Germany wants to drink your milkshake
When the chips are down, buy them.
Germany is not good at new things. We know this. Where agility, innovation, and risk-taking are required, best look elsewhere. The country’s most well-known startup story is largely a copycat of successful ideas imported from elsewhere, and primarily the United States.
Instead, Germany’s economic pull and political weight are exemplified by the 1990s motto of one of its biggest companies, BASF:
We don't make a lot of the products you buy. We make a lot of the products you buy better.
The “better” part is a matter of opinion, of course, but German Officialdom seems content with this model. Or at least resigned enough to lean into its administrative fate. Why copy when you can pay for the real thing?
In the last few years, the government has dug deep into its otherwise stingy pockets to splurge on the “future technologies” that its own Siemens, SAPs, and ThyssenKrupps have failed to come up with or capitalize on. Last week, it pledged to drop an estimated $5.5 billion on TSMC — the Taiwanese microchip wunderkind that keeps U.S. carrier battle groups awake at night — to build a plant near Dresden.
Not long before, Intel was gifted $11 billion in tax money to help build its own chip factory outside Magdeburg. Tesla, which set up just beyond the Berlin state line, in Brandenburg, a few years ago, rejected subsidies on Elon Musk’s orders. Then Berghain rejected Musk on Sven’s orders, and Tesla partly went home.1
The subsidy game is neither new nor unique to Germany, but there are some interesting factors at play here. Public subsidies are often a way to keep companies on their home turf, or entice them to come back. Within a country, states or regions may steal another’s from under them, as was the case of General Electric moving from my hometown of Fairfield, CT, to Boston.
In Germany’s case, the government is using national funds to bring in foreign entities. That may not be a wise move, because they could always take a better deal elsewhere without feeling the public shame of betraying their home team. It also poses risks to the European Union, because Germany can spend money in amounts that smaller member states don’t have. Germany distorts the economy of, say, Croatia simply by existing. Intentionally throwing its weight around adds to the pressure, which comes back to bite in a less stable bloc overall.
Once again, the EU talks about a common policy response to, in this case, the U.S. Inflation Reduction Act, but member states do their own thing, anyway. Given its financial arsenal and a historical penchant, Germany is particularly good at this.
Of course, Croatians don’t vote for German politicians so it is understandable that they care more about the German ones who do. National interests running up against supranational ones is a fundamental contradiction baked into the EU, which affords German Officialdom’s rhetorical deference to the great European peace project only a modicum of credibility.
With its multi-billion-dollar bet, the German government has two goals in mind: Make Germany technologically competent without that pesky middle step of actually coming up with the technology, and make East Germany great again.
All three companies are setting up shop in what used to be the German Democratic Republic, which has spent the three decades since its collapse trailing its West German counterpart in ways both real and imagined. It is no coincidence that where one day may be an Intel plant, last month was the AfD party conference. Germany’s surging far-right party is especially strong in the former East, where it taps into revisionist resentment and sense of political abandonment like any populist party worth its salt should.
The idea here is that giant companies out of the American hegemonic sphere can succeed where the German government has failed: Bring jobs, infrastructure, and increased standard of living to the region, and snuff out support for the far right.
That is a tall order. It is also an ironic one. One of the former East’s central, and justified, complaints is that when the Berlin Wall fell, West German companies and executives rushed in. Local companies vanished and local workers lost their jobs. The West profited at the East’s expense, and the imbalance persists.
Intel, TSMC, and the like coming in looks a lot like a repeat of that, only now at the global level. Even if we are to give their business intentions the benefit of the doubt, these companies will need highly educated, highly skilled, and English-speaking employees. They might not find that combo so easily in their new neighborhoods, precisely because of all the missteps and shortcomings of post-1990 Germany. Done poorly, the risk is nuclear gentrification at the multinational corporate level, which will do anything but alleviate nativist sentiment on the ground.
Beyond jobs and politics, it is far from clear if these subsidies will be literally worth the return on investment. I see a parallel to the stadium subsidy fallacy often heard in American cities, when billion-dollar professional sports teams would convince local lawmakers to convince voters that no, really, building a new arena downtown essentially at no cost to the club is a sound bet for the public good.
Further irony here, almost of all of this is getting shelled out under the auspices of Finance Minister Christian Lindner, the FDP leader who claims to stand for freedom and progress but so far has spent most of his time in office standing in the way of both. The party that hates debt it would cripple economic prosperity to save it, and imagines climate change ending by way of market magic rather than state intervention, the FDP with the power of the purse has become the party of no.
Except, it seems, when it comes to the gee-whiz giants of American ingenuity2, which the likes of Lindner stand in awe of and not-so-secretly wish they were. If only they knew how to get there on their own.
So as not to end on a down note, there is a silver lining. Depending how one defines “success,” the chips companies coming to Germany may end up working out in the end because they are big, established, and industrial. That is exactly the kind of production Germany knows how to do.
In other words, Germany is dropping a lot of cash on the most German, non-German companies they could find. They’ll fit right in.
Also the Inflation Reduction Act, which relies on tax breaks that are so totally different from a subsidy.
Brought to you by government-funded R&D. But don’t tell the FDP that.