Trumps Foxconn Deal Became Just Another Government Development Debacle

Foxconn, best known as the maker of Apple’s iPhone and iPad. They’re the biggest in the world. They’re coming into Wisconsin with an unbelievable plant like we’ve never seen before. In 2018, Donald Trump teamed up with then Wisconsin Governor Scott Walker to offer 4.5 billion dollars in subsidies and tax incentives to the Taiwanese manufacturer, Foxconn, in exchange for building a 20 million square foot factory in the rural community of Mount Pleasant. We can say this is the eighth wonder of the world.

00:31 - The project was supposed to employ 13,000 local workers, helping to make good on Trump’s campaign promise to increase the number of domestic factory jobs. More than two years later, planners have flattened a residential neighborhood and built an unfinished data center and warehouses a fraction the size originally planned. Foxconn’s promise in 2018 was to build a state-of-the-art LCD factory. Then it scaled back that plan to a mostly automated smart manufacturing plant. After Foxconn failed to reach employment benchmarks, Democratic Governor Tony Evers, who defeated Scott Walker in 2018, clawed back some of the subsidies that his predecessor had promised, and the project morphed into this.

A warehouse one twentieth the size of what was originally promised, 01:18 - which is being used not for manufacturing, but for storage, according to an investigative article in The Verge. This debacle is just the latest government-led development deal riddled with false promises in which the state provided rich giveaways and used the threat of eminent domain to push citizens out of their homes to benefit a private company. The Mount Pleasant neighborhood, where the Foxconn factory was supposed to be built was flattened, so far for no reason. When Reason did a story on the project in 2018, Kim and Jim Mahoney were one of the only families left within one and a half square miles. They were fighting a local government attempting to bully them to sell their dream home on the grounds the state could also just step in and force them out.

02:02 - How can they take my house? To me, it’s stealing. We just built this home. We’re at the top of our budget. It just doesn’t seem fair. The Mahoney’s, unlike all their neighbors, managed to stay put, and today their house overlooks an unfinished construction site. It’s unclear what ultimately will become of the project. What you’re doing is you’re setting people up for failure if you encourage them to locate in a place where they fundamentally shouldn’t be locating. Economist, Matthew Mitchell, from the Mercatus Center at George Mason University, coauthored a study on the Foxconn deal.

02:36 - He says, “It’s a cautionary tale of what happens when politicians become private sector deal makers. You’re not spending your own money and you don’t reap any upside reward from the benefits. So you have no incentive to minimize the costs and no incentive to maximize the benefits. “That which yields political profit,” Mitchell says, “is considered a cost in business.” If a private entrepreneur went to you and said, “I’ve got this great plan. I would like you to invest 3.

6 billion dollars into my company, and here’s the best part, 03:07 - it would employ 13,000 people. Isn’t that awesome?” You would say, “Why are you talking to me about the costs?” What the public never sees at a ribbon cutting ceremony is all the economic activity that will never take place because of the burden that taxpayer subsidies shift onto other businesses and activities. Mitchell estimates that the Foxconn deal contained $2.8 billion in outright subsidies. The taxation needed to fund them would have reduced Wisconsin’s GDP by about $20 billion over that same period. You’re removing money from the pockets of consumers and other taxpayers, who they themselves would go out and create multiplier activities.

03:44 - But using government funds to broker business deals remains popular among politicians. One survey of American mayors found that 84% favored using the government for targeted economic development. The very best thing that a governor could do is to announce that they will never, ever preside over any ribbon cutting ceremony in which they subsidize a particular firm. Most governors don’t appreciate that, and most taxpayers don’t appreciate that. While that may make the most sense economically, I fully admit it does not necessarily make sense politically.

04:15 - There is a way to get around this, that sort of appreciates the political economy of the situation. States could enter into interstate compacts with one another, whereby they agree to a mutually disarm in the subsidy war. I’ll put away my subsidies, if you put away yours. This is really the same kind of logic that governs things like the WTO and it’s been extraordinarily successful. Mitchell says that the Foxconn debacle isn’t a story about Trump’s unique incompetence.

04:40 - It’s about the perils of government-led business deals, no matter who’s in charge and what political party they belong to. Democratic politicians in the Connecticut town of New London partnered with a Republican governor to seize the land of homeowners like Suzette Kelo, in order to then hand it over to the pharmaceutical giant, Pfizer. The Pfizer project was never built, and this is how the lot where Kelo’s house once stood looks 13 years later. In 1981, Detroit and Hamtramck politicians partnered with General Motors to used eminent domain to displace more than 4,000 people in the predominantly immigrant neighborhood of Poletown to make way for a car assembly plant. And in 2009, the Obama administration directed a 535 million government loan to the solar manufacturer Solyndra to construct a state-of-the-art manufacturing facility in California, but the company went bankrupt soon after, costing US taxpayers more than half a billion dollars.

05:39 - Democrats were very enthusiastic about the subsidies to Solyndra during the Obama years, and they were very down on the subsidies to Carrier and Foxconn during the Trump years. Unfortunately, I think that partisans see target economic development incentives pretty clearly when the other side is doing it, but they have an extraordinary blind spot when it comes to their own incentives. .