'It's a huge subsidy': the $4.8bn gamble to lure Foxconn to America | Cities
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.
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.
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.
“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.