Michael J. Hicks, Ph.D., is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears in Indiana newspapers.
Last week Foxconn announced the opening of a large factory in Wisconsin. One benefit of that announcement was that it revealed, in one tidy location, nearly everything that is wrong with economic development practice in America. Let me explain.
Foxconn makes parts for iPhones and iPads and other consumer electronic devices. Most of their products are manufactured in the developing world, where labor costs are low. They do this well, producing just over $100,000 per worker. In contrast, Wisconsin’s best-known manufacturer, Harley Davidson, produces about $1,000,000 per worker each year. So, it’s hard to imagine how Foxconn, which is the master of low labor cost manufacturing, would remain profitable in Wisconsin. As it turns out, Wisconsin taxpayers will foot the bill for those pesky wages.
In order to build a $10 billion plant in southeast Wisconsin, which is set to employ 3,000 folks earning just under $54,000 per year, Wisconsin sold the farm. The Walker administration offered $3 billion in tax incentives over 15 years, and expect local governments to offer property tax abatement, which will surely exceed $2 billion over 15 years. Thus, it appears, for every job Foxconn creates, Wisconsin taxpayers will be expected to pony up $66,000 in state and $44,000 in local tax incentives for the next 15 years. This is stunning. Wisconsin will pay more than $100,000 per job in tax incentives, each year, to create $54,000-per-year jobs. The Foxconn isn’t just bad, it might well be the worst large economic development deal in history.
In defending the deal, we hear an echo of the same addle-brained defense of tax incentives that are so common across the Midwest. The false claim is that these incentives represent revenues that would not otherwise be in Wisconsin without this deal. That position couldn’t survive the first day of high school economics. The unemployment rate in Wisconsin is at an historic low. These workers won’t materialize out of thin air. They will instead come from other Wisconsin businesses who are currently paying taxes.
As is so often the case, this economic development deal will simply pay one company to hire the workers away from another company who is already paying taxes. While no one would dispute the notion that a worker making perhaps $50,000 elsewhere might be better off making $54,000 at Foxconn, that simply means the economic impact of the incentive is $4,000 for that job. Yet, the deal is actually worse than it seems. These jobs will pay just under $54,000 per year, yet the average earnings per job in the Milwaukee metropolitan area is over $59,000 per year. If Wisconsin taxpayers are going to foot the labor costs for Foxconn, they might at least have the common sense to insist that the jobs pay better than average in the city where they are to be located.
This is the sort of bad economic development deal that one would typically expect out of Illinois, but with many of the workers commuting from Chicago, maybe Illinois really won the deal. The astonishing badness of the Foxconn deal is all the more puzzling, coming as it did in Wisconsin. Governor Walker has led a renaissance in business friendly policies, which are heavily responsible for the 3.1 percent unemployment rate and should have made this sort of deal unnecessary.
In the end, the Foxconn deal demonstrates just what is wrong in the world of economic development. As a Hoosier taxpayer, I am happy to report that it didn’t happen here.