Freeman

ARTICLE

The Space Program: No Prize

We Must Open New Markets to Space Commerce

JANUARY 01, 1994 by FREDERICK GIARRUSSO, GARY C. HUDSON

Frederick Giarrusso is a doctoral candidate in Engineering-Economic Systems at Stanford University; Gary C. Hudson is an entrepreneur engineering non-governmental space launch systems.

Science writer Dr. Jerry Pournelle claims, “The three great failures of socialism in the 20th century are Soviet agriculture, U.S. education, and NASA.” A review of NASA’s performance reveals the aptness of the last third of his remark.

NASA controls all aspects of the civil space program in the United States. Fifteen billion dollars filter through NASA each year to fund shuttle launches, space station designs, and one of the largest and least cost-effective bureaucracies to grace our land. To most people, NASA is the U.S. space program.

The very term “space program” is problematic, however. A program implies a single, concerted effort, usually by government, to perform some task. Typically, this effort is at odds with a capitalist system, in which profit and individual motivations dictate performance.

Imagine where California would be if its exploration and settlement had occurred under the federal government’s “Gold Rush Program.” Suffice it to say, San Francisco’s football team might well have been called the “‘98ers.”

We have all seen the failures of a command economy in the rest of the world; why is it so difficult to recognize those failures when they occur within our own borders? When a command economy allocates resources, it changes the incentives of the people involved—otherwise there would be no need for the “command”; it would simply be an economy. When a government agency dictates development in a particular industry, it changes the incentive system in that field. The result is profound inefficiency. The lack of an appropriate incentive system can lead to some interesting—and expensive—results.

Consider the pressure suits worn by our astronauts. NASA estimated the cost of designing a new space suit for the planned space station at about $350 million—manufacturing costs not included. These suits are expected to withstand 5-8 psi of internal pressure in a relatively innocuous environment.

Space suits are similar to the rigid, deep-ocean suits worn by divers. While maintaining a single atmosphere environment for the diver, deep ocean suits must withstand external pressures of over 500 psi, as well as operate in a corrosive environment. In addition, they must be very durable. Minor leaks in an astronaut’s space suit would not necessarily kill the astronaut; such failure in a deep ocean suit would certainly doom the diver.

The International Hard Suits company of Vancouver, B.C., manufactures the state-of-the-art one-atmosphere diving suit, the Newtsuit®. The suit is available for approximately $400,000 each, and is presently in full production for military, scientific, and commercial use.

NASA, on the other hand, would have to make over 875 space suits at no cost to justify the expense of their own design. Instead, NASA would expect to make only a handful of suits, with significant manufacturing costs. Although such an existing supplier of space suits would have been more cost-effective, NASA chose to contract out for a new design—essentially to reinvent the wheel. This represents a minimum of $345 million down the drain; $1.38 for every man, woman, and child in the United States, thrown away. And that’s just the space suits.

Costs Continue to Soar

Then there is the story of the Saturn 1B, an expendable rocket. The Saturn 1B cost $3.4 billion to develop and $156 million per flight to operate. It was able to lift about 40,000 pounds into orbit. However, rather than continue to use the Saturn 1B, NASA spent ten times as much money to develop a vehicle that cost twice as much to perform the same job.

The Space Shuttle represents no great payload improvement over the Saturn 1B. Like the Saturn, the Shuttle is able to lift 40,000 pounds into orbit. Yet it cost $34.7 billion to develop and, by NASA’s own rather low estimate, $301 million to operate, per flight. As of 1990 the Shuttle had flown 44 flights, for a total cost of $55 billion. For that same $55 billion, the Saturn 1B could have flown 350 flights, placing in orbit ten times the total Shuttle payload to date (all figures are in constant 1986 dollars).

But what about all of that valuable research performed on the Shuttle?

Put another way, for approximately $5 billion the Saturn 1B could have placed the same amount of payload in orbit as the Space Shuttle has. With the remaining $50 billion, the taxpayers could have purchased outright the top ten laboratories and research universities in the world and performed all the research they wanted. Or funded the National Science Foundation for 25 years.

On top of that, the Space Shuttle is considered so unreliable that another branch of the federal government, the Department of Defense, has recently opted to boost its satellites using Titan rockets—a technology developed three decades ago.

The problem with NASA is less NASA itself than the mentality that suggests the United States should even have a “space program.” Capitalism works. Free markets work. Command economies fail and they fail in the most expensive manner possible. If we agree that space development is a worthwhile goal, then the question becomes how best to get there.

There are at least two options. Assuming a continuing drive for some form of federally funded space effort, the maximum leverage of taxpayer dollars might come from a system of prizes. In combination with this approach, tax incentives for investment and tax breaks for profits earned from commercial space ventures could stimulate the flow of significant private dollars for high- risk projects. We should recognize that the free market has been distorted by tax policy which inhibits investment in high-risk, high-payoff industries. Indexing capital gains, or better still, following the Japanese lead and eliminating all tax on long-term investments would be a useful start. While we prefer a hands-off policy, these options would help to undo the decades-old damage of the present space program.

Burt Rutan, designer of Voyager, which circled the globe unrefueled in 1986, has suggested an incentive-based system to develop one NASA/USAF project: the National AeroSpace Plane (NASP). To date, more than a billion dollars has been spent for this plane, with the expectation that ten billion dollars might be spent on the actual manufacturing and flight tests. Rutan’s suggestion is to take out an ad in Aviation Week, at a cost of a few thousand dollars, offering a billion-dollar prize to the first company to fly a plane coast-to-coast in under an hour—NASP’s ultimate goal.

This idea is far from new; using just such an incentive system the British Crown established a prize for the means of discovering the longitude of a sailing vessel. A similar competition for $25,000 prompted Charles Lindbergh to make his famous solo flight across the Atlantic in 1927. Prizes work to stimulate innovation. An incentive would encourage companies to compete in a cost-effective manner and, where appropriate, to team together to overcome common problems and share risks.

To date, the conventional attempt to commercialize space activities has been a failure. Most firms participating in this much ballyhooed effort are simply selling their products to the same old buyer: the U.S. government. If there is to be a true industrial revolution in space commerce, we must open new markets. The record of our government in creating such markets is dismal.

Which federal government manager would envision, for example, that space tourism might well become a ten billion-dollar annual global market in just fifteen years? Dr. Patrick Collins of the Japanese National Aerospace Laboratory has suggested just that—and you can be certain Japanese firms are listening. A recent visit to Shimizu Corporation, the largest construction company in the world, elicited color brochures depicting space hotels, lunar set tlements, and “space weddings.” Whether such visions are practical or not, this example serves to illustrate that, as with so much else, federal government policies have forced innovation and vision away from our shores. It is past time to change the way we address the promise of the space frontier. We should scrap policies that inhibit our ability to profit from this opportunity.

We won’t get to the high frontier with a modern-day “Gold Rush Program.” But we might get there with a modern-day gold rush.

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January 1994

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