So our neighbors to the north (speaking as an Illinoisan) want to drop $3 billion on a Foxconn phone screen assembly plant. There seems to be some waffling in their PR as to whether it just molds/assembles the screens, or actually makes them, or some component of them. Either way, why does one of the world’s most successful manufacturers need a $3 billion gift to set up shop in a state with a mid-tier tax rate? The answer to that is a tightly held secret known only to Scott Walker and the Wisconsin congress. People thought it was irresponsible when Illinois threw $500 million at a native retailer, and despite what the Chicago Tribune falsely says, this amount of money from a state government is far from common at all. Have a look at the best subsidy tracker out there if you don’t believe me. The Foxconn deal’s price tag is an astounding number, even by the standard of state governments’ usual handouts.

One of the oddest things about the Foxconn ‘deal’ is that the Kenosha (and Racine) location is a natural fit. It shouldn’t require such a tremendous bribe to get Foxconn there. If anything comes of this, dear reader, maybe I can teach you a thing or two about why firms locate where they do, so you better understand to what degree your local leaders are wasting your community’s money when they pull stuff like this. In return, I get to practice my pedagogical skills as an aspiring Geographer. Deal?

The first thing to ask about why a manufacturer moves somewhere are their use of natural resources and basic ‘inputs’ (stuff they consume). The Foxconn plant (presumably) makes glass screens for phones, or at least treats them for assembly. Anything involving glass (and metals too, if that’s involved) needs freshwater. If you need water, look no further than this big sucker:

When it comes to the geography of the global economy, never disregard the obvious.

Of course, there are a lot of industrial regions around the Great Lakes, so it doesn’t explain much, especially with Michigan reportedly being the biggest competitor for this plant. Now, Kenosha/Racine are tucked between Chicago and Milwaukee, both Great Lakes cities, but among Great Lakes cities Milwaukee has a unique advantage: It’s the U.S.’s historic research & development cluster for water technology, particularly for water-using manufacturing processes. So ya got the lake, and ya got people who ya can hire to consult on how to use the lake. Bada-bing.

A Milwaukee water consultant, though, could probably work with any manufacturing plant located in any Great Lakes state, if need be. So this isn’t necessarily a knockout case for why Foxconn would go to southeastern Wisconsin, but it sure is tempting, isn’t it, Mr. Prospective Screen Assembler?

To answer the question of why any manufacturer goes somewhere, you have to ask what stage in the company’s global production network does this plant or office occupy, and what the company wants to accomplish by locating there. Sometimes, in our very American obsession with seeing plant and firm location as a testament to the deep soul and moral goodness of a city or region, we forget that firms go to specific places in order to do specific things. There’s a lot of talk about rising Chinese wages leading to U.S. manufacturing workers becoming more cost-competitive with overseas labor forces, but there’s been remarkably little motivation from manufacturers to build in the U.S. based only on this factor, even if it’s true. What you have seen as a sustained trend, and one that’s actually led to the opening of new plants in the U.S., is the goal of placing the final point of product assembly as close to the endmarket as possible (i.e., the consumers who actually buy the finished product). How do you reach endmarkets? Logistics. Rail, trucking, and if it’s in play, water shipping.

The Chicago metro, which extends well into Wisconsin and Indiana and overlaps with the Milwaukee metro, holds the status as the crown jewel of North America’s land-based logistics network. If you want to get something into North America from the Pacific, you go through Los Angeles, or maybe Vancouver. If you want to get something into North America from the Atlantic, New Jersey, or maybe Baltimore. If it’s the Caribbean, it’s Miami, or maybe New Orleans. But, if you want to get something to different regions of North America (we’re including Mexico here), you go to Chicago. You can hop the rails to Mexico or Canada, east coast or west coast, while being able to reach Middle America’s direct endmarkets. So, if you want to place an assembly plant meant to put the finishing touches on a product before it gets shipped out by Amazon or Walmart, you better have access to a logistics hub, and Chicagoland is a great one. There are, of course, other booming logistics hubs in North America. Louisville could give Chicago a run for its money, and Atlanta or Houston or LA could work better for you, depending on what you need. But, ‘what you need’ here is a freshwater location in a state that’s highly concentrated in manufacturing. Being around Chicago is a no-brainer in this case, and it is the most obvious advantage Kenosha/Racine would have in terms of logistics. Going by logistical efficiency and Great Lakes proximity, Indiana might be a tenable competitor to Wisconsin, except that Wisconsin, at least if you’re going by the American Society of Civil Engineers, comfortably beats out Indiana in infrastructure quality. Also, Wisconsin’s portion of Chicagoland isn’t having a lead poisoning epidemic, as far as I know.

So, the case for Kenosha is pretty locked in… Except for one lingering question: Why did Foxconn pick southeastern Wisconsin and not the northeastern corner of Illinois? The county north of Chicago’s Cook County is Lake County. The southern half of Lake County is ritzy, and is home to some of Chicagoland’s greatest concentrations of wealth. The northern half of Lake County, aside from being notable as the home of the Planeys, is a rusty, if still-kicking agro-industrial area. Southeastern Wisconsin (Kenosha and Racine counties) are much the same. They seem as if they’d be in the same boat in terms of attractiveness for Foxconn, given the other factors. If you drive around both sides of the state border, you’ll see patches of nature preserve, signs of a strong blue collar workforce, boat rentals, the region’s only cactus species (Eastern Prickly Pear!), and communities both rough and nice. So, what’s the difference? Is it tax rates?

This might give ya a hint. More people means more built up. More built up means higher land prices and fewer greenfields, especially in a county that’s an historic area for recreation and ecological conservation (Lake County), as well as land use laws that are probably set by the wealthier southern half of Lake County. Manufacturers, especially those of a strong logistical bent, prefer new land further out from the center of population in a region. It helps to avoid congestion when possible, and provides plenty of land for trailers or truck parking. As an industrial entrepreneur once confided to me, Kenosha also has more utility infrastructure than you’d expect. One of the county’s unsuccessful development strategies in the 1980s was to become a power exporter, and a lot of capacity was built up that never got used, helping to make southeastern Wisconsin a swell place to build new facilities for both logistics and manufacturing firms.

Really, there was hardly any chance that Illinois could have gotten the Foxconn facility. We Illinoisans have a lot to be ashamed of. A lot. But, ‘losing’ the Foxconn plant isn’t one of those things. I don’t remember hearing about them ‘approaching’ Illinois about the plant, but if they did, it was most certainly to keep their real prospective locations on their toes. It just didn’t make sense as a location, with the two other states’ sections of the Chicagoland metro being far, far more sensical locations. This is, of course, before we factor in the institutional uncertainty created by our governor’s campaign of economic sado-masochism.

So, why did Wisconsin shell out $3 billion for this plant? $3 billion??? Unless its negotiators were clueless, the locations’ advantages should have been easy enough to pitch without having to bribe Foxconn, and if Foxconn was demanding that kind of money from Wisconsin (I’d be surprised if they did, honestly), anybody with any sense could have told them to get lost. Given that Wisconsin’s legislators are just now realizing that this may not be the most logical deal given the cross-border nature of the northern Illinois/southern Wisconsin labor pool, it’s very possible that the thought put behind the deal was… lacking.

The most logical explanation of why this deal happened at all was publicity. (I don’t truly know what was going through the heads of those who brokered the deal, but then again, I doubt anybody does. I can only speculate based on the available facts). Wisconsin is a manufacturing state, after all, and Scott Walker’s power base is in the suburban counties of the Milwaukee metro, where manufacturing and business services are particularly concentrated. The state’s manufacturers are also a powerful lobbying force. Not only winning a well-known manufacturer, but one associated with a 21st-century product, is a publicity coup for Wisconsin Republicans, and their timid Democratic counterparts might not even fight them on it. Wisconsin is among a number of Midwestern states that have slashed public expenditures, infrastructure spending, social infrastructure spending, and declaring their state to have entered a brave new era of business-friendliness. And yet, there isn’t much to show for it. Great Lakes states, regardless of the letter next to the governor’s name, keep losing people. Their college-educated keep skipping town for some other region, and the vaunted ‘manufacturing renaissance’ does little to nothing to alleviate their ills. They need something to show for it, and apparently, they’ll shell out a lot of money for it too, even just to prove that they’re spending it on something. That the benefits of the subsidies, aside from benefitting Foxconn, will benefit the owners of regional manufacturing firms above anybody else, is very possibly another political motivation behind the whole thing.

Post-script

The only semi-reasonable claim in defense of such a huge amount of subsidies I’ve heard is the vaunted ‘multiplier effect’ of the Foxconn plant. Manufacturing jobs, purely because they tend to be relatively decent jobs, ‘create’ other jobs, as those workers and firms spend their money in the local economy, usually at a ratio between 1.2–1.5 jobs per manufacturing job, depending on who you ask. Still, that’s an incredible price tag for this kind of multiplier effect, one that could have been invested in infrastructure, utility expansion, or labor training: The stuff that would bring multiple firms to southeast Wisconsin, instead of just one.

The Wisconsin government also claimed that the deal would bring in R&D jobs and college grads, that ever-slippery Midwest demographic. This doesn’t seem likely to me, given the facts we’ve been given. We’re looking at an assembly plant mainly working at the end of the supply chain, and the PR is not very clear about how much production versus how much assembly is going to be done here. One source suggests that even the glass itself will be imported from Taiwan.

Foxconn already has its management and R&D in Taiwan. They just need to temper or modify the glass (if even that! It isn’t clear!), and put the glass into the phones. It aint gonna be Motor-City-But-For-Phones. Now, this could very easily require some business services and R&D support from a more local source, but this isn’t going to be the command-and-control hub of an industry or even a corporation. The spin-off effects are probably going to be pretty standard for a manufacturing plant. After all, southern states compete fiercely to draw in Asian carmakers’ automobile assembly plants, and even with the advanced functions carried out in these facilities, they don’t draw much in the way of R&D investment. Given the clear logistical bent of the new Foxconn plant, many of the inputs and outputs might not actually be from/to Wisconsin or even Chicagoland. If a firm isn’t buying its inputs locally, its economic ‘multiplier effect’ for the local economy can be greatly reduced, as the spurred economic activity from a new job in Wisconsin actually occurs in Taiwan or Guangzhou.

)

Written by

Economic Geography PhD student at UIUC- Regional planning, governance, and political econ. Yankee mudsill. Proud TA. Happily married to Arri. Reptile lover.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade