All Commentary
Friday, October 1, 2004

Has a New Era of Space Venture Arrived?

The Private Sector Has Entered Outer Space

Will 2004 go down in history as the dawn of a new space age? Many notable dates exist in the short history of mankind’s reaching for the stars. The Soviet Union launched Sputnik, the first artificial satellite to orbit the Earth, on October 4, 1957. Soviet cosmonaut Yuri Gagarin made the first manned space flight on April 12, 1961. The date most remembered probably is July 20, 1969—the day Neil Armstrong set foot on the moon. The space shuttle Columbia took off on April 12, 1981, to become the first reusable spaceship.

What do these and other key moments in space exploration have in common? They were government ventures.

But something different happened last June 21. SpaceShipOne, the brainchild of Burt Rutan, financed by billionaire Paul Allen and piloted by Mike Melvill, reached an altitude of 62.2 miles, marking the first time a privately built vehicle took a human being into space. The dream of proponents of free-market space-faring was beginning to come true.

After the flight, Rutan held up a sign saying: “SpaceShipOne. Government Zero.” The Los Angeles Times reported that one of the 20,000 people in Mojave, California, watching the launch powered by rubber and laughing gas declared: “We’re going to space and the government isn’t invited.” The Space Frontier Foundation (SFF), an advocate of private space enterprises, declared the flight to be “a clear sign that a New American Space Age has begun.” SFF founder Rick Tumlinson said this was “one of the most important moments in history” because it marked the start of “an age when the people begin to enter space on their own, without governments.”

Is space exploration really moving from a purely government endeavor to also being a profit-seeking private undertaking? By supporting private space ventures, are billionaires like Allen, Elon Musk, Jeff Bezos, Richard Branson, and Dennis Tito simply rich guys getting carried away because they watched too much “Star Trek” or Star Wars in their younger days? Or are they visionary risk-takers blazing new trails into the heavens for free enterprise? It is certainly worth keeping in mind that many of the things we do with computers today were considered science fiction only a short time ago.

Elon Musk’s venture features the Falcon rocket and is shooting for a per-kilogram cost to orbit of $2,850, according to economist Sam Dinkin. If accomplished, that would be less than 20 percent of the cost of the space shuttle—and would signal a dramatic change in costs that have remained stagnant for decades during the government space age. That’s an example of the potential for private entrepreneurship and innovation.

Of course, to assure that SpaceShipOne‘s flight serves as a launching pad for business opportunities in space, more than engineering know-how and invention will be needed. It will also require investors willing to put up substantial amounts of capital. (Amazingly, the SpaceShipOne venture only cost Allen about $20 million—cheaper than some luxury yachts. Compare that to the cost of similar government undertakings.) Capital will flow to sound business plans, but only when government unshackles outer space.

The Economist of June 24 observed: “The big unknown (and one that is bothering potential investors) is the cost of compliance with government regulations.” A week before the flight, Charles Lurio, a space consultant, told the New York Times: “Without timely legislation, the flight might be a mere passing stunt instead of the herald of a new era.”

Does government get it? Do policymakers understand? There are a couple of reasons for some hope.

Just five days before the SpaceShipOne flight, President George W. Bush’s Commission on Moon, Mars, and Beyond issued its report. What is significant is its emphasis on shifting away from the centralized Cold War/Apollo government model for NASA to an agenda emphasizing opportunities in the private sector.

For example, regarding NASA operations, the commission recommended that:

NASA recognize and implement a far larger presence of private industry in space operations with the specific goal of allowing private industry to assume the primary role of providing services to NASA, and most immediately in accessing low-Earth orbit. In NASA decisions, the preferred choice for operational activities must be competitively awarded contracts with private and non-profit organizations and NASA’s role must be limited to only those areas where there is irrefutable demonstration that only government can perform the proposed activity.

A bit later the report noted:

Today an independent space industry does not really exist. Instead, we have various government-funded space programs and their vendors. Over the next several decades—if the exploration vision is implemented to encourage this—an entirely new set of businesses can emerge that will seek profit in space. This new space industry will reduce the cycle-time for critical technology innovation. It will immeasurably augment NASA’s ability to explore the universe.

Despite the unfortunate fact that the commission envisions private industry as the servant of NASA, the report highlighted four ways that government could encourage commercial space activities. One was prizes, patterned along the lines of the Orteig prize, which was won by Charles Lindbergh for his solo flight over the Atlantic, and the $10-million, privately funded X-Prize, which will be awarded to the first privately financed team that takes three people—or the equivalent—into space twice within two weeks. The Rutan-Allen team, and others, are pursuing the X-Prize. In late July, Rutan announced that his group would make its attempt in late September and early October.

Taxation, Regulation, Property Rights

More important, though, were the three other proposals. If a real economy is going to flourish in space, then taxation, regulation, and property rights must be addressed.

The commission’s report started down this path. It called for tax incentives, including perhaps making “profits from space investment tax free until they reach some pre-determined multiple (e.g., five times) of the original amount of the investment.”

The value of regulatory relief was also recognized. The commission pointed out: “A key issue in the private space flight business is liability. There is a pressing need for a change in liability laws to set a reasonable standard for implied consent. . . . [I]t is not reasonable to impose governmental risk standards on people who are willing and eager to undertake dangerous or hazardous activities.” The commission also suggested reviewing occupational and environmental laws “to make sure that the government is not burdening new space industry unduly with irrelevant or unobtainable compliance requirements.”

Finally, the importance of property rights was acknowledged. The report noted that the 1967 UN Treaty on Peaceful Uses of Outer Space, which the U.S. government signed, prohibits claims of national sovereignty on any extraterrestrial body. Moreover, the 1979 Moon Treaty disallows any private ownership on the moon. The commission reported that the United States “has not ratified the 1979 Moon Treaty, but at the same time, has not challenged its basic premises or assumptions.” As a result, “the legal status of a hypothetical private company engaged in making products from space resources is uncertain.” The commissioners observed: “Potentially, this uncertainty could strangle a nascent space-based industry in its cradle; no company will invest millions of dollars in developing a product to which their legal claim is uncertain.” The report concluded that if property rights are not addressed appropriately, “there will be little significant private sector activity associated with the development of space resources, one of our key goals.”

Of course, as noteworthy as it might be, a report like this easily could sit on a shelf, relegated to being quoted some day by space geeks or examined by future historians as another example of lost opportunities. However, Congress earlier this year signaled that the need for change was being taken seriously. In March, the House of Representatives passed the Commercial Space Launch Amendments Act of 2004 (H.R. 3752) by a whopping vote of 402-1.

Its key measures, as noted in a release from the House Committee on Science, were meant to:

  • “eliminate any confusion about who should regulate flights of suborbital rockets carrying human beings by explicitly locating all commercial space flight authority under the Federal Aviation Administration (FAA) Office of Commercial Space Transportation (AST);”
  • “make it easier to launch new types of reusable suborbital rockets by allowing AST to issue experimental permits that can be granted more quickly and with fewer requirements than licenses;”
  • “extend government indemnification for the entire commercial space transportation industry (including licensed, non-experimental commercial human space launches) for a period of three years, but the bill will not grant indemnification for flights conducted under experimental permits, which will be more lightly regulated.”

It should be noted that providing indemnity—that is, legal exemption from penalties or liabilities tied to one’s action—is improper and unnecessary. Such issues can and ought to be covered through private contracts.

Licensing Would Be Eased

The legislation specifically directs the secretary of transportation “when issuing permits, in order to encourage the development of a commercial space flight industry and to the greatest extent practicable, [to waive licensing requirements] not necessary to protect public health and safety, safety of property, and U.S. national security and foreign policy interests.”

While this bill does not address the issues of taxation and property rights, it’s something of a beginning on the regulatory front. Dennis Tito, for example, seemed ready to invest if this bill became law. After passage in the House, Tito said that this is “precisely the kind of legislation Congress should enact in order to give investors like me confidence that our space tourism ventures will be regulated in a fair and streamlined manner. I hope the Senate takes up this bill soon and sends it on to President Bush for his signature.”

Of course, much more must be done. One has to ask: why is government involved in outer space, beyond any national-security and law-enforcement needs? Space travel certainly is exciting, and the expansion of knowledge of the universe is a worthy endeavor. But these facts do not mean that taxpayers should be forced to pick up the tab. Leave these adventures and inquiries to private groups, allow the government to undertake appropriate defense matters in space, and close down NASA.

Treaties must be reworked explicitly to allow for and protect private property claims in space. Regulation must be rolled back, with laws limited to dealing with outright fraud or theft. Liability should not be an issue as long as the risks of space flight are explicitly spelled out and abided by contractually.

Finally, why not make space free of taxes? Zero taxes on income and capital gains earned in space, for example, would serve as powerful incentives for space entrepreneurs and investors.

The laws of economics are not suspended in the weightlessness of space. If government enforces private property rights and does not regulate or tax heavily, then businesses in space will only be limited by mankind’s ability to invent, innovate, and take risks. Get government out of the way, and June 21, 2004, very well could mark the end of the government space age and the start of the free-enterprise space era.

  • Raymond J. Keating is an author and serves as Chief Economist with the Small Business & Entrepreneurship Council.