That's One Small Step For The Markets ...

by Roland Watson

… one giant leap for Statism. To be more explicit, Teflon makes it to frying pans and man makes it to the Moon. Whilst the USA was racking up large number of ego points against the Soviets in the politically led Space Race, our eggs were sliding effortlessly off their pans. The cost to develop Teflon plus the Apollo missions was 24 billion dollars or more than $100 billion in today’s money. In terms of the whole US economy, the annual Apollo budget peaked at 0.8% of GDP in 1965 after Khrushchev raised the political value of Space records. Well, I exaggerate slightly in only mentioning Teflon, there were benefits for biomedical devices and semiconductor technology but the whole exercise was assuredly not about improving health facilities or mainframe performances.

The Space Race

It is ironic to think that all this would not have happened without the existence of the killing machine known as the USSR. We free-marketeers like a bit of competition to bring out the economic and innovative best in a given sector. Unfortunately, the duopolistic nature of the Space/Arms Race was not what we had in mind.

Now, don’t get me wrong, putting a man on the Moon is a wonderful achievement of mankind’s ingenuity and sense of adventure (not the State's I may hasten to add). I remember watching those fuzzy images on the TV as Neil Armstrong historically set foot on another world and this partly inspired me to follow my hobby of Astronomy, which I eventually pursued as a university degree.

But, although the buzz factor was high, was it worth the cost? If this sort of exploration is so important, why have we not put a man on Mars yet? The appearance of “2001: A Space Odyssey” the year before, featured the confident speculation of a manned mission to Jupiter within a generation. One generation later, we still haven’t gone further than the Moon. Has the State lost the sense of adventure or is the political mileage to be gained from a Mars expedition hugely outweighed by the crippling costs to the taxpayer (conservatively put at $20 billion without private partnership)? Are the familiar threatening questions of why such money was not spent on state schools and hospitals ringing in officialdom’s ears (which is a proof in itself that the State never attempts anything big and adventurous unless seriously provoked as we saw with Sputnik and Gagarin)?

If there was proof that publicity as well as politics was an influential factor, then the canning of the last 3 Apollo missions in the face of declining TV ratings revealed something. Or, put another way, such ratings perceived as de facto voters’ opinion polls probably saved the taxpayer billion of dollars. After all, apart from bringing back a few bagfuls of lunar rock, there is not a lot else you can do up there to justify the huge price tag. Well, excluding one or two tantalising objects of commercial opportunity.

The Starship Private Enterprise

Which brings us to the private sector. The critics will make the accusation that private enterprise could not have pulled off such a stunt. I presume that is meant in terms of the prohibitive costs and not engineering ability. They are right in the sense that no single company would have taken on such a huge financial risk with no perceived benefits to present or potential future customers. With the moon shots now a thing of history and with no major advantage to the average American’s lifestyle (apart from the Teflon), we have the classical situation of the State either doing too much too soon as opposed to the usual charge of too little too late. The moon shot was a product that could not be packaged, nobody wanted it, not even the military. Having lain on the shelf for so long now, the technology is well past its sell-by date and any similar project in the future would basically have to start from the scratch.

But, in terms of discussing how private companies would have handled this kind of enterprise, some preliminary points have to be made. Firstly, I am talking here about how private enterprise could have done it from day one onwards. We are not talking about NASA privatisation, which is no doubt a good thing to do and would drive down the cost of launches and development significantly (For example, see this article). Secondly, corporate taxation obviously hinders the ability of a company (or group of companies) to allocate resources for big ticket R&D projects – this limits the pool of companies capable of doing such a project and hence reduces the competitive aspects of what would surely start of as a small pool of participants. Thirdly, considering the military history of missile technology and national security, one has to ask how much interference and licensing restriction the State would impose upon the marketability of key aspects of certain technologies and hence the diminished return on investment.

So, major government strictures aside, we have a scenario where timing and the level of service offered is critical. Too much or too little can make or break a company. Space technology in the hands of private enterprise would require a profit motive and not a political one. As one example, we had one ready made problem which required a solution due to the curvature of the Earth. The company which would be first to put up a satellite to allow live international communications was onto a winner when the prohibitive costs of a worldwide network of thousands of miles of sub-ocean cables was compared and contrasted.

This task was actually accomplished in 1962 via the Telstar launches using the government-regulated monopoly of AT&T and the military monopoly of space launch facilities. The former is now somewhat privatised and deregulated; the latter is still jealously guarded by the Pentagon. That such a task could have been achieved on solely private grounds is not in much dispute when the prize of international telecommunication profits is sparkling before corporate shareholders. Producing the small ball of electronics known as the satellite is one thing, wresting launch technology from the grip of the State is another. The Soviets and Americans scrambled to divide the spoils of Nazi rocket scientists after Berlin fell. America got Werner Von Braun’s V2 expertise which begat Mercury, Gemini and Apollo. The baton from State to State ran on with the outreached hand of private enterprise greedily and suspiciously ignored.

Return on Investment

Not surprisingly, it is difficult to rewind history and transplant entrepreneurial investors and inventors into the economic landscape without the State sniffing around for a competitive edge to the weapons of their warfare. But, assuming some government allows total private research and development of propulsion techniques and use of land for private launch testing, we come to the small matter of ROI. Viable projects which promise big returns in the future have no trouble attracting investors subject to two conditions – how much and when.

Large-scale private projects have produced for the investor in the past. We had the TransAlaska Pipeline of 1977, which cost $20 billion in today’s money. We had the England to France channel tunnel built in 1995 at a cost of $15 billion. We could also add major railroad and surface communications infrastructures which private enterprise has funded from hopeful investors. But, the one thing they differ from as we move from private satellites to a manned lunar project is the time from initial investment to the first profits coming in. It took the American government eleven years to get from the first satellite launch to a man on the moon; could private investors wait that long? No, they couldn’t if one adopted a monolithic approach to this investment problem. The answer lies not in huge spending programs at taxpayers’ expense but in an incremental approach to private space development, which seeks alternate forms of return on investment and then build towards new goals on existing, profitable technology. In other words, there was an instant market for geosynchronous communication satellites and satellite communications services as well as low Earth orbit communication satellite constellations. From America’s first satellite (Explorer I) to Telstar was two and a half years, so profits would be guaranteed to space telecoms companies who could then plough a proportion of these revenue streams into the big project of putting an employee on the moon.

Telstar to Apollo was a relatively longer leap of seven years and one I suggest that competing companies would do in less time than the Cold War race. Once the lunar probe satellites had been deployed and transmitted back their surface data, all it would take is indefatigable courage allied with the insatiable spirit of the pioneer to make the final steps. And, yes, an “Invest to get an American on the moon first!” promotion campaign is a darn good way of getting millions of small investors in on the act, but this time without the coercion of taxation.

It may indeed satisfy enough investors just to see their man walking on the moon, but the next chronological leap for others is to start extracting whatever resources the Moon offers back to Earth at competitive prices. What could the Moon offer in that respect? We spoke of unappealing lunar rocks from Apollo missions, but as the Lunar Klondykers are now hollering: “There’s Helium-3 in them thar hills!”.

Lunar Pay Dirt

Nuclear fusion power is the big hope for this century and Lunar Helium-3 is a major player in that nascent market. Alongside competing fuels of Deuterium and Tritium, Helium-3 is far too rare on the Earth. But it is abundant on the Moon and offers the real advantage over the other two fuels of being more efficient in yielding energy and is emits much less radioactive by-products hence reducing build and safety costs of fusion reactors. Forget about renewable wave and wind sources, what fusion offers will dwarf any of those and will dominate once fossil fuels begin to become more scarce. One study suggests that 60% of all US energy requirements could come from Helium-3 fusion by the year 2050, indeed the entire projected supply of lunar Helium-3 could supply the Earth’s entire energy needs for 1000 years!

The major efficiency gains of Helium-3 makes attempts to get this isotopic gas off the Moon a profit-motivated incentive. This means one or more lunar mining companies who can get miners and machines on the Moon long term – this is expensive and has a long lead time in setting up (for an overview of lunar mining see this article). Thereafter, the profits will flood in like a meteor shower.

The major start-up costs in R&D would be the cost per pound of launch and the construction and maintenance of lunar mining bases and equipment. One study suggests a $3 billion investment (1993 dollars) in mining R&D from 1995 to 2015 which does not include the R&D required for a scientific lunar base. The cost of developing a multi-market lunar base obviously carries attractions to others not primarily interested in Helium-3.

Thereafter, there is the cost of placing over 2000 mining machines to harvest the helium by 2050 with the first machine reaping revenues in 2015. This comes to about $20 billion for the machines and $123 billion for launching them. The commercial incentive to lower launch costs is there for all to see. The Space Shuttle is reputedly on over $12000 per kg and private enterprise is aiming for $1000 in the future.

This is where the studies get a bit edgy about purely private investment. The minimum 20-year wait for the first revenues (1995-2015) would put off those with a high time preference. This is why such studies advocate a joint private-public initiative with the government supplying the tax dollars and bringing back Helium-3 at a price of $500-$800 per gram. After 2015, the government gets back its original investment at 20% growth.

No doubt, this is a high-risk investment which promises big returns. Considering the aforementioned $3 billion for developing mining equipment, this is not a lot compared to the billions we have seen poured into dubious dot-com start-ups. At least an investor can see the Moon and look at the helium-3 distribution maps. This is obviously not so much a majority venture for individuals but corporates with a long-term view of global investment strategy. There are plenty of multinationals with large amounts of risk capital looking for profitable opportunities, which can wait for the long term. As such an investment proceeds, stock flotations can provide further equity from others as the profile and credibility of the venture increases.

The Investors

Looking at the R&D budgets of suitable companies in the aerospace sector such as Lockheed Martin, Boeing, etc we see that the numbers are heavily influenced by defence spending. According to the 1999 Corporate R&D Report of the U.S. Department of Commerce, $4.7 billion or about 3.5% of sales were ploughed into R&D in this sector. This compared to 11.8% in the medical industry and 7.0% for IT and electronics. This disparity confirms the boom in Biotechnology and the Internet markets at that time (1997) and the idea that longer-term profit motive oils the wheels of change (dot-coms were not expected to become major revenue earners for some years).

Bringing this sector up to date, last October, the U.S. Senate approved a defence budget of $343 billion. The amount allotted for research and development was $51 billion with 20 percent to be allocated to new technology. So, with private companies traditionally getting more than half, this gives about $5 billion alone – a figure comparable to the numbers above.

What would be required to quell investor fears would be a major advance in fusion technology or assurances of spin-off revenues. A prototype fusion reactor that consistently outputs more energy that it consumes is years off and that has to be accepted as the reality of commerce – once the major components of a business venture begin to fall into place then the dollars begin to flow into the R&D coffers. Meanwhile, ancillary costs such as launch dollars per pound will continue to drop and reduce the overall development budgets. That is not an argument against commercial funding – it is rather a proof that the markets employ investment timing that reflects technological reality in a more efficient manner than the State.

What spin-offs could fund R&D? It has to be noted that a company exclusively dedicated to lunar mining would be too focused to produce viable spin-offs. The spin-off strategy would have to be come indirectly from large donor corporates such as Lockheed Martin, Boeing or Hughes Electronics who have costed future provision of related technology against the capital they have put into the mining company (or division).

So, for example, there is the potentially lucrative area of Space Tourism, which has a recent precedent in billionaire Dennis Tito paying $20 million to the Russian Space Agency for the privilege of going up in the Soyuz for one week. A 1995 survey by the National Aerospace Laboratory concluded that 30% of households surveyed would pay up to 3 months salary for such a trip. The economy of scale is not big enough for that yet but a steady supply of multi-millionaires paying millions would provide a supportive revenue stream.

As mentioned, reducing launch costs has an overall benefit to the satellite industry but this would not require any particular ring fencing of budgets for lunar purposes. Unfortunately, one of the most recent attempts at this was the single-stage launch X-33 plane that was scrapped at 85% completion due to problems in engine development. NASA had put in over $1 billion whilst Lockheed had put in $357 million (see article). As a consequence, Lockheed discontinued the VentureStar which was a similar but commercial payload delivery vehicle and was being exclusively developed from private funds. If the project had succeeded then reusable launch costs could have been reduced by a factor of 10.

Leaving aside the technology aspects, the aesthetic argument against a private launch is mooted in terms of the famous close up shot of the steel column bedecked in gas clouds. The missile rises to reveal not the words “United States Of America” but “MacDonalds “, “Ford” or any other corporate willing to self their collective soul to get their name on that mother of all adverts. What would a company give to co-sponsor the first private moon shot? A large amount, a considerably large amount of cash. One should not be ashamed of taking the money in such situations, though one would expect such adverts to be discreetly placed at the appropriate points on the projectile as it hurtles at prodigious speed towards the Sea of Tranquillity. One wonders what the franchise would cost for the first lunar fast food outlet!


So, in conclusion, this scenario raises the question of state versus private projects. Is there a limit to what private enterprise can do? Is there a point where taxation rather than investment can only fund truly large-scale projects? Does free market capitalism grind to a halt after so many billion dollars? Obviously, it does, there is only so much wealth flowing about and there are a lot of people wanting to divert it to their own further wealth creation or wealth redistribution projects.

What this rather proves is that the markets adapt to the fluid and progressive prosperity of the economy they inhabit and inject realism into the financial worthiness of projects. If capitalism cannot obtain so many billions of dollars in so many years, it waits; it merely waits with an almost inscrutable patience. The technology will come and the investment will come. State interference aside, the Industrial Revolution happened at the right time, the Computer Revolution happened at the right time and the Lunar Revolution will happen at the right time. Dynamic allocation (and non-allocation) of resources, that’s free market capitalism and you can trust the projections it comes up with.

I could blame the State for indirectly guiding me to study a university subject, which turned out to be less than useful in finding a commercial job. But then again, even I do not blame the State for everything.

To Infinity and beyond!

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