A few years ago, Nick Buchheit, a maintenance technician in southeast Wisconsin, started to notice a disturbing pattern. After working five years or so at a manufacturing plant, he’d reach what seemed to be a wage ceiling, around $25 per hour, and get laid off. It happened once, then twice: he arrived at a factory, learned the shape and rhythm of the machines, and designed a maintenance program to make things easier for everyone else. But once “everything’s already set up,” Buchheit told me, “they go back to the $18-an-hour guy.”
He had found factory work soon out of high school, in Janesville, a city that has come to symbolize post-industrial decline. In 2017, with a wife and two children to support, he realized, “I can’t go further without having a degree.” That year, Buchheit enrolled in a local community college, squeezing classes around his job at an injection-molded plastics company. It was around this time that Buchheit’s corner of the state began to get international attention.
Taiwan-based Foxconn, the world’s largest maker of electronics components, had selected Milwaukee as its North American headquarters and Racine County as the site for its first American plant, an LCD television-screen factory that would, as the Journal Sentinel reported, eventually “create thousands of jobs.” In exchange, Foxconn would receive the largest corporate-incentives package for a foreign company in US history—between $219,000 to half a million dollars for every position created, according to the independent research group the Wisconsin Budget Project.
It was an odd choice for a cutting-edge campus, and an extraordinary gamble. Though manufacturing still exists in the area, it tends to be low-tech, and the job market is tight: just 3 percent of the local population is unemployed. It wasn’t unusual to offer tax breaks to a major employer, but the Foxconn package was so big that special legislation was required (though the Republican-controlled legislature had no trouble passing the bill). Many Wisconsinites, however, were furious: there had been no public debate about such a generous handout. Meanwhile, local schools and state universities were suffering from years of budget cuts, and inner-city communities had been hit by rising levels of incarceration and long-term unemployment not reflected in labor statistics.
Then, in 2018, the controversy over corporate mega-deals went national. Amazon announced that it would build new secondary headquarters (“HQ2”), in Long Island City, New York, and Crystal City, Virginia, with the help of tax incentives, outright gifts, and environmental and land-use exemptions. New Yorkers rebelled, protesting the size of the deal and its lack of democratic process, as well as Amazon’s hostility to union organization. To everyone’s shock, Amazon responded last month by cancelling its plans for New York.
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With the Wisconsin deal continuing to draw skepticism, Amazon’s proposed HQ2 plan in Long Island City became the most hyped and hotly contested subsidy program in the country. In 2017, Amazon, like Foxconn, had solicited bids from all over the US and Canada, in search of the best combination of tax rebates, land grants, and worker-friendly infrastructure like mass transit and housing.
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New York is an immigrant-friendly, pro-union town: Why subsidize a company that does business with ICE and busts worker-organizing? In addition, the deal contained no provision for local hiring; nor was there a strategy to prevent the displacement that would surely result from a sudden influx of high-earners.
Seattle, Amazon’s hometown, was a cautionary tale: there, the company has long attracted criticism for causing gentrification and avoiding taxes—it paid zero federal taxes on profits of $11.2 billion in 2018. Last spring, Amazon threatened to stop construction on a new tower, unless the Seattle City Council repealed a tax on large corporations. Then, in late February, having won the repeal, Amazon stopped construction anyway. Bezos wants to eat the carrot and wield the stick.
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According to Timothy Bartik, though, an economist at the W.E. Upjohn Institute in Michigan, these big-ticket incentives packages only became common practice in the 1990s. Research by Bartik and others has shown that tax rebates and land grants seldom pay off. In a paper he authored last summer, he found that incentives were decisive in “tipping a location, expansion, or job retention decision toward that state or local area” in only 2–25 percent of the cases examined. “In the other 75 percent to 98 percent of the time, the same decision would have been made without the incentive.”
Proponents of subsidies note that most deals are structured to claw back benefits from companies like Foxconn and Amazon if intermediate goals—in hiring or construction, say—are not met. When advocacy groups in New York suggested, after Amazon’s retreat, that the $3 billion could now be spent on public services, the New York Times columnist Andrew Ross Sorkin responded with a tweet about a crisis in “financial literacy”: “Quick lesson: NYC wasn’t handing cash to Amazon. It was an incentive program based on job creation, producing tax revenue. There isn’t a $3 billion pile of money that can now be spent on subways or education.” Similarly, when I pressed the Wisconsin Economic Development Corporation and the County of Racine about Foxconn’s failure to meet its hiring goals, both agencies replied with a shrug: the company would be ineligible for subsidies through at least 2020—and that would change only when it met the agreed targets.
PG has another question – Do cities like New York and Chicago and Detroit and Racine need employers like Amazon?