“There is something very special about Silicon Valley that has transpired to other places in the United States. It's the knowledge on how to build and nurture small companies. And it's not just a question of access to capital. It's the ecosystem, of course, the people who work at these companies, but also the legal support, the financial support, and then the community.” - Dr. Alain Harrus IST's Steve Kelly sits down with Dr. Alain Harris, a global expert in energy technology and innovation with over 30 years of experience in the field. Alain discusses the unique attributes of the U.S. innovation ecosystem that position our entrepreneurs for success, the role of Silicon Valley and other U.S. hubs, and challenges and opportunities in the Chinese entrepreneurial landscape.
In this episode of TechnologIST Talks, host Steve Kelly welcomes Dr. Alain Harrus, an expert in helping scientists who are driving innovation in technologies like materials science, engineering, semiconductors, and energy to break through and become global leaders. Alain shares insights from his extensive career, which spans from microelectronics and materials science to his current role as Operating Partner at the Oil and Gas Climate Initiative (OGCI), where he focuses on emissions reduction and climate investment.
The two discuss how Alain got involved in the commercialization of science, tracing it back to his time at Bell Labs. Alain emphasizes the strengths of the United States as a premier environment for entrepreneurs, highlighting the comprehensive ecosystem that includes access to capital, legal and financial support, and a vibrant community. Reflecting on his career, he underscores the importance of turning scientific breakthroughs into practical applications. "Innovation and technology are incredibly valuable once you are able to commercialize it. Otherwise, it's science for the sake of science."
What does the innovation ecosystem look like in China right now? Is the United States talent pipeline sustainable? And what is the U.S. government doing to foster innovation in the energy sector? Join us for this and more on this episode of TechnologIST Talks.
Learn more about IST:
https://securityandtechnology.org/
00:00 Introduction to Technologist Talks
01:16 Meet Dr. Alain Harrus: From Bell Labs to Climate Initiatives
02:14 The American Innovation Ecosystem
02:51 Venture Capital: US vs China
03:46 Dr. Harrus's Journey: From Science to Investment
12:14 China's Innovation Landscape
20:58 Energy Transition and Climate Investment
30:27 The Role of Government in Fueling Innovation
35:26 Future Trends in US and Chinese Technology Competitiveness
40:57 Conclusion: Bullish on US Innovation
Steve: Welcome back to TechnologIST Talks. I’m Steve Kelly, your host for today. I’m excited to be joined by Dr. Alain Harrus, an expert in helping scientists who are driving innovation in technologies like materials science, engineering, semiconductors, and energy to break through. Currently, he serves as Operating Partner with the Oil and Gas Climate Initiative, where he focuses on emissions reduction and climate investment.
We discuss how he got involved in the commercialization of science, tracing it back to his time at Bell Labs in the roaring ‘80s.
“So I was involved in building equipment. I was involved in building factories, semiconductor manufacturing plants. And I really got the epiphany, if you will, that innovation and technology is incredibly valuable once you are able to commercialize it, put it in practice, essentially. Otherwise it's science for the sake of science. That's wonderful. But I think there was a lot, for me, there was a lot more gratification in the ability of putting this technology innovation into a commercial purpose.”
We talk about the unique attributes of the American innovation ecosystem that position our entrepreneurs for success.
“There is something very special about Silicon Valley that has transpired to other places in the United States. It's the knowledge on how to build and nurture small companies. And it's not just a question of access to capital. It's the ecosystem, of course, the people to work at these companies, but also the legal support, the financial support, and then the community. You know, this is why incubators in the United States have flourished.”
And we unpack the differences between venture capital in the United States and China.
"So what has happened in the last three, four years is that venture capital is considered China's government money, and therefore no one should become rich with the government's money. So venture capital, you know, I don't have to explain it. In China, it's becoming more a lending organization rather than a venture investing.”
What does Alain’s organization do? How does it choose companies to fund? And does he think the U.S. government is helping disruptive tech to scale up? Join me for this and more.
Steve: I'm pleased to welcome Dr. Alain Harrus. Welcome to TechnologIST Talks.
Alain: Thank you for having me. It's a pleasure seeing you and I look forward to this conversation.
Steve: So Alain, how did you get inspired to get into the sciences?
Alain: I've always been interested in sciences, physics specifically, just from being a teenager, growing up, physics, mathematics, and that got me to really follow that track. Education-wise, I got a Masters degree in University of Paris, then I moved to the United States, got a Ph.D. in solid state physics, and that was the beginning of my science career, if you will.
Steve: So how did you transition from microelectronics into the energy sector? What was that path?
Alain: First, after I graduated, I went to work in microelectronics, as you mentioned, and that was my first foray, what I would call into research and development, but more development. I joined AT&T Bell Laboratories. I joined Bell Laboratories in the microelectronics semiconductor manufacturing, at a time where AT&T was vertically integrated, and we were making everything in order to make our own semiconductor chips. And that also led me to join the semiconductor equipment industry when AT&T started breaking up into the seven different baby Bells. And that brought me to Silicon Valley, and Silicon Valley at that time was all about semiconductors, but was already in the transition toward a lot of interest in renewable energy and energy.
And the thread and the bottom line, common denominator if you will, is material science. Semiconductor is all about material science, energy in many ways is really about material science as well.
Steve: Bell Labs. I noticed, looking at your profile, in 1984, the roaring 80s, a great time to be in, in a place like that.
Alain: Yeah, so it was an extraordinary place, the roaring 80s and the 90s. So between 84 and 2000, if you will, during this 15 years, this was the growth of the personal computer. The IBM PC was ’83 or ’84. That launched a whole wave of desktop computing and a growth of the PC all over the world. So manufacturing of semiconductors just exploded during the 90s. Toward the end of the 90s, we started getting into laptops, and of course, the beginning of the 2000, where it’s more the era of internet and cell phone. So you can track this enormous growth, Moore's law, this enormous growth of computing power toward the different platforms of semiconductor technology and application.
So it was, yeah, it was great years. The transition, as I said, the transition to energy was really the relationship between the materials that people were using. For example, silicon, the whole infrastructure for silicon for semiconductors really leveraged out. The ability to make solid state photovoltaic cells with polycrystalline silicon or single crystal silicon. So that was very important as well.
Steve: Your experience first as a scientist working on materials and working on the solid state technology that went into these products, and then you pivoted into–more broadly as an investor, as an advisor to companies, that must have been an interesting journey. How did you kind of leap out of the science into the investment side, the business side?
Alain: I can trace that to the following. Number one, brand new, fresh Ph.D. at Bell Labs. It was an extraordinary time. And in some ways, I was lucky enough to be on the development side, not on the research side. I mean, I published papers as a scientist. But on the development side, it's really making things work.
So I was involved in building equipment. I was involved in building factories, semiconductor manufacturing plants. And I really got the epiphany, if you will, that innovation and technology is incredibly valuable once you are able to commercialize it, put it in practice, essentially. Otherwise it's science for the sake of science. That's wonderful. But I think there was a lot, for me, there was a lot more gratification in the ability of putting this technology innovation into a commercial purpose. Okay. So that was at the labs built, making chips, then at Novella systems, selling equipment, building equipment, selling equipment. And this commercialization of technology became one of my really strong passions and interests, and toward the end of the decade 90s or around ’99, 2000, I did have to leave the semiconductor industry. You know, for no other reason than, I was burnt out actually. I mean, I was a CTO of a really successful company. Company was public, the market was incredible.
The growth was fantastic. I was on an airplane all the time. Semiconductor labs are at the time, of course, the United States, Europe, South Korea, Taiwan, Japan. So I was just rotating around the world all the time. So I really needed an ability to do some contribution, do some work where I wouldn't have to travel. As luck would have it, I joined a very early stage venture firm, which introduced me to venture investing. And I spent the next decade from 2000 to 2013 investing locally. Because at that time, venture capital was still somewhat local, mostly Silicon Valley. Thirty percent, thirty-five percent of all the investment were in Silicon Valley, so this ability of being local was a key requirement. And at the same time, being able to now, from the point of view of an investor and my experience, help companies grow. But with a focus, again, on commercialization of innovation, using material science at the basics. And that's what led me into my first foray investing into energy technologies.
Steve: That's a fantastic story. You know, getting your Ph.D. at Temple University and then moving your way all the way through the business cycle. I'm interested, 40 years later or more, I need to do my math here. Comparing today, the U.S. talent pipeline in emerging technologies and with the industrial applications, to back in the day when you were getting your doctoral degree and then entering the workforce.
How have things changed, and is the U.S. maintaining the pipeline necessary to be competitive into the future?
Alain: The short answer is yes. The long answer is it's actually amplified. It's never been a better time to be an entrepreneur, than being in the U.S. And over the last 20 years, there's been a very large amount of notoriety about entrepreneurship, about funding sources of capital, venture capital. Of course, the exits with respect to making a company very successful, and the riches of an IPO, are somewhat few and far between. But, at the same time, there's also a lot of acquisition. So, but, entrepreneurs don't do this necessarily for the money. They do this because they see a tremendously difficult problem, they have a scientific solution and they want to have an impact. So it's really what people sometimes refer to as making a “dent in the universe.”
And I forget who, who created that quote, but. And the United States is really the perfect receptacle for pouring in of all of these ideas. There's never been a better place for a graduate school in science than the U.S. And that's amplified over the last 20 years. If you add to that access to markets and access to capital, access to know how. You know, there is something very special about Silicon Valley that has transpired to other places in the United States. It's the knowledge on how to build and nurture small companies. And it's not just a question of access to capital. It's the ecosystem, of course, the people to work at these companies, but also the legal support, the financial support, and then the community. You know, this is why incubators in the United States have flourished.
And of course that model is copied everywhere, all over the world. But there's no question in my mind that the U.S. is a really preferred premier place for innovation and innovation toward commercialization. So competitiveness derives from that.
Steve: Glad to hear that you're bullish on the future, and that the U.S. as a kind of an innovation powerhouse is still, we still have the right ingredients to keep that momentum going. Which is actually a great time to actually pivot to another country. So we're here also to talk about China, how they're positioned in the innovation ecosystem, what they're doing right, what they're doing wrong, what challenges they're experiencing as well.
So talk to me about China, what you know about their evolution as a powerhouse in various deep technology fields. And what did they do to get to this point? And we can talk about kind of, what the future looks like, you know, for the PRC.
Alain: My experience with working with China, I would say there's one data point and then a long timeline. My first visit to China, to Beijing specifically, was 1996. This was a scientific conference. So, I went there and this was, of course, pre-opening, very different. So, it's the traditional image you have of China before the opening to the West. Very few cars, lots of bicycles. One friendship store, one hotel, that was it. Then of course, China gained access to the World Trade Organization around the 2000 timeframe. And then subsequently between 2005 and 2019, fourteen years, I was in China probably three or four times a year. So 2005 was when I was an investor. In 2013, I became the CEO of an equipment company for the manufacturing of display and most of our customers were in China.
So from 2013 to 2019, you know, visiting customers in China also. That's kind of the background to me. And from 2005 to 2019, I had the opportunity to really work with Chinese companies, with customers, with investors in multiple fields: semiconductor, LED for lighting, solar energy, and of course display. So a lot of these fields that rely on, a lot of this field that relies on material science both. And I was either investing in a company or working with companies located in China, or having customers and investors from China. So, okay.
With that said, with this background, what I've watched is, in the beginning, it was an incredible euphoric state between 2000, 2005, 2010, And with the benefit of retrospect, when premier Xi Jinping became president, the premier of China in 2012, there was a continued excitement about this aspect of entrepreneurship and innovation and this creation of companies that peaked right around 2018, 2019. COVID may have had a lot to do with it, but since 2019, I think China has declined tremendously. The metric that I use with respect to number of venture funds created, numbers of companies started. I think it's, China is in crisis at the moment. So I've watched this incredible rise and there was a lot of collaboration, a lot of, co working, a lot of creativity, a lot of entrepreneurs educated in the West, going back–Chinese nationals, entrepreneurs educated in the West, going back to China, being called back to, the mother country to help create companies.
And they did, a lot of them did.
Steve: So let me just say, there's an interesting Financial Times article, that was published, mid-September in which, a Beijing-based executive is saying that the whole industry has died before our eyes. The entrepreneurial spirit is dead. It's very sad to see. And the article talks about a lot of forces that are coming to play, but talk a little bit about the state of venture capital and the state of innovation in China right now and what government policies might be at play in that trend.
Alain: Before I answer that, let me just add something about the fact that, you know, China has a five year plan, and they've been operating on a five year plan for, you know, the last 60 plus years. And the five year plan in this directed economy is a very powerful document that actually serves as a blueprint for investment. So the five year plan from the top comes down, and then gets distributed towards the different provinces and cities and regions and so on. That has a very powerful guiding impact on how people are spending money and what the incentives are. But what happened as a result of that most recently is, as you mentioned, is the fact that more centralized control of the economy. And also frankly, the entrepreneurs have become too successful.
If you look at people like Jack Ma, essentially a figurehead. Incredibly successful because they created tremendously powerful and successful companies. And as a result of that in a very capitalistic system, benefited from becoming wealthy. And that sense of inequality just didn't sit well with the central party organization.
And there's been a lot of effort to kind of bring this down. So what has happened in the last three, four years is that venture capital is considered China's government money, and therefore no one should become rich with the government's money. So venture capital, you know, I don't have to explain it. In China, it's becoming more a lending organization rather than a venture investing. And it's very different. You know, I hear that some entrepreneurs are asked to guarantee the venture investment, which actually have become loans. So it's very difficult. People don't have the means to put their – they don't have houses to sign a collateral loan, and that's what made venture capital so successful in the U.S. Because in the U.S. for the longest time, no one would lend money to companies. It was too risky and there was no collateral. So if you go back to the banking model of collateralizing an investment, you essentially throttle innovation drastically.
And that's what I think where China is at the moment.
Steve: Sounds like it's the opposite of VC and actually this article also discusses how oftentimes the investors in startups are actually state-limited partners. You've got, you've got government jurisdictions that are investing and they're expecting steady rates of return. That's not venture capital in any definition that the West perceives it.
So that’s quite interesting. And so I guess, big picture, what's that going to do to their innovation cycle?
Alain: I think, big picture, it's a crisis. It's a dramatic downturn. It took place very, quickly in the last three, four years. I think aside from that, you know, there was COVID on top of that. COVID certainly slowed down the economy. We somewhat recovered, incredibly well in the West. I'm talking about your general economy.
China still has challenges. Now, they're trying to inject capital into the economy, but the Chinese population is not spending enough. I mean, they rely on the outside of China as a market for the fueling of the economy. So, stimulating internal consumption has been incredibly difficult. Trying to turbocharge the economy by the government pumping money, essentially, into the bank is not going to happen if the bank are trying to play venture capital by lending money, as opposed to equity. So no, it's a very, very negative scenario. I think that from the competitiveness point of view, China is in a very dark situation, dark place at the moment. And I don't know how long it's going to last. I don't know. I can't think of how you pull out of it. The investors, let's say, are state employees. The entrepreneurs are asked to provide guarantees on return, preferred rate of return. This is not how you build a company. And entrepreneurs are, you know, I don't know what they do. They probably need to either go outside of China, which is difficult, leave China. So there might be, I mean, I think if I were to make some prediction, it's always hard, but I would say there might be a brain drain of people saying if they want to start a company, China is no longer the preferred place to do that. And I've watched it when, in 2005, 2010, 2015, where it was an incredible go-go time. There’s always successes on both ends, right? But on the whole, it was a very powerful momentum that is completely lost.
Steve: It'll be interesting to see how the next, you know, five to 10 years plays out there.
Alain: Absolutely. And this is maybe where I can separate two, two segments, right? There is the competitiveness from, let's say, semiconductor, electronics, communication, AI, you know, 5G, 6Gs, and so on. That's one aspect of the West, us, being in a much, much stronger competitive position. And that's important for national security. It's important for commercial competitiveness as well. And China is falling behind, period.
There's another aspect which you touched on and we should touch on a little more, which is energy and energy transition, and the aspect of the work that we need to do to at some point transition away from fossil fuels over to new energy sources. energy generation, right? So essentially, if I use the number of, let's say, for the U. S., roughly, in the U.S., electricity comes 30, 40 percent from natural gas, coal is decreasing, maybe 12, 15 percent. And then, you know, things like nuclear and so on, right? So how do we move away from natural gas and coal, all over the world to things more like long term nuclear, fusion and fission, but also renewable like wind and energy, wind and wind energy and solar.
Okay. So that transition to my mind is one planet. This is not competitive. We're all in this together, right? So it doesn't matter if we decarbonize completely and China continues, or China or India continues to build a coal plant every week. Because the emissions just travel all over the world. But from the competitive point of view, a lot of the innovations are in the West, Europe and the United States, with a tremendous amount of focus on energy investment and energy transition to both ameliorate the climate change that is taking place, but also finite resources with fossil fuels.
Steve: That's actually a great point to, at this conversation, to pivot into what you're doing now. So since early last year, you've been an operating partner at the Oil and Gas Climate Initiative, or OGCI for short. Tell me about OGCI. You know, what is it? Why was it created?
Alain: OGCI, the Oil and Gas Climate Initiative, was created as a result in 2016, as a result of the Paris Conference of Parties. And it was the coming together of 11 oil and gas companies, putting together an organization, including an investment funds. So, it was $1.1 billion in 2016. We've the purpose of investing in reducing emission and decarbonization.
So the fund had a very specific purpose, which was how do we measure carbon dioxide emission, methane emission. Methane emission has 200 times the climate impact than carbon dioxide in terms of absorption of the infrared. How do we reduce emission, measure emission, and how do we decarbonize industry? So that whole segment started with OGCI eight years ago.
And you know, what's interesting is, the following. If we look at timeline, my first foray into what at the time was called Clean Tech was in mid-2005. There was a first movement of interest in efficient lighting with LEDs, solar generation, wind, of course, battery, energy storage, and it lasted between 2005 and 2012 or so. Where after the financial crisis of 2008, funding projects such as those were, just not–became out of fashion. And the whole venture industry, the whole investment industry started to focus more on software investing. So during the 2012, 2020, 21, 20, or so, so for almost a decade, different terms are being used. Deep tech, clean tech, hard tech. It doesn't matter. This is really, hardware investing became out of favor. You know, in fact, OGCI in 2016 was in the middle of this investment desert, if you will, before it came back into fashion in the last two to three years. Okay.
So investment in decarbonizing industry means how do you–a lot of these problems are well known. How do you make cement with reducing carbon emission? How do you make steel? How do you make better energy storage, how do you improve the grid? So a myriad, and the solution is not going to come from one, one particular solution. It's going to be a thousand solutions or maybe 10,000 solutions, right? So the first take on solar, for example, the first real application of solar in 2005, 2006, 2007, generated a tremendous amount of interest. Tariffs in Germany, tariffs in Spain, tariffs in Italy that provided a level of support that all of a sudden, it became financially viable.
One of the key things that people sometimes forget is it doesn't matter how good the solution is. If it's not viable financially, people will not adopt it. At the end of the day, if you want to buy a solar panel, it has to be cost effective with respect to the electricity you're buying from, let's say, the grid that is using natural gas, right? Then what happened with solar energy is this was a time where China was booming and China went from zero to 50 gigawatt of capacity in a couple of years. Dropped the prices tremendously, made solar extremely successful, but it killed a lot of company making solar panels in the West. Last year, 2023, almost a gigawatt a day was installed in the world. So 360 gigawatt of new solar installation. I would say 98 percent of the panels came from China.
So put that aside. And here we are in 2024. I think there's a recognition that we need to do work on transitioning the energy sources from fossil fuel to a renewable energy of all kinds. And a lot of work is going on.
The problem hasn't changed. The solutions are somewhat similar, better materials, better storage, better generation, but we still have to overcome what I would call the–when you grow technology, you have multiple steps of adoption. So you have the science of course, and then you have the first prototype. And then when you have the first prototype, then you have to make a product, and people now call that the first-of-a-kind and the attribute that moniker to, let's say, the first solar factory or the first, large scale energy storage or the first hydrogen manufacturing facility, this first-of-the-kind project requires a fair amount of capital. Tens, if not hundreds of millions of dollars. But once you've done that, and you've proven that you can get on the cost basis, competitive, in terms of energy production, then after that, it's easier. You know, the nth of a kind or the seventh of a kind, it's cookie cutter, right? So climate investment is part of an ecosystem of climate investors. And fortunately, both in the United States and in Europe, I think there is a solid front of a lot of dedicated investors doing these projects.
Steve: Technology maturity. For OGCI, what are you looking for in terms of a technology to invest in? Where is it in its cycle, as you mentioned, and then perhaps the founding team. Yeah, what are you looking for?
Alain: We look at both early stage, you know, so we'll do series A, series B, so early stage beyond the prototype series. So it's both early stage capital, but we also have a fund that provides growth stage capital. So companies that already have some revenues. So energy intensive sectors, so that would be energy system, building, transportation, cement, steel. I can pick up a few ideas from our portfolio recently: vacuum insulated windows. Windows are everywhere, obviously, and we've gone through single pane to double pane. Vacuum insulated windows have always been a challenge to make cost effectively and reliably that the window lasts for, you know, 20, 25 years or so. So we made an investment in a company that makes, we think, the best vacuum insulated window. Another, recent investment is recycling magnets. Now it doesn't sound like much, but only one percent, one to two percent of magnets are recycled. So think about magnets almost everywhere, from motors to a disk drive.
Everything that has a little motor has a little magnet. Magnets contain rare earths. Rare earth is a very critical source of material, materials, rare earth, most of the materials come from China at the moment. So again, this competitive aspect. So recycling magnets is a big deal. You can recover a magnet. We've also made investment in steel, you know, carbon steel. We have a fair amount of investment in methane measurements, from ground based measurement to drone measurement to airplane based to satellite. Why is that important? Because you measure methane emission all over the world from facilities that handle natural gas, and if you can't measure it, you can't fix it. So all these leaks and all of these–or either, you know, accidental or upgrading equipment becomes really important. So a whole range of, what's different about climate investment is, we look for financial return, that's very important. But we also look at quantifying greenhouse gasses reduction. So all of our portfolio companies and their customers measure how much greenhouse gasses reduction on an annual basis, and we publish that. It's audited and so on. So we have two levels of return, reduction of GHG gas and also a financial return.
Steve: That's great. Let's move on to talking about governments and their roles in fuel innovation. We've just spent time talking about how private investors, venture capitalists, you know, inject and fuel innovation. But governments also make investments in technologies with national security implications, or otherwise advance some sort of a public policy aim.
And so the U.S. government, as we know, from massive appropriations into climate issues, into modernizing the power grid, and so interested as to whether you've had interactions with U.S. government programs for some of the areas that you've worked over your career and more recently at OGCI. And what are some of the notable programs that you think are actually working, and how is the U.S. government as kind of, as a partner in fueling innovation and clean energy?
Alain: I did have a multiplicity of touchpoint to the U. S. government. I mean, one thing that I didn't mention is during the pandemic for almost three years, I worked with DARPA as a commercialization advisor, helping both the DARPA team and the DARPA performers think about commercialization of technology.
Steve: So that's the Defense Advanced Research Projects Administration.
Alain: And, you know, I also spent some time with a, fellowship organization called Activate that receives a fair amount of funding from NSF and DOE and DARPA. So, you know, if I were to kind of bucket–there's two, two main buckets for government capital, if you will.
One is innovation, very early stage. A lot of money is incredibly powerful as leverage to go through the NSF, through DARPA, to foster innovation in university at the research level. That's, these are essentially grants. Okay. This is our investment in our innovation infrastructure. When it comes to energy specifically, the government does not make equity investment, it can't fund companies.
But what they do is they provide loan guarantees, and loan guarantees really become important because when you are in need of, let's say, and I have some experience in that with some of the portfolio companies that I've worked with. I'll give you an example, which is large-scale energy storage or geothermal energy production. Geothermal is a good example. You know, we are the number one–the United States, we are the number one producer of oil in the world. So we have a lot of wells everywhere, and some of these wells are actually pretty deep. And there are some ideas of reusing these drillings, once the oil is exhausted, there to actually do geothermal. So you inject water. It's deep enough. It heats up because it's hot, and it comes back up. And now you have hot water you can turn into steam and generate electricity. Okay. You still need to build the first-of-a-kind. And for this project equity investment becomes really expensive.
So this is where you would like to be able to borrow money, but the banks find it too risky. And that's where the government comes in. So this loan guarantees from the government is saying, okay, the bank can loan the money to the company, and the United States government will backstop those loans if this don't work out. This program was actually really successful 20 years ago in 2005, 2007, as a whole. There were some companies that didn't make it and lost the money, but as a whole, the program was incredibly successful. And that's a very powerful way for the government to be able to use government to do that. It's very different than what China does because that's, you know, that's not the same system. But so capital for innovation at the very early stage, then there is the role of entry capital kind of in the middle, but companies that then need a fair amount of capital for large scale facilities benefit from the loan guarantees. And that is really powerful.
Steve: So that's where you see government programs as being particularly useful. And, is there enough attention in that area, or is it kind of spotty? There's examples where this has worked well.
Alain: Too early to tell. Because the investment capital only came in, I mean, it was passed into law about two years ago. The CHIPS Act and the RRA was about two years ago. So now we're starting to see the capital being deployed. So it took two years. Now, this is the nature of our system, it takes a long time.
That's, maybe that’s something, I don't want to go there. I don't know how to improve it. I don't even know how this works, but I know that it takes a long time. It takes a long time, but it's there. So that aside, it's having an impact, because I know if you go back 20 years ago, this loan guarantee program actually worked incredibly well. The fund made a lot of money for the U.S. government that is, on this loan guarantee. The bank made money, the government made money. So that's a very powerful way of getting big chunks of capital to be able to deploy that into real, valuable projects on the energy side. Because at the end of the day, energy requires infrastructure, and that's what's happening here.
Steve: Let's look ahead. So what are some of the macro trends or the key factors that you see influencing both U.S. and also Chinese technology competitiveness? What does the future look like, both in terms of how each system is fueling and encouraging the innovation cycle, and our relationship together in producing and both creating the innovation and also manufacturing the products that need to bring these technologies to fruition?
Alain: So if we look specifically, COVID was incredibly timely, powerful, of course, a tremendous amount of suffering, but it decoupled the Chinese economy from the West economy. And that decoupling made us realize the globalization interconnectedness and the supply chains’ resiliency, or lack thereof. You know, I mean, people remember cotton swabs and because we're missing the little plastic sticks that came from a China, you know, manufacturing. I mean, many, examples like that.
So there's been an effort in the West to reconsider reinventing manufacturing. Not just reshoring manufacturing, because that's very hard, but reinventing manufacturing. And that's been going on for the last three, four years. How do we manufacture things differently without having to ship, you know, our designs over to China or Vietnam? We're still doing manufacturing in Vietnam and China. We're not, we haven't stopped. I mean, that's not an open secret. That's not even an open secret. You know, we still rely on manufacturing out of China.
So, but there's also this, very strong consciousness that we need to rethink the manufacturing cycle, right? So reinventing manufacturing is a big deal. From an innovation point of view, I absolutely feel that the West is separating and China is falling behind. It's falling behind from a point of view, let's say with respect to, the competitiveness on the geopolitical aspect, with respect to access to semiconductor and chips, it’s falling behind. But also the fact that innovation is going to fall behind in China because of what we just talked about, the lack of innovation capital, venture capital, right? So that also is going to impede China's ability to kind of be competitive in many, different sectors. Not just military sector or communication, but also access to new technologies for, you know, be it rockets, the way SpaceX is doing it, to new generation of small nuclear reactors that we have underway in a dozen of companies in the West, energy technologies as well.
So I can see how, unfortunately. This decoupling is really, really in our favor in many different ways. There's competitiveness about manufacturing, and this realization that we cannot really depend on China completely a hundred percent. And the value, there's value in resilience of the supply chain.
Steve: Yeah. So you mentioned resilience in the supply chain to make sure that the goods can get to where they need to be, and things like global pandemics or other disruptions to global shipping don't put the West in the position they can't get what they need. But then there's the other thing we didn't talk about, which might also be a factor that's in the back of people's mind, is by bringing technology and high tech manufacturing to China, are they putting their intellectual property at risk? And so, you know, how much is that factoring in?
Alain: In the 2000, 2005, 2010, that was a massive problem. U.S., not just U.S., but Western companies would come into China and that technology would be– you know, there was such a hunger for manufacturing things that they would, they would literally steal and copy and just do it down the street
Steve: Just make it themselves.
Alain: And sell it back to us, right? So that has happened. It got better for a while because there was an emphasis on intellectual property protection. Of all the things that it got better was the following, right? What the impetus was the following. There was a time where people may remember movies on DVDs. Okay. Pirating DVDs was a big problem. So, you know, you could buy a DVD in Asia, that was a pre-released movie before it came out in the U.S., right? Because it had to do with people. It's a long story, but you know, DVDs were sent out in advance to the academy members to vote, blah, blah, blah. So they got copied. But the reason that got calmed down, aside from the technology moving over to streaming, is that the Chinese movie industry was pirated as well. And they were complaining. So the government said, okay, we need to protect DVDs. So it's really interesting, you know, so it was in their interest. It became in their interest to protect intellectual property. So that became a lot less of a problem. And then we had this decoupling with COVID. So, and on top of all that, because of the geopolitical– I'll give you one very specific example without mentioning names, but looking for manufacturing supply chain outsourcing. One of the company I work with specifically is moving everything out of China to either Vietnam or India, finding partners that are more, I would say, along the same lines of thinking and political than China.
So that is also this aspect of recreating supply chains that are more resilient, not because they're in the U.S. or in Mexico or in Canada, in the North American continent, but because we are with partners that we feel a much longer term alignment.
Steve: So let's end on this. So ending where we began, in terms of your outlook, are you bullish or bearish on the U.S. outlook for innovation and global competitiveness in these high technology areas?
Alain: Very, strongly bullish, We have, by many characterizations, we have the best system for innovation and nurturing of innovation. We have the best system for funding early stage companies to kind of try attempting to get these innovation from the scientific side, to the engineering side, to the product side. We have big markets in the U.S. and in Europe. We have somewhat well meant government support. So we can navigate through all that to get to a point where, generically, most of the solutions will be cost effective of cost advantages compared to the existing way of doing that.
So incredibly bullish. Yes.
Steve: Dr. Alain Harris, thank you for joining us today at Technologist Talks.
Alain: Steve, it was a pleasure speaking with you. Thank you so much.