Here & Now

Foxconn in Wisconsin: Why Deal Worries This Economics Expert

Frederica Freyberg:

In tonight’s closer look, we go to Beijing. That’s where we caught up with an economic development expert in China who advises clients on foreign technology strategy and acquisitions. He is very familiar with Foxconn and its chairman. He’s also very familiar with Wisconsin, having attended college and law school here. Also working here for many years, including as chair of the Wisconsin International Trade Council. In a Skype interview we started by asking Einar Tangen his reaction to Wisconsin landing Foxconn.

Einar Tangen:

I think it can be treated, if it’s going to be forward, as an opportunity. The corridor between Milwaukee and Chicago has been too long overlooked. It could be the next site of a very, very good tech corridor that could help both Wisconsin and Illinois develop their attributes. This is a wonderful area. We’ll see how it develops.

Frederica Freyberg:

Do you think Wisconsin has the technologically trained work force for this kind of operation?

Einar Tangen:

Not currently, but you do have resources. Quite frankly, I would advise that Wisconsin get together with Illinois on this particular project because a lot of people from Illinois are going to be filling the gap that exists in these areas. These are areas where, you know, traditionally blue collar industries, some tech, but very, very small, certainly not enough to fill the gap here. I would expect people coming up from Illinois, northern Illinois, coming there to work. Illinois obviously has a very large tech corridor between the universities in Wisconsin and Illinois. I think there would be enough to fill the pipeline for a factory like this.

Frederica Freyberg:

You said you thought Foxconn would have expected closer to $5 billion in incentives to locate in Wisconsin. Even at $3 billion in incentives that the Governor Walker is announcing, in your mind, is that a good deal for taxpayers and citizens?

Einar Tangen:

Depends how you look to at it. I think the average person will decide that no, this probably is not a good deal. They see the enormity of all the issues going on with finance, health care, etc., this is — remember, a very region-specific benefit. The idea that the state is going to support this area is going to be a hard pill to swallow for those in maybe perhaps northern Wisconsin who see very little of this kind of activity and they are going to wonder why this money is being spent. On the other hand, the business community will probably see this as a long-term opportunity. There will be real estate development. There will be fortunes to be made. There will construction. There will be a lot of activity, perhaps economic multiplier that justifies this.

Frederica Freyberg:

As for Foxconn's business model, its labor costs and worker conditions in China or elsewhere, how does that translate to Wisconsin? It’s obviously very different here.

Einar Tangen:

Yes. If you look at the other countries, 7 to 9 countries depending on how you want to count it, that they are in, low labor costs tend to be the common denominator. Wisconsin, obviously is not going to be that.

Frederica Freyberg:

Now, more specifically we’ve all read about conditions being so bad at some of these Chinese factories that Foxconn had employees dying by suicide. What should we know about concerns over that kind of extreme, that people are now raising?

Einar Tangen:

Well, I think it would be very difficult to kind of have the company town mentality that they had perhaps in China. That, I think, was what drove a lot of these people. These were mostly migrants coming from small rural villages in China. Perhaps a lot of shock involved there, a lot of overtime, very closed system, very, very difficult. But Terry is a very, very savvy businessman. He’s a guy who’s going to watch very carefully where the signs are. I think the fact he has chosen Paul Ryan's district is an indication that he is a very savvy businessman who understands how politics works. It has helped him in China and all of the other countries that he’s been involved in. He does it at a very high level. He does it very well. I don’t think he’ll be looking to antagonize people in the United States. I think he understands the conditions here will be quite different. You must pay overtime. You must obey the rules.

Frederica Freyberg:

As to the politics of this decision on the part of Foxconn, clearly President Trump has declared he wants things made in America. Is Foxconn concerned enough about tariffs cutting into profits that it’s getting ahead of that, and working to please the president by going into a battleground state like Wisconsin? Do the politics extend that deeply into this?

Einar Tangen:

I would say absolutely. Terry is very, as I said before, very, very savvy. He’s not going to miss a trick. His business is so large and so worldwide he cannot afford to lose markets. You lose markets, you earn competition. Right now he basically owns most of the market. He wants to keep it that way. This is a safety play, and it makes lots of sense. President Trump is, as most people have realized, very open to flattery. He likes it when people throw around big numbers, especially if they are promising jobs or made in America. We’ll have to see how it all works out in the end. My guess is that this plant will not be the kind of assembly plant they have in China, where they have tens of thousands of workers toiling away, putting pieces together. It’s an LCD screen factory. My guess is a lot of it will be automation and as few employees as possible. So yes, politics is definitely behind this. And as I said before, I don’t think it’s a mistake that this is being touted in Paul Ryan's neighborhood.

Frederica Freyberg:

Some point to concerns that Foxconn made similar announcements in Pennsylvania previously and the plant never came to be. Could that happen after the announcement about Wisconsin?

Einar Tangen:

Well, it’s obviously a concern. This is a little splashier than most. And they also have the president directly involved. I don’t know that you would want to play that kind of bluff game with Donald Trump unless he thinks Donald Trump is not going to be around in another, you know, year or so. I think it makes more sense that he is interested in getting the Trump organization on his side. Building in America, as I said, as an insurance policy against a trade war which is still quite possible.

Frederica Freyberg:

You spoke earlier about automation in the plant, having as few employees as possible. But Wisconsin is talking about 3,000 jobs to start, potentially ramping up to 13,000, plus spinoff employment. Do you think those kinds of numbers add up, given your sense about automation?

Einar Tangen:

I would find it hard to believe that he would have those kind of numbers there. I could see a highly automated factory being staffed at as low levels as possible. Remember, he’s not actually producing a lot of his components that are going into these LCD frames. Those are going to be done elsewhere. The glass, the boards, things like that. I don’t know exactly what they’re going to be producing there but it’s not going to be all done on premises. Therefore, you’ll have a tremendous amount of suppliers. They’ll be people in shipping, things like this. So, as I said, the up side opportunity if they go forward with this is not necessarily looking what you are going to get out of Foxconn, which is going to be very, very little, but looking what kind of infrastructure you can build for future innovation and creating kind of a new tech corridor that could be very helpful, as I said, to Wisconsin and Illinois.

Frederica Freyberg:

As to infrastructure, do Wisconsin's highways and rail lines support this operation?

Einar Tangen:

Well, interesting enough, this could be a catalyst to a lot of the infrastructure needed because one of the things Foxconn is going to insist on is that they have a mature infrastructure to handle whatever they have. And that is probably going to mean roads, because everything comes out of Wisconsin, despite having the Great Lakes there, most of it is going by road and some by rail. So, don’t be surprised if part of the package is a series, some monies being put towards the infrastructure in southeastern Wisconsin. As I said, though, this is very difficult for a lot of the areas in northern Wisconsin who kind of see this, all this excitement and say where’s mine? Our roads aren’t being taken care of, and things like that. So I think Scott Walker and his team is going to have to go a little ways to show how this is going to benefit the entire state, not just a small corridor between Milwaukee and Chicago.