Promises, Promises: Tales of Unmet Expectations

February 20, 2019

 

If you are a regular reader of business news, you know there have been some large announced corporate investment projects that haven’t materialized, leaving communities reeling. These projects were either cancelled or substantially downsized.

 

Look, we know that companies don’t always do what they say they will do. After all, companies are comprised of people, and people can and do change their minds. (Contrary to popular belief, CEOs are people, too, even if some are sociopaths. But that’s another topic for another time.)

 

In recent weeks, I can think of three companies that have changed course in what were ballyhooed economic development projects that had garnered headlines nationwide.

 

Of course, I’m referring to Amazon in New York, but also Foxconn in Wisconsin and General Electric in Boston. The first two in particular, with billions of dollars on the line, will go down in the annals of economic development as stories to remember.

 

For the uninitiated, economic developers are professional people with certain masochistic tendencies. They take on the mantle of growing their local economies primary through corporate investment.

 

Experienced economic developers also become skeptics over time. They know full well that announced projects are not necessarily done projects.

 

Recently, I spoke with a friend, an economic developer who was burned by a project that never happened, but she refuses to dwell on it, which I think is smart. The Shrivallabh Pittie Group announced in 2013 that it would build a $70 million, 250-job factory to produce yarn in Sylvania, Ga.

 

There was your typical golden shovel ceremony with the company CEO and then Georgia Gov. Nathan Deal in attendance. Smiles all around, but then weeks turned to months, and months turned to years, and nothing happened.

 

To her credit, Dorie Bacon with the Screven County Industrial Authority, who I’ve done consulting work for, has refused to think about the woulda, coulda, shoulda. She has continued the good fight for her community and has had success. Great economic developers lean forward. Dorie is one.

 

Are We Wanted?

 

Looking back at the Amazon deal in New York, I think it is fair to say that mistakes were made by all the parties. But Amazon should shoulder most of the blame, as it’s now evident that the company did not do some basic homework in its site selection process. Frankly, I’m not sure now that calling it a process is even an apt description. But it was something.

 

A fundamental question for any company considering any community, big or small is, “Will we be welcome here? Are we a good fit for this place? Are we wanted?” It’s a conversation that I’ve had with corporate clients. It goes something like this:

 

“Look, you really don’t want to go to a place where you’re not valued. Sure, there will be naysayers and gadflies in every community. We just don’t want any opposition to rise to crescendo levels. That’s not the place for us.”

 

A New York Brawl

 

And that is exactly what happened in New York. I’m convinced that most of residents in Queens wanted the Amazon HQ2 headquarters, even with the knowledge that a level of gentrification would cause pain. But there was a substantial and perhaps growing vocal minority that was bent on keeping Amazon at bay.

 

The November election of Alexandria Ocasio-Cortez, the freshman congresswoman whose Queens district borders the neighborhood where Amazon was headed, should have been a red flag. Her fight against big corporations and big tax breaks was foundational to her campaign in defeating a longstanding incumbent.

 

Then in December, members of the city council brutalized Amazon executives over the $3 billion tax incentives deal, which was supposed to create 25,000 jobs and bring in $27.5 billion in tax revenue in 25 years. I remember watching on television these Amazon execs being skewered and thinking, “dayum.”

 

Ocasio-Cortz called on "everyday people" to "effectively organize against creeping overreach of one of the world’s biggest corporations."

 

And when Amazon pulled the plug, she tweeted: “Anything is possible: today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world.”

 

But at the End of the Day

 

Others did not rejoice. Gov. Andrew M. Cuomo fumed that some of his fellow Democrats had put “the state’s economic future” at risk. Others saw the scuttled project as evidence that the left doesn’t understand how to generate economic growth.

 

In a tweet, Lloyd Blankfein, senior chairman of Goldman Sachs, labeled progressive Democrats as both “anti-progress” and “anti-Democratic.”

 

But at the end of the day, it was Amazon’s arguably poor choice for a site that had emboldened the socialist activists. Their influence and power was nowhere greater than where Amazon had chosen. More due diligence would have revealed that and prevented the bloodletting.

 

Foxconn's Confusion

 

The headline to the Bloomberg Businessweek article was not subtle: “Inside Wisconsin’s Disastrous $4.5 Billion Deal With Foxconn.”

 

Whether this deal is indeed a disaster is something we’ll all know in time. My guess is that it may not rise to that level, but it will fall far short of what the boosters said it would be.

 

And what they said was jaw dropping -- a 21.5-million-square-foot manufacturing campus, representing an investment of up to $10 billion, with as many as 13,000 workers hired being paid on average of $54,000 a year.

 

There was the obligatory golden shovel ceremony in Mount Pleasant, Wisc., near Kenosha in southeastern part of the state. It was held on June 28, 2018, attended by President Donald Trump (the Foxconn announcement was made at the White House), Foxconn CEO Terry Gou, and Gov. Scott Walker, who was running for re-election.

 

To attract Foxconn, Walker and the Republican-controlled Legislature approved $3 billion in state incentives, tied to job creation and capital investment. Another $1.5 billion was committed in local incentives and infrastructure upgrades.

 

What Exactly Will be Built?

 

A month before the groundbreaking ceremony, The Nikkei Asian Review had reported that Foxconn would not make the large Gen 10.5 LCD screens in Wisconsin as was originally promised. Foxconn called the report “inaccurate.”

 

BizTimes, a Milwaukee publication, quoted an assistant to Gou as saying that Foxconn would build a Gen 6 plant in Mount Pleasant to make smaller screens.

 

But the real kicker came in late January when Reuters reported that Foxconn was reconsidering plans to make LCD panels in Wisconsin, but would instead create a technology hub with research facilities.

 

"In Wisconsin we're not building a factory," Louis Woo, special assistant to Gou, told Reuters. "You can't use a factory to view our Wisconsin investment."

 

The company said it needed to make changes to the project to adjust to global economic shifts but did not say what conditions prompted the pivot.

 

When you know what hit the fan, Foxconn issued a statement two days after the Reuters report, saying that Gou and President Trump had talked, and the company would move ahead with plans for a Gen 6 LCD fabrication facility.

 

An Intentional Con?

 

On the face of it, it would appear that Foxconn doesn’t really know what it wants to do in Wisconsin. The Bloomberg story tells of ever shifting goals and confusion within the company. Is this an intentional Foxconn con? Probably not, but we do know the company has a sketchy record of nonperformance.

 

Back in 2013, Foxconn said that would build a $30 million plant, creating hundreds of jobs in Harrisburg, Pa. That never happened. Nor did a Foxconn plan to invest $5 billion and create 50,000 jobs in India.  Similar announced deals in Vietnam and Brazil never materialized.

 

Wisconsin officials say Foxconn will not receive tax incentives until or unless it meets its job creation and workplace investment targets. At the end of 2018, Foxconn had 178 full-time employees in the state, 82 shy of meeting minimum requirements.

 

Something else to chew on. Wisconsin’s Legislative Fiscal Bureau, a nonpartisan number-crunching agency similar to the Congressional Budget Office, calculated that it would take the state until 2043 to recoup the $3 billion incentives package, even if Foxconn met all the terms of the agreement.

 

Leave it to say, this is a story that will continue to evolve.

 

How the Mighty Fall

 

We will end our trifecta story with the tale of a company that once represented the epitome of power and success for corporate America.

 

On the same day that Amazon announced that it was ditching its plans to build a second headquarters campus in New York, General Electric announced that it would abandon its ambitious plan for a headquarters along the Boston waterfront.

 

GE will return $87 million to Massachusetts, reimbursing the state for most of the $120 million incentive package that attracted it to move from Connecticut in August 2016.

 

The struggling company said it would no longer build a 12-story office building in the Fort Point neighborhood. Instead, GE and Massachusetts have agreed to jointly sell the campus, which includes two brick buildings owned by the state that once served as home to a candy factory.

 

GE plans to lease the buildings and use the space to house the company's senior executives and about 250 employees, well short of the original plan to host about 800 employees in Boston.

 

The move reveals that GE is not the company that it once was. With roots dating back to Thomas Edison and financial backers that included J.P. Morgan and the Vanderbilt family, GE was once the elite among the elite of corporate America.

 

It was one of the original 12 companies listed on the newly formed Dow Jones Industrial Average in 1896. But in June 2018, nearly two years after its announced move to Boston, the company was unceremoniously booted the from prestigious index, having lost almost half its value the year before.

 

The company remains on financial shaky ground, with a new CEO trying to shrink the company and repair a debt-ridden balance sheet.

 

So there you have it, tales of promises made, promises broken. I could give you a lot more examples of projects announced that never happened. They are scattered all over the country, and would fill a book, which I do not expect to write. At least not yet.

 

I’ll see you down the road.

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