The German economy faces numerous hurdles. With a thicket of subsidies, Germany and the EU want to strengthen domestic industry and secure jobs. But experts are skeptical.
When you walk across the huge field near Magdeburg with Sandra Yvonne Stieger, the city councilor for economics beams: “We brought Intel to Magdeburg – that’s basically unbelievable.” The site is as big as 500 soccer fields.
The US chip manufacturer Intel wants to set up up to eight new production facilities here. The project is gigantic – also in terms of the participation of taxpayers: the federal government has promised 6.8 billion euros in funding, meanwhile there is talk of up to ten billion euros.
3.3 million euros per job
The money is initially intended for 3,000 jobs in two factories. In purely arithmetical terms, that’s 3.3 million euros per job. According to Stieger, however, this calculation falls short: “With every job at Intel, spouses and children will also come along. Suppliers will settle down – and jobs will be created there too”. The city hopes to become an important German industrial location again.
This is financed by subsidies. Federal Economics Minister Robert Habeck (Greens) is pursuing a similar plan for electricity prices. He is currently working on a concept according to which the federal government will help companies with a so-called bridge electricity price of six cents per kilowatt hour.
Does it cost bridge electricity price but more?
The Ministry of Economic Affairs calculates costs for taxpayers between 25 and 30 billion euros by 2030. Oliver Falck, an expert in industrial economics from the Munich ifo Institute, has done the math – and doubts that it will be enough.
Without further investments in energy efficiency, the bridge electricity price would cost 42 billion euros – twelve billion more than the federal government’s estimate. “Funding the development of energy-efficient production processes makes sense,” he says. But the country will not be able to afford subsidies via a lower industrial electricity price in the long term.
Biden fueled subsidy race
Germany is in a subsidy race, which US President Joe Biden also fueled last year. With a lot of money and cheap energy, he lures foreign companies to the United States – and has fueled fears of Germany’s deindustrialization in this country.
Germany and the EU are therefore trying to counteract this – for example with support for companies worth billions or with the establishment of 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 the harshest critics of the multi-billion dollar subsidies for Intel in Magdeburg. Gropp warns against giving global players billions of tax dollars. Despite the slump in profits, Intel still made a profit of eight billion dollars last year.
But this massive subsidization is also questionable from a strategic point of view: “From a strategic point of view, it would probably be better to say: ‘If the Americans subsidize their chip production so much, then we can buy cheap chips from America’.” This would create security in the supply chains.
Incidentally, you don’t know how well the money is invested, says Gropp, because “such companies often move on as soon as the subsidies have been paid.”
Subsidies collected – and then?
It is also the disaster surrounding the former Finnish mobile communications giant Nokia that is bothering him and other scientists. The company was supported with a lot of tax money around 30 years ago so that it creates jobs in the Ruhr area. Then in 2008 it was over.
Thousands of employees lost their jobs in Bochum. Nokia moved on to Romania and collected further subsidies there. “Nokia is an example,” says ifo expert Falck. “The solar panel production that we set up in Germany, which moved on to China, is different.”
Intel plans for the long term
Intel points this out at the request of plus minus return. One plans long-term in Magdeburg. And the Economics Ministry also considers emigration to be unlikely. After all, subsidies are linked to conditions, and the companies have to make a large contribution themselves. It is therefore “in the very own interest of an investing company that the investment lasts as long as possible”.
In general, the scientists advocate greater investment in research and development and support for innovative start-ups. As a research location, you have a clear comparative advantage, according to Falck: “Here I think it really makes sense to go in with public funding.”