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home : opinions : opinions
February 18, 2020

1/2/2020 7:30:00 AM
Our View
Beware the clusters

This past month we have been awash in various studies abut the efficacy of industrial clusters - those focused government efforts to provide tax breaks and other financial incentives sufficient to boost a particular industry in a particular place - so it's time to weigh in about the potential effects of these clusters on northern Wisconsin.

Make no mistake, these clusters - some underway and some proposed - are poison to the Northwoods.

They are poison, first and foremost, because the Northwoods is not on anybody's list of areas to be a cluster. Second, they are poison because, by lathering regions downstate with such subsidies, they unfairly tilt the economic-development playing field away from the Northwoods, making it impossible for our region to compete fairly for jobs.

But don't you worry, the all-knowing government bureaucrats and experts tell us, you'll be just fine because the industrial clusters conveniently located elsewhere will spread their economic joy across the state, a rising tide that will lift all boats.

Don't buy the snake oil.

As a study released last month by researchers at the conservative Mercatus Center, a free-market think tank at George Mason University, correctly concludes, when the state dumps anywhere from $1.2 billion to $3.6 billion into Foxconn in southeastern Wisconsin, it is taking that amount out of the rest of the economy statewide.

The money has to come from somewhere, and it's coming from all the state's taxpayers, from you and me to thee downstate.

Of course, when Foxconn supporters start blabbing on about all of the statewide benefits of a cluster centered on Foxconn, what with its economic multipliers and all, they never mention where all those subsidies are coming from and the negative costs they will have on the rest of the state.

They conveniently leave out the downside of the equation.

In other words, as the George Mason study points out, just as the workers at a Foxconn factory create demand for other products and services (the multipliers), taxpayers also create demand for other products and services, and, with $3.6 billion less in our pockets, we taxpayers will create less demand for other products and services in our own region.

The bottom line is, that portion of the total subsidy amount to Foxconn that comes out of our pockets in the North will almost never be returned in full.

The less money we have to spend because of our payment to Foxconn will almost certainly have a depressing effect on the Northwoods economy, and whatever positive benefits that do accrue due to Foxconn will surely never show up here but will stay in southern Wisconsin.

Instead of the government trying to pick industrial and regional winners and losers, the authors of the George Mason study contend - again we think correctly - it would be better for the government to get out of the way and level the playing field, so the Northwoods and other regions could compete.

For example, as the study authors pointed out, that money could have been used to enact a generalized reduction in across-the-board tax rates across the state.

Or the state's corporate tax rate could have been reduced, or its sales tax.

Then, too the state could have used that money to lower tax rates in ways that would have greatly benefitted northern Wisconsin especially. The state's flat fuel tax could be lowered to 25 per gallon, for instance.

More broadly, the authors wrote, overall tax revenue could be reduced by 1.07%. Reducing taxes across the board would still make the state more attractive to companies, but it does not incentivize economic development in one region at the expense of all others.

A second report, by the liberal Brookings Institute, actually touts the creation of new industrial clusters across the Midwest, with Madison ranking number one on its list of inviting locations. They want the federal government to spend up to $10 billion a year on developing these clusters. That's $100 billion in new taxes, and about a billion dollars a year for each cluster each year for 10 years.

Naturally, Democratic Gov. Tony Evers and his legislative allies are all for such folly. The prospect of another billion dollars a year for Madison makes them absolutely giddy.

But again, such a project would be poison for the Northwoods.

For one thing, don't think for a minute that only federal dollars would be involved. Once any such proposal gained traction, lobbyists and economic development "experts" would be knocking down the Legislature's doors to "bolster" these efforts with state tax dollars.

And no doubt they would get their way with support from both Democrats and Republicans. But it would be Foxconn II, with the same poisonous results for our region.

It's interesting to note that the authors of the Brookings study say these new Midwestern clusters are needed because the tech innovation industry became concentrated on the nation's two coasts, at the expense of other regions, particularly the heartland.

So they want to create new clusters to fix things. But picking winners and losers is exactly not what should be done, and it's exactly why the tech innovation industry became concentrated on the coasts in the first place.

In a telling quote, one of the study's authors admits this.

"America's successful tech hubs haven't emerged by accident - most are products of deliberate policy choices and federal government support," report co-author and ITIF president Robert D. Atkinson said.

In other words, the support for Silicon Valley and other coastal clusters hurt the Midwest and other regions - helped to suck the very life out of them - just as Foxconn will do to the rest of Wisconsin. Indeed, it's a real-world example of the negative impacts of government-divined clustering, the very thing the George Mason study authors are warning us about.

So now, in their strategic brilliance, these big-government policy "experts" at Brookings want to fix the problem that the government created when it picked winners and losers by creating yet another program that will, yes, pick winners and losers.

Only this time, since the subsidies will be lathered in multiple cities like Madison, the negative effects will be subregional. It will be another kick to the gut of the Northwoods.

It's time for voters in the North to say enough is enough and to demand a level playing field. It's worth noting that every Assembly Republican but two supported the Foxconn robbery, ur, largesse, except for Todd Novak of Dodgeville and, in our region, then Rep. Adam Jarchow of Balsam Lake.

That blind following of downstate GOP priorities cannot be repeated if this latest proposal gains traction. What's good for Madison is most definitely not good for the Northwoods, and Republicans need to speak up against this very bad idea being promoted by Washington think tank liberals and, unfortunately, by our own governor.

We can't let the Northwoods get clustered again.





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