Arizona’s Semiconductor Boom is Decades in the Making

Growth is first and foremost a matter of solid fundamentals and visionary leadership.

“Paris, Provence, Florence, Jerusalem, Athens—these names prove something—genius depends on dry air and clear skies.”

Friedrich Nietzsche

As you drive north up I-17 toward Flagstaff, you’ll notice that the once-vast empty desert between Pyramid Peak, Lake Pleasant, and Ben Avery Shooting Range is now home to a growing advanced manufacturing facility. Like many of the warehouses, factories, and office buildings sprouting up across the Valley of the Sun, the new Taiwan Semiconductor Manufacturing Company (TSMC) production facility is a testament to man’s Promethean ambitions. We should have expected nothing less from a desert metropolis named after a firebird that rose from the ashes.

TSMC’s $40 billion investment in north Phoenix — and, by extension, America — was partly the result of increasing concerns on the part of federal lawmakers over the semiconductor industry’s vulnerabilities and the dangers posed to American national security by the offshore production of such an integral piece of technology. The 2022 CHIPS and Science Act sought to shore up the domestic industry by showering TSMC and other chipmakers with enormous incentives to expand operations in the United States. Indeed, TSMC secured $5 billion in federal grants earlier this month for their ongoing operations in Arizona; Biden announced $8.5 billion in subsidies for Intel’s domestic semiconductor manufacturing earlier this week.

All of this federal investment provides fodder for opponents of industrial policy — and indeed, these arguments have gained steam (and credibility) as TSMC’s project has faced delays and rising costs. But Arizona’s semiconductor boom is not simply the result of Congressional action. 

An important part of the story that’s virtually absent from the national discourse is that this project was also the result of deliberate action on the part of state leaders stretching back at least to the early 2010s. Moreover, much of the groundwork laid back then had nothing to do with the zero-sum logic of some industrial policy boosters and everything to do with building a post-2008 economic environment capable of enormous growth.

Arizona’s Post-2008 Crescendo

In the wake of the 2008 financial crisis, then-Governor Jan Brewer, a Republican firebrand endowed with a keen political sensibility, worked alongside Arizona’s business community to attract investment to the state — a burden she was suddenly tasked with shouldering when incumbent Governor Janet Napolitano left the state to serve as President Obama’s secretary of homeland security. This wasn’t easy: Staffers from that era are quick to recount how the state government was frequently on the verge of default and therefore forced to make harsh cuts to public spending. Brewer, a fiscal conservative, even took a 1-cent sales tax increase to the ballot box to increase revenues. Surprisingly, 64 percent of voters approved the measure.

Amid the greatest economic downturn since the Great Depression, few were capable of envisioning the Arizona of 2024. But some were — Brewer and her team chief among them.

Governor Brewer was purposeful about cultivating relationships with business leaders. To that end, she worked alongside the state legislature to improve the state’s tax and regulatory climate. Among her signature accomplishments was the transformation of Arizona’s Department of Commerce into the Arizona Commerce Authority (ACA), a public–private partnership overseen by an independent board. Charged with retaining and recruiting business to the state, the ACA benefited from direct collaboration with the business community. Moreover, the bill establishing the ACA also lowered the corporate income tax, expanded the state’s research and development tax credit, and accelerated the depreciation schedule for business personal property, making Arizona more economically competitive.

At one point during her tenure, Brewer even traveled to Taiwan with the ACA and representatives of the state’s business community to engender goodwill with the island nation and build partnerships with business leaders there.

When Governor Doug Ducey took office in January 2015, he understood himself as building atop Brewer’s legacy. In his inaugural speech, Ducey said as much: “Several years ago, our state confronted fiscal problems on a scale few had seen before,” he said, “But leaders—many of them here today, starting with my predecessor—made the decision to change course and avoid the worst.” Ducey became Arizona’s new CEO, accelerating the turnaround initiated by Brewer. And Ducey left office with an impressive resume: Arizona, once ground zero for the American economic crisis, now ran budget surpluses and consistently ranked among the top states in the nation for job growth and in-migration. 

Ducey developed a habit of meeting with business owners interested in relocating to Arizona and entrepreneurs looking to launch new enterprises. This personal touch reflected the corporate leadership sensibilities that he refined as Coldstone Creamery’s CEO, and it reaped rewards for the Grand Canyon state. During his time in office, thousands of businesses chose to set up shop or expand in the state, and Arizona added over 500,000 private sector jobs over his tenure.

This story, moored in Arizona’s miraculous recovery from the financial crisis, explains why the world’s leading semiconductor manufacturer chose to invest tens of billions of dollars in a lonely tract of desert in what Johnny Cash called Arizonaland.

Basic Spade Work

Kirk Adams, Ducey’s former chief of staff and one-time speaker of the Arizona House of Representatives, said that “for more than a decade Arizona has been laying the groundwork for large-scale manufacturing.” While he believes that subsidies and federal support have clearly helped bring companies like TSMC to the state, he sees “the basic spade work of reducing the cost of capital and other pro-growth public policy” as the foundation of the state’s growth. Arizona would not have experienced its tremendous growth without solid fundamentals: A competitive tax and regulatory environment, an efficient state government, and active but steady leadership from the Executive Tower.

Arizona’s economy has thrived in the aftermath of 2008 because of solid fundamentals and visionary leadership. Indeed, subsidies and incentives do very little for a political jurisdiction that lacks the basic ingredients of growth and prosperity. Put another way, seeds sown in bad soil won’t grow no matter how much water you pour on them.

As policymakers rightly shift their focus toward the importance of strategic industries to long-term competitiveness, they should also be careful not to neglect the good, hard work of building and maintaining a prosperous economic ecosystem. It would never have been feasible for TSMC or other enterprises to plant their stake on American soil without the visionary leadership of governors like Brewer and Ducey. Even now, plenty of work remains to be done, even in Arizona. 

While domestic manufacturers cannot hope to compete with lower cost of labor in nations like Taiwan, we can use public policy to lower barriers to project construction and completion. Enabling developers to keep up with housing demand through zoning reform, detaching federal subsidies from onerous and ideologically charged labor requirements, and speeding up the permitting process are a few great places to start. 

In 2008, few possessed the courage to envision the Arizona we inhabit today. Today, we are poised for tremendous growth. But to achieve our dreams, we must work up enough political courage. Fortunately, Arizonans have that in spades.

Joe Pitts is a senior columnist at 1912. He serves as Chairman of the Board and CEO of the Western Tribune, a 501(c)(3) nonprofit news media company. He founded the company in 2021 alongside Clay Robinson.