Journal Sentinel Promotes Phony Foxconn “Report”

The Milwaukee Journal Sentinel has promoted, without questioning, a “report” on Foxconn by the Metropolitan Milwaukee Association of Commerce that seems more like a PR piece than a study. With the headline “Foxconn would provide $51 billion boost, report says,” JS reporter Rick Romell regurgitates the MMAC press release as if it were hard news, rather than a transparent attempt to sell the more than $4 billion in government subsidies going to the Taiwanese company.

Both Romell’s article and the MMAC release refer to a “report” done by it, but there is no link to any report in Romell’s online article (isn’t that a basic requirement for a newspaper story these days?) and the MMAC website reveals the analysis has no named author and consists of a one-page breakout of what it contends is the likely economic impact.

This is not a study. It’s more like a marketing tool by a Foxconn cheerleader.

Simply stated, the MMAC’s claims seriously exaggerate Foxconn’s potential impact on the Wisconsin economy. Here are some primary flaws in its analysis:

1) Opportunity Costs

MMAC bases its analysis on projecting Gross Domestic Product (GDP) growth in Wisconsin. GDP is a measure of final goods and services produced in a year, and MMAC claims the $2.8 billion in state revenue and tax breaks handed out to Foxconn combined with Foxconn’s investment will set off a chain reaction of $51 billion over 15 years.

Leaving aside that the actual subsidy is more than $4 billion (does anyone at the MMAC read the papers?), the analysis apparently ignores what economists call “opportunity costs”: when one uses resources in one way, one gives up the potential of using them in another way. Essentially, the billions coming from the state budget is money that could as easily been spent on funding rural schools, technical colleges, the UW system, the state’s highways, fighting the opioid epidemic, or numerous, necessary infrastructure projects.

Such spending would also have added to the state GDP and had a multiplier impact as well. Thus, to attribute the increase in GDP only when the money is spent on Foxconn is disingenuous. Devoting those dollars to Foxconn destroys the opportunity to use them in other ways. An honest study on Foxconn’s economic impact would take this into account.

2) Magic Multiplier

The MMAC analysis uses a multiplier to arrive at its $51 billion claim. This presents two problems: what exactly is the multiplier, and why isn’t the more accurate “net multiplier” methodology used?

Spending in any area — to save jobs at Kimberly-Clark, invest in K-12 education or the UW system, expand broadband to rural areas —  have multipliers as well. As William Holahan, retired chair of the UW-Milwaukee Economics Department, has pointed out, this kind of analysis acts as if the $3 billion fell out of the sky, having no valuable alternative use.

If the MMAC wanted an accurate picture of Foxconn’s impact, it would need to calculate a “net multiplier” by simply subtracting the multiplier associated with alternative spending from the “gross” estimate of Foxconn’s impact.  But the MMAC’s goal is clearly to promote Foxconn’s case, not rigorous economic analysis. Journalistic standards demand that Romell question this. He doesn’t.

3) Ignoring Leakage

The MMAC report apparently assumes that all dollars and related spending tied to Foxconn will take place in Wisconsin. But that is a pipe dream. It is certain that many suppliers will be located out of the state, primarily in Illinois. The same is true of workers and corporate services. How many Foxconn employees will be Illinois residents or Foxconn executives from Taiwan whose main residence is not in Wisconsin?  Will Foxconn’s research and development or its engineering spending be limited to the Wisconsin state line? Of course not. Even the Walker administration has projected that much of the impact will be gained by other states.

Realistically, many of the dollars linked to Foxconn will “leak” out of Wisconsin. Here the MMAC is truly hypocritical. It and its statewide partner, Wisconsin Manufacturers and Commerce (WMC), could have lobbied Governor Scott Walker to negotiate a local hiring agreement that makes public support dependent on hiring Wisconsin workers or require a certain percentage of construction companies or contractors to be Wisconsin-based.

Since these two organizations have dominant influence over Walker and the GOP-controlled legislature, they could have forced such demands into the Foxconn deal. But they did not. Instead the GOP-dominated Wisconsin Senate is doing the opposite by pursuing legislation that would prevent hiring agreements aimed at employing local workers.

MMAC’s analysis falsely assumes every last dollar will be spent buying goods and services in Wisconsin.

4) Additional Costs Not Calculated

The study apparently does not take into account any costs that the Foxconn manufacturing facility will impose on state or local governments. But to get an accurate picture of its contribution, one would have to subtract from its consumption of goods and services the costs it imposes on the state and local communities. This includes everything from environmental costs to policing to road construction, snow plowing, the education of children of workers who relocate to be close to their employer and much more.

5) Geographical Benefit

Even if the MMAC’s $51 billion figure was accurate, this tells us nothing about the geographic distribution of this massive public investment in the southeast corner of the state. Tax money from northwest, southwest, northeast. and central Wisconsin is subsidizing Foxconn with very little chance of any return on that investment to the rest of the state.

6) GDP Voodoo

Finally, the MMAC claims that Foxconn will increase the state GDP by $51 billion. That’s a wow factor number without much content.

But there is unanimity among economists that GDP, no matter how large, is not a useful measure of standard of living. Nor can it be used to measure growth over time, especially 15 years, unless it is adjusted for inflation. The only useful figure would be Real Per Capita GDP, a number that does not appear in either the MMAC press release or the Journal Sentinel article about it.

It’s clear that the MMAC is worried about the state-wide unpopularity of Welfare for the Wealthy deals like the Foxconn giveaway. The MMAC is also a major backer of Governor Walker, who is facing reelection with the Foxconn monkey draped on his back.

So this “report” is not the last attempt we’ll see by MMAC and WMC propagandists to paint the Foxconn deal in pretty pastels.

The question is, will the Business Section of the state’s largest newspaper act as a PR subsidiary of the MMAC or engage in real journalistic analysis of any future press releases?

Dr. Michael Rosen is the retired chair of the MATC economics department. Charlie Dee is a retired MATC instructor of history and english.