Op Ed

Foxconn Deal Will Actually Lose Jobs

That $4 billion, if spent in usual fashion by state government, would create far more jobs.

By - May 11th, 2018 02:32 pm
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Foxconn signing. Photo by Graham Kilmer.

Foxconn signing. Photo by Graham Kilmer.

The trump card against any criticism of the Foxconn subsidy, whether by environmentalists, taxpayers, or economists, is that this embrace of corporate welfare will “create Wisconsin jobs,” perhaps as many as 13,000. Some advocates of this $4.1 billion taxpayer subsidy like to claim they are “free-market conservatives!” They are not: their use of taxpayer dollars is inconsistent with the very market principles they profess to hold. Applying those principles leads to the question “How many jobs will be lost?”, not to “How many jobs will be created?” There is no reason to expect that this government interference in the workings of the market will produce even one net new job, and will likely lead to more sluggish growth and lost opportunity.

Will the Jobs be Held by State Residents?    

The consultant’s estimate for job creation assumes that the preponderance of Foxconn employees, their suppliers, and their suppliers’ employees will be from Wisconsin. But there is no guarantee that even a large fraction of their employees and suppliers will be Wisconsin tax-paying residents. Given the excellent freeway access to northern Illinois, surely many workers from out of state can be expected to commute to Racine for Wisconsin-subsidized jobs. Similarly, suppliers need not be in Wisconsin, as many of Foxconn’s needed electronic components can be shipped from anywhere in the world by air freight.

But, It Gets Worse

But assume for the sake of argument that all the suppliers and all the workers do reside in Wisconsin. Even then the estimate of 13,000 new jobs is still terribly misleading. That estimate is a gross job figure, not a net job figure. The correct way to determine the job impact of the subsidy requires the calculation of a net figure; the difference between the jobs expected at Foxconn minus the jobs foregone where the money came from. The subsidy is money diverted from Wisconsin locales where it could have been used on job-creating economic activity, such as in education, health, transportation, sewers, water, etc. That is, the jobs estimate must consider the most fundamental concept in economics: “the opportunity cost” of the money.

Free market principles offer an even sterner warning: it is the role of the market, not the state, to pick winning and losing firms through the profit and loss system. It is the role of the state to support the market by supplying those public goods — roads, infrastructure, educated citizenry, air quality, water quality, etc. — that the market cannot provide efficiently. Moreover, the state should finance these functions by collecting the needed taxes, employing user charges whenever feasible since these user taxes and fees embody another market principle: require people to pay for what they use. When the state reverses those roles and diverts tax dollars, as they do in the Foxconn subsidy, it is denying the state the benefit of the efficiency of the market system and of the efficient provision of public goods.

If the subsidy were spent on job creation elsewhere in the state, it is likely to produce several times 13,000 jobs; business writer John Torinus calculates the average subsidy per new job created in Wisconsin at about $23,000 per job. This is far less than the roughly $200,000 per job estimated in the Foxconn deal. At that rate, subsidizing other entrepreneurs with the $4.1 billion would yield approximately 90,000 new jobs. The diversion of tax money to the Foxconn subsidy results in a lost opportunity to add many more jobs to the Wisconsin economy and to add them over the entire state, not merely in its southeast corner.

No  “Payback”

Much has been made of the taxpayers’ payback year, often estimated as 2044. However, since there is no net addition of jobs and with the likely loss of economic potential because the market is not permitted to do its job efficiently, a payback year simply doesn’t exist! The use of the payback formula in this context is a distraction: free market principles warn that taxpayers will never get their money back.

Too Late to Stop this Diversion of Tax Dollars?   

It may be too late to stop the Foxconn subsidy from going forward. It is not too late, however, for voters to reconsider voting for the politicians who put it in place and to oppose any future effort to use taxpayer dollars to bypass the competitive marketplace. The state would be much better served by truly following free-market principles.

William L. Holahan is Emeritus Professor and former Chair of the Department of Economics at the UW-Milwaukee. Charles O. Kroncke served as Professor and Associate Dean of Business at UW-Madison as well as Dean of the School of Business at UW-Milwaukee and the School of Management at UT-Dallas. From August 2003 to May 2004, they served on, and Holahan chaired, the UW-System Search and Screen Committee during the search for a UWM chancellor.  

More about the Foxconn Facility

33 thoughts on “Op Ed: Foxconn Deal Will Actually Lose Jobs”

  1. Guy4Life says:

    Hey, William L. Holahan and Charles O. Kroncke , there is no free market, stop acting like there would be one ,if there wasn’t this deal. Also yes some jobs will go to people from Illinois, good. We need to stop thinking small and work as a region, not as separate states.

  2. tom says:

    Guy4Life: The point is that the politicians that decided to forego the opportunity to use $4B more wisely on more productive ventures have screwed us. Even if all the jobs go to WI citizens there is no guarantee that Scott Walker and his cronies made the optimal decision about how to spend $4B in taxpayer dollars. Never allow an individual who thinks about nothing other than his own political future (Walker) to spend your taxpayer dollars.

  3. Jake formerly of the LP says:

    This is a point that far too many won’t discuss. How much better would we be if we used these hundreds of millions of dollars a year going to Foxconn, and actually used it ON SOMETHING ALL WISCONSINITES CAN USE?

    And the double-talk from Walker and WisGOP is obvious on this. If Wisconsin has such a low unemployment rate, how many workers are out there to actually do Foxconn projects? And if they’re working on Foxconn, how many other projects in the other 95% of the state are missing out?

    Or is the 2.9% unemployment rate a BS number, and it’s far worse than that? One or both of these points have to be true, because it sure doesn’t look like Racine County is going to become a boom town due to the Fox-con (in fact, they are going to be hampered to add on to their communities because TIF money and other funds will be going to Foxconn for the next 10 years).

  4. Joe says:

    This is one of the better economic articles I have read on a micro and macro scale! Well thought out! People that want to argue against this balanced opine are either not educated in Economics or playing partisan politics–either way, their opinions hold zero value!

  5. Dennis says:

    This is an interesting article. I have never been in favor of any government handouts including the bucks, Brewers, or what ever. In a nutshell, I am ok with helping do infrastructure such as roads and water utilities but that’s about it. Government should not be picking winners and losers. Let the free market pay for it and create there own venture capital. If every state followed the same rules we won’t be in these situations.

  6. Rp says:

    There is good information here . There is a clear omission of representing the economic process . It evolved from trade , barter then medium of exchange but in all cases you have something we want . We add value that your willing to trade for something you have for something I have and can not be as effective at something as I am etc

    Government while essential member of the team is not good at business nor moves at the speed necessary to meet the evolving demands of markets .

  7. Troll says:

    First point, thousand of people live in Wisconsin and work in Illinois and they pay taxes to Illinois. Second, anyone living in the city of Milwaukee will complain about investing in a tech company but is satisfied with the subsidies we give MPS at 15,000 per pupil.

  8. Crazy Chester says:

    Troll, it is truly a human tragedy that you think that is a valid rebuttal to this article.

  9. Troll says:

    Chester, the Haulacaust is a tragedy. Hitler conjured up that idea from the treatment of American Indians under Democratic president Andrew Jackson. Japanese internment camps under Democratic president Franklin Roosevelt is a tragedy.

  10. TransitRider says:

    In post 6, Troll writes, “… thousand [sic] of people live in Wisconsin and work in Illinois and they pay taxes to Illinois.”

    Not true. (Does Troll EVER get ANY fact correct???))

    Wisconsin and Illinois have a “reciprocity agreement” under which Wisconsin residents who work in Illinois are exempt from Illinois income tax and pay Wisconsin state income tax on their Illinois wages.

    Likewise, under that reciprocity agreement, Illinois residents working at Foxconn will be exempt from Wisconsin income taxes and will instead pay Illinois taxes on all their Foxconn salary.

    https://www.revenue.wi.gov/Pages/faqs/pcs-work.aspx

  11. MPS now there is something everyone needs to part of the solution . 40 year moral tragedy , children and many many teachers . Lets start with the qualification , source of the principals .

  12. Wisconsin Conservative Digest says:

    There is no way set for the govt to parcel out 3.5 billion to companies in Wisconsin.
    It would take decade to set up, lots of corruption, the Left would oppose it all the way. As chair of the West Allis Chamber we can tell you that the multiplier will mean 50,000 jobs across state in an area where almost half of the manufacturing jobs have been lost, the last few decades leaving Mcdonalds jobs fro families. This gives them good jobs. Racine people are ecstatic.
    Face it Bruce Murphy and the Left have no intelligent plans to bring jobs to Wisconsin like Texas had. All they give us is job killing higher taxes ideas: high min wage, high taxes for the rich, high property taxes by killing vouchers, Act Q10. Higher gas taxes More immigration of cheap labor, killing our kids jobs. Look at the only place they run: Milwaukee Highest poverty in country 57%, horrible crime, car jackings, car theft, unemployment,,etc for kids until Trump has taken over.

  13. Crazy Chester says:

    “…lots of corruption, the Left would oppose it all the way.”

    You’re darn right the left opposes corruption. It’s you right wing folk who embrace it and try to define it down in the legislature and courts. Give these guys another decade, and they’ll make murder legal for registered Republicans only.

  14. Troll says:

    Transit Rider, if you cross into Illinois via 43 south, there are no great destination until Gurnee. Illinois did a poor job laying out freeway exits. Where as Wisconsin has a lot to offer for foxconn employees. We have lower retail tax then Illinois. You assume there will be no shopping or a future toll road revenue.

  15. Joe says:

    Can WCD learn how write???

    Do you understand syntax?

    You are all over the place in a ridiculous partisan retort that is nowhere rooted in reality.

    Do you really think if the State of Wisconsin committed $4B in job training and education in a 10-15 year span, there wouldn’t be organic job growth and creation in Wisconsin?

    I have actually studied Economics and the FoxConn deal is one of the worst, if not the worst corporate handouts in U.S. History.

    Wisconsin’s son’s and daughter’s will be paying for this long after many of us are gone from the earth and it will not reap the stated benefits or even come close it.

    Good government acts as a steward of economic growth (improves infrastructure to help commerce); bad government tries to create growth through poaching jobs using incentives and that isn’t job creation.

    Job creation comes from ingenuity and entrepreneurship: a product of education!

    I don’t expect you fools on the far right to ever understand that.

    In fact, your inability to stay focused, argue in a circle and outside the scope, speaks volumes about your intellect and true understanding of politics, government and economics.

  16. Jake formerly of the LP says:

    This is a point that hasn’t come up enough when discussing Foxconn. The resources and contracts being used for this project mean that other projects and other services don’t happen. Projects in the other 95% of the state get delayed or are more expensive because of less competition, and the hundreds of millions that get funneled to Foxconn every year don’t get used to fund schools or fix the roads or help the sick and/or elderly.

    Plus, if you really believe that our unemployment is 2.9%, then why do you need to spend anything to attract more business? You’re past full employment, and what you need to do is to encourage more people to want to live in Wisconsin to keep the economy from overheating and/or retracting into recession.

    Defunding the schools, turning Racine County into a polluted cesspool and paying the lowest wages in the Midwest aren’t going to do that. In fact, the only reason our unemployment rate is low is BECAUSE SO MANY HAVE ALREADY LEFT due to Walker/WisGOP regressiveness.

  17. Dragonkat says:

    Nevermind that FoxxConn is building a traning center in Downtown Waukegan, that all of there job fairs so far have been in Chicago, and really nevermind that the state of WI gave Chicago’s CTA 20 million dollars for advertisements to the FoxxConn site va Metra.

    Anybody who believes that WI resident’s will get jobs at FoxxConn is fooling themselves…its not going to happen!

  18. Dragonkat says:

    WCD is just a troll!

    Given his inability to stay focused, argue in a circles and outside the scope of the topic at hand, speaks volumes about his lack of intellect and true understanding of politics, government and economics.

    Hey WCD, did you know that inside that 2.9% state unemployment number, that figture Dose not include Milwaukee, Racine, & Rock, counties.

  19. Wisconsin Conservative Digest says:

    It is so interesting to read the Lefties here including Bruce Murphy.
    To date have not see one entry that solves any problems, just creates more. Milwaukee has 57% unemployment for the youth, worst poverty in country, drug wars, high taxes, human trafficking, bad roads.
    They desperately need good jobs for their inner city people and the left under Doyle and Loser Barrett failed to provide them.
    We need good jobs in the SE Wisconsin, Foxconn provides them and the left fails to give us one intelligent option but babbling babble.

  20. Crazy Chester says:

    Speaking of “babbling babble”…WCD, you don’t have even the slightest clue what SE Wisconsin “needs” and certainly couldn’t care less about it. Go back to bed.

  21. Wisconsin Conservative Digest says:

    Poor Jake, just cannot understand business.
    As head of West allis Chamber’s Progress Steering Committee for decades I can tell you simpletons that we are not funneling money to Foxconn but just not taking money from them, that we never would have had if they had not come.
    Then the ancillary growth, jobs will provide Racine/Kenosha area plus buses from Milwaukee bring down jobs to the 50,000 we will have in 7 years. SE Wisconsin will be the Tech center of Midwest.
    What does the Left offer? Higher taxes, more food stamps, more welfare, no jobs, higher property taxes, phony min wage demands, and the wealthy and Seniors move south.

  22. Troll says:

    We’re n’t the left crying about Wisconsin’s brain drain for years. All these STEM state graduates heading to San Francisco and Seattle. Walker offers a fix to this and the left poo-poos it. Now a street car that is high tech.

  23. Wisconsin Conservative Digest says:

    These college dummies do not realize that we do not have the 4 billion. No wonder kids leave college as dummies.
    We will never have the 4billion, as it is money that Foxconn will not have to pay us.
    Total imbeciles about how things work.
    LBJ said: “Academics, they cannot park a bike”. He was right.

  24. Jake formerly of the LP says:

    If dead-end Troll thinks the Fox-con manufacturing plant and its $10-an-hour jobs is Walker’s plan to attract STWM grads, no wonder Scotty is losing and Wisconsin has job growth below the US average for the last 7 years.

    Talent will not locate to an area that is a literal cesspool with underfunded schools and regressive politics. Any Foxconn STEM types will locate in Chicago. We’d be much better served actually producing those STEM grads by adequately funding the UW.

    But instead those funds are being funneled to Foxconn. FAIL.

  25. LenaTaylorNeedsToResign says:

    …Fox-con manufacturing plant and its $10-an-hour jobs…”

    You’re a lying sack of shit, Jake, “Formerly of the LP”. Guess that’s what you have to do, when lies are all you have left.

  26. Crazy Chester says:

    Nice language there, Lena. Do you kiss your mother with that mouth?

  27. Tom says:

    Pathetic. If Wallker and republicans hadn’ylt given 4.5 billion of our money away to a foreign compant we could’ve had paved roads, rural high speed internet, funded schools and a real economy. Heck, legalizing marijuana would’ve created waaaay more jobs, estimates are around 18,000 not including thousands of ancillary jobs and it would’ve only cost a couple hundred thousand to set up but would create 200 million in new revenue taken from the black market annually on top of thousands of new jobs and businesses. Instead we have Walker and republicans squandering 4.5 billion dollars and jacking up our taxes up to subsidize a Chinese billionaire’s company all for a few crappy part time wage slave legacy manufacturing jobs. WOW, people are STUPID in Wisconsin. Really, really STUPID. Thank God for Minnesota!

  28. Jake formerly of the LP says:

    LenaTaylorTroll- Why is Foxconn advertising jobs under $10 an hour if theyre going to pay more?

    https://www.indeed.com/m/jobs?q=Foxconn&l=Pleasant+Prairie%2C+WI

    Just because the facts about this boondoggle hurt your fee-fees, it doesn’t change those facts.

    I don’t lie. I respect people too much to lie. Your apology is accepted in advance, troll/WisGOP operative

  29. Crazy Chester says:

    @Tom In that sense, Scott Walker is very lucky. He has reliable toadies like those above to keep him in office no matter how poorly the outcome. They’d all cut off their left legs if Walker asked and it let them somehow “own a lib”.

  30. WalkerLovesCronyCapitalism says:

    From Scott Bauer, AP Reporter:

    Foxconn announces that master planner for its massive campus in southeast Wisconsin will be Hammes Co.

    Hammes is led by GOP mega-donor Jon Hammes, who is finance chairman for @ScottWalker re-election campaign. Hammes also served that role for Walker’s presidential bid

  31. Wisconsin Conservative Digest says:

    great, that means he is really smart.

  32. Terry says:

    Dump Walker 2018
    Free Wisconsin!

  33. Wisconsin Conservative Digest says:

    Dump the Left, Keep Wisconsin working instead of on food stamps.

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