In politics, contentious issues sometimes resolve themselves, without requiring intervention. When this happens, those involved can pause, and if the outcome is uncomfortable for some, act as if nothing happened. After the withdrawal of US chip companies Intel and Wolfspeed from previously high-profile multi billion euro investments in new plants near Magdeburg (Saxony-Anhalt) and in Saarland, there was widespread disappointment with state politicians, and in the federal coalition government in Berlin. But soon after the announcements, things quickly returned to business as usual.

Perhaps some decision-makers began to realize that they were pursuing a major project without fully considering its economic and strategic benefits for the region. In the global race for future-oriented technologies, there's a risk of going overboard: when perceived time pressure becomes too great, the capacity to weigh the risks and benefits of such projects is often limited by a lack of expertise and resources. As a result, decisions to commit billions in public funds may be made hastily, as though the government’s coffers were boundless.

A moral hazard arises whenever politicians and corporate executives handle financial resources that do not belong to them – in this case taxpayer money. This often leads to misguided decisions. Especially in the case of Intel in Magdeburg, there was a significant risk that the government would squander public funds on a project with dubious value as a high-tech investment. From the outset, Intel’s proposed 30 billion euros investment (with Berlin slated to contribute 10 billion euros or one-third in subsidies) was met with skepticism, as Intel no longer occupies a leading position in the semiconductor industry. The former market leader is now on a downward trajectory, and the output that would have been manufactured in Saxony-Anhalt was geared toward the mass chip market, with only average quality. This wouldn’t have advanced Germany’s tech landscape, which has recently drawn considerable criticism. It’s hard to shake the impression that Intel was angling for taxpayer support to gain a competitive edge in an increasingly tough market.

Luckily, Intel’s decision means that this political blunder has now been avoided. However, there should be no illusions that politicians have learned from this, and will act more prudently in similar situations in the future. The risk of wasting taxpayer money and misallocating resources remains as long as Berlin lacks sound regulatory expertise. The demand-driven economic policies once championed by SPD politician and economist Karl Schiller in the early 1970s have degenerated into a patchwork of fragmented supply-side measures.

In Wolfspeed’s case, auto supplier ZF has been left in the lurch. The Swabian joint venture partner, already impacted by the auto industry’s crisis, must now find new roles for affected employees to avoid a complete disaster. One solution could be to relocate jobs to Saxony, where Taiwan’s TSMC made a more strategic choice by establishing operations in an existing chip cluster. TSMC, with partners like Infineon, has found an area with decades-old infrastructure suited to chip manufacturing. ZF employees could benefit from the region’s high standards that uphold its high-tech reputation. This would certainly be a better alternative than relying on corporate promises that overlook the structural environment when choosing a location.