The German economy faces numerous obstacles. With heavy subsidies, Germany and the EU hope to strengthen domestic industries and secure jobs. But experts are skeptical.
When you walk through the vast fields near Magdeburg with Sandra Yvonne Stieger, the city councilor in charge of economic affairs, he is overjoyed: “We brought Intel to Magdeburg. Fort – it’s unbelievable.” The site is the size of 500 football fields.
US chipmaker Intel wants to build up to eight new production facilities here. The project is huge – also in terms of taxpayer participation: the federal government has committed €6.8 billion in funding, while there is talk of as much as €10 billion.
3.3 million euros per job
The money was initially used to provide 3,000 jobs at the two factories. From a purely arithmetic point of view, this is €3.3 million per job. According to Stieger, however, this calculation is not enough: “Every job at Intel brings a spouse and children. Suppliers will settle – jobs will be created there too”. The city hopes to once again become an important industrial location in Germany.
This is funded by subsidies. Federal Economy Minister Robert Harbeck (Greens) is pushing a similar electricity price plan. He’s currently working on a concept under which the federal government would help companies with a so-called bridge tariff of 6 cents per kilowatt-hour.
Whether to charge bridge price Another point?
The Ministry of Economic Affairs calculates that the cost to taxpayers by 2030 is between 2.5 and 30 billion euros. Oliver Falck, an expert in industrial economics at the ifo institute in Munich, did the calculations — and wondered whether it would be enough.
Without further investment in energy efficiency, bridge electricity tariffs will cost 42 billion euros – 12 billion more than the federal government estimates. “It makes sense to fund the development of energy-efficient production processes,” he said. But in the long run, the country will not be able to subsidize it through lower industrial electricity prices.
Come on Biden subsidy race
Germany is engaged in a subsidy race that was also promoted by U.S. President Joe Biden last year. With plenty of money and cheap energy, he lured foreign companies to the U.S. — and heightened U.S. concerns about Germany’s deindustrialization.
Therefore, Germany and the EU are trying to resist this situation – for example, by supporting multi-billion dollar companies or building modern production sites, such as in Magdeburg.
criticism of subsidies
Reint E. Gropp, president of the Institute for Economic Research (IWH) in Halle, is one of Magdeburg’s harshest critics of Intel’s billions in subsidies. Gropp warned against taxing billions of dollars to global players. Despite the decline in profits, Intel still made an $8 billion profit last year.
But from a strategic point of view, such large-scale subsidies are also debatable: “From a strategic point of view, it may be better to say: ‘If the Americans subsidize their chip production so much, then we can buy chips from the United States. to cheap chips'” which would create security in the supply chain.
By the way, you don’t know how the money is invested, Gropp said, because “these companies usually leave as soon as the subsidy is paid.”
Collect subsidies – then what?
Also haunting him and other scientists is the disaster surrounding Nokia, the former Finnish mobile giant. About 30 years ago, the company was supported by large tax revenues, so it created jobs in the Ruhr area. Then it was over in 2008.
Thousands of employees lost their jobs in Bochum. Nokia moved to Romania, where it received more subsidies. “Nokia is an example,” said ifo expert Falck. “The solar panel production that we established in Germany and moved to China is different.”
Intel’s long-term plans
Intel should point this out with the following request plus or minus return. One plans to stay in Magdeburg for a long time. The Ministry of Economic Affairs also believes that immigration is unlikely. After all, subsidies are linked to conditions, and enterprises themselves have to make great contributions. Therefore, “it is in the investment firm’s own interest to invest for as long as possible”.
Overall, the scientists advocate for greater investment in R&D and support for innovative start-ups. According to Falck, you have a clear comparative advantage as a research location: “Here, I think access to public funding really makes sense.”