Foxconn’s Wisconsin factory never made sense

More than a year after committing to build a $10 billion factory in the state of Wisconsin, Foxconn threw in the towel on the “factory” concept yesterday, telling Reuters that the company now thinks it will be too expensive to manufacture LCD panels in Wisconsin as initially intended.

A Foxconn source also told Reuters that while it initially planned to hire 5,200 workers in Wisconsin by 2020, the company now expects that number to be closer to 1,000 workers. The Apple supplier said it still intends to hire for the 13,000 jobs it previously committed to in Wisconsin — but that the majority of those jobs will be in research and development, as well as packaging and assembly operations.

In a statement to CNN Business, Foxconn said that “we remain committed to the Wisconsin Valley Science and Technology Park project, the creation of 13,000 jobs, and to our long-term investment in Wisconsin. The global market environment that existed when the project was first announced has changed. As our plans are driven by those of our customers, this has necessitated the adjustment of plans for all projects, including Wisconsin. While the project’s focus will be adjusted to meet these new realities, the Wisconsin project remains a priority for our company.”

Wisconsin lawmakers failed to do their basic due diligence in offering a huge incentive package — one that totaled around $4 billion by the time the ink dried — to a company that has a history of reneging on its promises to build factories. But even setting that aside, the Foxconn deal was perplexing from the start. In their rush to take credit for bringing “high-tech, high-paying” jobs to the state, lawmakers cooked up a jobs package that didn’t even make sense for the area.

When Foxconn announced the deal in July 2017, the company said the facility would initially create 3,000 jobs, with an average wage of $53,000 per year plus benefits. That’s a good wage — but was only about 50 cents more per hour than the average wage in Wisconsin at the time. And Wisconsin’s state unemployment rate at the time was just 3.3 percent — the lowest it had been in a decade. Foxconn was going into a tight labor market and offering a wage that wasn’t all that enticing. No wonder Foxconn reportedly had trouble finding enough qualified applicants at a series of local job fairs.

For all of those good but not exceptionally well-paying jobs, Wisconsin would have paid Foxconn about $230,000 per job. That’s because then-Gov. Scott Walker’s thesis was that the new Foxconn factory would usher in the creation of a “Wisconn Valley.” Foxconn’s presence would attract suppliers and new tech startups, and serve as the pillar for a new high-tech manufacturing hub. But Gov. Walker’s thesis ran counter to all of the evidence of the lessons offered by U.S. tech ecosystems like Silicon Valley — most companies here don’t place their R&D operations in the same locales as their manufacturing operations.

But probably the worst part of the whole deal was that Foxconn decided to build its new plant in a place that was clearly not equipped to handle thousands of workers. Foxconn settled on Mount Pleasant, Wisconsin — a “village” with 26,000 people. Mount Pleasant’s location was desirable in that it’s a halfway point between Milwaukee and Chicago — meaning that there is a large talent pool nearby. But Foxconn also faced an uphill battle in that workers who prefer living and working in urban areas had two better options to choose from.

Additionally, building a large factory in a small area required expensive infrastructure investments that wouldn’t have been necessary if Foxconn had chosen a more practical area. The roads around the proposed plant had to be widened in order to make room for the theoretical increase in traffic and semi-trucks transporting goods. Homes had to be torn down in order to make way for the factory and to do so, the Mount Pleasant Village Board decided to use eminent domain, which allows local government entities to seize land for public use.

Typically, the government has to compensate landowners; however, the Village Board decided to declare some of the properties blighted — meaning that they believed the properties were in such bad shape, they didn’t need to pay the homeowners. In retaliation, homeowners filed a lawsuit, though Mount Pleasant was able to buy out at least four of those landowners in exchange for dropping out of the lawsuit.

If there’s no manufacturing being done, it begs the question of why Mount Pleasant needed to move heaven and earth to get land for Foxconn. If Foxconn ends up bringing mostly office jobs, couldn’t it have found vacant office space in the area?

In a way, the Foxconn saga has almost run counter to the Amazon HQ2 deal. While both companies have scaled back on the number of jobs initially offered, Amazon at least admitted before striking deals with cities that there wasn’t enough talent to bring the number of jobs initially promised. It decided to go with two metro areas — New York City and Washington, D.C. — that it figured had the best chance at providing enough workers at the skill level it needed. Meanwhile, Foxconn continues to try to squeeze an obscene number of jobs into an area not equipped for it.

Now, Foxconn says that the majority of the 13,000 jobs it brings will be research and development jobs. And not all of them will go in Mount Pleasant which, in partnership with Racine County, offered $764 million in tax credits to get a Foxconn facility constructed in the area. Economists point out that few companies, or even research universities, have R&D divisions that big. If Foxconn doesn’t bring the promised number of jobs, it won’t get the entire $4 billion subsidy package, but there are some tax credits — like one for capital investment — that it appears the company will still receive even if it brings fewer jobs.

Foxconn has committed to creating a Wisconsin-focused venture fund, as well as investing $100 million into a research facility at the University of Wisconsin-Madison — but the original vision of making Wisconsin the center of high-tech manufacturing in the U.S. will almost certainly not come to fruition. At best, Foxconn becomes one of many corporate pillars in Wisconsin, but not the singular driver of tech growth in the state.

While there’s plenty of reasons to argue that states should avoid offering incentive packages to individual companies altogether, Wisconsin’s Foxconn debacle offers up another lesson: Bigger jobs announcements aren’t always better. Give a large number of tax breaks to a company that promises to bring an unrealistic number of jobs to your area, and you’re more likely than not to wind up with egg on your face.