When Wisconsin Gov. Tony Evers takes office today, he inherits responsibility for the largest subsidy to a foreign company in American history: up to $4.7 billion has been promised to the Taiwan-based Foxconn Technology Group, manufacturer of Apple iPhones and other electronics, to build an LCD manufacturing plant and related facilities, the company’s first such plant outside Asia.
Since its announcement in July 2017, the Foxconn deal has produced waves of controversy over its potential impact on workers, communities, the environment and the state’s coffers. Many worry that this will be a massive boondoggle that enriches a foreign company without actually benefiting Wisconsin workers or communities. Evers has promised to renegotiate the deal to ensure that Foxconn is a “good corporate citizen” to the state.
To do so he should study the events of a century ago, when the British American Tobacco Company (BAT) made a similar direct investment in China. BAT, one of the world’s first multinational companies, had a bold vision: build operations from the ground up, including new production facilities, distribution hubs and other linked business facilities in China.
It worked. By the 1920s, BAT’s Chinese brand, Ruby Queen, was the second-most popular cigarette in the world (close behind R.J. Reynolds’ Camel cigarettes in the United States), and BAT’s China operation became its largest foreign outpost.
Like the Foxconn deal, which adds Wisconsin to the company’s investments in Taiwan and China, BAT’s China operation did not entail factory flight from home countries. Burgeoning factories in Shanghai and Harbin complemented those flourishing in Durham and Liverpool. But BAT’s profitability often came at the expense of mistreated workers and local communities.
Today, as we enter a new era of global capitalism marked by direct foreign investment in the United States, government officials like Evers will increasingly need strategies for protecting communities like Wisconsin’s Racine County that become a node in a foreign company’s global network.
BAT dreamed of a thriving parallel production system in China because high transport and labor costs of exported cigarettes made its product too expensive for most Chinese consumers and left the company vulnerable to competition from more proximate Chinese and Japanese firms.
BAT planted U.S. cigarette tobacco, built cigarette factories and distributed cigarettes to a massive, largely rural consumer population.
Its effort proved wildly successful: Chinese smokers increasingly shifted from the customary pipe to the cigarette. Offered at a higher price than pipe tobacco, cigarettes sold better in towns and cities and to merchants and professionals than to rural farmers. Despite this limitation, BAT-China proved highly profitable.
BAT’s success stemmed from an operation model that conceived of labor management as a global problem. Despite dramatic cultural differences between the United States and China, they employed techniques developed simultaneously in the two countries.
For example, American managers created workplace order in their new Chinese factories by applying the methods of Jim Crow segregation that were used in U.S. cigarette factories. But they understood they could not simply impose their ways on Chinese people. Instead, they employed Chinese supervisors and grafted their ideas to established Chinese practices, creating hybridized management systems.
BAT also had a brilliant public relations strategy, both at home and in China. At home, BAT’s public information about its operations in China notably left out its direct investment in farming and manufacturing. Instead, it publicized only the numbers of cigarettes sold and the amount of tobacco shipped from the United States. The company knew that Americans would object to diverting dollars from the domestic industry.
But in China, BAT equated its own economic success with progress for China, even while it worked diligently to avoid the regulations and taxes that reflected China’s own definition of progress. BAT’s vision was decidedly lopsided: seeing China as primitive and backward, it conceived any development as a gift for which Chinese people should be grateful. This paternalistic outlook meant that BAT resisted attempts by Chinese workers and local governments to make the company less exploitative and more beneficial to a greater number of Chinese people.
These practices not only kept BAT’s investments in China’s workers and infrastructure low, saving the company money, but they contributed to an emerging global capitalist system in which Western and Japanese companies extracted Chinese wealth but resisted Chinese self-determination.
BAT’s successful, but exploitative, Chinese model offers lessons for Evers as he looks to enforce good corporate citizenship upon Foxconn in exchange for billions of government dollars. First, while FoxConn’s notorious labor practices in Taiwan and China are likely a nonstarter in the United States, they still warrant careful attention. In the most spectacular example of its disregard for workers, the company responded to a high suicide rate among workers at its Chinese factories not by improving conditions but rather by installing nets on the exterior of some factories so workers could not harm themselves jumping.
As such, Evers must maintain laser focus on how the company treats its American workers. He must insist upon real oversight and accountability through factory inspections and on formal review mechanisms to hear workers’ voices. Otherwise, Foxconn will cut corners to profit at workers’ expense.
Evers also must work to pierce the silences and deflections that already swirl around Foxconn in Wisconsin. Like BAT, the company will spin its actions to shield unsavory practices. Already, the company’s promises are contradictory. It initially promised that 75 percent of the projected 3,000 to 13,000 workers employed in Wisconsin would be hourly operators and technicians making an average of about $54,000 annually. In August 2018, however, the company suggested that up to 80 percent of its Wisconsin employees would be highly educated engineers or research and development scientists, a far more credible claim that greatly retreats on the promise to reinvigorate Wisconsin’s middle class.
Evers must therefore not rely on rosy promises, and instead insist on a hard commitment, with accountability, from Foxconn about the kinds of workers it will employ.
President Trump and outgoing governor Scott Walker promise that the United States can bring back manufacturing. They are correct that foreign investment in the United States is increasing. But while the lessons of BAT in China show us that these investments are likely to be good for the companies, it’s going to take attentive public officials and citizens to ensure that the deal works for Americans as well. We need a more vital public conversation about what constitutes good corporate citizenship and how to enforce it, especially for corporations like Foxconn that have few or no local ties.