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Do Corporations like Amazon and Foxconn Need Public Assistance?

15 March 2019

From The New York Review of Books:

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.

. . . .

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.

. . . .

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.

. . . .

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.

Link to the rest at The New York Review of Books

PG has another question – Do cities like New York and Chicago and Detroit and Racine need employers like Amazon?

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20 Comments to “Do Corporations like Amazon and Foxconn Need Public Assistance?”

  1. Richard Hershberger

    “PG has another question – Do cities like New York and Chicago and Detroit and Racine need employers like Amazon?”

    New York and Chicago–no. Detroit and Racine–yes, but they can’t afford them. For that matter, price probably wasn’t really the obstacle. Amazon, after the flamboyant search process, ended up announcing the places you would have figured they would go anyway, absent a municipal shakedown. This suggests that all those other places were only in the discussion to drive up the value of the shakedown.

    • “This suggests that all those other places were only in the discussion to drive up the value of the shakedown.”

      Heh, sounds like those up-and-coming football players picking their college by the ones offering the better perks.

      Or by picking your job by who pays best for your services.

      MYMV and you get a good deal.

      • Well, football players don’t get paid for their work, so they can only choose their indentured servitude by the perks, who has the most gilded cage to serve out their sentence.

    • Not exactly.
      NYC only made the list because of the “shakedown” and, obviously, only barely. Thus when the deal looked shakey they shook it off. Less dogs, less fleas.

      Arlington wasn’t an early contender either but they jumped to the top because of all the empty, pre-built office space.

      Go online and look at the handicapping from the initial HQ2 announcement and the consensus picks were Austin, Research Triangle, and Toronto. NYC was nowhere to be found. So no, they weren’t going there “anyway”.

      The early leaders were eventually bypassed because they needed new offices to be built, like NYC, and were outbid. Amazon the company obviously didn’t “need” the incentives but just as obviously, the HQ2 project needed them to be viable in NYC. Otherwise they would have stayed.

      Wait a year and see where Amazon takes the rest of the jobs before saying they were going there anyway.

    • San Jose (where they would be nothing special) refused to offer any money, and that pretty much deep-sixed their offer.

  2. What public assistance?

    NYC is higher than most at taxing – making other places look a lot better for any business thinking of moving/adding on. Like rent in some places, they’ve priced themselves out of the market.

    So NYC offered to reduce its taxes (for a while) to help level that tax field, Amazon thought that with a lower tax NYC was worth looking into.

    When some of NYC then decided to show Amazon that they weren’t welcome, Amazon thought it a good idea not to bother with dealing with NYC.

    (from the sounds of it, 70% or more of NYC wanted Amazon, but it only takes one bad apple to make someone decide the whole barrel might not be worth buying into …)

    I did like this spin bit:

    “In the other 75 percent to 98 percent of the time, the same decision would have been made without the incentive.”

    If that were true for NYC, that Amazon would still be moving in, but they ain’t so I’m guessing not.

    MYMV and your rent not go up! 😉

  3. I’m a Chicagoan, but from what I’ve heard of current-day Detroit, they might bite on a deal like that. We here don’t need them. We have sufficient corporate grifters (Boeing, anyone?) to get along for now.

    • Deb Kinnard, IME corporations are amateur grifters compared to Chicago’s politicians. In Chicago, if you ain’t cheatin’, you ain’t tryin’.

  4. The way these deals work is pretty straightforward:

    “If you come here and generate xxxxxxx tax-paying jobs you’ll get a discount on the taxes you won’t be paying if you don’t come here and instead go to Texas.”

    Take away the incentives and most of those projects would go to Texas or Florida. And, in fact, they are going there.

    Try this:

    https://www.youtube.com/watch?v=i61O-uTCy_k

    Its a Czech channel, BTW, so they don’t care beans about blue vs red.

  5. Do cities like New York and Chicago and Detroit and Racine need employers like Amazon?

    Depends on the cities’ objectives. Needs are a function of objectives

    • Well, I’m not sure about Racine, but the other three need as many jobs as they can scrounge up as their worming population and tax bases are all declining.

      But yeah, maybe one of their objectives is steering straight into Chapter 9.

      • Their what population? Do you mean the dead? Several years back a Detroit columnist wrote that even the dead were fleeing Detroit — people were exhuming the bodies of their relatives and moving them to different cemeteries in, I assume, nicer locales.

        Otherwise I’ve got nothing.

        • Rats!
          Stupid autocorrupt system strikes again.

          Working population, of course.
          With auto plant closures a major culprint.
          (No, I wasn’t referring to the voting dead. That is traditionally a Chicago and N’Orleans specialty.)

          (For some reason if you type “working” into my Fire10 tablet, the leftmost option is “worming”. Autocorrupt preferred it to what I typed. Dunno why.)

          • Gotta love auto-correct’s idea of making jokes. 😉

          • Oh! Working! That should have occurred to me. Yes, I know all about trying to comment on a Fire tablet. Which is why I avoid it as much as possible. The Fire’s auto-correct is just weird.

      • Many in NY and Seattle apparently have an objective of freezing neighborhoods in place and preventing the cyclic change that has characterized cities forever. So, bringing new buildings, people, and jobs to an area is opposed.

  6. New York City and Chicago certainly do not need Amazon as an employer. However many other cities and states do. Unfortunately, Amazon won’t go to those places. One thought: Perhaps Bezos picked Virginia and New York because they’d be convenient for his trips to the East Coast. The Washington,DC–NYC axis. Too bad, because places with higher unemployment rates and low per-capita income sure could have used those jobs. This is now just another chapter in the ‘Great American Divide.’

    • There is that; proximity to a major airport (in time as well as distance) was a stated requirement.
      He also owns a big home in DC and he cut his teeth on Wall Street so he has fond memories of the NYC of 30 years ago.

      It is easy to visualize a scenario where NYC was an also ran from day one, despite the incentives, but Bezos overruled his team. Then when it started to go south (in more ways than one) he admitted the team was right, he was wrong, ditch it.

      Today’s NYC isn’t the NYC he remembers under Koch and Dinkins. Maybe Giuliani.

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