We know the script well by now. A big company dangles the prospect of opening up a new factory or office that promises a lot of good-paying jobs and gets the local and state governments to offer up all manner of tax incentives and other inducements to close the deal. But the inducements given to them do not seem to have been written into the contract to be contingent on them making good on the promises. Then once the deal is signed and the company gets all the benefits, the number of jobs mysteriously gets reduced, they pay less than promised, and the factory and office size becomes much smaller.
This happens so often that you have to know that the promises were never realistic but just a means for the company and the governments to sell the bad deal to the public, with the hope that by the time all the deficiencies become manifest, public attention will be diverted elsewhere. When Amazon tried to pull this stunt in New York City, the public revolt occurred quickly enough to shut down the deal.
In Wisconsin, the Taiwanese tech giant Foxconn got a deal that was highly touted by Donald Trump and the then Republican governor Scott Walker (who lost his re-election bid in 2018) and then reneged on it in manner so brazen that it takes your breath away. Josh Dzieza writing for The Verge provides the details of the bait and switch.
Foxconn is building in Wisconsin, it’s not the $10 billion, 22 million-square-foot Generation 10.5 LCD factory that President Trump once promised would be the “eighth wonder of the world.” At various points over the last two years, the Taiwanese tech manufacturer has said it would build a smaller LCD factory; that it wouldn’t build a factory at all; that it would build an LCD factory; that the company could make any number of things, from screens for cars to server racks to robot coffee kiosks; and so on.
…Foxconn deal was controversial from the outset. Championed by Trump and passed by former Republican Gov. Scott Walker, it offered the company $4.5 billion in taxpayer subsidies, the largest ever granted to a foreign company. The credits were “refundable,” meaning that if Foxconn doesn’t owe taxes (as it likely won’t, given Wisconsin’s corporate tax structure), the state would simply pay the company cash.
But then the company kept changing its plans.
If Foxconn actually hired the 13,000 people it promised, that subsidy would come out to $172,000 per job, according to a study requested by the Evers administration this year. For comparison, the same study estimated that Virginia paid between $10,000 and $13,000 per job for Amazon’s second headquarters.
But it quickly became clear that Foxconn was unlikely to hire that many people, at least on the schedule laid out in the contract. Even before Trump, Walker, and Foxconn founder Terry Gou broke ground on the factory, it began to shrink. First, it went from a Gen 10.5 LCD factory to a far smaller Gen 6. Later, Foxconn would tell the press that it had decided not to build a factory at all, only to restart the project two days later after a call from Trump. There were more changes after that, but the latest promise from Foxconn is that it will build a smaller Gen 6 LCD factory eventually employing 1,500 people, a “smart manufacturing facility” that will make automated coffee kiosks, and a data center. Collectively, the new buildings total a bit more than a million square feet, about one-twentieth the size of the original factory.
Throughout these changes, one question has loomed: given that Foxconn is building something completely different than that Gen 10.5 LCD facility specified in its original contract with Wisconsin, is it still going to get the record-breaking $4.5 billion in taxpayer subsidies?
The documents show it was Foxconn that first proposed amending the contract in a meeting on March 11th, 2019. Over the following months, various officials from the Wisconsin Economic Development Corporation (WEDC) and Gov. Tony Evers’ administration urged Foxconn to formally apply to revise its contract to reflect whatever it is actually building, a process that would involve describing Foxconn’s current plans, its expected costs, employment, and other basic details.
Foxconn never did.
Instead, a Foxconn representative wrote a brief letter asking the then-CEO of WEDC to make the current factory eligible for subsidies under the original contract. The company later claimed it has a right to apply for subsidies no matter what it builds in Wisconsin. Negotiations appear to have completely broken down in late November, after Foxconn director of US strategic initiatives Alan Yeung accused the Evers administration of being unfriendly to business, and saying that “discussions regarding immaterial matters are a misappropriation of our collective time and energy.”
This is the arrogance of large transnational corporations that treat elected governments as subservient to them.. Will the new Democratic administration in Wisconsin hold firm and demand that Foxconn meet its original obligations?
Let’s hope so. Governments need to stop competing with each to land contracts with bogus benefits that they can boast about but never actually materialize and end up hurting the local economy.
Certainly Foxconn (“con”) should not have been trusted to the extent that it was. However, a great share of the blame goes to Scott Walker: he was eager to use the prospects of the deal to promote his pro-business bona fides during his 2016 presidential campaign (an abysmal failure) and his 2018 gubernatorial campaign. When convenient, those in the cult of economics forget one of their own rules: there’s no such thing as a free lunch.
If they knew at the time they were engaged in the original negotiations that they would not be building what they represented in order to induce Wisconsin to sign the original contract, there’s a case to be made that the company engaged in fraud.
The state should, on that basis, open up a criminal investigation into the matter. Further, it should use a special master to review attorney/client privileged communication. If the attorneys were involved in the fraud, no privilege attached. Then all that communication can be used as evidence.
If evidence does come to light of criminal fraud, they should not just seek a settlement with the company, they should indict, try, and imprison upon convictions any persons residing in the USA who were involved. This includes the lawyers who knew of the fraud. While that process is ongoing, they can also try to extradite persons involved in the fraud who are located overseas. I doubt we’ll see any of those, but good luck to FOXCONN finding lawyers who will work for them in the USA if their last lawyers were imprisoned.
Finally, use civil forfeiture laws to take moneys from FOXCONN and its officers and agents proportionate to the fraud. Three times the amount of the fraud is fairly usual, so that would be 13.5 billion. Of course the company, its officers, and its agents (including the lawyers involved in the fraud) would be jointly and severally liable and can fight the details of liability out amongst themselves. In the meantime, Wisconsin would just seize FOXCONN assets located in the US up to that amount. If they can’t get that much in FOXCONN property, then they can start taking the family assets of the individual fraudsters… but make no mistake, even if the state doesn’t take that action, FOXCONN will sue those individual fraudsters to try and get some of this money back. THAT means that in addition to the 13.5 billion total they lose to the state, they’ll also have to pay a bunch of money to various (more honest) lawyers as they fight amongst themselves.
I’m sick and tired of the idea that money simply provides immunity from prosecution.
I worked as a temp for Foxconn in Indianapolis, Indiana. They were contracted to run an HP facility there. I think this ws around 15 years ago. Basically they would hire around 1,000 -- 1,500 temp workers to run the lines putting together HP/Compaq computers from components. There were a total of about 20 permanent jobs at the facility between HP and Foxconn put together. They couldn’t figure out how to keep the lines running constantly which is why they used temp workers. They’d rush out a huge amount of systems over a few months then shut down the whole plant for a couple weeks, laying off all the temp workers.
I did quality control there for 3 months, or at least I tried. They wanted me to just rubber stamp everything. I’ve worked for a lot of companies before and since. I’ve seen a lot of sketchy behavior and worked a lot of dead-end jobs. But this is still by far the biggest circus I’ve ever had the misfortune to deal with. It was all courtesy of Foxconn as well, the original setup before HP outsourced running the facility had permanent jobs and a full production facility operating full time.
Needless to say, Foxconn “fixed” that.
lanir: And look how successful HP has been ever since. The only think Americans know how to do these days is financial scams, spreadsheet diddling, and overpriced weapons like jet fighters that cannot fly in the rain.