Get a daily rundown of the top stories on Urban Milwaukee

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.