Friday, November 29, 2019

Foxconn likely will be a drag on Wisconsin economy, market-oriented researchers suggest

From JSOnline:

, Milwaukee Journal Sentinel

Work is done on structures at Foxconn Technology Group's planned flat-screen manufacturing complex in Mount Pleasant on Wednesday, Nov. 6, 2019. - Photo by Mike De Sisti/Milwaukee Journal Sentinel  (Photo: Mike De Sisti/Milwaukee Journal Sentinel)

Widely criticized by many on the left, Wisconsin’s deal with Foxconn Technology Group is now also under fire from the right side of the political spectrum.
recent analysis published by the Mercatus Center at George Mason University suggests that the Foxconn development – considering costs as well as benefits -- is likely to end up being a net loss to Wisconsin’s economy.
“It wasn’t really talked about as a gamble but that’s really what it is,” said Matthew Mitchell, senior research fellow at Mercatus and the lead author of the study. “Anytime you do something like this you’re really trying to make a bet. And the risk factor here was not really emphasized.”
The analysis by Mitchell and his colleagues contains assumptions and contingencies: How important was Wisconsin’s subsidy offer in Foxconn’s decision to locate here? How much will Foxconn spend on its planned flat-screen factory?
But overall, the authors say the “most realistic range of estimates” indicates the Foxconn deal for the plant the company now is building will end up costing Wisconsin’s economy $1.2 billion to $6.0 billion over 15 years.
That would shave somewhere between two-hundredths of a percent to about one-tenth of a percent off what the authors estimate the state’s gross domestic product will total over the period.
A key takeaway, according to Mitchell: Descriptions of the economic effects of targeted incentives such as those Foxconn stands to receive typically lack context.
“They tend to, I think, dramatically overestimate the benefits from subsidies (and) they completely ignore the costs,” he said.
While the Foxconn deal has been sharply criticized by many as an extreme example of corporate welfare, Mitchell and his colleagues are hardly coming at their research from the left. The Mercatus Center is a market-oriented think tank with connections to the billionaire Koch family.
But criticism of targeted economic incentives “brings together interesting ideological…bedfellows,” Mitchell said.
“If you’re a free market person there’s reason to oppose favoritism on the grounds that it messes with the market process,” he said. “And if you’re a progressive there’s reason to oppose it because it favors the wealthy and well-connected at the expense of the poor and the unknown.”
With then-Gov. Scott Walker backing the package, the Legislature in 2017 approved up to $3 billion in special tax credits intended to spur Foxconn to build a $10 billion flat-screen manufacturing complex and create 13,000 Wisconsin jobs. Given the state’s tax policies for manufacturing, the vast majority of the credits actually are likely to be cash payments.
Foxconn has stuck by its 13,000-jobs pledge, but whether the firm ultimately captures anything close to the $3 billion is open to question. The initial deal envisioned that the company would build the largest and costliest type of flat-screen plant currently constructed, but Foxconn has scaled back those plans and now is building a significantly smaller factory in Mount Pleasant.

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