The Decline of Industrial American Science
And what I think we need to do about it.
A quick update about me. Feel free to skip it.
I got fired from the FDA by Jeffery Anoka over the Valentines Day weekend and I talked about it here. I was just a little bit sad, but mostly angry. I wasn’t surprised that it had happened, but I was angry that I was 1) no one seemed to really care out in the world 2) it was becoming normalized. My anger boiled over in the form of me talking to the New York Times. My mindset at the time was that I would never be going back to the FDA, but my hope was that speaking out would result in some of my coworkers getting rehired. A few days later I would be “rehired” with a bunch of my coworkers, but not everyone decided to come back. The next big thing we are facing is widespread reductions in force within the government and no one really knows how it will play out, but if the Department of Education is any sign, things could get grim. Ironically, all of this plays out as the US government spending hits all new highs. Federal employees only represent 4.3% of the US Federal Budget. When compared to a household budget Federal Employees are somewhere in the realm of going out for dinner twice a month. The repercussions of this could be felt for decades to come.
The Decline of Industrial American Science
A somewhat managed decline of the entire United States chemicals sector has led to dramatic decreases in the investment to new research areas in chemicals and materials. The paradigm we have now of using crude oil is the best option we have to meet demand. However, the use of crude oil and the associated externalized costs, are making it more difficult to have domestic manufacturing and consequently more difficult to invest in innovations that would take us into a new era. We are stuck in a doom loop, and we are being led by people who do not have the vision to escape it. Going to Mars will not solve our problems here on Earth.
The Current Paradigm
If you are new here, I often write with some amount of disdain for how corporations treat their teams dedicated to innovation, and these people essentially equate to being there to maintain existing product portfolios. Ronnie Chieng perfectly encapsulates the vibe of the problem as most people experience it via his recent standup special on Netflix.
I think there are probably plenty of assumptions and errors that Ronnie makes in his joke, but it does seem to perfectly encapsulate what I’ve seen within the manufacturing base of the United States. Our cultural and economic peak, to me anyway, seems to have been around the 1985-2005 timeframe. This also weirdly seems to coincide with the rise of private equity and was crystallized forever in the movie Wall Street. Our society seems to be perfectly encapsulated in this clip from Gordan Gecko, who says, “it’s all about bucks kid, the rest is just conversation.”
This private equity mindset that is maybe exaggerated in Wall Street and the joke that Ronnie Chieng tells set the stage for where we are today. Domestic manufacturing in the United States is in a rough place to be and the extraction of oil, its refinement, and turning it into chemicals is one of the last bastions of vertically integrated supply chains and manufacturing that remains in the United States. However, as the legacy manufacturing sites that are inherent to chemicals get older and more costly to upkeep, they get shutdown, and the manufacturing capacity gets moved somewhere else. There appears to be an excess of capacity in Southeast Asia according to McKinsey:
Capacity additions often led by state-owned enterprises far exceed demand growth, especially in Asia. As an example, in the five years between 2023 and 2028, China is expected to add more than 20 million tons of annual capacity in polyethylene, while its annual demand is expected to increase by less than 10 million tons. The country’s accelerated drive for self-sufficiency, fueled by economic and geopolitical forces, may significantly change trade flows in many value chains. The effect of this shift is nuanced and depends on the interchangeability of product grades, shipping economics, and tariffs. It nevertheless has, in general, depressed global capacity utilization rates and industry margins outside China. Meanwhile, regions with cost-competitive petrochemical feedstocks, such as the United States and the Middle East, have also continued to increase capacity and production, putting pressure on industry margins, especially in Europe.
The truth is that it is really difficult to build a new chemical plant in the United States. Companies have concerns about regulation, runaway costs, and staffing. Chemicals executives want to be able to tell their investors that “by 2030 we will have 2300 kT of capacity come online at our site.” The reality is right now that it’s tough to do this and perhaps it’s why we have started to see Lee Zeldin starting his cuts at the EPA.
I don’t anticipate cuts at the EPA to spur increased investments into domestic US manufacturing, but rather only to slow the closure of plants and reduction of lawsuits to companies who violate the Clean Water and Clean Air Acts. To me, the EPA was the government’s proverbial hammer to the existing paradigm to change, the problem was the hammer of the EPA often hit the companies trying to enact the very change they were trying to encourage. If you have ever tried to get a new chemical that you thought was safer and more effective to market through the premanufacturing notice process, then you know that the game feels rigged for you to lose. The American Chemistry Council (ACC) has a decent overview of the issues plaguing the EPA here. Yes, the ACC are the lobbyists that represent an industry who many consider to be reprehensible, with good reason too, but I think they have a point with respect to the EPA process for new chemicals being very slow.
One of the brightest lights of American chemical innovation, DuPont, is a shadow of its former self. Back in February of 2024 I wrote:
DuPont is struggling to get profits commiserate with a true specialty chemical company and they are more akin to a commodities company…
I’m a bit disappointed that the company is not able to return higher profits to shareholders. I guess it’s a competitive market out there. I think the main issue here is that the true specialty division (electronics) is getting held back by the other cash cows. This feels ripe for an activist investor like Starboard to come in and shake things up (they already messed with DuPont on the Rogers acquisition and Corteva).
By May 2024, DuPont announced that they were going to split the company up further:
Under the plan, DuPont would execute the proposed separations of its Electronics and Water businesses in a tax-free manner to its shareholders with New DuPont continuing as a premier diversified industrial company following completion of the separations. As independent entities, both Electronics and Water will benefit from increased focus and agility in their respective industries.
The Decline
The current industrial paradigm helped set the stage for the decline of industrial American science. This is in part due to the fact that it became more and more difficult to get true blockbuster hits to market as the chemical industry matured from the 1920s to the 1980s. DuPont went from a bastion of American Industrial Innovation to a skeleton crew trying to find some innovation that could be commercialized into the new Kevlar. As it became more and more expensive to get new innovative products to market, and as environmental problems kept popping up and creating immense liabilities, the Innovation went from big and bold to small and incremental. A phrase that better describes the research and development programs that rivaled or exceeded academic institutions was rebranded into technical service.
The best and brightest do not want to get degrees in chemistry or physics or chemical engineering so that they can go work for a DuPont, Dow, or Ashland. These companies are essentially indexed to US gross domestic product. Growth is nice during a sudden spike in demand and anemic the rest of the time. If you are young, smart, and motivated to make a lot of money then the chemical industry is not the place you want to be. Even if you are a private equity genius—you will probably get roughed up by the chemical industry. I got to experience the decline firsthand and sure there are some areas where there is growth (e.g., electronics), but for the most part there is too much capacity, or the existing capacity is too expensive to maintain. Why do you think I left and went to the FDA?
The Upshot
The upshot here is that I think innovation will find a way in spite of the current industrial paradigm and the decline of industrial innovation. There is some technical success happening in startups that I cover here. I define technical success as the thing you wanted to make works as you intended and a good example was when I wrote about Bodi. However, the company failed to raise another round of funding and is out of business. The technical idea of making a better battery separator was sound, appeared to be feasible, was achieved technically, and demonstrated the promised performance in application. I’m speculating here, but I suspect the cost of the material was significantly higher than the industry wanted to pay, and they couldn’t convince investors to kick in another round of funding to get down the cost curve.
I think there are a bunch of start-ups out there that are in the process of going bust. They are public and private companies, but for the most part I think they all share a similar issue:
No clear path to profitable commercialization. This was ultimately the issue for Zymergen. This has been the issue for Danimer Scientific. Even some of the start-ups I’ve written about here I think are in trouble.
The best technology in the world will not save your company unless it meets the following metrics:
It saves customers money on a chemical or product they already buy.
It improves performance so significantly at a marginally acceptable price increase that to not adopt it means they will lose out to a competitor who will.
These are the only two things that matter in my opinion. You could be making chemicals from sugar, human waste, shrimp shells, or sugarcane bagasse and as long as one of the two above metrics is met, I think you’ll be successful. Bonus points if you can do it without significant capital expenditure. There are some companies out there that are trying to make this a reality too. Maybe later in the year I’ll be covering them.
Maybe it’s not so much a decline, but rather a change of course without a map. As my kid likes to shout out, remember this if you are a start-up in the chemicals space:
Into the Unknown!
This is a really excellent and accessible discussion that should be widely read!