OUR PERSPECTIVE ON ISSUES AFFECTING GLOBAL FINANCIAL MARKETS

VIEWTHIRD QUARTER 2012

Is the Future of Space in Private Hands?

Space travel was once the promise of a generation. Excit-

ing news filled the press as space agencies world-wide

pioneered moon landings, constructed a space station

and sent satellites into the solar system and beyond. Fu-

elled by Cold War era rivalries and science fiction inspired

imagination, the United States alone dedicated $192

billion to the Space Shuttle program.1 Grand narratives

about future human prospects in space circulated widely

in the twentieth century.

That was then. Now, the landscape of space exploration

looks dramatically different. With the recent passing of

Neil Armstrong and the shuttering of the Space Shuttle

program, we must wonder at the future of extra-Earthly

activity. Does NASA’s “retreat” entail a dark age for space

activity?

To the contrary, while we may have lost the public spec-

tacle and fanfare of twentieth century space exploration,

our reliance on space has never been greater. Whether

watching television, talking on cell phones, navigating

streets or trading financial securities, we depend on a

vast and intricate web of unseen space infrastructure. In

short, we depend daily on the new space economy.

As government programs around the world shutter their

doors the future of space increasingly lies in private

hands, or at least in more hands. The presence of new

competitors in the space economy (as opposed to the

older, top-down government-led space models) encour-

ages more trials and more errors that accelerate evolu-

tion, promoting successful technologies and reducing

costs.

1

fig. 3

Is the Future of Space in Private Hands?

Source: Union of Concerned Scientists (UCS) Satellite Database; Futron analysis; All data current as of May 2012

*Inner number denotes quantity in orbit. ** Comms is Communications.

381

Commercial Comms.38%

Civil Government Comms.11%

Remote Sensing10%

Military Surveillance9%

Navigation9%

Military Comms.9%

Space Science8%

TechnologyDemonstration5%

Meteorology 4%

11395

87

86

75

53 36

89

IT’S CROWDED UP THERE: SATELLITES IN SPACE

The end of an era?

On July 21, 2011, the Space Shuttle Atlantis touched

down at Kennedy Space Center for what would be the fi-

nal landing of any NASA Space Shuttle. Though the pro-

gram had a decent run, at an “average cost per launch

[of] about $1.2 billion dollars,” when the fiscal push came

to the budgetary shove, the program was discontinued.2

Despite dramatic proclamations about the “end of the

Space Shuttle era,” NASA has not simply faded away.

Indeed recently, NASA, working in tandem with Boeing

and Lockheed Martin, successfully executed a mission

to Mars: the Curiosity rover made landfall on August 6,

2012.

The argument for governmental direction of space en-

deavours takes its roots in Cold War political competi-

tion. Fearing that the private sector would not respond

quickly enough to match the Soviet push into space, in

1958, Congress passed the National Aeronautics and

Space Act and created the National Aeronautics and

Space Administration (NASA as we now know it).

However, over the course of nearly five and a half decades

in existence, NASA had its skeptics. In fact, a 2007 NASA

survey showed that only 53% of participants thought the

program was relevant to their lives: only 16% thought it

was more than “somewhat relevant.”3 Along with press-

ing fiscal constraints and the general absence of space

exploration in everyday discourse, the argument from

political will for federally funded space programs does

not hold the sway it did in the 1960s.

Of course this is not the only argument for the use of

federal funds in the space industry. As G. Scott Hubbard,

a professor of Aeronautics at Stanford has argued, “for

every dollar [the US] spend[s] on the space program, the

US economy receives about $8 of economic benefit.”4

This is a classic demonstration of an argument from the

multiplier effects of government spending. Deployed by

advocates of sector specific government spending, the

argument works along these lines: when NASA contracts

a private firm to construct a piece of equipment, they

pay the firms employees, and in some cases cause the

firm to hire new employees to accomplish the contract.

These employees in turn have more money to spend on

goods and services that they otherwise would not have

had.

2

wE mUsT wonDER AT THE fUTURE of ExTRA-EARTHly AcTIvITy. DoEs nAsA’s “RETREAT” EnTAIl A DARk AgE foR spAcE ExploRATIon?

1996

$25,000$30,000

$10,000

0

$10,000

1981-2011

$6,000

2011

$2,300

TodayNOTE: Average cost per flight during space shuttle program Sources: The Space Review

IMAGINE THE FREQUENT FLIER MILES

Cos

t Pe

r Po

und

to O

rbit

fig. 4

An additional element of the multiplier argument comes

from the intellectual property developed by NASA. As

Joan Vernikos argues, “economic, scientific and techno-

logical returns of space exploration have far exceeded

the investment…Royalties on NASA patents and licens-

es currently go directly to the US Treasury, not back to

NASA.”5 The thinking here: the public capital invested in

space research and development yields public returns—

the economic costs borne by taxpayers are far less than

the ensuing benefits.

Other arguments for government intervention depend

on the relative cost-benefit analysis of public funding

for space exploration. By pointing out the relative cost

of NASA spending, proponents take space exploration as

a self-evident end, as a thing whose merit is not up for

debate; “right now, all of America’s human space flight

programs cost around $7 billion per year. That is pen-

nies per person per day. In 2006, according to the USDA,

Americans spent more than $154 billion on alcohol.”6

But, with ever tightening budgetary constraints, where

“flat is the new up,” should we not worry about the long

term tenability of space exploration?

Not so fast.

The “Space economy”

While space used to be the province only of dedicated

government exploration programs and the military, to-

day’s most basic consumer goods rely on space-related

resources. Anyone using a mobile phone, satellite radio

or satellite television service, a navigation device or maps

service depends on space-related technology. Though

many of these products are now constantly in plain sight,

the unseen infrastructure required to support such wide

use receives comparatively less attention.

Peeling back the screen on these ubiquitous goods re-

veals an extensive private economy constantly expand-

ing and adapting. In 2011, the global space industry was

as large as the Greek economy, totaling $289.77 billion;

since 2001, only a decade prior, global satellite industry

revenues had grown by 175%.7

To better understand the space economy we can break

down this thriving sector into three smaller categories:

the satellite industry, space transportation and commer-

cial space infrastructure/support services. In our informa-

tion age each one of these categories plays an instrumen-

tal but usually unseen role in our daily activities.

The SaTelliTe induSTry

Satellite represent the largest and most profitable part

of today’s space economy. As a hybrid of the telecom-

munications and space industries, the satellite industry

grossed $177.3 billion in 2011, accounting for 61% of

space industry revenues.8 Much of the sector’s demon-

strable profitability has to do with its breadth (see Figure

3 on page 4). As we can see, even though the govern-

ment still plays a part (accounting for 29% of all satellite

activity), the private sector dominates: commercial com-

munications and navigation services alone account for

3

Source: FAA

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Jobs

in In

dust

ry

1999 2002 2004 2006 2009

ROCKET SCIENTISTS: JOBS IN THE SPACE ECONOMYfig. 5

just under half of all satellites in orbit. Such a marked

presence in space reflects the explosive demand on the

ground for such services and, further, indicates just how

high the stakes are for satellite companies competing for

contracts.

As private satellite companies compete the ultimate ben-

eficiary is the consumer. Those firms who require connec-

tivity and data transmission facilitated by satellites no

longer have limited choices. As they shop around for the

best prices, to maintain market share, satellite compa-

nies must lower their prices. To give only one example of

the consequences of increased market competition, the

price of international calls for consumers has“ fallen at

a compounded rate of just over seven percent annually

since 2002.”9

Space TranSporTaTion

In addition to the satellite industry, though, other criti-

cal components of the space economy remain yet unex-

plored: next we examine the space transport industry.

The closing down of the Space Shuttle program left many

crestfallen, wondering how and if the United States

would continue to send astronauts to space.

A host of new, start-up space transportation businesses

have resoundingly responded yes. These businesses take

as their modus operandi reducing the cost of putting one

pound of payload into orbit. Given that such costs have

been excessive if not prohibitive in the past, the smaller

private enterprises focus on engineering reusable, cost

effective launch systems (see Figure 4). Despite the na-

scence of this industry, one of its leading representatives,

a start-up company called SpaceX, founded in 2002, made

history a decade later in May 2012 as the first commercial

company to dock a spacecraft at the International Space

Station.

These small and innovate firms cause more than price re-

ductions for consumers and improved technological ef-

ficiency, they also form a substantial base for job growth.

A Kauffman foundation found that “over the past thirty

years…excluding the jobs from new firms, the US net

employment growth rate is negative on average.”10 Over

the past decade, in spite of the Great Recession, employ-

ment in the space economy has more than doubled—

from 497,350 to 1,029,400.11(See Figure 5)

What is more, space exploration deals in complex tech-

nology. Prospective workers must be highly trained and

specialized. To attract these talented prospects space

start-ups will have to match the compensation (with

salaries or equity) that such workers would receive else-

where. According to the Bureau of Labor Statistics, in the

United States, the mean annual wage for aerospace en-

gineers is $103,870.12 Beyond engineers, the average sal-

ary of space economy workers was $96,706 compared to

the average private sector salary of $46,455 nationwide.

High wages are not only good for the workers them-

selves but carry positive spillover effects in both the local

and national spheres. These engineers will spend locally

on goods and services that must be provided to them

locally: food, professional services, repairs, etc. At the

national level, there is even a stock index tracking the

space industry. The Space Foundation Index, which start-

ed tracking space companies in 2005, follows 28 publicly

traded companies that “derive a significant portion of

their revenue from a broad range of space related as-

sets and activities”.13 Over that period, the index beat the

S&P500 by nearly 7 percentage points and the NASDAQ

by 8.6 percentage points.

commercial Space infraSTrucTure & SupporT Ser-vice

High pay and financial markets aside, the final compo-

nent of the space economy provides lower-skilled labor-

ers with a glut of job opportunities. In order to have a

satellite industry at all, in order to send cargo to orbit,

the first two components of the space economy could

not operate without a sound commercial infrastructure

and support sector. Of the $289.77 billion space economy,

commercial and support industries account for $107.46

billion of total revenue.

This integral piece of the space economy develops and

maintains the utterly unseen aspects of global space ac-

4

wHIlE spAcE UsED To bE THE pRovIncE only of DEDIcATED govERnmEnT ExploRATIon pRogRAms AnD THE mIlITARy, ToDAy’s mosT bAsIc consUmER gooDs REly on spAcE-RElATED REsoURcEs.

tivity. Companies working in this sector, “which showed

the strongest percentage growth of any space sector in

2011,” produce a diverse array of goods and services “in-

cluding spacecraft manufacturing, in-space platforms,

ground equipment, launch services, independent re-

search and development, and insurance premiums.”14

While these jobs may not always pay as well as the more

advanced occupations, they accomplish much of the pro-

verbial “grunt work” necessary for much of the space

economy.

Upward trends in the demand for satellite launches and

space transportation mean increasing demand for infra-

structure capability. For example, in the span of only one

year (2010-2011), the number of commercially operated

satellite launches increased by 67.5%, from 27 to 40, pro-

ducing revenue of $4.24 billion. In an economy like the

space economy, where tremendous amounts of money

and research depend on sound infrastructure, those inef-

fective or cost inefficient providers of such infrastructure

and support who commit errors or failure are quickly

weeded out.

As hundreds of companies and billions of dollars com-

pete to supply the world with its space related goods and

services, the future of space exploration looks vastly dif-

ferent than it once did. Even though NASA has not disap-

peared (after all the recent landing of the Curiosity rover

was a NASA project), the new private space economy has

legs enough of its own to walk a new and unpredictable

path. With the profit motive and the inimitable forces of

trial and error now very much at work, innovation and

progress may yet be the unexpected product of sponta-

neous solutions meant to satisfy client demands or cost

constraints.

It is not necessarily so much the private hands but rather

the many hands now involved that will promote a future

of innovation in the space economy. Instead of focusing

on one path or one activity in space, the space economy

will begin to chart its own course as it rises and adapts

to our now irrevocable dependence on the goods and

services it provides.

SOURCES

1 “Shuttle programme lifetime cost.” Nature (07 April 2011)

3 “Strategic Communications Framework Implementation Plan.” NASA (2007)

4 Dubner, Stephen J. “Is Space Exploration Worth the Cost?” Freakonomics (www.freakonomics.com) (2008)

7 The Space Report

8 State of the Satellite Industry Report (June 2012), pg. 5

9 “Telegeography Report” Primetrica (2011)

10 “Where Will The Jobs Come From?” The Kauffman Foundation (November 2009)

11 The Economic Impact of Commercial Space Transportation on the U.S. Economy—FAA (2010)

12 “Occupational Employment and Wages.” Bureau of Labor Statistics (May 2011)

13 “The Space Economy Report.” The Space Foundation (2012)

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