James Webb Space Telescope and a definitive achievement of the human intellect

This is a newsletter about “Securities” — national security, economic security, health security and how all those myriad of securities aggregate to human wellbeing. It’s been a slog covering this beat in 2022, with an economic recession driving up hunger in the developing world, Russia’s land war against Ukraine, and the ongoing and growing toll of Covid-19 and now monkeypox. Positivity is elusive when political leaders are resigning (UK), getting shot (Japan), sort-of-kind-of resigning (Italy) and having their official homes ransacked by protesters (Sri Lanka).

But damn, sometimes we can just leave the bleak and sinister reality of this blue jewel for the vivid celestial cosmos that abounds.

By now, I hope most “Securities” readers have taken the opportunity to peer deep into the furthest reaches of space and time offered by the first photos taken by the James Webb Space Telescope. I covered the telescope’s intrepid movements a few times in the newsletter, and our anticipation has now been rewarded with some of the most stellar (hardy-har-har) photography of galaxies, nebula, and the vast blackness of space that our species has ever produced.

If the response on Twitter, news channels, commentators and among friends is any indication, this feat has placed much of humanity in a pure state of awe. Why is that, and is that magic reproducible in other contexts?

First, the photos touch on something we don’t get to experience all that often anymore — the sublime, which the New Oxford American dictionary defines as “of such excellence, grandeur, or beauty as to inspire great admiration or awe” and Wikipedia condenses to the “quality of greatness.”

Witnessing these photos is a transcendent experience, but one deeply embedded in the fabric of humanity. In an era mostly bereft of spirituality, the Webb’s photos recontextualize each of us into the grand narrative of our species, our planet, and the universe. They’re a reminder of how small we are, how tribal, how riven with hatreds and divisions we can be, when really, do those twinkling stars give a single iota of care at all?

As modern artists increasingly trivialize their crafts to satisfy the whims of tasteless consumers, it’s downright refreshing to undergo an aesthetic experience that’s both authentic and awe-inspiring. This week was an opportunity to glimpse humanity’s grace and exceptional performance at its acme.

Second, the Webb telescope is nothing short of an incredible feat of engineering and a definitive achievement of the human intellect. Reams of articles and documents have been written about all facets of the telescope, and it’s unfair to try to summarize that copious work in just a few lines. But let’s just say that the constraints the Webb team faced, from building the telescope and launching it into space to positioning it at precisely the right Lagrange point in our solar system and now keeping it maintained, are legion and exacting.

We need these achievements, if only to remind ourselves that there is unlimited potential and ingenuity stocked up among H. sapiens. As I wrote last week in “Dissonant loops”:

What we have seen so far in this destructive phase is a completely limp and listless response to challenges that are hardly the toughest we’ve ever confronted. We’re talking supply chain disruptions, a phenomenon that’s modelable, controllable, fixable. If America can build the arsenal of democracy and fight fascist dictatorships in two theaters during World War II, we can deliver infant formula and put a consistent number of planes in the sky. We can get ships to port, unload said ships, and propel those vessels back to where they came from. We know how to build factories, and we know how to build them fast. That’s as true in America as it is England as it is in France.

None of our problems on Earth require the ingenuity demonstrated by the Webb engineering team. Food, water, housing, health, and employment crises are all human made with off-the-shelf solutions available whenever we want to use them.

Third, there is a universal joy that the sublime and this achievement offer us. Distant galaxies were splashed across front pages all around the world, with newsstands becoming their own universes of potential. No one is naive to think that the Webb’s first success is being ignored by national leaders — the space race is very much “on” between America and China, as well as Russia, Japan, South Korea, India, Brazil and others. But the possession of these images feels open, liberal, something shared collectively as a whole rather than owned individually by any one faction or government.

There is something anti-tribal about this form of scientific progress, a reminder that our daily zero-sum international politics and economic battles can actually be positive sum in the asymptote. Progress doesn’t need to be owned and wielded against others; sometimes, it can really just offer everyone a better life, or at minimum, aspirations for a better future. It’s a nostalgic throwback to the progress witnessed since the 1850s, as living standards were transformed for hundreds of millions and now increasingly billions of people.

Fourth and finally, the Webb telescope is a triumph of globalization and cooperation. By NASA’s estimate in 2020, “Thousands of scientists, engineers, and technicians from 14 countries, 29 U.S. states, and Washington, D.C. contributed to build, test, and integrate Webb. In total, 258 distinct companies, agencies, and universities participated – 142 from the United States, 104 from 12 European nations, and 12 from Canada.”

Those statistics belie even further globalization though. The openness of U.S. borders and America’s magnetism for top scientific and technical talent is the linchpin that supports this work. The universal curiosity in the Webb’s photos are only matched by the universal talent available to us when we keep the drawbridges lowered and allow every person the full support to pursue excellence in their work.

Webb is the world — and America — at its finest.

We can’t forget the immense challenges that face us right here on Earth, but we all need the reminder that the grand fusion of billions of human minds can offer us so much more. Those distant galaxies are worth the effort to peer into, since in focusing on those distant stars, we reflect a light back on ourselves.

“Securities” Podcast: Shoving the rocket into space with your bare hands

SpaceX has grown from nascent dreams of the final frontier into the world’s premier commercial space launch company, with dozens of successful missions that have continually become more and more ambitious. Now, there’s a budding ecosystem of SpaceX alumni who have left the mothership to build their own companies, taking the culture and values they learned and applying it to problems they saw at the front lines of space innovation.

On today’s episode of the “Securities” podcast, host Danny Crichton interviews two of those alumni, Laura Crabtree, the co-founder and CEO of Epsilon3, and Will Bruey, the co-founder and CEO of Varda Space. Laura and Will shared a cube at SpaceX, and are now building software and hardware startups, respectively.

We discuss how SpaceX’s culture shaped their perspectives as entrepreneurs, why they chose different problem areas of space to tackle, how the 2022 financial markets impact their approach to growth, and how they think about company building and the Los Angeles / Southern California hard tech ecosystem.

Recommended reading for this episode: Liftoff: Elon Musk and the Desperate Early Days That Launched SpaceX 

News: Startup Epislon3 hopes to expand Pentagon reach with launch ‘software service’

Epsilon3’s space industry OS powers more than launches as it brings in $15M in new funding

Varda Space Industries closes $42M Series A for off-planet manufacturing

No longer tolerating the decline of American industry

The history of economic progress is the study of tolerances. Social tolerance is the linchpin for closing a transaction: a buyer and a seller both have to understand, respect and trust one another in order to do business together. But that’s not the only form of tolerance involved in progress, for tolerances are also at the heart of industry and manufacturing. In fact, it’s reasonably fair to argue that the entire wealth of the world has come from the increasingly cheap availability of precision around our collective output.

For millennia, manufacturing was conducted by hand, with every tool and part custom crafted. There’s a quality of workmanship in such work, which is why handmade goods often fetch a premium for consumers today and many historical products are on display at museums. With manufacturing though, those loose tolerances are taxing. If parts are variable in size and quality, then the assemblage constructed from them will similarly be variable in reliability.

The Industrial Revolution brought a number of innovations to these processes. Machines powered by steam handled more manufacturing work, delivering a more consistent product. Specialization of labor, as Adam Smith famously depicted in the pin factory in The Wealth of Nations, enhanced quality, allowing workers to hone their technique and craft goods to tighter specifications. That additional precision allowed for interchangeable parts — ultimately leading to the rapid economic progress of the past two centuries.

Yet, there’s never enough precision. In semiconductors, extreme ultraviolet lithography equipment from the likes of ASML has to perform in the nanometer range under exacting constraints. Satellites must be built with absolute precision to survive a launch into space and on-going operations. The most advanced forms of medicine require extraordinary attention to sequencing and potential polymorphs.

Even more vexing, it’s a recursive problem. In order to build a rocket, its parts must be precisely produced. That requires manufacturing equipment that must itself be precisely designed to offer the necessary degree of manufacturing tolerance. In order for the end product to be within the tolerances required, potentially dozens of layers need to be equally up to the task.

All of which is to say that precision manufacturing is one of the most important ingredients to long term economic growth and human flourishing. Every additional degree of tolerance we can tighten — at cost or cheaper — can open up a wide range of new applications that have never been possible before.

I talked earlier this week here on “Securities” that the world needs more investment in capabilities and not markets. Few areas are more ripe for improving capabilities than manufacturing. People really will come if you build it, because better tools and processes means that parts that couldn’t be built at all or couldn’t be built as cheaply before suddenly become available.

Nowhere is this more obvious than in space manufacturing, where launch costs continue to decline but purchasing the right parts remain an incredible chore. Getting the manufacturing tolerances right in this business is crucial: a single part that’s slightly off spec could result in complete failure, or worse.

It’s a tight-knit industry, and social tolerances matter just as much as manufacturing performance. Space companies outsource the bulk of their parts manufacturing, and there are thousands of small shops attempting to fulfill these custom demands as accurately as possible. Paperwork abounds, and errors can creep in even with the best of intentions. As we looked into space manufacturing deeper, we saw potential for a company that could solve both the repetitive hard work of manufacturing to exacting specifications with automation while also building software to better integrate the space supply chain together.

That led us to Hadrian, which makes precision engineering for space, aerospace and defense easier and cheaper than ever before. Founded by Chris Power, it’s a company that couples the best of autonomous factory design with a software stack which verifies that tolerances are always maintained across the supply chain.

We backed the company with Founders Fund last year in its $9.5 million seed round, and we’re doubling down today by leading the company’s Series A round. Lux partner Brandon Reeves will join the company’s board. We’re also excited that the company is announcing that Katherine Boyle of a16z is leading a Series A Prime round, joining the company’s board as well. Hadrian raised a total of $90 million across the two sequential rounds of funding.

The reasons for our enthusiasm for Hadrian are manifold: the company has rapidly recruited an exceptional manufacturing team; it has developed relationships and signed key customers in its target industries; its manufacturing systems are quickly reaching maturity; and its supply chain and procurement software is already receiving notable traction. All this in a matter of months, too.

Perhaps most importantly, our view that space has limitless potential for economic growth has only expanded and intensified over the past years. The rapidly improving cost calculus for space flights is empowering a whole new generation of uses for launch vehicles, from manufacturing and pharmaceutical research to installing satellite constellations in low-earth orbit. Meanwhile, increasing geopolitical competition between the United States, China, Russia, India and others has made space an important environment for national supremacy.

In short, we’re going to need more precision manufacturing for these industries than ever before, and we are going to need that precision at ever lower costs if America is going to effectively compete. To get there, we’ll need better automation at lower tolerances, while also increasing the leverage of human workers throughout the cycle. Hadrian is building precisely the capabilities America and the world needs just as it wants them — and the history of economic progress continues.

The complex interactions between antitrust and national security

The Department of Defense published a fascinating report yesterday analyzing the defense industrial base and the notable consolidation of prime contractors — the contractors who directly interact with the government as project managers and who then outsource much of their work to other subcontractors.

The details are grim: “the number of aerospace and defense prime contractors shrank from 51 to 5: Lockheed Martin (LM), Raytheon, General Dynamics (GD), Northrop Grumman (NG), and Boeing.” A table compiling different markets for acquisition and the trends around prime contractors vividly shows this pattern:

Horizontal and vertical consolidation has concentrated market power down to a handful of prime defense contractors, and in many cases, to sole-source suppliers. That drastically weakens the resilience of the defense industrial base, and also limits the competitive pursuit of the most advanced research and development.

The report was initiated by a Biden executive order in July 2021, and the current administration seems poised to intensify antitrust enforcement. Just this week, Lockheed Martin called off its $4.4 billion acquisition of Aerojet, a maker of rocket jets, due to regulatory roadblocks.

Antitrust enforcement is clearly in vogue in DC, in Beijing and across much of Europe, but there are challenging intersections of interests between competition, scale, and national security that remain entirely open questions as governments actively rein in the size of technology businesses.

When it comes to national security concerns, scale — in general — is good. As I wrote last week in “The West’s self-defeating technological sovereignty” on “Securities,” Berlin blocked the acquisition of chip wafer producer Siltronic by Taiwan-based Global Wafers out of a desure to protect its domestic industrial base. Yet, that autarky means that Siltronic will remain the distant number four competitor in the wafer market — a market that requires its participants to constantly invest vast quantities of new capital to effectively compete. By blocking scale, Berlin managed to limit the long-term health of its own industrial leader.

We see a similar tension in antitrust debates over Big Tech companies. America wants its tech giants to be globally dominant in a world where alternatives (particularly Chinese giants) are rapidly expanding in emerging markets. Yet, while splitting up Google or Apple or Facebook may add competition to the U.S. consumer market, it will also stifle the ability of these companies to effectively and financially compete in overseas markets. Ironically, such antitrust actions also opens the U.S. market to more overseas competition as well.

It’s a problem of scale. Social networks, search engines, defense programs — all of them lend themselves to monopolistic incumbents. It’s hard to have 10 simultaneous social networks, any more than there are going to be a dozen search engines or 20 companies building jet fighters.

In fact, the scale problem is particularly acute in defense tech, where huge scale is often required just to design and build major programs in the first place. The Gerald R. Ford-class aircraft carrier — one single ship, to put in bluntly — has taken roughly 15 years and $13 billion to construct as I wrote about in “Defense Fordism.” It’s an insane amount of money, but it’s also a market design that’s fundamentally monopolistic — there aren’t going to be multiple aircraft carrier companies. Lockheed Martin owns this market, and it is going to own it for the duration of the Ford’s lifecycle.

The primes are a disaster, but it’s disastrous by design. Massive, complex programs need one originating and responsible contractor — and that’s true for the vast majority of the work that the Pentagon acquires. If we migrate to a world of cheap, flexible, and autonomous — it’s possible to imagine a robust and competitive market to fulfill these contracts. But when the Air Force has a next-generation plane and the Navy one next-generation aircraft carrier — there’s a limit to how much competition can feasibly be supported.

Indeed, that’s the balancing act of resilience across supply chains in general. Customers — whether the Pentagon or everyday consumers — are already struggling with price inflation, and that doesn’t even include the overhead cost of supporting multiple suppliers to maintain resilience. It sounds great to have more competition — but the key question is whether competition would automatically lower costs enough to compensate for the overhead of having multiple competitors. The Pentagon is a fairly zero-sum budget — everyone can’t win more without more defense appropriations from Congress.

To the Pentagon’s credit (and probably to the chagrin of some antitrust acolytes), the DoD’s report is quite frank about its limited ability to effect competition in a range of industries, from microelectronics to materials. For instance, in regards to critical materials:

Critical materials manufacturing is capital- and time-intensive. Mining and processing concerns are risk-averse while capital recovery times are long. Furthermore, pricing of mined material is inelastic while downstream manufacturers more rapidly change suppliers and product formulations to obtain the lowest cost source. Companies are disincentivized from spending money on a project without surety of a profit in the long run. Changing the structure of the supply chain for these materials is difficult without government incentives and partnerships with the private sector. 

While defense industry consolidation has been triggered by private equity firms and a general desire for efficient return on capital, the reality is also that such consolidation has been a survival mechanism in a competitive world where as the Pentagon notes, “Competition in the critical materials sector is distorted by political intervention and unfair trade practices in adversary nations.”

As I noted earlier in the post on technology sovereignty:

It’s the unfortunate complexity of modern industrial policy. Saving a company may mean selling it for parts, or selling it overseas to the one global company that might be able to make it a thoroughbred. Sometimes it is about losing the least, rather than gaining the most. Such are the tough choices in a competitive market where other companies have taken the lead.

Antitrust is not the panacea it’s often depicted. Just lopping off the heads of the giants doesn’t suddenly make for a fair market. If the structure of a market forces consolidation, no intensity of antitrust can or will change that. Big isn’t definitionally bad. But it can be. The challenge is knowing the difference, and targeting the worst offenders with a surgical strike rather than blasting an entire industry. The challenge of antitrust and national security is how opposed the two demands can be.

The autonomous war pivot

The war in Ukraine, if it comes (or came overnight — these things move fast), may well be one of the last wars we can process with human perception.

Much as the Boer War in South Africa at the turn of the twentieth century offered a savage preview of the weapons and tactics to come in the Great War, today’s conflicts foretell how war will be experienced in the coming decade. Unmanned and in some cases autonomous drones have already been used offensively in North Africa and Syria. Moore’s Law, which so far seems to apply equally to drone technology as it did to semiconductors, implies that the capabilities of autonomous hardware will increase exponentially while costs decrease. Full autonomous war is just around the corner.

The Pentagon is certainly aware of the future, but is it positioned to succeed? Drones and autonomous weapons have been studied for decades, and concerns about doctrine have been just as forthcoming. Paul Scharre at the Center for New American Security wrote a great book titled Army of None exploring the intricacies of the future of this warfare back in 2018. Yet, it’s one thing to ponder and strategize — another to actually experience and fight such a war firsthand.

Sue Halpern of The New Yorker had a great story this week on how this revolution is going to be experienced. She explores DARPA’s autonomous dogfighting challenge, with a specific focus on how human pilots are adapting to this new future of artificial intelligence:

In one scrimmage, his plane and the adversary’s chased each other around and around—on the screen, it looked like water circling a drain. The pilot told [Katharine] Woodruff [a researcher working with SoarTech] that, though he let the A.I. keep fighting, “I know it is not going to gun this guy anytime soon. In real life, if you keep going around like that you’re either going to run out of gas or another bad guy will come up from behind and kill you.” In an actual battle, he would have accepted more risk in order to get to a better offensive angle. “I mean, A.I. should be so much smarter than me,” he said. “So if I’m looking out there, thinking I could have gained some advantage here and A.I. isn’t, I have to start asking why.”

Latent throughout the piece is the same laconic dread that has animated American manufacturing for the past few decades — the sense that machines are taking over, production is being outsourced to “others,” that a way of life is vanishing. The Fordism that brought the postwar economic golden era in America is today’s wasteland of Fentanyl and social bile. Dreams of being a fighter pilot will soon go the way of securing a high-paying union manufacturing job in a prosperous industrial Midwest town.

Yet despite awareness of the future, one senses that nostalgia and inertia are still driving U.S. security policy. Far from punching ahead, the Pentagon’s goal with the Air Combat Evolution program is to support a human-computer hybrid model where humans are “battle managers” overseeing the work of their AI fighting counterpart. Yet, it’s already obvious that the artificial intelligence has little need for the human intelligence sitting in the cockpit:

Trust will also be crucial because, with planes flying at speeds of up to five hundred miles an hour, algorithms won’t always be able to keep pilots in the loop. [Peter Hancock, a psychology professor at the University of Central Florida], calls the discrepancy in reaction time “temporal dissonance.” As an analogy, he pointed to air bags, which deploy within milliseconds, below the threshold of human perception. “As soon as you put me in that loop,” he said, “you’ve defeated the whole purpose of the air bag, which is to inflate almost instantaneously.”

The dogfighting trials are early and ongoing, but AI pilots are arriving quickly. In fact, we will almost certainly have deployed AI fighter planes earlier than autonomous vehicles on our roads. Our cars have to halt at fallen stop signs, weave around construction sites, and navigate the intricacies of pedestrians, delivery vans, bikes, and more all without making a single, tragic mistake. An AI fighter plane? It may be hesitant to target and neutralize an enemy plane, but the constraints of land blow away in the air.

There is a discontinuity coming in war, where the costs won’t be born by the humans fighting, but exclusively by the humans who are being fought over. If, as some political scientists believe, the elimination of an active draft in the United States encouraged military adventurism by lowering the costs of going to war, the same will hold even more true when there aren’t much of any costs at all. Even worse, such a calculus will equally apply to America’s adversaries, from China and Russia to an insurgent.

Swarms of autonomous, cheap, violent autonomous weapons that can’t be stopped with conventional hardware. It’s the new Fordism of defense, but unfortunately, the United States is still obsessed with the old Fordism.

The Pentagon’s testing report for the new Gerald R. Ford class of aircraft carrier, which was obtained by Bloomberg this week and is expected to be submitted later this year to Congress, notes widespread shortcomings in the ship’s ability to defend itself as well as with its operational systems. The ship, which cost about $13 billion and first started construction in 2005, could see operational deployment later this year.

(That’s only slightly better than the James Webb Space Telescope which finally reached its destination this week and took nearly 24 years and about $8.8 billion to plan and construct).

Compare that prodigious spend on a single vessel to the entire autonomous warfare budget. According to Halpern at the New Yorker, the Pentagon will spend $1 billion on AI this year.

That’s the fundamental tension of defense acquisition today. The multi-decade commitments that advanced warfighting platforms like the Gerald R. Ford require are slamming straight into the Moore’s Law of autonomous machines. The Ford’s construction was underway prior to the introduction of the iPhone, and it’s still not in service because experimental Chinese weapons like supersonic missiles will likely prove effective in neutering it (an exercise that Beijing has already made a clear priority).

There’s the canonical line attributed to William Gibson about the future not being equally distributed, but what happens when the future is staring you right in the face and nostalgic blindness prevents a leap to the next generation? It’s a Brave New World out there, and the Fordism of the Navy’s past and all the rest of defense is running up against the Fordism of the future. Cheap and abundant will beat expensive and rare.

There are some positive motions to adapt to these new threats. Lux portfolio company Anduril announced a nearly $1 billion contract with the U.S. Special Operations Command (SOCOM) on an indefinite delivery indefinite quantity basis (which is government speak for an open-ended, fixed-time contract). Anduril will work as a systems integration partner with SOCOM on countering unmanned threats.

Down payments on the future are good. But we need more, faster — just like the AI weapons systems that will buzz around past the barrier of human perception.