With a billion-dollar lookup for subsidies, the federal government has ended the impasse around Intel’s chip factory in Magdeburg. Economists are critical of the high funding amount and the approach.
Top economists have sharply criticized the multi-billion dollar subsidy for the construction of a factory for US chip manufacturer Intel in Magdeburg. In addition to the excessive sum of up to ten billion euros and the type of subsidy, the economists also criticize the general strategy of the federal government. “There are delivery risks with many products, which is part of normal business life,” said Clemens Fuest, President of the Munich Ifo Institute, to the Reuters news agency. “Securing against this is primarily the task of companies, not the state.”
Fuest further criticized that there are certainly alternatives to domestic production, such as diversification of suppliers, warehousing and recycling. “In addition, it is not clear what exactly is actually produced in Magdeburg, whether it is the chips that Germany or Europe need, and to whom these chips will be delivered in the event of a crisis.”
start of production planned in four to five years
In view of the EU’s semiconductor offensive, which aims to reduce dependence on supplies from Asia and the USA, the German government will support Intel’s settlement with 9.9 billion euros, according to media reports. After months of poker, the contract for the construction of the new chip factory in Magdeburg is dry. A corresponding agreement was signed in Berlin in the presence of Federal Chancellor Olaf Scholz and Intel boss Pat Gelsinger.
The level of subsidies for this project had been disputed until the very end. Originally, 6.8 billion euros had been promised. The federal government is now taking on around a third of all investments. The group is investing more than 30 billion euros in two so-called “megafabs” and creating around 3,000 highly qualified jobs in the long term, Intel explained. That would be a record amount in Germany. For comparison: the 17 billion euros would have been about three times as much as the car manufacturer Tesla invested in Brandenburg. The increase in state aid still has to be approved by the EU Commission.
There is no money to fight against location disadvantages
For Vice President of the Kiel Institute for the World Economy (IfW), Stefan Kooths, the high funding sends a signal of weakness into the world. “We show that Intel only comes if locational disadvantages are offset by subsidies,” says Kooths. “The Intel billions are missing to address locational disadvantages such as the high tax rate.”
“The money would definitely be better invested in education than for such prestige projects,” the economist is certain. “Returns to education are incomparably higher than those of any physical capital investment.” Germany has big problems here, as shown by the high dropout rates in the school system. The head of the economic research institute IWH, Reint Gropp, recently advocated promoting research and development at universities and research institutions as well as in companies.
Double subsidy for Intel?
In addition, Kooths doubts that the bottom line would actually be thousands of new jobs. “I think the workplace argument is window dressing.” Intel does attract well-qualified employees. But they would probably have found somewhere else. “Intel will snatch workers away from smaller companies,” said Kooths, and advises politicians: “You have to get the subsidy spirit that has now been let out of the bottle back into the bottle.”
The Center for European Economic Research (ZEW) is also skeptical about the funding. “With the European chip law, Europe has entered the international subsidy race,” stressed ZEW President Achim Wambach. Since the USA massively promoted its chip industry in order to become more independent from Taiwan, the security policy justification for expanding the domestic chip industry loses weight for Europe. “Promoting research and development would be more effective for the proclaimed expansion of Europe’s technological leadership,” said Wambach.
Ifo boss Fuest also criticizes that the chip factories, which are considered to be extremely energy-intensive, are to be additionally subsidized by the planned industrial electricity price. “In addition, the resettlement of such energy-intensive companies does not fit in with other measures such as the capping of energy consumption by the Energy Efficiency Act,” says the economist. “One should at least insist that a considerable amount of research and development be located in Magdeburg.”