Loren Thompson - Capitalism In Space: The Beguiling Myth Market Forces Can Fix Everything

On March 10, the Center for a New American Security -- a Washington think tank -- released the latest installment in a long-running debate about how to assure U.S. access to space.  The report, authored by science writer Robert Zimmerman, is titled "Capitalism in Space," and it proposes a wholesale restructuring of government space programs that Zimmerman frankly admits might eliminate much of NASA.  His thesis is that private enterprise and competition can do a better job of delivering low-cost, reliable access to space than government agencies.

Zimmerman's recommendations are uniformly supportive of Elon Musk's SpaceX, which has disrupted the space business since its founding in 2002 by offering launch services at much lower prices than traditional providers.  Musk doesn't just beat other U.S. companies on price, he also beats European and Asian providers, which has led some admirers to portray him as the living embodiment of what free enterprise can accomplish.  Judging from the tone of Zimmerman's report, he is one of those admirers:

A Falcon 9 lifts off from SpaceX's launch complex at Cape Canaveral. SpaceX has disrupted the launch business by undercutting other providers on price, but taking out costs can potentially raise risk in an unusually dangerous business. (Wikimedia Commons)  

A Falcon 9 lifts off from SpaceX's launch complex at Cape Canaveral. SpaceX has disrupted the launch business by undercutting other providers on price, but taking out costs can potentially raise risk in an unusually dangerous business. (Wikimedia Commons)

 

If NASA or the Air Force require a service they should request it from the private market, becoming a customer like everyone else. This will result in increased competition and performance at a lower cost.

That is not the way Washington has historically preferred to run either its civil or its military space programs.  NASA and the Air Force (which leads military space efforts) traditionally have been deeply engaged in all aspects of their suppliers' businesses -- partly because of the risks involved, and partly because they didn't trust private companies to always make the right choices.  Zimmerman contends SpaceX and a bevy of other upstarts such as Jeff Bezos' Blue Origin are showing there is a better way to do business, if government will just get out of the way.

This viewpoint has been with us since the early days of the republic, and finds voice whenever Washington tries to do something big using taxpayer money.  Most of the time, I share it.  But because my own think tank gets money from the two biggest traditional launch providers, Boeing and Lockheed Martin -- Lockheed is also a consulting client -- I've had plenty of opportunity in recent years to compare the rhetoric of both sides with their actual performance.

Zimmerman offers a series of complex comparisons purporting to do just that, but he doesn't cite hardly any numbers to support his case.  So let's fill in a few details about how SpaceX, the leading non-traditional supplier of launch-services, has actually performed.  United Launch Alliance, the Boeing-Lockheed joint venture that is SpaceX's main competitor for government launches, has never lost a payload in 117 launches.  SpaceX has lost two missions in just the last two years, in both cases due to design features in its launch vehicle.

No doubt about it, SpaceX prices are low -- but it isn't the model of market-driven responsiveness that Zimmerman would have you believe.  On average, its launches are over two years late, and the unlaunched missions it is carrying in its backlog on average are nearly three years late.  When 2016 began, the company was projecting over 20 launches during the year.  It actually performed eight successful launches, not counting a mission destroyed on the launch pad, and a grand total of two of them were on time -- the rest were late.

You can see where that might be a problem for the Air Force if the payload being launched was a high priority such as a missile-warning or spy satellite.  But there's no danger of SpaceX causing a problem there, because it can't actually lift heavy payloads into high orbits.  It says it will bolster its lift capacity by developing a "heavy" version of its Falcon rocket, but it has been promising to launch since 2012 and the first launch still hasn't happened.  Author Zimmerman treats Falcon Heavy like it's a real thing, but I'll bet this is the sixth consecutive year it doesn't launch.

And then there's the matter of safety.  Companies typically achieve low prices by taking out cost, but much of the overhead associated with space efforts goes into assuring the safety of missions.  When you leave it to market forces to decide what stays in and what gets taken out of vehicle designs and launch procedures, risk can easily creep into the tradeoffs.  A NASA advisory panel warned that it wasn't a good idea to let SpaceX boost its rocket performance by loading supercooled fuel while astronauts were already aboard.  Last year a routine test of that procedure blew up a rocket on the launch pad.

There weren't any astronauts on board for that mission -- it was a private-sector payload -- but you can bet your bottom dollar that accident led to some serious soul-searching at NASA.  One problem with buying launch services under commercial contracts rather than using the traditional approach is that the government has less latitude to investigate what happened when things go wrong.  The company leads investigations of mishaps rather than the government.  The company may be forthcoming about what it finds, but it doesn't have to be.

And that brings us to the question of what exactly a "commercial" launch provider is.  SpaceX generates most of its revenues from government contracts, which isn't the usual model for an entrepreneurial start-up.  Granted, it began by targeting the commercial market for launching communications satellites, but most of its business for the foreseeable future will revolve around federal contracts for getting supplies to the International Space Station or lofting military satellites into orbit.

In other words, the main thing that makes SpaceX commercial today is not its launch vehicles but its contract vehicles -- which allow it to hold government overseers at arm's length in a way that United Launch Alliance usually can't.  But because the government is awarding business to SpaceX based largely on cost rather than risk, everybody else in the business is now striving to reduce costs.  We'll see whether this infusion of "market discipline" into the space business increases efficiency, or just grows risk.

Imagine where Donald Trump's business empire would stand today if he typically delivered projects two years late, and every once in a while one of them blew up due to design features.