Is Foxconn Double Crossing Walker?
Latest admission by company gives the game away.
Back on May 23 the Nikkei Asian Review did a story citing industry sources who said Foxconn was going to scale back its plans for Racine County and would not build the kind of plant it promised the administration of Gov. Scott Walker.
Oh no, said Foxconn officials, quickly releasing a statement denying the story: “Foxconn can categorically state that our commitment to create 13,000 jobs and to invest US$10 billion to build our state-of-the-art Wisconn Valley Science and Technology Park in Wisconsin remains unchanged,” the company said, as a story in the Milwaukee Journal Sentinel assured its readers.
But others in the media did some investigating and found the story was true. As Arthur Thomas reported for the Biz Times on June 20th: “The first LCD fabrication facility on the Foxconn Technology Group campus in Mount Pleasant will be a Gen 6 plant, not a Gen 10.5 plant as originally planned.”
That’s a massive scale-down of the proposed project, both in size of the plant and products manufactured. Gen 6 factories typically produce smaller display panels, for up to a 39-inch TV, versus 65-inch or 75-inch television screens at Gen 10.5 plants.
The change came because the larger glass panels cannot be transported long distances and Foxconn had hoped to have a Corning factory, which manufactures the glass panels, co-locate at the Foxconn site. But officials at New York-based Corning Inc. made clear they’d need a subsidy for as much as two-thirds of the cost of this facility and officials with the Walker administration said they could not give any more subsidies.
The implications of this change are enormous. For starters it means Foxconn will not be building the kind of factory it first promised to the delegation lead by Gov. Walker last year and which helped sell the huge taxpayer subsidy: Walker was shown the plant run by Foxconn subsidiary Sharp in Japan, which manufactures the large screens.
It could also mean Foxconn never gets close to a $10 billion investment or 13,000 employees. Foxconn officials now say the Racine plant will be built in “phases” and it could eventually add a facility to manufacture the larger screens. But this is the same company that promised to invest $5 billion and create 50,000 jobs in India, only to cut it to a fraction of that. “Similar results were seen in Vietnam, where Foxconn committed to a $5 billion investment in 2007, and in Brazil, where Foxconn spoke of a $10 billion plan in 2011,” and the plans were never realized, the Washington Post reported. And then there is Harrisburg, Pennsylvania, where Foxconn’s promise to invest $30 million and hire 500 workers never happened.
True, the state subsidy is set up to reward the company in increments, so Foxconn would only get a portion of the promised $3 billion from the state if it falls short of the 13,000 jobs. But all the other subsidies, worth more than $1 billion, will happen regardless of how many jobs are created. That includes $764 million in local subsidies, $164 million in new state and local roads to serve Foxconn, a $120 million electric power line paid for by utility customers, and some $7 million on a state-paid ad campaign to attract workers for Foxconn. On a per-job basis, a smaller, $3 billion plant would actually cost taxpayers even more.
The reality is that Foxconn has the state over a barrel. If Walker gets reelected, that gives the company four more years to squeeze him for ever more money. It can push for a subsidy for Corning (surely Foxconn knew all along Corning would want a subsidy), and for other giveaways, or refuse to go beyond the smaller plant. As the business publication Bloomberg predicted in an editorial lambasting the deal, Foxconn could “come back again and again, as blackmailers tend to, seeking yet more blandishments.”
Said Maley: “Foxconn is one of the largest companies in the world and has a 44-year history of success, so we’re confident it will continue to make decisions to ensure that continued success. It’s not the state’s role to get involved in the business operations of one of the largest and most successful companies in the world.”
Right, the state isn’t involved in Foxconn’s operations. It has merely created a plan that if fully implemented, will charge everyone in Wisconsin $1,774 per household in taxes to subsidize the company, and even if the plan turns out much smaller will still leave taxpayers paying up to 13 percent of the cost to build and equip Foxconn’s plant and 17 percent of the wages of its employees. The plan will also waive state environmental rules for the company, allow it to skip the state appeals court and go straight to the Supreme Court on legal issues, a benefit enjoyed by no other company in Wisconsin, and will charge utility customers over a vast swath of the state for Foxconn’s electric power. One can only imagine what the Walker administration would do if it did choose to get involved in Foxconn’s operations.
And we may well see more state involvement, depending on the November election results. If Bloomberg’s prediction is right, there could be more blackmailing of the state and its taxpayers as soon as Walker wins another term.
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Read more about Foxconn Facility here