In 2018, President Donald Trump teamed up with then–Wisconsin Governor Scott Walker (R) to offer $4.5 billion in subsidies and tax incentives to the Taiwanese manufacturer Foxconn in exchange for building a 20-million-square-foot factory in the rural community of Mount Pleasant.
“I think we can say this is the eighth wonder of the world,” Trump said at a groundbreaking ceremony in June 2018.
The project was supposed to employ 13,000 local workers, helping to make good on Trump’s campaign promise to increase the number of domestic factory jobs.
More than two years later, planners have flattened a residential neighborhood and built an unfinished data center and warehouses, which are a fraction of the size of the state-of-the-art LCD panel factory that was originally planned.
After Foxconn failed to reach employment benchmarks, Governor Tony Evers, a Democrat, who defeated Walker in 2018, clawed back some of the subsidies that his predecessor had promised. The major facility constructed by the company is one-twentieth the size of what was originally promised, and its planned use has changed from manufacturing to storage, according to an article in The Verge.
The Foxconn debacle is just the latest government-led development deal riddled with false promises in which the state provided the rich with giveaways and used the threat of eminent domain to push ordinary citizens out of their homes to benefit a private company. The Mount Pleasant neighborhood where the Foxconn factory was supposed to be built was flattened—questionably so, since the buildings that have been constructed occupy a tiny portion of the area that was demolished.
When Reason did a story on the project in 2018, Kim and Jim Mahoney were some of the only residents left within 1 1/2 square miles. They were fighting the local government, which was attempting to bully them into selling their dream home by threatening that the state would step in and force them out.
“How can they take my house? To me, it’s stealing,” Jim Mahoney told Reason in 2018.
The Mahoneys, unlike all their neighbors, managed to stay put, and today their house overlooks a warehouse and unfinished construction site. It’s unclear what ultimately will become of the project.
“You’re setting people up for failure if you encourage them to locate in a place where they fundamentally shouldn’t be locating,” says economist Matthew D. Mitchell, a senior research fellow and director of the Equity Initiative at the Mercatus Center at George Mason University. Mitchell, who co-authored a study on the Foxconn deal, says it’s a cautionary tale of what happens when politicians become private sector deal-makers.
“You’re not spending your own money and you don’t reap any upside reward from the benefits. So you have no incentive to minimize the costs and no incentive to maximize the benefits,” Mitchell notes.
“If a private entrepreneur went to you and said, ‘I’ve got this great plan. I would like you to invest $3.6 billion into my company. And here’s the best part, it would employ 13,000 people. Isn’t that awesome?’ You would say, ‘Why are you talking to me about the costs?'”
What the public doesn’t see at a ribbon-cutting ceremony is all the economic activity that will never take place because of the burden that taxpayer subsidies shift onto other businesses and activities. Mitchell estimated that the Foxconn deal contained $2.8 billion in outright subsidies. The taxation needed to fund those subsidies would have reduced Wisconsin’s gross domestic product by about $20 billion over that same period.
Using government funds to broker business deals remains popular among politicians. One survey of American mayors found that 84 percent favored using the government for targeted economic development.
“The very best thing that a governor could do is to announce that they will never, ever preside over any ribbon-cutting ceremony in which they subsidize a particular firm,” says Mitchell. Even though the economics don’t make sense, the political incentives encourage mayors and governors to “outbid” neighboring states to attract investment.
“There is a way to get around this that sort of appreciates the political economy of the situation,” Mitchell notes. “States could enter into interstate compacts with one another, whereby they agree to a mutually disarm in the subsidy war—’I’ll put away my subsidies if you put away yours.’ This is really the same kind of logic that governs things like the WTO, and it’s been extraordinarily successful.”
He emphasizes that the Foxconn debacle isn’t a story about Trump’s unique incompetence, as some critics portray it. It’s about the perils of government-led business deals, no matter who’s in charge and what political party they belong to.
Democrats in the Connecticut town of New London partnered with a Republican governor to seize the land of homeowners like Susette Kelo in order to then hand it over to the pharmaceutical giant Pfizer. The project was never built, leaving an empty lot where Kelo’s house once stood 13 years later.
In 1981, Detroit and Hamtramck, Michigan politicians partnered with General Motors to use eminent domain to displace more than 4,000 people in the predominantly immigrant neighborhood of Poletown to make way for a car assembly plant.
In 2009, the Obama administration directed a $535 million government loan to the solar manufacturer Solyndra to construct a manufacturing facility in California, but the company went bankrupt soon after, costing U.S. taxpayers more than half a billion dollars.
“Democrats were very enthusiastic about the subsidies to Solyndra during the Obama years, and they were very down on the subsidies to Carrier and Foxconn during the Trump years,” says Mitchell. “Unfortunately, I think that partisans see target economic development incentives pretty clearly when the other side is doing it, but they have an extraordinary blank spot when it comes to their own incentives.”
Produced by Zach Weissmueller; graphics by Isaac Reese
Photos: Mark Hertzberg/ZUMA Press/Newscom; Brian Snyder/REUTERS/Newscom; Mark Hoffman—Pool via CNP/picture alliance / Consolidated News Photos/Newscom; Yichuan Cao/ZUMA Press/Newscom; Brian Cassella/TNS/Newscom; Brian Cassella/TNS/Newscom; SMG/ZUMA Press/Newscom; DARREN HAUCK/REUTERS/Newscom; Kevin Lamarque/REUTERS/Newscom; Pete Souza/PSG/Newscom; Chris Bergin/REUTERS/Newscom; Brian Cassella/TNS/Newscom
Music: “Wonder” and Moment in Time” by Tristan Barton.