Why the Transformation of Physical Industries Matters Now More than Ever: A Conversation with Lior Susan and Elisabeth Reynolds
Dec 15, 2022|
In conversation with Lior Susan, Eclipse’s Founding Partner, MIT lecturer and former Special Assistant to the President for Manufacturing and Economic Development, Elisabeth Reynolds, shared invaluable insight into the direction the current U.S. administration is headed in regard to fortifying critical industries, such as manufacturing, logistics, and energy at Eclipse’s Annual Meeting.
Editor’s note: Portions of the conversation were edited for brevity
Our post-covid world has exposed the cracks in the foundation of our critical industries and we can no longer afford to look away. As we witness the rise in geopolitical tensions and matters of national security coming into question, a new world order is forming before us – one in which these industries must be modernized and maintained. The state of this infrastructure has fallen decades behind the innovation curve; at minimum causing delays in manufacturing and supply chain, while also leaving a scaring carbon emission footprint. While the state of our physical industries, economy, and planet may be in flux, the partnership between private and public sectors is already proving to be the force needed to enact meaningful, pivotal change. With legislation like the CHIPS Act and Inflation Reduction Act passed earlier this year, the U.S. government is recognizing the urgent need to implement these kinds of historic measures, empowering founders and companies to enact rapid innovation across critical physical industries. It is only in the confluence of joint efforts from our government, founders, and public companies that we can begin to address and work toward fixing these problems.
Recently, the Eclipse team hosted our 7th Annual Meeting. In addition to a notable roster of presenters from our portfolio companies, we also had the honor of hosting MIT lecturer and former Special Assistant to the President for Manufacturing and Economic Development, Elisabeth Reynolds. In conversation with Lior Susan, Eclipse’s Founding Partner, Dr. Reynolds shared invaluable insight into the direction the current U.S. administration is headed in regard to fortifying critical industries, such as manufacturing, logistics, and energy.
She explains it was only in the last few years that we have collectively embraced the need for this kind of innovation. The challenge to deliver critical goods, from semiconductors to PPE, was one factor that has created momentum needed to facilitate investment in physical industries. However, this acknowledgement of our infrastructural weaknesses and the desire to fortify our industrial base began to truly manifest with the change in global events, including extreme climate conditions, followed by contentious worldwide geopolitical events:
“I have to say from my first day and practically to my last day [with the administration], it was all about supply chains. As we look at what's just been passed, this historic legislation has to take into account how much we are in a different context than we were just a few years ago. We had a global pandemic that exposed the vulnerability of our supply chains, both from a national security perspective, but also an economic security perspective. We are in a world now in which we have the existential threat of climate – in the last two years, we have had 20 plus climate events in the U.S., each costing more than a billion for the economy. Additionally, the geopolitical context has changed such that the U.S. has to protect our national interest and invest heavily in innovation and technology. There is also an imperative around addressing inequality. As we've seen, the typical worker has not benefited economically from the productivity gains experienced in the country over the past several decades. I think that has been part and parcel of the threat to our social fabric. You can draw lines to political polarization and the distrust of institutions, down to the threat to democracy.
This agenda has been set forth, and with the bills passed in the last year, the Administration is trying to address and rebuild our middle class; we can provide some of those quality jobs through the rebuilding of the industrial base. The country is at an inflection point. I think we're going to look back in five to ten years and find it remarkable what's actually been put in motion here.”
In addition to bolstering the national economy vis-a-vis onshoring and job creation, it is also important for us to understand how foreign manufacturing of critical components has created a precarious dependence on other countries. For example, with the production of semiconductors skewed heavily in China and Taiwan, a mutual understanding has been reached within the U.S. government – across both sides of the aisle – that reshoring some manufacturing of critical products, such as chips, is a matter of national and economic security. Reynolds goes on to explain:
“There was bipartisan support for both the Infrastructure Bill and for the CHIPS and Science Act. People understood that we had to do some rebuilding, and that China has become much more of a threat. The CHIPS strategy, for example, is about diversifying our chips supply, building more resilience into our supply chains, while also working with allies and partners. This won’t happen overnight. We can’t recreate the whole ecosystem that TSMC has created in Taiwan easily in the U.S."
Susan and Reynolds also talked about the underfunding in physical industries, and the subsequent vulnerabilities across key areas of infrastructure, particularly in energy. With the Biden administration, it was understood early on that in strengthening our infrastructure, we are able to create a more robust, resilient economy. To actualize the kind of change we envision, collaboration across states, private sectors, founders, investors, and governing bodies will be key.
“Approximately eighty percent of the infrastructure bill flows through formula funding to states. That goes to state DOTs and other departments. We have to work at the state level to make sure these investments translate into regional growth and innovation. We have to figure out how to facilitate permitting, for example. We need the private sector to be working in concert with all of you [founders, investors] in your companies nationally, regionally, and across boards. How can we bring our best skills and practices to implementation?”
Innovation and disruption are key and where we need people to lean in. One of the things I've been struck by in my experience with a lot of the supply chain work is the problematic dynamics of monopolies, duopolies, and oligopolies. All the great work that a lot of these [Eclipse portfolio] manufacturing-related companies are doing will help shake things up and make industries more competitive. Build resilience, not just efficiency. If we can make workers a central part of all this work, create quality jobs, and all the spillovers that go with that, I think that's going to go a long way to building strong companies and industries while also maintaining the cohesion we need politically and economically in this country.
Another key issue is the digital transformation of our industrial base. How are we going to get small and medium-sized suppliers to work with companies like VulcanForms and Augury and get those technologies disseminated and adopted? This is hugely challenging.”
Ultimately, the message from Susan and Reynolds’ conversation was clear: we must innovate our way out of the issues weighing down progress and economic opportunity — and the time is now. We must work as a united front across the private, public, and non-profit sectors, focused on implementing advanced manufacturing capabilities across a multitude of vital industries.
To learn more about how Eclipse is working with founders to build the New Economy, visit our Perspective page.
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