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Thursday, May 31, 2018

NASA Price Increases Highlight The Need For An Open, Transparent Marketplace

Now that NASA can shop around for rocket launch providers, they should.

Thank heavens for free market competition in, well, the heavens.

For years, government sole-sourcing prevented Air Force innovation and the suppression of launch prices. In 2015, Elon Musk’s SpaceX changed this sad reality by settling a lawsuit, opening the once-captive space launch marketplace to other players.

Musk will always have a place in history for partially restoring the free-market system and, for a time, utilizing that system to his and everyone’s advantage by offering lower prices than his competitors. However, market landscapes tend to change rapidly, and the space industry is no exception.

Time to Start Shopping Around

Last week in a House Committee on Science, Space, and Technology hearing, Rep. Mo Brooks (R-Ala.) noted that, “Overall, [NASA’s] CRS-2 costs are projected to be roughly $350 million higher than CRS-1,” in part because “SpaceX’s average pricing per kilogram will increase approximately 50 percent under CRS-2.” That’s a huge increase, especially when, as Brooks continued, “Orbital ATK’s average cost per kilogram pricing will decrease by roughly fifteen percent.”

Washington decision-makers must continue utilizing the open marketplace Musk created to the taxpayers’ advantage.

What is the reason for SpaceX’s serious cost increases? According to William Gerstenmaier, NASA’s associate administrator for the Human Exploration and Operations Directorate, it’s simply a matter of market forces at work. “When the original CRS-1 contracts were bid, [he’s] not sure the contractors really knew what it cost to launch cargo to space,” he said, meaning that ignorance essentially blinded companies like SpaceX which promised significantly lower costs.

Although it might seem harsh, Washington decision-makers must continue utilizing the open marketplace Musk created to the taxpayers’ advantage—even if it such a decision no longer aligns with the interests of the godfather of the open bidding process himself.

Ostensibly, this is what NASA would like to explore doing, as last week Gersteinmaier remarked that “it shows us…there’s a strong tool on the government’s side that’s competition.” The Air Force should follow NASA’s lead and shop around as well.

Elon Musk may have created the freer, open marketplace, but just because someone created something does not mean they should remain entitled to it forever. In fact, the precise act of granting Musk this right would close what he so impressively opened.

Elon Musk Will Probably Be Just Fine

Throughout history, many leading companies have seen their market share come and go. Dell, which originally saw great success in streamlining the sales process by selling straight to customers, was beaten out by other companies and the rise of the mobile smartphone. In another turn of events, Motorola, which sold the first mobile phone, was similarly beaten out by cheaper competitors.

SpaceX’s 50 percent price increases won’t mark the company’s end; it will merely mark a transition period.

This is not to say that Dell and Motorola were simply thrown on the scrapheap. Dell still sells laptops and printers while boasting impressive operating systems, while Motorola divided into two independent companies and adjusted with the technological revolution to offer newer, improved cell phone options and telecommunications equipment. Although they may no longer be the top performers, both companies are still wildly successful.

If NASA and the Air Force act according to the current market signals, the same will likely soon be said of SpaceX. SpaceX’s 50 percent price increases won’t mark the company’s end; it will merely mark a transition period. With companies like Orbital ATK, the United Launch Alliance, and Sierra Nevada becoming more cost competitive, Musk’s company may, in the short term, lose some contracts. But as is typical in the free market, it will likely adjust to these trends, continue to innovate, and find its niche.

Taxpayers deserve to get the most for their national security dollars. Musk does not need any sympathy money from the federal government. His unconventional thinking has made him one of the world’s richest men, and that is not something that is going to change anytime soon. Now is the time for SpaceX to grow and mature, not fall from the face of the earth. And it is time to allow free-market forces to work so the launches become less expensive and more efficient. That’s what the free market does.

  • Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.