this post was submitted on 10 Feb 2024
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Obviously the east of Germany is never going to prosper, there is no incentive for companies to go and open their doors in east Germany as they can then just move east a few more kilometer and get workers for 1/3 of the cost.
TSMC, CATL, Tesla, Intel or Avnet would disagree.
Do they though? They are building modern factories with high automations and are getting massive subsidies to do so.
Additionally they need a lot of jobs, the region is poor, so we can only hope that attracting a few high profile players can create an effect that causes others to gravitate there.
As this will most likely also alleviate the AfD problem.
Which one is it? No incentives? Massive incentives?
The first one is intrinsic incentives, the second one I should have called subsidies. You are correct it's messy like this.
While I do see a difference between those two "incentives", they are not that different to me. Both are about the general economic conditions which a company uses to determine where to invest. Also in both cases the conditions are influenced by politics, and shaped by financial policies.
It is distinctly different though. it is especially dangerous to rely on subsidies as a means for attracting businesses. There was an example of Nokia who received about 100 Million to build a cellphone factory in the 2000s. After the subsidies ran out ten years later, they moved the plant to Romania. This is the risk of subsidised business. You pay the difference for the poor conditions, don't receive more in return and then the business goes away anyways.
Well the situation is in east Germany unemployment is high, education and labour skill is reasonable to high, ground prices are low and it's in Germany (the incentives to chose to locate there).
But in the end if a company where to choose solely on those factors Poland and the Czech Republic have all these things (except being Germany) at much lower wages.. so the intrinsic incentives for those companies are to not locate to east Germany.
Hence the required subsidies for some of there companies.. an artificial incentive is added). That without it the companies would not be there, and in the end I would argue the proximity to Poland and Czech republic mean other companies will not choose east Germany.
So yes, we agree the subsidies are part of the whole package weighed by companies, the artificial incentive (subsidie) is only available to a limited group and this is why I think east Germany will remain a problem area for Germany.
Let's wait and see how they agree or disagree after the subsidies they received for moving there have run out, and some other place offers subsidies for setting up shop there.
Subsidy hopping is a thing.