Foxconn deal: There are better ways to create jobs and growth
By IKE BRANNON
Courtesy of the Wisconsin Policy Research Institute
The denizens of southeastern Wisconsin are understandably excited about the announcement that Foxconn Technology Group plans to build and operate a $10 billion LCD manufacturing plant there.
The inexorable reduction of manufacturing jobs in that part of the state over the past three decades has resulted in thousands of families losing well-paying jobs and settling for ones that pay less and offer fewer benefits and job security or else moving out of the area in search of higher pay. My uncle and grandfather were once among these people.
In order to entice Taiwan-based Foxconn to locate in that region, the State of Wisconsin has offered $3 billion in incentives to the company over 15 years.
I would very much like for Foxconn to create thousands of high-paying manufacturing jobs in Wisconsin. However, I think the deal is an unwise expenditure by the government.
For starters, $3 billion is an enormous amount of money. The number of jobs promised — 3,000 initially and up to 13,000 eventually (not guaranteed, it should be emphasized) — make this investment dubious at best. In fact, most public investments of this sort have had disappointing returns.
Wisconsin has chased manufacturing jobs with tax breaks, property tax abatements and direct subsidies for decades. Most of these have returned fewer jobs and tax revenue than promised. None has managed to stop the inexorable decline in manufacturing jobs across the state and country.
Governments aren’t very good at figuring out which businesses are likely to grow and expand and which are likely to fail. Venture capital companies spend lavishly to hire the smartest people to help them think about which companies to bet on, and they are often wrong. This difficulty begets a logical conclusion that we should do away with such giveaways.
What governments can do to generate more jobs is create an environment that’s conducive to small and medium-sized businesses to invest, grow and expand. The state has done yeoman’s work in this regard in the past few years, but more can be done.
In my first year as a professor at the University of Wisconsin-Oshkosh in the mid-1990s, I had a colleague who spent his summers consulting for a small tech firm with a couple hundred employees called Epic Systems. At the time, the state was vigorously giving subsidies to manufacturing companies to come to the state or not leave the state, while benignly ignoring companies like Epic.
Today, Verona-based Epic employs nearly 10,000 people, most of whom live and work in the state and most of whom have skilled, well-paying jobs that any state would kill to attract.
There are better ways to attract new jobs than to give billions of dollars to one large manufacturer. The state can do more to attract entrepreneurs.
A lower tax rate on businesses would be one way to do this. And doing more to encourage foreign-born students — who are much more likely to start businesses than U.S. born-students — to remain in Wisconsin would pay dividends in the long run, I believe.
Neither reform would produce immediate returns, but they would plant the seeds for the next Epic Systems and leave the state less dependent on the fortunes of one company or industry.
I want to see more manufacturing in southeastern Wisconsin as much as anyone. However, I fear that a massive government subsidy such as the Foxconn deal will prove to be an unwise investment in the long run and leave us with an environment that will be less amenable to growing small businesses into big businesses.
Ike Brannon is a visiting fellow at the Cato Institute and president of Capital Policy Analytics, a consulting firm in Washington, D.C.