Manufacturing

The Geography of Need and the Proposed Foxconn Deal in Wisconsin

The Issue:

Discretionary place-based subsidies of the kind on offer to Foxconn hold the potential to exacerbate rather than diminish regional disparities.

The Facts:

What this Means: The Foxconn project comes at a high cost with uncertain economic benefits, but clear political payoffs. The political economy of Foxconn suggests who the winners will be: the governor of the state, for whom the proposal is the cornerstone of an effort to redeem himself on a pledge of job creation; the Speaker of the House of Representatives, who can claim credit for a multi-billion infusion of investment in his district; and owners of land for the greenfield site, who will be paid sums well above the going price for farmland. For most of the rest of the state’s 2.8 million employed residents, the Foxconn deal likely misses the target. Near-term, it guarantees all residents will pay millions of net costs in higher taxes or reduced services. Promised for the longer term are jobs most likely concentrated in one of the most prosperous regions of the state and mostly inaccessible to those in the greatest need of an effective—and equitable—strategy for economic development. Which subsidies would make a difference? Careful studies have shown that expenditures on higher education can have a payoff for all workers, including those in manufacturing. For instance, each one percent increase in the college-educated share of the labor force in a city raises manufacturing productivity by 0.7 percent according to one study. Most of this increase goes into higher wages. The $200 million annual net expense of the Foxconn deal during the start-up years (2021-2026) is equal to one-fifth of the state tax revenues devoted to the entire University of Wisconsin System. Per-student support for students attending state universities has fallen in real terms from $10,000 in 2000 to only $7,000 today. $200 million redirected to making college more affordable would not make the same kinds of headlines or prompt the same kinds of celebrations, but it would make significant progress towards reversing this trend. It would be sufficient to bring per-student support back to levels last seen in 2008, before the Great Recession.

The decline of manufacturing employment has reduced the availability of higher paying jobs for less educated workers. One approach states and localities have used to address the issue is by trying to attract and retain firms with packages of subsidies and tax incentives, such as the proposed high-profile deal for a new plant by the Taiwanese electronics supplier, Foxconn, in Wisconsin. Proponents argue that Foxconn will create a " high-tech manufacturing and technology ecosystem ." Debates regarding such deals tend to focus on whether the benefits of the investment subsidy will be realized. However, there are also distributional issues to be considered. While the costs tend to be broadly shared by taxpayers, the economic logic of such “ecosystems” means that benefits will be spatially concentrated. Locations that may offer the highest payoff to a place-based subsidy, for example those with excellent infrastructure or a highly skilled labor force, may not be those in the greatest need in terms of poverty or unemployment.