Historical Analogies and the Commercial Development of Space

I recently completed a study on historical analogies and the commercial development of space. This study explored several historical episodes in U.S. history where the federal government undertook public/private efforts to complete critical activities valued for their public good. This largely resulted from a lack of either sufficient political will to fund them entirely out of the public treasury or insufficient profit motive for private firms to undertake them for purely business reasons.

What if there had never been railroads?

The study investigated six case studies: (1) the development of the transcontinental railroad supported by a unique land grant approach to subsidy, (2) support for the airline industry through legislation, appropriate regulation, and subsidies to grow a robust air transport capability, (3) the regulatory regime put into place with the rise of the telephone industry and the creation of government-sponsored monopoly that eventually had to be broken up, (4) government sponsorship of Antarctic scientific stations that evolved into a public/private partnership over time, (5) the fostering of a range of public works projects and their success or failure over time, and (6) the establishment of scenic and cultural conservation zones in the United States and how to balance economic development with preservation.

With the rise of a range of private sector entrepreneurial firms interested in pursuing space commerce, the process whereby those might be incubated, fostered, and expanded comes to the fore as an important public policy concern in a way never before present in the space age. In the United States, and virtually nowhere else in the world, we are witnessing the convergence of several powerful economic forces. These include the need to restore American capability to reach low-Earth orbit for the servicing of the International Space Station, the rise of a hospitality/tourism/entertainment industry interested in space, the development of expansive remote sensing and other applications in Earth orbit, and the possibilities envisioned for opening commercial space activities in the cis-lunar region.

Through these case studies we explore better how to apply more effectively already tested models of government support for commercial activities, and the interactions of both the public and private spheres in a new opportunity zone in space. In each case, a summation yields a range of key points. The following paragraphs relate my key conclusions.

Transcontinental Railroad: The approach taken by government involvement in nineteenth century transcontinental railroad development remains valid to some degree for orbital space operations. The government offered the following six inducements for private development:

1. Land grants as a means of offering potential future revenue, tied to success in creating the railroad system.
2. Direct government appropriations to the company involved in the endeavor.
3. Waivers/modifications to taxes and other regulatory requirements.
4. Contracts for services once capability is demonstrated.
5. Government endorsement and backing of corporate bonds/assets.
6. Indirect support for related but supplemental elements of the railroad transportation system.

In every case these government initiatives were intended to leverage (and not replace) existing private funding, especially additional industry and venture capital.

To those six, we might add the following:

• Private financing supplemented with government loans.
• Property and patent rights granted to participating firms.
• Broadly construed revenues produced from transportation and other fees.

Regardless, one must ask these critical questions in the context of developing new space transportation structures: “How important, in the final analysis, is cheaper access to space? Is it really the key to future growth of space activities?” This seems to be at the cusp of what will go into any stimulation of private space transportation effort.

Commercial Air Transportation: Between 1915 and the 1970s government officials in the U.S. undertook a series of critical initiatives designed to create a commercial airline industry in private hands. Washington lawmakers saw the necessity of fostering new technology for the purposes of national security, economic competitiveness, and pride and prestige. That latter reason was in no small measure because although Americans had invented the airplane in 1903, by 1914 leadership in technology had moved to Europe and the United States had been left in the dust. Catching up became an important driver for federal investment. Government organizations took as multi-faceted approach: military investment, research and development, regulatory efforts aimed at both promoting safety and efficiency and expanded operations, and direct subsidies to commercial entities until the 1960s. Congress could have established national airline run by civil servants, but instead created a favorable climate for private investment in airlines. For instance, the U.S. Congress established the NACA in 1915 to conduct research on flight and in 1921 New York/New Jersey created a port authority with power to issue bonds and collect fees for airfields.

In terms of space transportation there are several lessons to be drawn from the aviation experience. Like the NACA, government agencies could conduct basic research and transfer that knowledge to private firms. In addition, NASA could transfer its operational responsibility to private carriers. Congress could also create the authority—modeled on various earlier efforts such as the Overseas Private Investment Corporation—to provide loans/insurance to space line firms. Either the U.S. government or states could establish spaceport authorities to manage operations from the ground to orbit; federal agencies could also regulate routes and fares. Many of these efforts are already underway and we are on the verge of seeing a new age of entrepreneurial space transportation efforts. There are, however, challenges to this approach, not the least of which is that NASA has a critical path with specific milestone deadlines and is hesitant to change this approach; the loans/insurance incentives may not produce services in time; and liability issues are especially burdensome. Nonetheless, major steps have been taken toward this capability in the last decade.

Female Indian telephone switchboard operator – “Helen of Many Glacier Hotel.”
June 26, 1925

Telecommunications: Following the invention of the telephone in 1876, the federal government could have owned and operated telephone service—it did so during World War I—or it could have allowed a totally open market. Instead it established phone companies as regulated monopolies under the FCC, with monopolistic privileges only removed in 1980. In essence the following structure emerged:

• Provided patents, granted monopoly status, and chartered corporations.
• U.S. Attorney General allowed AT&T to control telephone service as a regulated monopoly (1913).
• AT&T established Bell Laboratories (1925); Bell Labs developed the first orbiting communication satellite (Telstar 1, 1962).
• Congress created Comsat, a public-private corporation with monopoly status, to promote satellite communications (1962).
• Comsat represented the U.S. in the formation of Intelsat and became its managing company.

Might the U.S. government foster a private space communications system that can serve the needs of all users on a commercial basis, rather than having NASA own its on TRDSS satellites? What is the future of space communications? Will the government encourage private entrepreneurs to construct, own, operate, and use lunar communications networks, Mars communications networks, deep space networks? A major challenge: recent experience (Iridium, GPS) suggests that the cost of establishing certain space communications networks exceeds likely revenues.

Antarctica: Antarctica has a legal status similar to that of the Moon. It is utilized primarily for scientific research and no nation can claim its land. Yet basic supplies and logistic support for U.S. operations on the continent are provided by non-federal organizations. Might this become a possibility in the future on the ISS or the Moon? Fostering such an approach to space activities could mean that control of orbital lunar assets would remain with NASA, which would select and fund science projects, oversee policy, and cycle personnel as necessary. Operation of these stations, however, could fall to a company with experience in remote locations, staffed by its own employees. Transportation to and from these stations could also be provided by outside organizations. At the same time, commercial activities could be encouraged.

Public Works: Frequently in the history of the United States the federal government has developed critical infrastructure, often for its national security purposes, but quickly leading to economic development. At times it has relied wholly upon private entrepreneurs. One of the most creative approaches to this process has been the use of the government or quasi-government development commissions to develop resources as a public good. There are many instances of this approach to public/private partnership. For example in the General Mining Act of 1872, the U.S. government set up an uncontrolled but highly entrepreneurial structure that emphasized the principle that discovery conferred ownership. It left a legacy of riches and ruin that few wanted to repeat. More recently commissions have been formed to create vector a more controlled development of the resource. Examples include the Isthmian Canal Commission (1904), Bonneville Power Administration (1937), and the subject of this discussion the Tennessee Valley Authority (1933). This entity was decentralized, not a conventional government agency. Congress provides at least initial appropriation but it was intended to become self-sustaining while delivering a public service. Corporate entities associated with it were empowered both to borrow and spend as well as market goods and services. It served an important economic and social purpose and in the process served as the catalyst for the wholesale transformation of the region.

In the context of lunar development might an organization similar to the TVA be capable of commercially developing the Moon? Questions abound:

• Should it begin with the establishment of a lunar development commission/corporation?
• Would a commission/corporation start by building and managing lunar infrastructure for NASA?
• Would this be followed by an effort to spur economic development?

This artist’s conception by Bill Wright captures a possible future lunar tourist moment. Visitors to the “Tranquility Base Memorial Center” view the “Eagle” spacecraft that first landed humans on the Moon from an observation deck as the activities of the Moonbase take place all around.

National Parks: In terms of applicability to the space frontier, the experience of the National Park Service is most germane in terms of space tourism efforts. When Congress created the U.S. National Park Service in 1916 to conserve natural and historical resources “by such means as will leave them unimpaired,” a key component was to assist the public in reaching those scenic wonders. Accordingly, park managers, recognizing the need for public support to encourage future preservation, allowed private entrepreneurs to commercialize the parks in such a manner as to encourage public visitation. Accordingly, they encouraged railroad companies and other concessionaires to build hotels and related facilities in the national parks. Those concessionaires then paid fees which the National Park Service used to build additional roads and trails. Americans rode and drove to the national parks, vastly expanding tourism and creating the family vacation tradition.

Government officials, as well as policy, could likewise encourage private sector development in space tourism, both in low-Earth orbit and on the Moon. The following possibilities exist:

• Public officials could expand the use of government facilities by private entrepreneurs as a means of encouraging public use and visitation.
• Private citizens could then experience space through both remote access as well as direct participation.
• Private firms could pay fees which government agencies could then use to expand and develop facilities.
• Government could create a favorable regulatory climate for space tourism.

Beyond these very specific possibilities, NASA could also award lease contracts for habitation/support services of facilities in orbit and on the Moon. Baseline development and operational costs could then be funded by NASA lease. As an additional revenue stream companies could then add tourism for marginal costs. Such an environment could create a public/private space ecology with efficiencies of operations achieved through economies of scale.