Foxconn's Dubious Deal

(Bloomberg View) -- It's a “once-in-a-century opportunity,” says Wisconsin Governor Scott Walker. For taxpayers' sake, he'd better be right.

Walker's state is offering Foxconn Technology Group, maker of iPhones and much else, a staggering $3 billion in incentives to build a local factory. Optimistically, the deal will eventually create 13,000 direct jobs, at a mere public cost of $15,000 or so each -- that's per job, per year. Wisconsin's legislature is now mulling the plan.

Such incentives are generally an awful way to lure jobs -- expensive, inefficient and fraught with unintended consequences. They can prompt costly bidding wars between states and impede other budget priorities. They have little effect on employment, growth or wages. They may induce unwise borrowing. Companies often come back again and again, as blackmailers tend to, seeking yet more blandishments. And nothing stops them from walking away when times get tough.

States are also apt to loosen the rules. Among other perks, Foxconn won't need to obtain the state permits ordinarily required to discharge dredged material into local wetlands. Nor will it have to submit to standard environmental-impact studies. Such exceptions make for irrational public policy.

One might argue, as politicians often do, that even bad jobs underwritten by taxpayers are preferable to no jobs at all. But that's wrongheaded: If those tax dollars were freed to find more productive uses, they'd boost efficiency and growth elsewhere in the economy -- and thus create more jobs.

As it happens, Wisconsin is doing just fine. Its unemployment rate is more than a percentage point below the national average. Over the past year through June, its economy added nearly 40,000 non-farm jobs. By comparison, after all that public expenditure -- and even using hugely generous assumptions, including indirect jobs -- the Foxconn deal might yield at most 2,300 jobs annually.

And what type of jobs, exactly? Mainly, the new plant will churn out LCD flat-panel screens -- a business beset by sluggish demand, rising competition and changing consumer tastes. Worse, such jobs are highly likely to be automated. Foxconn had better hope so, at any rate, if it wants its investment to be viable. Although the legislation aims to match certain incentives to job creation, such metrics can be gamed. Other inducements -- such as a sizable sales-tax exemption -- will go on regardless, whether the work is done by humans or robots.

In short, Wisconsin's plan is likely to help a few people in an unpromising industry find temporary work before they're displaced by technology -- and to do so at the expense of everyone else in the state.

There are plenty of better ways to attract companies and jobs. Improve public works, slash excessive red tape, and invest in education and training, for starters. Reform corporate tax policy across the board rather than larding incentives on politically expedient industries. Make it easier for residents to start businesses, hire staff and move where the jobs are.

None of this is the stuff of flamboyant press conferences. But in the long run, it's far more likely to help workers and taxpayers. And surely that's the goal?

--Editors: Timothy Lavin, Michael Newman.

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.

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