Sunday, March 10, 2019

Sunday reading - how Foxconn scammed GOP politicians, and Wis taxpayers

Been picking up the pieces at home after a week of vacation and yesterday's icy mess. But wanted to forward a long, in-depth article on the state of the Foxconn project from Lawrence Tabak. And as the headline suggests "It won't leave Wisconsin, but it won't build what it promised."

Tabak speaks to numerous sources, and the common theme is that the Racine County site will make very few products for Foxconn, if any at all. Despite that, the company has benefitted from major taxpayer-backed spending based on the original plans of a mega-factory.
The municipalities of Mount Pleasant (population 26,000) and Racine County are already hundreds of millions in debt building multilane highways, laying the pipeline for up to 20 million gallons a day of Great Lakes water, and creating the substation and power lines necessary to provide electricity to what they had envisioned to be the largest factory in Wisconsin — almost a mile long.

While the public infrastructure is impressive, Foxconn's contribution has been considerably less so. To date Foxconn has built one “multi-purpose” warehouse-like building, not big enough to fit a Costco store. Its hiring in Racine County has been anemic. The projected 10,000 construction jobs have been counted as 854 as of the end of 2018, most of them hired by taxpayers, not Foxconn. This winter’s heavy infrastructure work is driven by government, not Foxconn. Recent reports indicate that Foxconn has yet to file for permits for its long-planned and more ambitious second building, making a spring construction start unlikely.

While there's quite a bit in the story about how the state of Wisconsin and the local communities are likely to be facing massive sunk costs of infrastructure and other subisidies for Foxconn, there's one part in Tabak's story that seems even more damning about how badly we've been played in Wisconsin. It uses insight from Chinese experts who realize that Scott Walker, WEDC, and other GOPs got sucked into Foxconn's game, and have no clue how to play it.
How Chinese business negotiation practices might have tripped the inexperienced hands on Wisconsin’s team was detailed in a paper by Lieh-Ching Chang, associate professor of business at Hsuan Chuang University: “When negotiating, they (Chinese executives) are used to double-dealing or saying one thing while doing another.” Moreover, he wrote, “they will frequently go back on their word or set traps for their opponents.”

Another aspect of cultural difference was the focus of an article from the Journal of Business Studies Quarterly in 2013: “Doing Business in China: What is the Use of Having a Contract?” It details how contracts in China lack the same binding effect as in the West. For instance, in China, where Gou has placed the vast majority of Foxconn assets, Chinese businesses expect terms to be renegotiated when economic conditions change.

Deb Weidenhamer, an American with extensive business experience in China, wrote a column for The New York Times suggesting contracts are only a starting point for the typical Chinese executive who believes “a win-win deal is considered impossible.” The Chinese believe “that there can only be one winner and one loser — and that foreigners aren’t as clever or as capable.”
I think we see the winners and losers here.

So what Tabak figures is that it will eventually be in FOXCONN'S best interest to try to renegotiate the deal, in order to grab more of the WEDC job subsidies they won't reach. Which is why it's in Wisconsin's best interest to have Governor Tony Evers rip up the contract entirely by suing in court, since Foxconn isn't going to build the products or type of factory they promised.

At that point both sides can possibly reach an agreement where Wisconsin cuts Foxconn a check, have them GO AWAY, and the Racine County site can actually be put to a better use, without all of the environmental deregulation or massive tax giveaways. But the locals still have years of debt to pay back, which likely means that long after Foxconn has gone from the state, and long after the GOP politicians that made the deal are out of office, those areas will be on the hook for this albatross.

This is what happens when you base an economic strategy on media headlines and desperate attempts to gain votes, instead of thinking about if the move is cost-effective (both long-term and short-term), if the project will work, and what the precedents of such a deal are. Which makes me wonder why the recalls and the tar and feathers aren't flying on local officials in Mount Pleasant and Racine County, along with state politicians like the Assemblyman who "represents" the district that this shrinking, subsidized project is at - Robbin' Vos.


  1. There must, must, be a way to file suit against Fox Conn for beach of contract. I hope our Attorney General is exhaustively researching the state's recourses.
    Vos, weasel that he is, will claim it was the lawsuit itself that stopped FoxConn from completing this ludicrous giveaway to a company with a history of double-dealings, and not the shoddy wording of the contract itself.
    The Badger State's Republi-con legislators are equal measures of incompetence and corruption.
    This is "Dairyland Greyhound Racing" on steroids!

  2. Matt Flynn, former Dem state chair, a Milwaukee lawyer, and a Democratic candidate for governor in the 207 election, has explained how Foxconn could be sued. I think there's a transcript of a long interview he gave on this subject over at WRRD-AM 1510's web site. That's a left-talk Milwaukee station. Or it may be available at the site of the particular program, "The Devil's Advocates."