Wisconsin's Overhyped Foxconn Deal Keeps Getting Lamer By The Week

from the pray-I-don't-alter-the-deal-further dept

Last year, you probably recall that former Wisconsin Governor Scott Walker signed a "revolutionary" deal: the state promised Taiwan-based Foxconn a $3 billion state subsidy if the company invested $10 billion in a Wisconsin plant that would create 13,000 jobs. Walker hoped the deal would finally help cement job growth that he had been promising supporters for years, and the press was quick to hype the plan without really focusing too much on the math, or Foxconn's history of not really living up to similar promises in countries like Vietnam, India, and Brazil.

Quietly buried under the blistering hype (greatly fueled by the Trump administration), groups like Wisconsin’s non-partisan Legislative Fiscal Bureau began to point out that it would take until 2043 for taxpayers to recoup the subsidy. And as the finer details of the plan began to emerge late last year, the $3 billion subsidy quickly ballooned to $4.1 billion, leading some to point out that the math no longer made sense at all and, with an unemployment rate of 3.2% and a $100,000 per job subsidy, it was technically impossible for the massive subsidy to ever be repaid (in jobs, walnuts, or anything else).

Worse, as the project moved along and subsidies ballooned, the scale of the project began to shrink. An excellent report at The Verge last October noted how the original plan for a 20 million square foot factory that would build 10-foot by 11-foot panels for 75-inch TV screens, slowly shrunk to a Generation 6 plant that only produces 5-foot by 6-foot glass panels, and with original plans for $10 billion worth of investment (Foxconn's original promise) also shrinking to a $2.5 billion investment. Walkers response to the dubious deal was, it should be noted, that critics should "suck lemons":

"There’s a whole lot of people out there scrambling to try and come up with a reason not to like this,” he said in July of last year. “They can go suck lemons. The rest of us are going to cheer and figure out how we are going to get this thing going forward.” Several weeks later, he called the deal a “once-in-a-lifetime opportunity” that will be “transformational” for the state. “These LCD displays will be made in America for the very first time, right here in the state of Wisconsin."

About that. This week, a Reuters report revealed that the original plan for a massive factory bringing 13,000 jobs to the region had changed yet again. Now, Foxconn executives claim, there will be no factory or manufacturing jobs at all. While Wisconsin might get an engineering office, even that doesn't sound all that certain according to Foxconn executives:

"Now, those plans may be scaled back or even shelved, Louis Woo, special assistant to Foxconn Chief Executive Terry Gou, told Reuters. He said the company was still evaluating options for Wisconsin, but cited the steep cost of making advanced TV screens in the United States, where labor expenses are comparatively high.

“In terms of TV, we have no place in the U.S.,” he said in an interview. “We can’t compete."

Rather than a focus on LCD manufacturing, Foxconn wants to create a "technology hub" in Wisconsin that would largely consist of research facilities along with packaging and assembly operations, Woo said. It would also produce specialized tech products for industrial, healthcare, and professional applications, he added.

“In Wisconsin we’re not building a factory. You can’t use a factory to view our Wisconsin investment,” Woo said.

And instead of the 5,200 new jobs that were supposed to arrive before the end of 2020, the Reuters report is now saying those numbers will be closer to 1,000. Maybe? Who knows. Given its expertise in this subject, it's hard to believe Foxconn didn't realize all of this from the start, since the market hasn't magically shifted in just a year or two. Also keep in mind that while the project shrinks, taxpayer money has already been spent preparing for the factory's construction, including the demolition of some homes previously on the target site.

Given the incredible shrinking nature of this project it's also unclear (especially if you've listened to the excellent Reply All podcast on this subject) why anybody would believe anything being said now about this ever-devolving boondoggle.

Filed Under: factories, lcds, scott walker, subsidies, suckers, wisconsin
Companies: foxconn

The Foxconn Wisconsin Deal Has Devolved Into A Pile Of Shifting Promises, Buzzwords, And Hype

from the prey-I-don't-alter-our-deal-further dept

Last year, you'll recall that Wisconsin Governor Scott Walker signed what at the time was treated as a revolutionary deal: the state promised Taiwan-based Foxconn a $3 billion state subsidy if the company invested $10 billion in a Wisconsin plant that created 13,000 jobs. Walker hoped that the deal would finally help cement job growth that he had promised his supporters for years, and the press was quick to hype the plan without really giving it too much thought. Quietly, Wisconsin’s non-partisan Legislative Fiscal Bureau was busy pointing out that it would take until 2043 for taxpayers to recoup the subsidy, though that obviously took second fiddle to the hype of bringing American jobs back from overseas to focus on cool new tech.

But as the details of the plan solidified by late last year, the $3 billion subsidy quickly ballooned to $4.1 billion, and some folks quietly began to notice that the math really didn't make much sense:

"Wisconsin currently has an unemployment rate of 3.2%, so they are only so many workers available locally. Realistically, the payback period for a $100,000 per job deal is not 20 years, not 42 years, but somewhere between hundreds of years and never. At $230,000 or $1 million per job, there is no hope of recapturing the state funds spent from taxes on the company and its workers."

Many now doubt whether the subsidy will ever pay for itself. This week, The Verge offered up a new piece dissecting the deal and it's well worth a read. It notes that while the scope of the subsidies Foxconn would receive slowly ballooned, the promised factory Foxconn was supposed to build kept shrinking in size and scope. Instead of building 10-foot by 11-foot panels for 75-inch TV screens, Foxconn would be building a Generation 6 plant that only produces 5-foot by 6-foot glass panels.

Instead of a 10.5 plant needing $10 billion in investment (Foxconn's original promise), the Gen 6 plant actually being built requires about a $2.5 billion investment. And still, the scope of the promised plant continued to shrink:

"But Foxconn officials also said that the company was still committed to a $10 billion investment and 13,000 jobs, adding it might eventually add a Gen 10.5 plant, but it would get there in “phases.” The phases were not spelled out.

Just seven weeks later, in late August, the company announced the plans had changed yet again — far more radically. Woo told the Racine Journal Times that Foxconn would never add a Gen 10.5 plant to its Racine campus, despite past statements, because by the time it was built, the market would be glutted by other manufacturers in China."

Of course none of this should really be surprising, especially given that Foxonn has made similar, magically-shrinking promises of similar ilk in countries like Vietnam, India, and Brazil. And this is all before you seriously consider the environmental impact of the arrangement, which many aren't. At this point, the fading promises have become almost comedic in nature (if you ignore taxpayers footing the bill for the kerfuffle). Vast plans to build a major panel manufacturer plant with thousands of new jobs have been replaced by hype, buzzwords, and nonsense:

"Even the Gen 6 panels might not be manufactured in Racine for long. “We are not really interested in television,” Woo told the newspaper, though he said the company wants to build America’s first thin-film transistor (TFT) fabrication, which can be used in LCD products. Rather, Woo said, workers at the Wisconsin plant will be focused on figuring out new ways to use Foxconn’s display, cellular, and AI technology, building out an “ecosystem” Woo calls “AI 8K+5G."

We've already noted that 5G is important but violently over-hyped, and this idea of an "AI 8K+5G ecosystem" is largely meaningless (they really should have thrown a blockchain reference in for good measure). A May 2018 poll of locals found that 66% doubted the deal would ever actually meaningfully benefit the local economy, and the plan isn't having anywhere near the impact on polling that Walker had hoped ahead of the midterms. At this rate, Wisconsin will be lucky to see a few thousand jobs in exchange for an investment most objective observers doubt will ever actually pay for itself.

Filed Under: crony capitalism, factories, jobs, scott brown, subsidies, wisconsin
Companies: foxconn

Exploring The Factories Where All Our Gadgets Are Made

from the take-a-listen dept

This week is the big Consumer Electronics Show -- and, like many in the tech field, I'm here in Las Vegas exploring the various gadgets that are coming out. Many (some might say most, though I'm not sure that's true) of the gadgets here are made in China. So it's interesting timing that the always excellent radio program This American Life chose this particular week to run its episode on what happens in the electronics factories in Shenzen, China. Most of the episode involves a rather gripping story from storyteller Mike Daisey (who first came to fame almost exactly a decade ago talking about his life working at Amazon.com). Daisey's latest one-man show is all about Apple and Steve Jobs -- and this segment was adapted from a part of that show. The second act of the show involves This American Life host Ira Glass, looking to fact check many of the claims that Daisey makes -- many of which do, in fact, seem to check out. Of course, the two biggest companies at the center of the story -- Apple and the infamous Foxconn -- refuse to take part. The whole thing is worth listening to, in part because Daisey really is a fantastic storyteller (something I didn't think was true a decade ago, but as I think he's gotten progressively better over the years).

While I won't go into all of the details of the story, there were two separate points that I found especially interesting. The first was what maybe seemed like a minor aside in Daisey's monologue: that almost all the work done in these factories is done by hand. He noted that, in his imagination, if he ever really thought about these plants, he imagined them being like the robotic Japanese auto plants he'd seen videos about years ago -- only the robots would be smaller, since the gadgets are smaller than cars. But, the truth is that everything is done by hand -- and that's, in part, because labor is so ridiculously cheap in China. And then he notes that we always hear people who decry the fact that everything is mass produced by these machines, and clamor for handmade products. And he notes that, perhaps, we don't really want handmade products -- because all these gadgets really are handmade, and it's not a pleasant experience.

The second point, however, goes in a different direction. It comes during the "fact check" portion of the show, in which multiple observers -- including Paul Krugman and Nicholas Kristof -- note that, for as bad as the factories may seem relative to what we have today in the US, the conditions and opportunities are significantly better than where those workers came from. Furthermore, another commentator notes, over the last few years, conditions at these plants has been improving -- and it isn't necessarily because of pressure from companies or the government instituting any kind of labor reforms. It is, instead, because competition for workers has increased -- and turnover is massive: in some cases upwards of 20% per month. That's an insane level of turnover -- and a costly one. Even in a "sweatshop" type setting, the costs of replacing a worker can be high, and the end result is that these companies do have incentives to improve, and to offer a better deal and better conditions in factories. None of this is to excuse the dangerous working conditions (in some cases easily avoidable), the physical neglect of employees, or the occasional employment of under-age workers. But it does make you wonder what the "solution" to all of this would be. Daisey says the answer is labor standards -- and that may very well be a workable solution. But it might also mean that some of the workers, who start from the same place as those who were able to build themselves up from incredibly poor to a form of middle class, might never get that chance.

It's a situation where there certainly aren't easy answers. Personally, I think that if there were more transparency (and perhaps shows like this one can help), that could drive social pressure to improve the worst of the worst working conditions, as companies should be reasonably ashamed for abusing their employees'. And that level of transparency itself can come from social pressure. Indeed, while Apple and Foxconn refused to take part in the show, Apple (at least) has been continuously pressured to be more transparent about these things, and (as the episode notes) in some ways it does do a lot more than other companies -- though many would argue not nearly enough. In the end, hopefully pressure both from competitive forces for workers along with public pressure to stop horrible treatment can lead to a situation where the conditions in these factories really do significantly improve. And maybe, in the end, that actually does lead to more automation, and the miniaturized robotic automobile factories Daisey imagined. And then people can really complain about a lack of handmade goods. But, it might just be better for the employees themselves in the long run.

Filed Under: china, factories, manufacturing, mike daisey
Companies: apple, foxconn