The Space Reviewin association with SpaceNews

SpaceShipTwo illustration
Pinning the hopes of the future of space exploration and development on the private sector could run afoul of the laws of economics. (credit: Virgin Galactic)

Market romanticism and the outlook for private space development

Last year in my article “The rise and fall of great space powers” (The Space Review, August 27, 2007), I wrote that the future of space development remains open, the parts to be played by nation-states, private investors, and larger international arrangements yet to be established. This is, perhaps, an unconventional view, as many observers of the scene have all but written off NASA and other national space programs and instead put their faith in entrepreneurs like Richard Branson. Nonetheless, there is great reason to be skeptical that private enterprise will singlehandedly get the space age back on the rails it seems to have fallen off of in the 1970s.

The incentive for business to put really large amounts of money into anything much more daring than established satellite services, with an occasional gamble on the overhyped space tourism sector by the more flamboyant, is weak—and the pattern of investment has reflected this.

One reason why this argument is rarely made is simple fashion: the predominance of neoliberal economic thinking which, especially, in its most vulgarized form, tends toward the idea that “private good, public bad,” which underlies the common view. However, the premises of neoliberalism themselves offer as much grounds as anything else for doubting the rosier visions of private-led, market-oriented space development. After all, the theory has its roots in classical economics, which supports markets on very particular grounds: that people are self-interested actors who seek to maximize their benefit (generally measurable in dollars and cents).

Self-interested actors tend to look for safe investments that will yield high gains, and do so quickly, relative to other lines of activity. In practice, this means trade-offs between one good and another—a higher level of risk tolerated for the promise of a higher return, for instance.

Space appears to hold the promise of literally astronomical returns when the energy resources, raw materials, and sheer volume of the solar system are considered. Nonetheless, the rewards are unlikely to be reaped for a very long time to come, so that anyone attempting a viable enterprise has to content themselves with rather more modest rewards. Additionally, even these tend to be of a big-ticket, long-range, and high-risk kind.

The disappointment of the high expectations surrounding the market for commercial satellite services in the late 1990s, most strongly identified with the Iridium, Globalstar, and Teledesic ventures, is a perfect example, one that seems all but forgotten given how rarely it’s mentioned in these discussions. The obstacles are far greater with the kinds of activities likely to yield a new space age—like space-based energy production, mining, manufacturing, and settlement, given the sheer scale of investment they require, and the slim chances of getting a return through such enterprises anytime soon.

This means that the incentive for business to put really large amounts of money into anything much more daring than established satellite services, with an occasional gamble on the overhyped space tourism sector by the more flamboyant, is weak—and the pattern of investment has reflected this (see “Does investing in transportation to Earth orbit make sense?”, The Space Review, March 27, 2006). This situation will continue for the foreseeable future.

All of this being the case, why does the view that private enterprise will soon revolutionize space development persist? In particular, why should celebrants of the market’s ability to harness the rationality of economic actors pin their hopes on entrepreneurs making economically irrational decisions—in other words, to envision capitalists succeeding where government has failed by not acting like capitalists?

Austrian School economist Joseph Schumpeter may offer an explanation. As he put it in his book Capitalism, Socialism and Democracy, “The stock exchange is a poor substitute for the Holy Grail.” It may well be that some respond to this reality by trying to find a Holy Grail in the stock exchange, to make stock brokers into Grail-seekers. Such “market romantics” transform entrepreneurs from rational, self-interested economic actors into romantic visionaries who dream up the future, then set about to build it, never mind the earnings report for the next quarter.

This idea could hardly be further from what Adam Smith (a thinker much more often quoted and claimed than actually read and understood) wrote in his treatise The Wealth of Nations, when he made his famous “Invisible Hand” argument, specifically that an entrepreneur

neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

By contrast, he had “never known much good done by those who affected to trade for the public good.” The “affectation” to do so, which Smith pronounced a rarity in his own time, seems to be standard operating procedure now, as the torrent of recent commercials by companies from Frito-Lay to British Petroleum trumpeting their “green” credentials testify. Since space development by its very nature has always had an exceptionally strong connection with visionary hopes, thinking about this subject has been particularly susceptible to such error.

Barring a couple of eventualities, a course of space development in which business leads the way is likely to prove a slow one indeed.

Accordingly, there may be just two scenarios in which private business might do much more to push the envelope on space development in the near term. The first is the emergence of a speculative bubble surrounding space technology, comparable to the (information) technology bubble of the 1990s—in short, an instance of profound economic irrationality. Prior to much of the money vanishing into thin air amid yet another round of recrimination, scandal, and recession, the torrent of money flowing into the sector might contribute to some genuinely important technological developments, or at least to an expansion of industry capacities. One can point to something of the kind with the railroad boom of the mid-nineteenth century, which laid down a great deal of useful track, and ramped up iron and steel production, amid all the excess and waste. Nonetheless, such a bubble can also do more harm than good, as the small taste of one evident in the history of the Iridium and other ventures (strongly tied to that ’90s tech bubble) testifies.

The second is a technological development in some other field (such as molecular technology) greatly simplifying the problem of cutting launch costs. Such a drop would have to do more than simply let slightly less affluent thrill-seekers enjoy a hop into orbital space, a line of business whose likely significance has consistently been exaggerated. It would actually have to pave the way for the exploitation of space itself, permitting the invention of plausible business models that justify such investments in primary and secondary economic activities.

Barring either of these eventualities, a course of space development in which business leads the way is likely to prove a slow one indeed. Frankly, it would also be unprecedented, given the statist roots of most technological revolutions in the last two centuries, from railroads to aviation to computing. Such a view also tends to overlook the space ambitions of other nations likely to take more statist courses to orbit and beyond (particularly the Asian nations now taking a more vigorous role, China especially) or the increasing investment in space by the world’s militaries, with the US here also leading the way. (Overblown as those ambitions may be, they offer at least as much chance of accomplishing something new as any foreseeable investment in private space enterprises.) However, in and of itself, that does not make it impossible.