A Blog by Jonathan Low

 

Jul 30, 2017

To 'Win' the Opening Of a Foxconn Factory, Wisconsin Is Paying $250,000 Per Job - To Be Automated Soon

The state of Wisconsin bought a promise (not a guarantee) of a $10 billion Foxconn factory with the assurance that its subsidies will pay for almost all of it.

And this for jobs that are likely to be automated before the assets are depreciated. Competitive reality or expensive political public relations? JL

Allan Golombek reports in RealClearMarkets:

Wisconsin will in effect be paying the plant’s entire workforce for five years. And the construction jobs – which make up more than three-quarters of the total – will only last about four. It’s 50 times as much as the previous record-holder, the motor and engine company Mercury Marine.(And) Foxconn has publicly committed to automating the vast majority of its1.2 million jobs. They have targeted to reach 30% automation by 2020.
Governments cannot simply waive a magic wand to create jobs, but that certainly doesn’t stop them from trying. The latest entry in the jobs lottery is the state of Wisconsin, which is putting up billions of dollars to lure Foxconn to build a plant. It could be a great deal – for Foxconn. But will the taxpayers ever get their money’s worth? A lot less likely.
Foxconn has announced it will be building its first U.S. plant in the former manufacturing hub of Kenosha, Wisconsin. What will the local economy get? A $10 billion investment by the Taiwanese company to build a display panel plant, with a promise to create 3000 full-time jobs, and 10,000 related construction jobs expected to last four years. Hopefully, there will be more direct jobs to come, and some spin-off jobs. But one can’t live on hope. What will the State of Wisconsin be paying to lure Foxconn? A steep price. It adds up to $3 billion, including tax credits, training grants and infrastructure improvements. That comes to almost a quarter-million per job, which will pay an average of $54,000 per year. In other words, the people of Wisconsin will in effect be paying the plant’s entire workforce for about five years. And the construction jobs – which make up more than three-quarters of the total – will only last about four. If my accountant recommended a comparable deal to me, I’d get a new accountant.The deal sharply raises the price the state government pays for jobs in Wisconsin. Like most jurisdictions, it has opened its pockets to companies in the past, but the deal with Foxconn puts them in a new league. It’s 50 times as much as the previous record-holder, the motor and engine company Mercury Marine. The state gave them $65 million seven years ago to create and retain 2900 jobs. That came to $22,500 per job. The average job at Foxconn will cost the taxpayers 10 times as much.
No one knows how long the Foxconn jobs in Kenosha will last. But we do know the company has publicly committed to automating away the vast majority of its current 1.2 million jobs, most of which are located in Asia. At one plant alone in China’s Guangdong province they have eliminated about 60,000 jobs. And they certainly aren’t stopping there. They have targeted to reach 30 percent automation by 2020, and their stated goal is to eliminate almost their entire human workforce, retaining only a minimal number of workers in production, logistics, and inspection. They even have their own name for their robots – foxbots. And they have announced a three-phase plan that will include eliminating not just jobs for humans, but even paring down the number of excess robots in use.
Local governments in several Chinese cities with Foxconn facilities have responded to the loss of jobs the same way as their American counterparts – by opening up the local coffers. They have doled out billions in bonuses, energy contracts and infrastructure in a desperate attempt to hang on to as many jobs as possible for as long as possible. What makes state officials in Wisconsin – or other U.S. states – confident they will be able to retain the same kind of jobs that are being automated away in China? Especially when U.S. wage rates are higher than their Chinese equivalent, and the display panels that will be produced at the Kenosha plant are a lot easier to make using robots than the multi-part iPhones that are produced at so many Foxconn plants in China.
None of this is intended as a criticism of Foxconn. There is nothing wrong with a company paring its workforce. It’s called efficiency. It’s part of competition and wealth creation. But one must ask: Why are the people of Wisconsin paying for the party, instead of using their resources to reduce taxes, educate and train the population, or build multi-purpose infrastructure not tied to the needs of any one corporate facility?
Lenin once said that when it comes time to hang the second-last remaining capitalist, the last capitalist will be there to sell the rope. It appears that when it comes time to build a plant that may well end up being staffed by robots, politicians will be there to pay for it – using the people’s money.

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