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Thirty years ago Americans believed that at the end of the 20^th century, people would be living like the Jetsons-- dressing in futuristic metallic jumpsuits and planning weekend getaways to the moon. Unfortunately, Americans are no closer to realizing that dream today than they were thirty years ago. The reason is because NASA, the agency entrusted with the space program, is stagnating.

Today America faces a choice for the future of its space program. It can either continue to allow the NASA bureaucracy to monopolize space, or turn it over to the private sector where companies have shown how to offer lower costs and greater innovation than government. This paper summarizes the reasons why reform of the space program is necessary and advocates privatizing NASA to relieve the stranglehold on the telecommunications industry and other areas of the private sector.

July 20, 1999 marked the 30^th anniversary of the Apollo 11 moon landing. NASA planned special ceremonies, lectures, and observances to commemorate the golden age of America's space program. Yet as the hoopla died down, one fact became painfully obvious: NASA has no plans for the future. Rather than unveiling cutting-edge technology, NASA reminisced about the good old days. Instead of being a bridge to the 21^st Century, NASA is a link to the past.

Unfortunately for NASA, this is not the time for self-congratulations. After all, America didn't go to the moon so it could make a giant leap for mankind and then stop dead in its tracks. This is the Information Age, the era of wireless communications and instant media. The United States cannot afford to be passive in an economy dependent upon satellites and aerospace. Therefore, if NASA is no longer in the business of being on the cutting edge, then it should be turned over to those who are, the private sector.

NASA was established in 1958 in the wake of the Sputnik launch with the primary objective of beating the Soviets to the moon. In those days the rationale for government monopoly of space was predicated on at least three principles. First and most important, America's national prestige was at stake. The Cold War meant that the United States had to keep up with the USSR or else face global humiliation and defeat in the Space Race. The launch of Sputnik led to a competition for technological superiority, and the U.S., under extreme time pressure, effectively nationalized the aerospace industry rather than wait for market forces to slowly build it up.

Second, the private sector was uninterested in space because of the perception of space as a public good. Space was seen as an arena for science, where the knowledge gleaned from any exploration would be a social rather than a private benefit. Moreover, many justified a nationalized space program on the grounds that the first banner to wave on the moon should be the flag or emblem of a nation of united people rather than a corporate logo. This doctrine was later codified in a 1979 international agreement that states that space is a common heritage to all mankind, giving it the same designation as Antarctica. Hence, space was placed in the domain of the public rather than the private.

Third, not only was the private sector unwilling to build the industry, it was also unable to do so. Commercial airflight was still in its infancy, venture capital was scarcer, and a market for space products and services had not yet been created. By 1960 only one company, AT&T (itself a government monopoly), had approached NASA with the possibility of using satellites for telecommunication. Thus, in the early years, high costs and low demand offered little incentive for start-up companies to enter the industry and government stepped in to fill the void.

Because of these three reasons -- national prestige, public ownership, and high costs -- the aerospace sector was socialized. At its height in 1965, NASA consumed 4.4% of the federal budget, roughly $23 billion in constant 1997 dollars.¹ However, unlike other government-run projects which tend to be wasteful and bureaucratic, NASA was, for a time, innovative and efficient. The key to its initial success was its unique role in the Cold War: unlike other government monopolies, NASA had a competitor, the USSR. By pitting NASA against the Soviet Union, the Space Race thereby introduced an element of de facto competition. It was this competition which drove NASA to be faster, cheaper, and better than the Soviets. Interestingly, this is the same incentive structure under which the private sector operates, and also the reason behind its efficiency.

Thus, because NASA was held accountable for its performance by measuring it directly against the Soviets, it was able to escape the fate of other bloated bureaucracies, but only for a time. Once the Space Race was won, America lost the will to keep going. NASA had effectively beat its opponent, and with the competition gone, there was nothing driving it to greater heights of technological achievement. The resulting complacency and stagnation is evident today.

In the early 1970s, public interest shifted from scientific exploration to commercial space applications, such as satellites. NASA, cognizant of its growing obsolescence, tried to reinvent itself by changing from a primarily research-based agency to one more interested in delivering payloads to orbit. As Edward L. Hudgins of the Cato Institute contends, NASA turned from science to "freight hauling."²

Consequently, NASA took on expensive projects to justify its continued existence to Congress, even while the private sector offered to do it cheaper. For example, in the late 1980s Space Industries of Houston offered to launch a mini-space station for only $750 million, a bargain compared to the almost $100 billion needed for the International Space Station. Moreover, firms like Rotary Rocket and Kistler Aerospace Corp. claim they can launch payloads for less than $2,000 per pound, compared to the space shuttle's $10,000 per pound. Hence, relative to civilian space ventures, NASA's costs are truly astronomical.

Just as competition against the Soviets in the 1960s reduced prices for NASA, competition between private firms reduces costs today. As predicted, a commercial space market emerged in the 1970s and 1980s as the telecommunications industry grew. Internet services, television broadcasting, and wireless communications all depend upon satellites and, in turn, fueled the growth of the launch services industry. Today demand for commercial satellite launches is increasing by 30 percent per year, which is faster than NASA can accommodate. As a result, there is an 18-month backlog on satellite launches.³ New firms hoping to cash in on the launch shortage have sprouted up all over the country claiming to offer faster service and lower prices than NASA. Consequently, as NASA continues to launch its massive, aging shuttles, entrepreneurs have begun a new space race.

This race for profits has ushered in an era of aerospace growth not seen since the Apollo project. According to the State of the Space Industry 1997 Outlook, direct satellite services reported $9 billion in revenues for 1996 and projected revenues of $29 billion for 2000. An additional $13 billion was made in indirect revenues from cable distribution, long-distance and international telephone service in 1996. That number is expected to increase to $17 billion in 2000.⁴ As these figures indicate, telecommunications and launch services will be a driver of the world economy in the 21^st century.

Additionally, four sectors of the space economy are worth noting:

Infrastructure. As SpaceVest, a venture capital organization describes, "Space infrastructure is the procurement, production, testing, and evaluation of space-related hardware and systems needed for space transportation, satellite systems, and ground facilities."⁵ In other words, infrastructure deals with the hardware of space vehicles, payloads, and satellites. This sector's revenues were $47 billion in 1996 and are expected to exceed $59 billion in 2000.⁶

Emerging Applications. This segment uses satellite data for practical applications in agriculture, mapping, defense, and environmental science. Known as "spin-off technology," Global Positioning Systems (GPS) both gather terrestrial data and track objects on earth. Such technology is important for cellular phones and is a critical tool for search and rescue workers, flood and forest fire management, environmental monitoring, and farming. Emerging applications brought in $4 billion in 1996 and are expected to exceed $12 billion in 2000.⁷

Support Services. These include engineers, financiers, venture capitalists, entrepreneurs, governments, business consultants, insurance companies, and consumers who are the backbone of the industry. This sector's revenues totaled over $3 billion in 1996.⁸

Space Tourism. In 1994 the Japanese Rocket Society conducted a market survey to estimate the interest in commercial space flight and found that "world demand for orbital tourism services could reach a level of more than. . .$12 billion per year (in 1994 dollars.)⁹ A joint NASA/Space Transport Association study in 1997 similarly predicted space tourism to be a $10-$20 billion industry within several decades.¹⁰ Some companies like Space Adventures, Kelly Space and Technology, Vela Technology Development, and Zegrahm Space Voyages have taken the lead by developing commercial passenger rockets. Flights could begin as early as 2002.

Taken together, space is a $100 billion industry.¹¹ More importantly, since the first U.S. licensed commercial launch in 1989, private enterprises have comprised an increasingly larger share of the total space market. 1997 marked the first year that private revenues exceeded government revenues in the industry. Furthermore, according to ProSpace, a grassroots advocacy organization, the space industry directly employs more than 800,000 people and is expanding at the rate of 40,000 jobs per year.¹² In short, America is now beginning to realize what President Reagan spoke of in 1984: "The benefits our people will receive from the commercial use of space literally dazzle the imagination."¹³

However, despite these gains, NASA still fights for industry control by crowding out private businesses. One of its tactics is to price shuttle launches below market value. In 1985, Milton R. Copulos found that NASA had been charging $38 million a flight when the actual cost of a launch was over $150 million. Some companies were even reported to have received free shuttle service in exchange for favors like sharing research or payload equipment.¹⁴ Unlike private businesses that must cover their costs, NASA can afford to underprice its services and pass the difference on to taxpayers. Such policies perpetuate government control as private entrepreneurs find themselves unable to compete.

Another method NASA uses to entrench its monopoly is by banning advertisements on space vehicles. Instead of allowing for corporate logos and markings, only the words "United States" or "USA" along with the aesthetically pleasing NASA graphic can grace shuttle orbiters.¹⁵ This policy, meant to standardize vehicle appearance, actually prevents private companies from securing additional funding in the form of corporate sponsorships. Indeed, there is plenty of advertising money to go around: during 1997, more than $185 billion was spent on advertising in the U.S. More than 30 advertisers paid a record $1.3 million per half-minute of ad time for the telecast of the Super Bowl alone.¹⁶ As John Tierney recently suggested in Reason Magazine, many outdoor gear makers and high tech firms would have an incentive to have their names and products associated with space missions, yet government policy keeps both their logos and investment money out of the market.¹⁷

Regulation also helps to insulate NASA from market competition. Before the Space Commercialization Act of 1998, private companies could deliver an Expendable Launch Vehicle (ELV) into orbit, but were not allowed to return it to earth. This built-in bias in favor of single-use equipment contributed to the high costs of launching payloads and stifled private development of better technology. The Commercial Space Act changed this by authorizing the FAA to license reusable launch vehicles (RLVs). At least five different companies conducted RLV flight and component hardware tests in 1998, yet none are ready to be licensed for commercial use.¹⁸

As these examples show, NASA has tried to hold on to its monopoly at the expense of the private sector. Americans must now decide who will lead the way in the new race for space. As ProSpace delineates, "As citizens we have a choice: endless fights over 1-3% annual increases in the NASA budget, or 20-30% annual growth in commercial space that will be self-perpetuating after market forces take over in the arena of space development."¹⁹

The growing commercial space market, as well as the demonstrated inadequacies of the status quo, begs a new space policy. Fortunately, there are several options to reforming the space industry.

Put NASA on the auction block. The most radical proposals, such as those advocated by the Cato Institute, call for a complete privatization of NASA, including the sale of all government assets and interests in the space industry. Under this plan, government agencies would purchase launch services and lease back payload space on an as-needed basis from private contractors. Everything, including the shuttle project, International Space Station, and nonprofit scientific exploration, would be vested in private hands.

One of the major challenges of this approach is in transitioning the $100 billion space industry from government to private control. Bids would have to be solicited, employees would need to be reassigned, and facilities would need to be cleared out. This transition would not occur overnight. Several phases of privatization would likely be required.

One concern is that privatizing may negatively affect space research. Many argue that government money is still necessary to fund research because the return time is so long that unless products are produced, research is a losing investment for companies. As Buzz Aldrin, former astronaut and now chairman of Starcraft Enterprises agrees, exploration is the reason to keep NASA around: "In the field of exploration, the payoff does not look like it is there for commercial investment."²⁰

Keep NASA for scientific exploration. A more moderate view advanced by the Space Frontier Foundation would seek to privatize NASA and the space shuttle program, but maintain government involvement for scientific research. Entitled the "Space Frontier Agenda," this plan would exclude government from the Near Frontier, defined as the area from the Earth to the Moon, and declare space itself as an enterprise zone. However, the Space Frontier Foundation's proposal would seek to take the money saved from privatizing operations in the Near Frontier and apply it to an expanded scientific and exploratory program for the Far Frontier (the rest of the Solar System, including Mars and beyond.)²¹

This plan also has flaws. Some warn that keeping NASA as an "industrial partner" for research and development would favor some companies while discriminating against others. Historically, policies such as distributing seed money or loan guarantees allow the government to "pick winners" by interfering with the commercial market's ability to weed out the bad designs. Instead of investing in the cheapest or most innovative launch vehicles, the government has tended to favor their large contractors such as Boeing, McDonnell-Douglas, and Lockheed-Martin. Moreover, other industry specialists claim that if there is a demand, companies will invest resources into their own research. They argue that there is no reason to fund research that will occur naturally, and if there is no investment into a particular area of research, that is because the area is probably not profitable anyway. These responses put faith in the market to determine the future of research investment.

A superior solution would incorporate ideas from both of the previous proposals. Key elements of any reform would be the following:

Privatize Near Frontier Space. Most analysts agree that the commercial space market has matured enough that the government is no longer needed to launch payloads when the private sector is willing and able to do the same work for cheaper. NASA shuttles and the International Space Station should be sold to private companies. Additionally, NASA research facilities should be sold to academic institutions or research organizations. The government could then contract for launch services for its own needs. For security reasons, only the Department of Defense should retain its satellites and launch vehicles.

Provide Tax Credits and Grants for Research for Far Frontier Space. Commercial activity in the Near Frontier is a large industry because a market has been created for telecommunications satellites and other services. It is not clear that this is present in the Far Frontier. In order to develop sufficient markets in the area beyond the moon, the government should allocate grants to academic institutions and tax credits to for-profit enterprises for continued research and development activities. Money for this program could be taken from the savings of privatizing the Near Frontier. According to industry analysts, tax credits would support researchers equally and avoid the choosing problem where government subsidies pick winners and losers. Moreover, this solution would avert what ProSpace has termed the "chicken and egg dilemma," namely that if a company can't get to space on a regular basis to develop and manufacture its product, it can't make a product. Yet, if there is no profit, there is no incentive to go to space in the first place. Thus, temporary grants and tax credits would help to develop the market and could be phased-out as the industry matures.²²

Streamlining Regulations. One desperately needed reform is streamlining regulations. According to the Space Policy Digest, no single agency is tasked with planning the spaceways of the future: currently NASA, the FAA, the Department of Transportation, and the Department of Commerce have overlapping jurisdictions. As a result, administrators have tried to pigeonhole space into the same regulatory framework that governs the aviation industry instead of creating a new one. As the Space Policy Digest reports, "Many of these regulations are not directly applicable to spaceplanes, yet better regulations have not been developed."²³ The Office of Commercial Space Transportation, now under the control of the Department of Transportation, should be given sole authority to oversee private space operations as well as the power to create its own procedures for licensing launch and reentry vehicles.

Similarly, Boeing argues that regulation must be flexible in order to allow space transportation to operate as frequently and reliable as commercial airlines. While continued oversight is justified for safety, public policy should allow for "for-profit advertising, entertainment, and educational uses" of space vehicles and of the space station.²⁴ Loosened regulations would offer more freedom for companies to experiment and would likely spur greater innovation as firms compete for the first commercial passengers. Additionally, streamlining licensing procedures would better allow for more firms to enter the market.

The proposals contained herein stop at nothing short of a complete transformation of the entire space economy. Whatever legislation is finally adopted, emphasis must be placed on maximizing autonomy and flexibility for individual firms while transitioning government to meet its needs by contracting for services from private entrepreneurs.

To that end, NASA is already working on a plan for greater cooperation with the private sector. As required by the Commercial Space Act of 1998, NASA set forth its Commercial Development Plan for the International Space Station on November 16, 1998. In it, NASA stated its long term objective: "To establish the foundation for a marketplace and stimulate a national economy for space products and services in low-Earth orbit, where both demand and supply are dominated by the private sector."²⁵ It appears that the push for privatization may be gaining steam.

Despite the common sense appeal to relieve taxpayers of the NASA burden, most proposals to privatize the space industry have remained grounded. The political obstacles are not organized lobbies or partisan politics. Rather, the opposition is much subtler: it comes in the form of romanticized views about America's space program. Most Americans still believe that NASA is a necessary government agency. Many fail to realize that the Cold War is over and that the NASA is actually stifling space exploration. Indeed, the national prestige argument turns on its head because instead of the United States being the world leader in space, many American companies are contracting with French and Russian launch companies who are a cheaper and faster alternative to NASA.

Other holdouts argue that the space industry should remain government-controlled because of national security. Yet, even the Department of Defense has investigated using commercial broadband systems for its communication needs and leasing space on private satellites for everything but its sensitive missions. For example, Orbital Image, Space Imaging EOSAT, and EarthWatch have received contracts to provide the Pentagon with over $100 million in satellite imaging through 2003.²⁶ These contracts show that privatization is not only possible, but it is also occurring now through limited DoD-private sector cooperation.

Additionally, proponents of a national space program argue that the high cost of space exploration precludes a private sector. However, this argument ignores the industry that has already managed to develop despite the high costs. Further growth is expected in the future, which should attract more businesses and decrease costs further. For example, the Teal Group, an aerospace research organization, estimates that the next ten years will see the development and launch of almost 1,700 satellites worldwide, with commercial satellites making up over 70 percent of the total. This could add as many as 70,000 new high tech jobs per year.²⁷ Other organizations such as SpaceVest and KPMG Peat Marwick are forecasting a compound growth rate for commercial space of 57 percent for the next several years.²⁸ As Marco Caeres, an industry analyst observed, "This market has nowhere to go but up."²⁹

Anticipating the future growth, many groups have sought international partners, thereby further spreading the costs and risks of entering the space market. Major companies like Kistler Aerospace, Kelly Space and Technology, Pioneer Rocketplane, Rotary Rocket, and others have engaged in technology cooperation and joint venture projects with companies in France, England, Japan, and elsewhere. Not only does joint financing reduce costs for all involved, it also encourages more entrants into the market by allowing small businesses to share costs. This process of seeking out partners across the globe contributes to what Keith Calhoun-Senghor, Director of the Office of Air and Space Commercialization, has termed the "democratization of space."

Moreover, if high costs are indeed a barrier to entering the space industry, then it is NASA, rather than the market, that is to blame. NASA's own policies act to crowd out business, as detailed above. Additionally, this argument assumes costs will always be high, but with innovation and competition, costs should decrease. For example, computer prices have fallen in the last ten years with more competing firms and cheaper production techniques. In fact, the only thing that has gotten more expensive over time is NASA: in inflation-adjusted dollars, the cost of launching one pound of payload into orbit has gone from $3,800 with Apollo to $6,000 with the shuttle.³⁰

Finally, proponents of a national space program should remember what they are really defending -- socialism. The salient lesson of the Cold War was that government planning does not work. As ProSpace concludes:

"The Cold War is over, and so is the 70-year worldwide experiment in
'scientific socialism.' Free market capitalism has proven to be much
more effective at providing wealth, opportunity and a chance at a better
life. The American dream is rapidly spreading over the entire planet.
Yet socialism, and central government planning, still rules much of the
discussion about American space policy."³¹

At one time NASA was an appropriate response to the Cold War and allowed the U.S. to beat the Soviets to the moon. However, those days are no more. Now is the time to look forward to the possibilities ahead rather than maintaining budgets for government programs that live in the past. Nothing could be more important than the policy decisions made for the aerospace industry. As Calhoun-Senghor aptly asserts, "What is at stake is nothing less than global U.S. leadership of information technologies in the 21^st Century. Commercial space is the next economic frontier."³² America must formulate a solution commensurate with the stakes. America cannot allow NASA to rest on its laurels. Instead, private enterprise should lead the way to the next millennium.

About the Author

Jennifer DeButts is an Associate Policy Analyst for the National Taxpayers Union Foundation.

1 NASA's Office of the Chief Financial Officer, "About," http://ifmp.nasa.gov/codeb/about/budget.htm. See also, Aeronautics and Space Report of the President: Fiscal Year 1997 Activities, NASA, p. 62. http://www.hq.nasa.gov/office/pao/History/presrp97/pdf/report97.pdf.

2 Edward L. Hudgins, "Is NASA the Greatest Obstacle to Space Enterprise?" Cato: This Just In, March 11, 1997. http://www.cato.org/dailys/3-11-97.html.

3 James M. Clash, "Earth to Gary," Forbes, July 5, 1999, http://www.forbes.com/forbes/99/0705/6401140a.htm.

4 Ibid.

5 SpaceVest, "The Space Industry: Viable, High-Growth Investment Opportunities," http://www.spacevest.com/outlook/overview.html.

6 ProSpace, "Press Release- 1996 Space Industry Revenues Exceed $76 Billion," http://www.prospace.org/issues/Spac…erc/97spacevest_outlook_prelea.htm.

7 Ibid.

8 Ibid.

9 T.F. Rogers, "Space Tourism: The Perspective form Japan and Some Implications for the United States, " Journal of Practical Applications in Space. Vol. VI, No. 2, Winter 1995. P. 117. As found in Samuel M. Coniglio, "Practical Tourism in Space," http://www.magicnet.net/~sam123/spacetou.html.

10 James M. Clash, "Ticket to Ride," Forbes, July 5, 1999. http://www.forbes.com/forbes/99/0705/6401140s2.htm.

11 "About ISBA," http://www.spaceassembly.com/about.html.

12 ProSpace, "Press Release- 1996 Space Industry Revenues Exceed $76 Billion," http://www.prospace.org/issues/Spac…erc/97spacevest_outlook_prelea.htm.

13 Alan Pell Crawford, "An 'Industrial Policy' for Space?" Cato Policy Analysis No. 69, April 25, 1986, http://www.cato.org/pubs/pa069.html.

14 Ibid.

15 NASA Policy Directive 8610.6D, "Graphic Markings on Space Transportation Vehicles, U.S. Components of the International Space Station Component Systems, and Payloads," http://nodis.hq.nasa.gov/Library/Di…rogram_Management/N_PD_8610_6D.html.

16 The Globe and Mail, January 27, 1998; The Ottawa Citizen, January 23, 1998.

17 John Tierney, "Martian Chronicle," Reason Magazine, February 1999, http://www.reason.com/9902/fe.jt.martian.html.

18 Associate Administrator for Commercial Space Transportation (AST), 1999 Reusable Launch Vehicle Programs and Concepts, January 1999, p. 1. http://ast.faa.gov/pdf/99rlv.pdf.

19 ProSpace, "The 'Role of Government' in Opening the Space Frontier." http://www.prospace.org/issues/GovernmentRole/index.htm.

20 Declan McCullagh, "Lost in Space and Red Tape," Wired News, March 17, 1999, http://www.wired.com/news/news/politics/story/18522.html.

21 Rick N. Tumlinson, "A Space Frontier Agenda," Testimony before the House Subcommittee on Space and Aeronautics, October 1, 1998, http://www.house.gov/science/tumlinson_10-01.htm. See also Rick N. Tumlinson, "Manifesto for the Frontier: A Call for a New American Space Agenda," Testimony before the House Subcommittee on Space and Aeronautics, March 16, 1995, http://www.space-frontier.org/POLICIES/Manifesto.html.

22 ProSpace, "1999 ProSpace Legislative Alerts," February 24, 1999. http://www.prospace.org/prospace/alerts/99-3.htm.

23 Jess Sponable, "Opening the Spaceways," Space Policy Digest, http://www.spacepolicy.org/pg_js0799.html.

24 Stan Ebner, Testimony before the Senate Subcommittee on Science, Technology, and Space, March 5, 1998, http://www.prospace.org/issues/GovernmentRole/030598_boeing_spacecomm.htm.

25 "Commercial Development of the International Space Station," November 16, 1998. NASA, http://www.hq.nasa.gov/office/codez/uhran/cdp.html.

26 Marco Caeceres, "Commercial Satellites Surge Ahead," Aerospace America, November 1998, http://www.tealgroup.com/articles/A…ceAmerica/AeroSpaceAmericaNov98.htm.

27 Keith Calhoun-Senghor, Prepared Statement before the Senate Committee on Commerce, Science, and Transportation, Subcommittee on Science, Technology, and Space, March 5, 1998, http://www.prospace.org/issues/SpaceCommerce/030598deptofspacecommerce.htm.

28 "Commercial Space," http://www.prospace.org/issues/SpaceCommerce/index.htm.

29 Marco Caeceres, "Commercial Satellites Surge Ahead," Aerospace America, November 1998, http://www.tealgroup.com/articles/A…ceAmerica/AeroSpaceAmericaNov98.htm.

30 Cato Institute, "37. National Aeronautics and Space Administration," Cato Handbook for Congress: 105th Congress,http://www.cato.org/pubs/handbook/hb105-37.html.

31 ProSpace "Commercial Space," http://www.prospace.org/issues/SpaceCommerce/index.htm.

32 Keith Calhoun-Senghor, Prepared Statement before the Senate Committee on Commerce, Science, and Transportation, Subcommittee on Science, Technology, and Space, March 5, 1998, http://www.prospace.org/issues/SpaceCommerce/030598deptofspacecommerce.htm.