin in the last election by a narrow margin,
promising jobs and prosperity. The Foxconn deal was proof of his
promise. Now he and Walker face an uphill struggle to hold on to the state. Ryan has announced his retirement – a major boost to the campaign of left-leaning Democrat Bryce.
Political as well as financial fortunes hang in the balance in Mount
Pleasant. Walker has made promises in the past about job creation that
he has failed to deliver. If Foxconn proves a dud, the deal could end
his career, says Pocan.
Time will tell. DeGroot and his team visited a Foxconn plant near
Osaka, Japan, last year and were blown away by the sight of giant robots
carrying 9ft by 10ft sheets of glass. That 10m sq ft plant plant will
be dwarfed by Wisconsin’s. But for all its scale, can the plant in
Wisconsin deliver on its promise of jobs? DeGroot is confident it can.
“We’ve seen the future and it’s coming to Mount Pleasant,” he says.