Saturday, May 12, 2018

"Foxconn will lose jobs?" Possible, while our taxes go into the pockets of Walker donors

I wanted to forward you to a great column by UW professors Charles Kroncke and William Holahan that appeared in Urban Milwaukee yesterday. The column is provocatively titled "Foxconn Deal Will Actually Lose Jobs," and starts with the assertions made by a consultant hired by the Walker Administration last year, who claimed that up to 13,000 jobs would be created as a result of the Foxconn project.
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.
This is a point that voters seem to understand, but our media often doesn't mention. Funneling money and other resources down to Foxconn to upgrade their roads and infrastructure takes away money and job opportunities from the rest of the state.

Kroncke and Holahan continue by noting that sending out bags of cash to a corporation means that Foxconn will get the benefits of taxes all to themselves, while the Wisconsinites that actually pay for the taxes lose their opportunity to benefit from goods that everyone can utilize.
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.
Which brings me to the PR events Walker, Foxconn and WEDC pulled this week to commemorate the first $100 million of Foxconn contracts. It was a transparent campaign event to try to convince Wisconsinites that firms in other parts of the state will benefit from Foxconn. In addition to the fact that 23 of these 28 contractors were in SE Wisconsin and Illinois, what's not mentioned is that this inevitably pulls these firms off of jobs in their own home areas. And that will drive up prices for those projects, if they even come off at all.

Let's also talk a bit about those contracts. They were handed out by the contractor Foxconn chose - M+W Gilbane, a Walker/WisGOP mega-donor who One Wisconsin Now reported that Gilbane has given over $359,000 to Walker's campaigns over the years. And if you go to the Wisconsin Democracy Campaign's database of donations and plug in the names of some of those contractors, you'll see quite a few donations headed to Scott Walker and other Republicans. This includes Michels Corporation in Waukesha and Hoffman Construction in Black River Falls, both of whom Walker visited last week as part of this PR campaign.

All of those contracts seem to have been handed out without any documented public bid process, under the guise of the Foxconn facility being a private project. But because Foxconn is heavily subsidized by taxpayers, shouldn't the fair, public bid process be followed, and shouldn't the public have a chance to find out who their tax dollars are going to before they're handed out? We'd never accept a multi-billion dollar government project being done on a no-bid basis, but the Fox-con sure seems to be doing that. And what kind of criteria is being used to select which companies get these lucrative projects?

We'll send your money to whoever we like

As Holahan and Kroncke note at the end of their column, the Foxconn boondoggle is a lot of things, but don't call it free-market capitalism.
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.

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