Oct 30, 2020

How a Change in Market Structure Pioneered Space into the 21st Century

It is hard to believe that the last NASA Space Shuttle launch was in 2011. Over nine years later, on 30 May 2020, in conjunction with NASA, Elon Musk’s SpaceX launched a shuttle occupied by NASA astronauts to the International Space Shuttle. It was a massive milestone for private-sector businesses wanting to expand into the final economic frontier: space.

You are probably reading this going, what even is there in space that could even make it economically feasible?

These are just a few of the ones that are beneficial commercially: mining asteroids for rare minerals, tapping into renewable space-based energy sources, safe ventures for science experiments, fuel depots, research, satellites, and even space tourism. These all have the potential to not only be profitable but also help improve society.

In the last fifty years, the technology used by NASA has made its way into every field that you could think of, from medical to military and even architecture. These include things like PCs, solar energy, MRI scans, all of these technological marvels take a few elements from spacecraft be it a microchip or the blueprints. The Phoenix Business Journal, 2016, estimates that the return on investment ranges from $2 to $7 for every dollar invested.

In the past, NASA has experienced a great deal of success. At the height of the Cold War, NASA won the space race in 1969 with the successful landing of the Apollo 11 mission on the moon.

Spirits were high, people were optimistic and patriotic about space, but the completion of the Apollo Program led to NASA’s budget being cut. This was due to a combination of factors such as the oxygen tank failure in Apollo 13’s mission to the Moon, that almost cost the lives of its 3 man crew, as well as since the USA won the Space Race, the government were skeptical about keeping NASA’s budget so high.

A lack of vision and strategy made their second act, the Shuttle, deliver more mixed results than the previous successful Apollo missions. America did display its technological prowess by launching the ISS and the Hubble Telescope, but after the tragedies of Challenger Shuttle in 1986 and the Columbia Shuttle in 2003, the public attitudes grew more skeptical towards NASA, and thus the Shuttle program ended in 2011. The vulnerabilities of the centralized structure clearly showed in the Shuttle program, with many deadlines missed and over two-thirds of their full budget ($270 million) utilized only to result in much weaker performance.

After 2011, decentralization was seen as being the next step towards a space-based economy. Decentralization was made possible through public-private partnerships called the Commercial Orbital Transportation Services (COTS). In 2005, the government-funded COTS with $500 million of NASA’s five-year budget, with the goal of “challenging private industry to establish capabilities and services that can open new space markets while meeting the logistics transportation needs of the International Space Station” (NASA 2014).

In this economy, NASA was encouraged to be less of a supervisor and more of a customer and partner to the private sector businesses. The ‘New Space Companies’ welcomed this idea, as it allowed them to create products without any invasion of privacy and NASA offering insights.

Not only did this benefit private sector businesses, as they were able to work with NASA to make products, and thus, in turn, get a profit, NASA has also benefited. This was because private sector businesses found the most efficient, cheapest, and viable options to meet the goals of NASA.

Private sector businesses often outperform the public sector due to an obligation to show profits for the shareholders or the owner. This means that they cut costs, increase revenue and sales, and focus more on efficiency.

In contrast, public sector businesses depend on government funding, leaving no incentive for them to be efficient as they do not have any obligations to owners or shareholders. The success of privatization is evident with the launch of SpaceX Falcon 9, equipped with an all-in delivery charge to the ISS of 89,000 whereas in NASA's shuttles it would be three times as much.

The best example of this is in 2008 when two companies convinced COTS's ability to provide full resupply services to the International Space Station, and NASA signed contracts for 20 flights valued at $3.5 billion with SpaceX and Orbital Sciences. This has now become how the ISS is resupplied, which helps NASA save costs, but has also led to record profits by SpaceX and other space-based companies.

Due to this, Elon Musk has spearheaded the innovation in space-based technology, designing reusable launch vehicles, cargo capsules, and heavy-launch vehicles. Musk believes that space tourism is a genuine possibility, but it depends on the success of a reusable shuttle. Exactly like how commercial flights revolutionized travel, trade, and the economy.

Essentially, Elon Musk and a host of other space-based entrepreneurs believe that if a shuttle that can make multiple trips across space and land safely, a slew of opportunities come with it ensues afterward, from fuel depots, to round trips to the moon.

A reusable vehicle would revolutionize space tourism and make a push towards a space-based economy. Due to the COTS, the number of commercial launches permitted and completed skyrocketed, allowing more and more economic growth, and more revenue, whereas before the only thing that was commercially allowed were satellites.

The ‘New Space Companies’ have welcomed the idea of decentralization and thus SpaceX, Virgin Galactic, Boeing, Blue Origin, have access to space. Many of these are owned by extremely wealthy entrepreneurs such as Elon Musk and Jeff Bezos which is due to the very high barriers of entry, only increasing over time, from $500 million to over $2.5 billion to start-up. However, the space industry is only starting, with it booming steadily over the last few years, going from $200 billion to $300 billion.

The ultimate economic potential of space is very elusive, because of the variety of aims and uncertainty of these targets being achieved. However, one example is the potential for space tourism, which is one of the aims of SpaceX and Blue Origin, which is a part of the luxury travel experiences market and is said to be worth $1.8 trillion. If SpaceX and Blue Origin end up finding a feasible way to push space tourism, they will get quite a large proportion of the luxury experiences market.

Space is the last economic frontier. The last thing left to conquer mankind. It has been a long time coming, from complete centralization, which proved its worth, but then slowly faded into obscurity, to be replaced by the COTS. The COTS was a stroke of genius by the Government, not only making space travel more efficient but cheaper.

As technology develops, so does the revenue, with space being a market poised for success in the future, it is only a matter of time until we might see things such as commercial round trips across the Earth, minerals from asteroids, maybe even colonies on the moon.

Only time will tell whether we can conquer the last economic frontier, but with commercialization and privatization of the sector, we are set on the path where it no longer seems like a far-fetched dream, but almost a distant reality.

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