back to article Wisconsin advances $3bn bribe incentives package for Foxconn

Wisconsin has moved forward a $3bn incentives package to lure manufacturing giant Foxconn to the US state. Governor Scott Walker (R) said the gift would cement the Taiwanese goliath plans to build a $10bn manufacturing plant in Wisconsin that would be charged with assembling LCD screens. The proposed plant is set to employ …

Anonymous Coward

Time to boycott Foxconn?

Shouldn't be too difficult, there hasn't been a compelling reason to buy a new smartphone or laptop for the past 5 years.

I mean, have you seen the Essential Phone? You can "essentially" count on me never buying it.

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Anonymous Coward

Re: Time to boycott Foxconn?

I'm actually quite liking the essential phone, ticks all the right boxes to fix the Nexus void that pixel didn't plug.

What exactly is your problem with it?

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$230,000 a head

Except of those 13,000 workers 10,000 are in construction.

And of those construction 'jobs' you count each contracted out person as a job everytime you use them. So every truck movement that closes a road counts the driver, operator, flaggers etc.

So the 10,000 construction jobs are more like 1000 FTE for 1 year.

Luckily those 3000 permanent jobs are all full time Apple product designers being paid $250,000/year - that way it will only take 60years to recoup the $1M for each job from state income tax.

Or another way of looking at it, every resident of the state just paid retail for an iPhone.

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Re: $230,000 a head

I don't think it is a sure thing that plant will end up making iPhones. Foxconn makes a ton of stuff, and unless they are ready to almost completely automate the manufacture of an iPhones that's not an option for this factory. I think it is more likely it will make LCD panels.

If it ever materializes, that is. Foxconn had plans a few years ago to build a factory in the US (in Kentucky I think) and got approved for big tax giveaways like this, but it never happened. So I wouldn't consider this a sure thing until the building shell is complete.

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Re: ..wouldn’t consider it a sure thing

It’s the Chinese way of business. See what is put on the table; bank it; then ask for more... ad infinitum.

And when it is built, who knows? Having got all the freebies Foxconn may find it financially advantageous just to flip the project to another manufacturer. It wouldn’t surprise me if they already shook hands on such a deal with a smaller player which does not have the clout to get the freebies. One of their hungry sub-contractors, for example. Win-win except for Wn.

- End of Asian Business 101.

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Re: ..wouldn’t consider it a sure thing

It’s the Chinese global way of business.

$8.7bn to Boeing to keep building the 777 in Washington

https://www.washingtonpost.com/blogs/govbeat/wp/2013/11/12/washington-just-awarded-the-largest-state-tax-subsidy-in-u-s-history/

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Re: $230,000 a head

I think it is more likely it will make LCD panels.

Isn't LCD panel manufacture a largely automated commodity business these days?

It's hard to see how that would provide the10,000s jobs with 6figure salaries to justify this level of state incentive

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Re: $230,000 a head

Apple product designers? More likely low skilled factory labor making $40k/year.

It would have been a much better use of that money to offer free retraining for the unemployed.

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Anonymous Coward

Re: ..wouldn’t consider it a sure thing

It’s the Chinese way of business. See what is put on the table; bank it; then ask for more... ad infinitum.

The irony is that that is NOT the Chinese way of business - this is the US way by paying money that is not theirs (it's the taxpayers) to gain an alleged, mostly political benefit for nobody but the, well, perpetrators is probably the most accurate word. Trump & co are so desperate for a win that they're willing to pretty much throw money away for something that looks good in the press for a bit versus ACTUAL volume job creation.

I cannot blame Foxconn for taking advantage of this, but the Chinese tend to plan more long term. The locust alike model is more a US thing. The only Chinese aspect in here is that they are very good deal makers of an ilk that would leave Trump only with his underpants because the sight would otherwise be too much to bear.

It would benefit the region more if they started working on programmes to upskill the region - heck, they could add the equivalent of a year's pay to it and it would STILL be a more effective and less wasteful use of money, and probably cost less.

What the politicians have done here is bring over a business whose business model is quite simply not economically sustainable long term. Foxconn relies on at best medium skilled workers at low salaries, salaries that are not going to work in the US (unless, ironically, they are foreign workers).

This will not benefit people because it won't offer a salary that allows economic growth and it won't help the region because it blows a shocking amount of tax money on something that may even falter before it's been established, tax money that will not even stay in the country. The economics simply don't add up.

Basically this is blowing a fortune on buying a few points for an election, it is not going to benefit the people who live there.

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Re: $230,000 a head

Nobody said it would make Iphones. The stated purpose of the plant is to make LCD displays. It's vaguely possible they will make Iphone displays, but the general indication has been that we're talking TV and Monitor panels. I live in Wisconsin and we're pretty much in the dark about everything except that it's gonna cost us a lot of money and we may make it back in 25 years if everything goes right.

I'm not convinced the plant will actually materialize. Foxconn is promising investments all over the place that are more money than they have ever invested in the past. For a continuing story of the Foxconn story in the state, I've got a page at https://www.wis.community/politics/politics-news/foxconn-or-fox-con-foxconn-story-wisconsin

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Re: $230,000 a head

The only way Foxconn will make displays for iPhones is if Apple wants to keep the technology they are using to themselves. That could be the case if their Luxvue purchase bears fruit - they claimed to have cracked the problem of making inorganic LEDs (aka microLEDs) Those are brighter, lower power, wider gamut, more accurate - pretty much better than OLED in every way and better than LCD in the few ways that's better than OLED as well.

If they make TV panels it will probably be for private label TVs for companies like Walmart, Costco, Best Buy etc. so they can advertise "made in America". That's the only way that all the Japanese and Korean made TVs we have now aren't replaced by Chinese made TVs in a few years. The Chinese are killing the others in price, and now they're starting to make OLED TVs which doesn't bode well for LG and Sony maintaining their price premium.

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Re: ..wouldn’t consider it a sure thing

Philip, you are somewhat naive. It's called rampant capitalism.

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FAIL

Re: ..wouldn’t consider it a sure thing

"It’s the Chinese way of business. See what is put on the table; bank it; then ask for more... ad infinitum."

Anyone noticed the elephant in the room?

Foxconn is Taiwanese, unless you are referring correctly to it as the Republic of China rather than the Peoples Republic of China, which most people refer to as "China"

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Re: ..wouldn’t consider it a sure thing

I did not say People's Republic of China or Taiwan or China. You did.

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Wouldn't it be funny if it was staffed with non-Wisconsin residents?

https://www.cnbc.com/2017/08/17/wisconsin-lawmakers-debate-billions-in-incentives-for-foxconn-plant.html

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Milwaukee, in the same part of the state as the proposed plant, has a huge number of illegal aliens. And they work cheaper than Americans.

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Er.... But.... Isn't LCD a thing of the past?

and eveyone (and that includes you Apple) is being dragged into the LED generation?

By LED I mean OLED or MicroLED or some new fangled LED Technology.

So all that taxpayers money will end up offshore and all they'll have to show for it will be a huge empty building with the words 'Suckers' written in Chinese and taped to the front door.

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Re: Er.... But.... Isn't LCD a thing of the past?

I've seen that before. The British government paid Chunghwa Picture Tubes £20m in 1996 to open a factory in Scotland to produce CRT monitors, just as LCD screens were coming on to the market. It opened in 1997 and closed down in 2002.

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Re: Er.... But.... Isn't LCD a thing of the past?

LCDs still totally dominate for TVs volume-wise because of price even though they are superior to all LCD/LED TVs. Plus AFAIK there are zero OLED laptop displays or monitors. Smartphone displays may be large volume wise, but LCD and OLED panels are manufactured in giant "mother glass" panels and cut to size. One TV display is equivalent to 100 smartphone displays in area, so in terms of manufacturing LCD/OLED panels TVs are where the volume is at.

Sure iLED/microLED technology will eventually replace both LCD/LED TVs and OLED/AMOLED smartphone displays, but that technology isn't here yet.

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Re: Er.... But.... Isn't LCD a thing of the past?

"there are zero OLED laptop displays"

There's the Alienware 13 for a start.

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Anonymous Coward

Re: Er.... But.... Isn't LCD a thing of the past?

" Plus AFAIK there are zero OLED laptop displays or monitors."

Now presuming you mean generic monitors rather than laptop monitors, but they are out there.

https://www.sony.co.uk/pro/products/broadcast-products-professional-monitors-oled-monitors

Dell made one earlier in the year, but has been discontinued.

Also at those specs and resolutions, there is almost nothing between a Monitor and TV.

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Unhappy

That's a shedload of money. The obvous question "is it worth it"?

True answer.

It depends.

Construction jobs. How long? 1 year.

The actual permanent work force. How big? Average pay?

Knock on supply chain jobs. Sourcing components from US suppliers. How many? Will they use US?

Of course if you mean if you count the effect on the D's "industrial policy" it's going to be Yuuuuge.

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Anonymous Coward

Re: That's a shedload of money. The obvous question "is it worth it"?

And also cost in the gain from local taxes and purchases over several years.

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Facepalm

I'm truly speechless at such folly

See title.

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Thumb Down

Assembling not manufacturing

I.e. final assembly, a big difference so as Blank Reg said, low skilled $40k pa jobs.

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Re: Assembling not manufacturing

$40k ? A bit better than the chinese employees then, who only get $5k.

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Indeed

I really cannot see how Foxconn is going to set up a plant for anything when even illegal aliens in the US will cost it twice as much as what it pays where it is now.

Either that or my next screen is going to cost me €7000. If that's the case, it'll have to wait for me to have saved up the money first.

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Anonymous Coward

Re: Indeed

Avoids import taxes and logistics and makes the patriots be proud to have an "Assembled in the USA" sticker, which in reality means a few parts were snapped into place and then boxed up.

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"Incentives"

It really depends what the incentives are.

If its a straight cash grant, then all the above comments apply.

If its tax cuts of various kinds then they don't. If the decision on where to locate the factory is influenced by the tax regime then tax breaks makes sense. If they levy full tax then the result is not that they get the full tax load from Foxconn (as implied by "it will cost X to get the money back!"), instead they will get no tax at all, and no jobs from Foxconn either.

Likely its some combination, but seeing tax breaks as "the government paying a company" wilfully misrepresents what tax is and how it works to the point of deception.

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Re: "Incentives"

Well -- it's refundable tax credits. The problem being that Wisconsin ALREADY lets manufacturers pay 0 taxes due to a previous tax cut. So --- it's mostly just money given to Foxconn as cash.

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Protectionism

Foxconn see the writing on the wall for a dose of US protectionism - and get Americans to pay to help them overcome it.

It's becoming painfully obvious where the best business brains are these days (Foxconn is Taiwanese I believe).

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Socialism

Government (public) money being given to 'create jobs'. Sounds communist to me. Or rather, socialism for the rich.

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As U.S. subsidies go, this is peanuts. If you apply the same critical standard to our $1T per year education system ('What else could we have done with this money?'), you'll find at least $300B in annual spending that can't be justified by its economic impact or other social gains.

Would you rather have healthcare or another twelve gender studies majors?

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Bronze badge

No, bribe IS the correct term. OR call it what it really is - EXTORTION. For 20 years I sat on a county tax incentive review council and in all of the hundreds of incentives we reviewed, perhaps a handful could justify the tax loss. One prime example - Ford wanted a 75% break on a $125M investment, a savings of under $200K a year. They claimed without it, they'd build elsewhere. The only other plants in the world that could build the trannys were in Bordeaux and Brazil.

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Joke

The only other plants in the world that could build the trannys were in Bordeaux and Brazil.

Ford are now doing gender-reassignment surgery? That's serious diversification.

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Anonymous Coward

Whatever way you cut it

This is a win for Trump.

Anything else is fake noos.

Making America great again is easy

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Scott Walker is a criminal piece of garbage

Wisconsin should be kicked out of the union if they keep voting Republican criminal pieces of garbage like Scott Walker and Paul Ryan into office. How stupid can these people be? And they even voted Walker back in after a recall election.

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Re: Scott Walker is a criminal piece of garbage

Of course they vote for them - they may be a bunch of criminally corrupt scum, but they're OUR criminally corrupt scum.

I came across the same thing in Ireland. Chatting to a couple of people in a pub in the North-West, after the latest scandals involving one of the local TDs, and they said, Yes, he's as crooked as a paper-clip, but he's a great TD - you want to get planning permission for another hideous bungalow where it's not allowed? Have a word, and he'll sort it. You want tickets for the game? He can arrange it. I'm not sure now, but they may have even suggested he had undue influence over decisions by some of the local Gardaí. They didn't want an honest TD, they wanted someone who REALLY works for them!

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Good Work

One of my heroes was E F Schumacher, the economist (Small is Beautiful etc). So right on say many things. In one of his books, called 'Good Work', he suggests that the capital cost of creating a new job shouldn't be more than one year's salary for that job. I'd be interested on his take on chip and LCD screen factories!

Obviously it makes economic sense for Foxconn to create 1000 new jobs (or whatever) for $x billion, but they aren't in the job-creation business. If they could build a factory that needed no humans they'd be even happier.

As a global society we need to really get to grips with this problem. Putting in $230,000 of public subsidy for each job is insane. Why not use that money to subsidise those people with $10,000 p.a. each for 23 years to create their own small business? It's a gamble, but will probably have a better chance of creating wealth in their society than bunging billions to Foxconn.

And as a footnote, I googled for the 'Good Work' book and this came up...

Amazon's Book Store. Everyday low prices and free delivery on eligible orders. ... A job in which there is no personal satisfaction destroys the soul. . Spooky, or what!

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Re: Good Work

"One of my heroes was E F Schumacher, the economist (Small is Beautiful etc). So right on say many things. In one of his books, called 'Good Work', he suggests that the capital cost of creating a new job shouldn't be more than one year's salary for that job."

The problem with the Schumacher approach is that you can't build a modern society using it. How much does a press tool cost? How much does a plant to turn out a new pharmaceutical cost? The last capital project I was involved in was small, cost around £250k and created 4 jobs. But it paid for itself in a year.

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Alien

Makes sense

There are broader perspectives at play here than the short-term financial. If Foxconn has a plant in the USA then the USA workers will develop and build the skills to compete with the Chinese giant at the inevitable point China loses its price advantage.

Generations ago the west was frankly retarded in its mission to hand out its innovations in return for some cheap labour allowing developing economies to compete on new features. If we like it or not they may not return the favour if the situation becomes reversed so it's basic BCM to ensure that you incentivise at pretty much any cost so there is at least parity of opportunity.

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How do you beat cheap labor?

That's easy. With free labor. Foxconn would build the plant anywhere they could bypass environmental restrictions. Wisconsin already agreed to that. After all, flooding the fresh water supply with gallium arsenide instead of coal related waste will poison 100 generations instead of 10.

Of course, Foxconn will abandon the factory in 5 years when the process changes enough that the clean room they build in Wisconsin is no longer viable. During that time, the government of Wisconsin will pay 100% of the wages. Of course all profits will be sent to China.

But by then Trump will either be out or reelected so he simply won't care anymore.

The only possible good things about this are that instead of paying welfare, we'll pay people $25 an hour to work in a basically toxic factory. Oh and it will lighten pollution related to shipping for a few years while bypassing any tariffs imposed on Chinese imports of LCD screens.

So... it's a big win all around.

Now if Trump can pay Chinese companies to make tooth brushes in America again, we can at least know that if we fall out with China, we can at least brush our teeth.

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Two things to add:

1: Wisconsin has a bit of a history of subsidizing ambitious projects with poor odds, the DeltaHawk diesel aero engine company being one example.

2: In the US, these projects often rely heavily on "tax increment financing," in which the subsidy comes in the form of reduced property tax rates. The remainder, if any, is often a loan.

If Foxconn builds a factory on low-value land, then even a reduced tax rate might still produce more revenue than the site did before the factory was built. If there are loans, they'll probably be similar to what Tesla received.

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I just double checked:

"The thrust of Walker's bill provides about $3 billion in refundable tax credits to Foxconn as long as they create jobs in Wisconsin. Under the bill, Foxconn also is eligible for lower utility rates and is exempt from sales taxes and environmental regulations during the construction of the 20-million square-foot campus it wants to build."

http://www.duluthnewstribune.com/business/technology/4311476-wisconsin-lawmakers-weigh-changes-foxconn-deal

To parse that out:

1: Credits aren't rebates; they're subtracted from Foxconn's Wisconsin state tax bill, which would be nonexistent without a factory.

2: The reduced power rates are a genuine subsidy, since most utilities aren't trying to increase daytime electricity sales.

3: Most environmental regulations in the US are federal, and Wisconsin doesn't have the authority to waive them.

4: If it's primarily used for construction materials, the sales tax waiver is similar to the tax credits. Wisconsin is offering to waive taxes on sales that would't have happened without the project. If Wisconsin's suppliers of building materials were swamped with orders, then there might be an opportunity cost, but the Midwest economy has been slow.

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