US-based chipmaker Intel is reportedly encountering bottlenecks in its effort to build a vast new microchip facility in the east German city of Magdeburg.
Back in June, Intel announced it’d build a $33B mega-facility there by the end of this decade, with $11B in subsidies from Berlin. As Germany’s largest ever foreign direct investment, the idea was to:
- 📈 Help lift the EU’s chip output from 10% to 20% of the global total, and
- 🚗 Lower Germany’s reliance on offshore producers for chips in key products like electric cars.
- ✌️ A tight labour market (only two chip apprentices have signed up)
- ⚡ High energy costs (40% higher than in neighbouring France)
- 🧑🤝🧑 Community concerns in the city of 240,000 people
- 🚌 Lack of schools, housing, and services for worker families, and
- 🎤 Political debate around the incentives and subsidies Intel gets.
It’s very early days yet, but still… not the smoothest of starts.
Intrigue’s take: At their heart, subsidies are basically an attempt to bend an economic reality to a political will.
Sometimes that reality is flexible enough to work. But when it isn’t, governments face pressure to roll out a second round of subsidies (e.g., for electricity), to nudge the first along. And when that second round needs help, someone suggests a third batch. And… well, you get the picture.
This isn’t to say that subsidies are inherently bad. They’re just inherently hard, because they’re a static tool trying to shape a dynamic reality.
Also worth noting: