Chip funding: Germany should take a close look at what Japan is doing here

If Volkswagen, Bosch, Infineon, Deutsche Telekom, Deutsche Bank and three other heavyweight companies came together in Germany with state support to found a new company, there would be a great outcry.

The Cartel Office and the European Commission, regulatory friends of free competition and left-wing opponents of economic power would raise objections.

The success of the project would be more than uncertain.

There was no outcry in Japan as Toyota, Denso, Sony, Kioxia, NEC, NTT, Softbank and MUFG Bank now formed Rapidus.

The consortium brings together the leading companies in Japan and some of the world in the automotive, automotive supplier, image sensors, memory chips, telecommunications and finance sectors.

Rapidus is to develop and produce state-of-the-art microchips in just five years.

The government supports this as a first down payment with the equivalent of almost half a billion euros.

But the success of the attempt to forge a national semiconductor champion is uncertain.

Under the motto "economic security" the economic centers of the democratic West are striving for domestic chip production.

The Japanese initiative is fundamentally different from the ideas in America and Europe.

Washington or Berlin are offering billions to bring leading chip manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics or Intel into the country.

Tokyo does that too.

The new initiative also aims to set up a Japanese manufacturer of semiconductors.

Big economic risks

This has advantages and disadvantages.

A domestic manufacturer is helpful in terms of security policy.

If there were a crisis such as China's attack on Taiwan, the largest manufacturing center of the most advanced semiconductors, Tokyo's access to Rapidus would be more direct and easier than to TSMC's Japanese factories.

It's not just about cell phones and autonomous cars, but also about the defense industry.

Economically, however, Japan's project may prove to be a bottomless pit.

When TSMC and Samsung go abroad with direct investments, they bring with them the knowledge and skills to manufacture state-of-the-art semiconductors.

Japan's Rapidus has to work it all out.

Not even TSMC and Samsung have mastered the desired 2-nanometer technology.

For Rapidus and Japan, which has so far produced the best it can with 40-nanometer technology and is quite well positioned in the mass market, it is almost a step from zero to 100.

TSMC founder Morris Chang warns that Taiwan's dense semiconductor manufacturing network, built up over decades, is not easy to replicate quickly and cheaply.

This involves capital, specialized suppliers, technical knowledge and many engineers.

In comparison to Europe, however, Japan is still well positioned at the supplier level.

With a view to the knowledge and the engineers, however, as in Europe, there are great doubts.

It needs open markets and flexible rules

Japan's initiative is closely linked to US pressure to cut off the technology needed to make state-of-the-art chips in China and secure a western supply chain for semiconductors.

This can be considered necessary, but it will not be cheap.

In Japan, the great danger of economic security policy is evident, namely that the traditional industrial politicians take control.

Ever since the country lost its leadership in the chip market in the 1990s, the Ministry of Commerce Meti has been trying to catch up and create national champions.

That usually went wrong, at the expense of the taxpayer.

One mistake was that Japan paid less attention to the framework for a thriving chip economy and instead focused on money.

However, a lively semiconductor industry requires open markets and flexible rules.

It needs lively universities and openness to foreign engineers.

Success-based payment is needed instead of lifelong employment in strict hierarchies.

Above all, there is no need for an economy that is driven out of dynamism by ministerial control and subsidies.

There is nothing to be heard of all this in Japan's chip initiative.

The Meti thinks above all of money, lots of money.

The prognosis is daring: it will go wrong again.

Europe and Germany should take a close look and learn.