INCENTIVE PACKAGE WISCONSIN GAVE
FOXCONN WAS MORE THAN A BAD
DEAL.
IT COULD DEPRESS STATE ECONOMIC
ACTIVITY BY TENS OF BILLIONS OF
DOLLARS OVER THE NEXT 15 YEARS.
THAT'S ACCORDING TO A NEW
SPECIAL STUDY BY ECONOMISTS AT
GEORGE MASON UNIVERSITY IN
VIRGINIA.
IN TONIGHT'S FIRST LOOK, WE TALK
WITH ONE OF THE AUTHORS.
MICHAEL FARREN IS A RESEARCH
FELLOW AT GEORGE MASON.
HE JOINS US FROM ASHEVILLE AND
THANKS VERY MUCH FOR BEING HERE.
>> THANKS SO MUCH FOR HAVING ME.
>> WHY DID YOU RESEARCH
WISCONSIN'S $3.6 BILLION PLUS
SUBSIDY TO FOXCONN IN
PARTICULAR?
>> SO WE WERE DOING AN ANALYSIS,
ASKING THE QUESTION DO ECONOMIC
DEVELOPMENT SUBSIDIES ACTUALLY
WORK, CREATE ECONOMIC GROWTH AT
THE LOCAL AND NATIONAL LEVEL.
WE DECIDED TO USE FOXCONN AS A
CASE STUDY BECAUSE IT WAS IN THE
NEWS AND THERE WAS A LOT OF
INFORMATION ALREADY AVAILABLE
ABOUT IT.
>> YOUR PREMISE AND CONCLUSION,
AGAIN, IS THAT SUCH TARGETED
SUBSIDIES, ESPECIALLY GIGANTIC
ONES LIKE FOXCONN'S, DO MORE
HARM THAN GOOD.
IN FACT, YOU SAY THE SUBSIDY MAY
DEPRESS STATE ECONOMIC ACTIVITY
BY TENS OF BILLIONS OF DOLLARS
OVER THE NEXT 15 10 TO 15 YEARS.
HOW SO?
>> MOST STUDIES THAT EXAMINE
THESE SUBSIDIES NEVER COUNT THE
COST.
SO YOU HAVE TO UNDERSTAND FOR
EVERY DOLLAR YOU PAY IN SUBSIDY,
YOU HAVE TO TAKE THAT AWAY FROM
TAXPAYERS AND THAT HAS A
NEGATIVE ECONOMIC IMPACT.
THE $3.6 BILLION OFFERED TO FOX
COX WOULD INCREASE ECONOMIC
GROWTH IN THE STATE.
>> YOU ALSO TALKED ABOUT THE
MULTIPLIER EFFECT OF SPIN-OFF
JOBS RELATED TO FOXCONN.
WHY IN YOUR RESEARCH DOESN'T
THAT ADD UP?
>> THE MULTIPLIER EFFECT IS
VALUABLE, BUT MOST OF THE TIME
MULTIPLIERS TAKE PLACE
NATURALLY.
YOU DON'T ACTUALLY NEED TO
INCENTIVIZE THEM.
THAT'S PART OF THE ISSUE WITH
ECONOMIC DEVELOPMENT SUBSIDIES
IN GENERAL, THAT THEY ONLY WORK
IN THE CONTEXT OF SWAYING WHERE
A COMPANY DECIDES TO LOCATE OR
ON EXPAND BETWEEN 2% AND 25% OF
THE TIME.
THAT MEANS ABOUT 75% OF
SUBSIDIES OR MORE ARE JUST PURE
WASTES OF PUBLIC MONEY.
>> YOUR RESEARCH DISCUSSES HOW
ELSE THE STATE OF WISCONSIN
MIGHT HAVE USED $3.6 BILLION.
LIKE HOW?
>> SO ONE HUMOROUS EXAMPLE THAT
WE USED IS THAT THE STATE COULD
HAVE INSTEAD SUBSIDIZED SEVEN
SQUARE MILES OF GREENHOUSES TO
MOVE FLORIDA ORANGE GROWERS UP
TO THE UPPER MIDWEST.
THAT WOULD ALSO CREATE
MULTIPLIERS AND WOULD CREATE AN
EXPORTABLE INDUSTRY, BUT IT'S
OBVIOUSLY NOT A GOOD USE OF
TAXPAYER MONEY.
>> YOU TALKED ABOUT HOW THAT
$3.6 BILLION MIGHT HAVE BEEN
PLOWED BACK INTO TAX CUTS.
WOULD THAT HAVE BEEN MORE
ECONOMICALLY BENEFICIAL?
>> ABSOLUTELY.
SO RIGHT NOW, WITH THE CURRENT
CORPORATE INCOME TAX RATE, IF
THAT SUBSIDY TO FOXCONN HAD
INSTEAD GONE TO ALL COMPANIES
THROUGHOUT THE STATE, IT COULD
HAVE LOWERED CORPORATE INCOME
TAXES BY 22%.
THAT WOULD DO A LOT MORE FOR
BROAD-BASED ECONOMIC GROWTH
RATHER THAN PICKING ONE FAVORITE
AND ROLLING THE DICE ON IT.
>> NOW, YOUR REPORT PILES ON
WITH THE IDEA THAT SUBSIDIES
ACTUALLY REDUCE COMPETITIVE
PRACTICES AMONG COMPANIES THAT
RECEIVE THEM BECAUSE BASICALLY
THOSE COMPANIES ARE PLAYING WITH
SOMEBODY ELSE'S MONEY?
>> ABSOLUTELY.
SO SUBSIDIES ESSENTIALLY GIVE A
MONOPOLY ADVANTAGE TO THE
RECEIVER OF THE SUBSIDY.
ONE OF THE SAYINGS ABOUT THAT IS
THE BEST PART OF MONOPOLY POWER
IS HAVING AN EASY LIFE.
SO ESSENTIALLY IT ALLOWS THE
COMPANY THAT RECEIVES THE
SUBSIDY TO BE A LITTLE BIT LESS
ATTENTIVE TO CONSUMER DESIRES,
TO BE LESS COA FOCUSED ON
EFFICIENCIES RATHER THAN
COMPETITION, WHICH FORCES
COMPANIES TO FOCUS ON PLEASING
COMPANIES AND ELIMINATING WASTE
FROM THEIR PRODUCTION.
>> IT ALMOST GOES WITHOUT SAYING
THAT YOU AND YOUR FELLOW
ECONOMISTS ARE NOT GOOD WITH
THESE KINDS OF TARGETED
SUBSIDIES, BUT YOU SAY THAT
STATES DON'T EVEN NEED TO OFFER
THEM BECAUSE OTHER FACTORS FOR
WHERE COMPANIES MIGHT LOCATE ARE
MORE IMPORTANT, LIKE LABOR
COSTS.
BUT WOULD FOXCONN HAVE EVER COME
TO WISCONSIN WITHOUT THE
BILLIONS IN TARGETED SUBSIDIES?
>> SO THAT IS AN OPEN QUESTION
AND NO ONE CAN REALLY ANSWER
THAT.
THE FACT OF THE MATTER IS IS
THAT MOST SUBSIDIES DON'T MATTER
AND EVEN AMAZON HQ2, WHICH WE
ALSO STUDIED LAST YEAR, WAS --
ITS FOCUS WAS ON TECH TALENT.
THAT'S THE REASON WHY IT CHOSE
ARLINGTON, VIRGINIA AS A PLACE
TO LOCATE.
THEY ONLY ALSO CHOSE NEW YORK
CITY BEFORE PULLING OUT OF THAT
DEAL LATER ON BECAUSE THEY
WEREN'T SURE THAT ARLINGTON,
VIRGINIA COULD PROVIDE ENOUGH
TALENTED WORKERS FOR THEIR TECH
INDUSTRY.
SO THE END OF THE DAY, IT'S ALL
ABOUT PRODUCTION AND ACCESS TO
CUSTOMERS.
SUBSIDIES ARE A SECONDARY OR
EVEN TERTIARY CONSIDERATION.
>> AND AGAIN YOU SAY THAT,
QUOTE, SUBSIDIZING GOVERNMENTS
ARE WASTING THEIR MONEY" AND
PRESUMABLY OUR MONEY.
WHAT'S BEEN THE REACTION TO YOUR
PAPER, FROM POLICYMAKERS OR
OTHER ECONOMISTS, WHO TOUT SUCH
SUBSIDIES?
>> SO GENERALLY THE RECEPTION
HAS BEEN VERY GOOD.
AND WE'RE ONLY SAYING SOMETHING
THAT ECONOMISTS HAVE BEEN SAYING
FOR A VERY LONG TIME.
WE'RE JUST TRYING TO GET THE
MESSAGE OUT INTO THE BROADER
PUBLIC UNDERSTANDING A LITTLE
BIT MORE.
AND IT'S VERY WELL-UNDERSTOOD
THAT A LOT OF POLICYMAKERS WOULD
GET AWAY FROM OFFERING THESE
SUBSIDIES IF OTHER POLICYMAKERS
ALSO PROMISED TO DO SO.
WE WASTE ABOUT $45 BILLION A
YEAR IN STATE AND CITY TAXES ON
THESE SUBSIDIES THAT COULD BE
REPURPOSED TO TAX CUTS, TO GROW
THE ECONOMY OR OTHER VALUABLE
PUBLIC SERVICES.
THAT WOULD BE DEFINITELY
SOMETHING THAT WOULD GROW THE
ECONOMY RATHER THAN SHRINK IT.
>> ALL RIGHT.
WE NEED TO LEAVE IT THERE.