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Op-ed | Wishful thinking collides with policy, economic realities in ‘Capitalism in Space’

A Falcon 9 with a previously flown first stage lifts off March 30 carrying the SES-10 satellite. Credit: SpaceX

This article ran in the March 27 issue of SpaceNews magazine, which is being distributed at the 33rd Space Symposium.

On March 10, the Center for a New American Security released a report entitled “Capitalism in Space: Private Enterprise and Competition Reshape the Global Aerospace Launch Industry.”

A first glance at the title and the prestigious think tank sponsor certainly caught our attention as long-time analysts, managers, and engineers in the space community. It’s obvious that the U.S. launch industry has been changing and innovating with exciting demonstrations of new launch capabilities that are worrying foreign competitors.

The opening introduction briefly mentions traditional national interests in space, such as military strength, economic growth, and national prestige, but quickly goes off track in claiming there is a global race to establish “permanent colonies on the moon, Mars, and the asteroids.” Would that such fantasies were true, but wishing does not make it so.

Given the importance of space transportation to all U.S. space activities, an objective, in-depth analysis would have been a welcome contribution to debates over U.S. civil, military, and commercial space policy.

Unfortunately, the report is rife with factual errors and misleading comparisons that make it all but useless, while occasionally making points we can agree with. It begins with erroneous assumptions on how NASA cargo and crew capabilities are being programmatically implemented. It projects outcomes based on the only operating NASA example of a public-private partnership, ISS cargo transportation.

The core problem is that based on this minimal experience the author poses a false binary choice between “government” or “private sector” approaches to space transportation, a choice in which he argues that the government should abandon traditional acquisition practices in favor of relying on “free enterprise.”

In effect, he makes an unsupported claim that commercial markets exist (or should exist) for the public goods of science, exploration, and security. In order to acquire these goods, the author argues that public funds should be provided to private actors with little accountability or oversight in order to realize cost savings. In his view, the most important purpose of space transportation policy is to economically benefit private space launch providers in the hopes that this will spur more space activity.

In public policy, it is well-known that markets and governments each represent imperfect alternatives for acquiring goods and services. “Market failure” is a traditional justification for governments to step in and provide public goods that make no commercial sense (e.g., basic science, exploration).

Similarly, there are non-market failures of government in which markets are superior means of delivering goods and services. Neither is ideal in all cases, and even the most cursory look at space activities shows how diverse they are. Satellite communications are fully market-driven and remote sensing is becoming more market-driven with the rise of location-based services, while space launch remains driven by government revenues. Fully commercial markets that provide return on investment in endeavors such as orbital tourism, mining, and others are unfortunately still in the future.

In discussing NASA’s commercial cargo program, the author makes a series of technical and cost comparisons with the Space Launch System (SLS) and Orion. The comparisons are misleading as they have very different purposes, one focused on deliveries of government supplies to the International Space Station (ISS) and the other on deep space exploration beyond low Earth orbit. Regarding SLS/Orion, the author states, “The rocket therefore essentially belongs to NASA, whose goals — exploring space — have nothing to do with reducing cost or obtaining profit…. No satellite company can afford it.”

This is an obvious and intended result, as the vehicle is not designed for launching satellites, a task which the private sector can already do. The vehicle is being created for non-commercial deep space exploration missions. That’s why it’s a NASA program. The SLS might be used to launch multiple satellites, but if it did so, companies could easily argue this was unfair government competition.

The author states that, “…SpaceX’s own heavy-lift rocket, the Falcon Heavy, suggests it is possible to build a heavy-lift rocket for much less money and far less time than it has taken NASA to build (the) SLS.”

This is a false comparison of vastly different capabilities; the reported first stage Falcon Heavy thrust is approximately 1.71 million pounds. SLS thrust is 8.87 million pounds of thrust. The SLS is designed to place more than twice as much payload into a low Earth orbit and over three times as much into a trans-Mars injection orbit. Again, these are government requirements, not commercial requirements, and that’s why SLS is a NASA program.

Human spaceflight programs such as SLS, Orion and the International Space Station shoulder most NASA overhead costs. The author shows a lack of understanding on how the Obama administration, through the Office of Management and Budget, treated favored over disfavored programs and impacted costs and schedules. For example, SLS and Orion budgets were routinely burdened with termination liability costs and institutional taxes that were not imposed on the commercial crew and cargo programs.

Exploration programs did not receive funding freed up by the shuttle’s retirement as originally planned. The cancelation of human exploration programs in 2010, and the resulting congressional backlash took years to recover from and slowed development.

The author makes the valid point that the acquisition approaches for SLS/Orion and commercial cargo are fundamentally different. It’s also hard to disagree with the argument that traditional government acquisition processes are inefficient, expensive, and in need of reform.

However, such reform is not achieved through the abdication of responsibility for the proper stewardship of taxpayer funds. SpaceX is executing its NASA work with heavy reliance on public funds, and as such should be subject to NASA oversight and control to provide stewardship of funding and assurance of safety for NASA assets and lives, just as any other company would experience.

The fact that such government oversight and controls need improvement is not a reason for exempting some projects and not others from a level playing field.

The commercial cargo effort, while privately managed, was only partially privately capitalized. NASA subsidies created the private sector capabilities that NASA later paid additional funds to use.

Commercial programs were not charged their proportional share of NASA overhead. Instead, they were provided no-cost NASA help and use of facilities, ultimately paid for by other NASA programs, raising their overhead and cost. Arguably, it was in NASA’s interests to ensure the commercial cargo effort was successful, but the work needed for success did not come free.

Privatization of a previous government function (e.g., cargo transport to ISS) is not the same as commercialization. The latter requires non-government customers to spread fixed costs over a larger base so that government is merely one customer among many. Space launch today is about as commercial as a private shipyard that builds aircraft carriers and an occasional yacht.

The price competition created by SpaceX has not resulted in new demand coming to the market, merely a reallocation of market share among suppliers, largely to the detriment of the European Ariane launcher and the Russians. This is good for the United States, but it doesn’t mean there’s a commercially viable launch market without government supports.

To date, no investment in a new launch system has returned that investment in real terms. This is consistent with historical experience with other transportation systems such as railroads and airlines. Having transportation systems is immensely valuable to the national economy but companies in these businesses have difficulty making money for their owners.

Past studies have predicted that launch demand would remain inelastic (i.e., not changing in response to lower prices) until prices fell enough to trigger a new source of demand. Typically, launch prices below $1,000, and approaching $400, per pound are thought to be needed.

The bigger challenge is that launch and return systems would also have to demonstrate historically unprecedented levels of safety at these lower prices. Suborbital launch and balloon missions are valuable pathfinder efforts for the space tourism market, but their success or failure is not a government responsibility.

When speaking about civil space programs, candidate Donald Trump said, “A cornerstone of my policy is we will substantially expand public private partnerships to maximize the amount of investment and funding that is available for space exploration and development.”

This is a laudable and necessary action, but careful analysis is needed to know which partnership deals make sense and which do not. Partnerships can make sense when fixed costs can be shared with non-government customers, as for example when Falcon 9 vehicles can be used for delivering communications satellites or cargo to the International Space Station. They don’t make sense when the government is the only source of demand, as in the case of deep space exploration.

The United States does not face a stark choice between markets or governments in space, but rather the need for clear thinking on how to pursue a mixed strategy, using a variety of tools, to serve national interests. It would be wise to mistrust any purist strategy, that is, one which is all-government or all-private, where taxpayer dollars are needed.

What the CNAS study unintentionally shows is the deep desire of some space advocates to believe that a path to the stars exists independent of political and economic realities. We need to dream, but with our eyes wide open, so we can make wise choices on the use of markets and governments for exploring and developing space.

Scott Pace is the director of the Space Policy Institute at The George Washington University’s Elliott School of International Affairs in Washington.

Source: Space News

Op-ed | Wishful thinking collides with policy, economic realities in ‘Capitalism in Space’

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