More Foxconn Bells and Whistles

It was seen as great news in some quarters. “The generosity of Chairman (Terry) Gou and Foxconn is just great,” said UW Chancellor Rebecca Blank, in hailing a $100 million contribution by the company to help establish a new research facility. 

The next day Foxconn announced a $25 million contribution to a new venture capital fund. “It can play a critical role in attracting additional capital and engaging with the startup community, which has not been done before,” said Matt Cordio, co-founder of Startup Milwaukee, in a story by the Milwaukee Journal Sentinel.

We’re talking here about Foxconn, a company which rose to become the world’s largest contract electronics company through ruthless cost-cutting, by exploiting labor and passing on the costs of its pollution to the countries where its plants have been located.

What accounts for this sudden switch by Foxconn, to become a generous, community-minded employer? 

Three reasons. First, because we the taxpayers are actually paying the bill. With a $4.1 billion subsidy from the taxpayers, Foxconn can afford to spend 3 percent of it on a little “generosity.” Second, because these deals are structured in a way that thinks of Foxconn first and not the state of Wisconsin economy — and with details that won’t be worked out until after the election. And third and most important, because Gov. Scott Walker is in trouble, with voters questioning whether the biggest public subsidy to a foreign company in American history will really pay off for taxpayers, and Foxconn hopes these deals will help get its benefactor reelected.

In retrospect, it’s clear Foxconn had to locate on the Great Lakes, the largest source of freshwater on the globe, because it needed huge amounts in its manufacturing process. The company has gotten state permission to tap up to 7 million gallons a day from Lake Michigan, nearly as much as Milwaukee will ship to the City of Waukesha under a water-sharing agreement. In short Walker was negotiating with a company that was very limited in the states where it could locate, and yet the governor, all the reporting suggests, gave the company whatever it wanted, even rolling over repeatedly to allow low-ball wages to workers.

The fact that a notoriously tightfisted company is willing to give $125 million back to the state tells us just how generous the $4.1 billion deal is. The $1,774 per household cost of this giant subsidy might have been a little lower without these latest showpieces by Foxconn. 

The venture capital fund is a reminder of what Walker might have done if he really wanted to make Wisconsin open for business. It’s well known that “new and young companies are the primary source of job creation in the American economy, as the Kauffman Foundation has noted. “Companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.”

So imagine if Walker had spent just one-eighth of handout to Foxconn to create a $500 million venture capital fund to invest in new and startup businesses. Or maybe even a $1 million fund. All the evidence suggests that would have had a much bigger long-term impact on job creation.

True, Foxconn’s $25 million gift helped leverage $75 million more for the fund, with Johnson Controls, Northwestern Mutual and Aurora Health Care each giving $25 million. But we don’t know what might have been leveraged if the state was offering a much bigger match. We do know the $25 million from Foxconn is coming from our taxes. For that matter, Aurora is actually a tax-exempt non-profit, so perhaps 15 percent of its gift is actually subsidized by taxpayers. 

The fund, by the way, will not invest only in state startups, but in any such companies in the country. In short, the taxpayers are paying for nearly $29 million of this venture fund, but don’t know how much of it will benefit their state. Meanwhile, the national focus is good for Foxconn, as it will be able to pick and choose the best startups to invest in that might compliment its own business. 

That’s not to say there will be no benefit from this fund. But if you were starting from scratch to get the most venture capital impact from our taxes, you’d want the experts to be consulted and the governor and legislature to carefully craft the best plan rather than having a Taiwanese company decide how to spend our money.  

Similarly the deal with UW-Madison launders the taxpayers money, in a deal that has some benefits for the state, but also a built-in return for Foxconn. We’re told that “the bulk of the money” — the amount unspecified — will go to help build a new interdisciplinary facility for the College of Engineering on the campus, undoubtedly something Blank and UW wanted. The rest will go to the Foxconn Institute for Research in Science and Technology, which will be located near the Foxconn plant in Racine and allow the company to benefit from connections to one of the top research and development universities in America. 

That’s all we know at this point. The agreement is merely a statement of intent with details to be worked out later. UW is supposed to get some ownership of any patents or intellectual property created, but that hasn’t been spelled out. Nor do we know if Foxconn can reduce its gift — and by how much — if UW doesn’t come up with a $100 million match. As with the more iffy sounding innovation centers in Appleton and Green Bay, the details won’t be nailed down until after the election. And Foxconn has a long history of backing out of deals when it suits the company. 

Polls show Walker is in trouble in this election, and Foxconn is part of the reason, as a majority of voters don’t believe the deal will benefit their community.  So the company has been aggressively rolling out new bells and whistles to change the voters views and thereby reelect Walker. 

“I don’t think this is complicated,” pollster Charles Franklin told the Journal Sentinel. If the company “really wants all the benefits that they were promised… they have to prefer the incumbent who negotiated the deal over the unknown of a Democratic governor.” 

With eight weeks left before the election, there’s still time for more promises by Foxconn with our tax dollars, and it’s so obvious: how about a donation to the Green Bay Packers?  

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