I grew up in Wisconsin and still have warm feelings for the state (where it was recently 26 below zero.) Thus I’m sad to see my concerns about the new Foxconn manufacturing plant come to pass. Here’s Tim Culpan of Bloomberg:
Then-Governor Scott Walker, backed by President Donald Trump, loved exactly what he sold: the promise of thousands of jobs to make stuff in the U.S. Walker loved it so much that he pledged as much as $3 billion in sweeteners, a deal that likely cost him his governorship. . . .
Foxconn is now publicly conceding that manufacturing panels in Wisconsin isn’t viable, but still thinks it can hire just as many as originally promised. Instead of factory workers, Woo said they’ll hire for research positions as well as back-end packaging and assembly employees. Frankly, that’s wishful thinking because the U.S. doesn’t have much of a talent pool to dabble in these areas.
In 2018, the first year of the Wisconsin experiment, the company couldn’t even hit its employment target. Instead of creating a very modest 260 full-time jobs, Foxconn filled just 178 positions, Reuters reported.
It was always a waste of money, and now it looks even worse than predicted—another example of the folly of trying to use “industrial policy” to bring back jobs in manufacturing.
Update: Just a hour ago it was reported that the project will be delayed:
The article cites a Foxconn document the financial publication obtained along with an unnamed company source who explained the decision to delay work on the Wisconsin project is in part due to “weakening macroeconomic conditions” and the ongoing U.S.-China trade dispute.
And this too:
But in an interview with Reuters, a company executive said the bulk of the jobs at the facility would be for white-collar research and engineering jobs, rather than the types of blue-collar manufacturing jobs President Donald Trump touted when he and former Gov. Scott Walker broke ground on the project last June.
So in 2016 we were told that the US economy was out of balance—lots of research jobs in Silicon Valley, and fewer and fewer blue collar manufacturing jobs. President Trump then takes credit for bringing back manufacturing jobs with the new Foxconn plant. Now we learn that the plant’s future is in doubt due to Trump’s trade war with China, and most of the jobs that will be created are in exactly the sort of high skilled research professions that are already doing extremely well in America.
I keep reading that the whole Davos/neoliberalism agenda is passé. OK, but when will the replacement arrive? Trump is already more than halfway through his term.
Update#2: Foxconn announced it would build a factory after all. This came after a conversation with President Trump. One has to wonder how durable this promise will turn out to be, as Foxconn doesn’t actually want to proceed with the project.
READER COMMENTS
Brett
Jan 31 2019 at 3:43pm
The bright side is that they did put in standards for amount of jobs created and a timeline to be eligible for the subsidies, and it looks like Foxconn is going to miss those and not get the money. So at least the total amount of money lost to this folly will be relatively small.
David S
Jan 31 2019 at 4:13pm
If this indeed did not cost much, then this is exactly what we need – cheep experiments. It is a bad thing to not see failures, that just means no one is trying. What you want to see if fast and cheep failures.
Thaomas
Jan 31 2019 at 6:28pm
Very few of these projects would pass a cost benefit test for the investment of public resources. One would think that at least the tax incentives could be structured in such a way as to vest only when the projected “benefits” in fact accrue.
Benjamin Cole
Jan 31 2019 at 7:51pm
This Foxconn-Wisconsin story may be more nuanced.
Recently, IHS Markit reported that Beijing and provincial governments have upped their subsidies to flat-panel display manufacturers.
“The expansion of the FPD (flat-panel display) equipment market that started in 2016 has been driven by the high equipment intensity of new flexible active-matrix organic light-emitting diode (AMOLED) display factories and the scale of Gen 10.5/11 LCD factories,” said Xhase Li, senior analyst at IHS Markit. “This expansion has been further fueled by Chinese local governments, which have supported panel makers with various mechanisms such as financing, land grants, reduced taxes, infrastructure and direct subsidies.”
—30—
So, the storyline somewhat follows this path:
Foxconn seeks breaks to make flat-panel displays in Wisconsin. Rival production is already subsidized in China.
Wisconsin agrees to provide land and tax breaks to Foxconn. Foxconn says “Okay, cheese-heads, here we come,”
Chinese provincial governments then boost support to “panel makers with various mechanisms such as financing, land grants, reduced taxes, infrastructure and direct subsidies.”
So….Foxconn faces new and increased competition from China’s industrial policy. (BTW, WTO rules and snoops rarely devolve down to the provincial or local level, another gigantic loophole in the WTO).
Foxconn backs down on its Wisconsin plant—-mutely. After all, Taiwan-based Foxconn has huge plants in China. They cannot afford to upset Beijing or the Communist Party of China.
China’s industrial policy is wrong-headed from the perspective of Western conventional macroeconomists.
But it is their policy, and it has worked for 40 years running. And there will be no large flat-panel display plants in cheese-land, with jobs at $50,000 a pop.
The Foxconn story does yield itself to simple knee-jerk sermons or theoretical posturing.
Matthias Goergens
Feb 1 2019 at 11:07am
Just because the Chinese bang their heads against the wall doesn’t mean the US has to do that as well.
You might notice that the rise of China from self-imposed utter poverty came exactly when they stopped strangling their economy quite as badly. They are successful despite the remaining interference, not because of it.
Benjamin Cole
Feb 3 2019 at 2:38am
Matthew G:
You describe Beijing’s role in the Sino economy, and that of provincial governments, as “remaining interference.”
China is opaque, so some things are impossible to quantify.
Keep in mind that the Communist Party of China controls every large company in China through board seats, and lately, has added mandatory internal CPC monitoring committees to every large company.
Even private companies in in China may be heavily subsidized—see the IHS Markit quote above. So you can get free land, free capital, infrastructure and operating subsidies, but be a “private company.”
The People’s Bank of China has a policy of buying sour loans from the Sino financial system, and until recently automatically bought sour corporate bonds. So Beijing has dispensed with “moral hazard” by Western standards.
Most recent accounts say the CPC is doubling down on state-owned enterprises. The CPC seems unwilling to let these go. To stimulate the economy presently, the CPC is flowing lots of spending through the SOEs.
In all, China strikes me as a dirigiste, mercantilist and authoritarian state.
I concede that along with everyone else in the West, I only know what I read, or anecdotal conversations with visitors, or (in my case) extended conversations with Hong Kong residents.
Sad note: Jack Ma was recently stripped of some positions in Alibaba by the CPC, and is a member of the CPC. He also owns the South China Morning Post, the influential Hong Kong newspaper “of record.”
Whatever you believe about China, just remember you are looking through controlled murk.
Scott Sumner
Jan 31 2019 at 9:36pm
Brett, There’s still a lot of public money wasted on this, even if the jobs don’t materialize.
David, You said:
“If this indeed did not cost much, then this is exactly what we need – cheep experiments.”
Actually no, as the experiment would have been a failure even if all the jobs materialized. The cost per job was far too high, close to 1/2 million dollars in some estimates.
Michael Sandifer
Feb 1 2019 at 7:27am
In general, it’s a terrible idea for a government to secularly spend money to try to create jobs. Keynesian stimulus is sometimes called for in situations in which there are declines in real potential GDP, such that physical capital is destroyed, taking jobs with it, or in the cases of heavily trade-dependent countries that suffer a decline in trade by important trading partners.
Billy Kaubashine
Feb 1 2019 at 1:46pm
The Foxconn deal was billed as an “investment” of taxpayers’ money. But it violated the cardinal rule of investing by putting all the eggs in one basket. They failed to diversify.
But I suppose that if you are a central planning government bureaucrat, (Equal opportunity……Republicans – or maybe just RINOs – succumb to the temptation.), you have the hubris to believe you can pick the SINGLE BEST investment.
Wisconsin should have taken the $4bil and returned it to the taxpayers. Something better would have come from that.
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