HISTORICAL ANALOGS FOR THE STIMULATION OF SPACE COMMERCE

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National Aeronautics and Space AdministrationFarewell from all your NASA colleaguesHISTORICAL ANALOGSFOR THE STIMULATIONOF SPACE COMMERCEM o n o g r a p h s i n A e r o s p a c e H i s t o r y, n o . 5 4Roger D. Launiuswww.nasa.gov

HISTORICAL ANALOGSFOR THE STIMULATIONOF SPACE COMMERCERoger D. Launius

Library of Congress Cataloging-in-Publication DataLaunius, Roger D.Historical analogs for the stimulation of space commerce / Roger D.Launius.pages cm. -- (The NASA history series) (NASA SP ; 2014-4554)Summary: “The study investigates and analyzes historical episodes inAmerica where the federal government undertook public-private efforts tocomplete critical activities valued for their public good and applies thelessons learned to commercial space activities”--Provided by publisher.Includes bibliographical references.1. Space industrialization--United States. 2. Spaceindustrialization--Government policy--United States. 3. UnitedStates--Commerce. 4. Public-private sector cooperation--UnitedStates--Case studies. 5. Public works--United States--Finance--Casestudies. 6. Common good--Economic aspects--United States--Case studies.I. Title.HD9711.75.U62L28 2014338.4’7629410973--dc232014013228ISBN 978-1-62683-018-99 781626 830189ii90000

HISTORICAL ANALOGSFOR THE STIMULATIONOF SPACE COMMERCEMonographs in Aerospace History, no. 54Roger D. LauniusNational Aeronautics and Space AdministrationOffice of CommunicationsPublic Outreach DivisionHistory Program OfficeWashington, DC2014SP-2014-4554iii

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Table of ContentsAcknowledgments .viExecutive Summary and Findings .1Introduction .5A Breathless Survey of American Spaceflight History .12Commercial Activities in Space .24The Use and Abuse of Historical Analogs .35Case Studies .37Developing the Transcontinental Railroad. 38Fostering the Aerospace Industry . 47Creating the Telephone Industry . 63Supporting Scientific Research in Antarctica . 67Advancing Public Works . 78Making Accessible Scenic and Cultural Conservation Zones . 82Conclusion .88Selective Annotated Bibliography .96Key Historical Studies . 96Key Civil Space History Studies . 98Key Historical Analog Studies .117v

HISTORICAL ANALOGS FOR THE STIMULATION OF SPACE COMMERCEAcknowledgmentsThe author wishes to express his appreciation to Brian Jirout, a doctoral student at the Georgia Instituteof Technology; Marcus Jackson, an undergraduate student at Xavier University; and Lauren Binger, anundergraduate student at Smith College, for assistance in collecting information for this project. Theauthor also wishes to thank NASA’s Emerging Space Office, which provided a grant to pursue this research.vi

Executive Summary and FindingsExecutive Summary and FindingsThe study that follows investigates and analyzes historical episodes in America in which the federal government undertook public-private efforts to complete critical activities valued for their public good. Thiscombination largely resulted from a lack of either sufficient political will to fund them entirely out ofthe public treasury or insufficient profit motive for private firms to undertake them for purely businessreasons. The six case studies include the following: 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 regulatoryregime put into place with the rise of the telephone industry and the creation of a government-sponsoredmonopoly that eventually had to be broken up; 4) government sponsorship of Antarctic scientific stations that evolved into a public-private partnership (PPP) over time; 5) the fostering of a range of publicworks projects and their success or failure over time; and 6) the establishment of scenic and culturalconservation zones in the United States and ways 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 their efforts might be incubated, fostered, and expanded comes to the fore as animportant public policy concern in a way never before present in the Space Age. In the United States,and really nowhere else in the world, we are witnessing the convergence of several powerful economicforces. These include the need to restore American capability to reach low-Earth orbit (LEO) for theservicing of the International Space Station (ISS), the rise of a hospitality/tourism/entertainment industry interested in space, the development of expansive remote sensing and other applications in Earthorbit, and the possibilities envisioned for opening commercial space activities in the cislunar region.Through these case studies, we explore how to apply more effectively already-tested models of government support for commercial activities, as well as the interactions of both the public and private spheresin a new opportunity zone in space. In each case, a summation yields a range of key points. The followingparagraphs relate key conclusions.Transcontinental Railroad: The approach taken by government involvement in 19th-century transcontinental railroad development remains valid to some degree for orbital space operations. The governmentoffered the following six inducements for private development:1.2.3.4.5.6.Land grants as a means of offering potential future revenue, tied to success in creating the railroad system.Direct government appropriations to the company involved in the endeavor.Waivers/modifications to taxes and other regulatory requirements.Contracts for services once capability was demonstrated.Government endorsement and backing of corporate bonds/assets.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 privatefunding, especially additional industry and venture capital.1

HISTORICAL ANALOGS FOR THE STIMULATION OF SPACE COMMERCETo 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 transportationstructures: “How important, in the final analysis, is cheaper access to space? Is it really the key to thefuture growth of space activities?” This seems to be at the cusp of what will go into any stimulation ofprivate space transportation effort.Commercial Air Transportation: Between 1915 and the 1970s, government officials in the UnitedStates undertook a series of critical initiatives designed to create a commercial airline industry inprivate hands. Washington lawmakers saw the necessity of fostering new technology for the purposesof national security, economic competitiveness, and pride and prestige. That last reason was in nosmall measure because although Americans had invented the airplane in 1903, by 1914 leadershipin the technology had moved to Europe—the United States had been left in the dust. Catching upbecame an important driver for federal investment. Government organizations took a multifacetedapproach: military investment, research and development, regulatory efforts aimed at both promotingsafety and efficiency and expanding operations, and direct subsidies to commercial entities until the1960s. Congress could have established a national airline run by civil servants, but instead created afavorable climate for private investment in airlines. For instance, the U.S. Congress established theNational Advisory Committee for Aeronautics (NACA) in 1915 to conduct research on flight, andin 1921 New York and New Jersey created a port authority with the power to issue bonds and collectfees 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 toprivate firms. In addition, the National Aeronautics and Space Administration (NASA) could transferits operational responsibility to private carriers. Congress could also create the authority—modeledon 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 andfares. Many of these efforts are already under way, and we are on the verge of seeing a new age ofentrepreneurial space transportation efforts. There are, however, challenges to this approach, not theleast of which is that NASA has a critical path with specific milestone deadlines and is hesitant tochange this approach; the loans/insurance incentives may not produce services in time; and liabilityissues are especially burdensome. Nonetheless, major steps have been taken toward this capability inthe last decade.Telecommunications: Following the invention of the telephone in 1876, the federal government couldhave owned and operated telephone service—it did so during World War I—or it could have allowed atotally open market. Instead, it established phone companies as regulated monopolies under the Federal2

Executive Summary and FindingsCommunications Commission (FCC), with monopolistic privileges left in place until 1980. In essence,the following structure emerged: Regulatory agencies provided patents, granted monopoly status, and chartered corporations. The U.S. Attorney General allowed the American Telephone and Telegraph Company(AT&T) to control telephone service as a regulated monopoly (1913). AT&T established Bell Laboratories (1925); Bell Labs developed the first orbiting communications satellite (Telstar 1, 1962). Congress created the Communication Satellite Corporation (COMSAT), a public-privatecorporation with monopoly status, to promote satellite communications (1962). COMSAT represented the United States in the formation of INTELSAT and became itsmanaging company.Might the U.S. government foster a private space communications system that could serve the needsof all users on a commercial basis rather than having NASA own its own Tracking and Data RelaySatellite System (TDRSS) satellites? What is the future of space communications? Will the governmentencourage private entrepreneurs to construct, own, operate, and use lunar communications networks,Mars communications networks, deep space networks? A major challenge: recent experience (Iridium,Global Positioning System [GPS]) suggests that the cost of establishing certain space communicationsnetworks exceeds likely revenues.Antarctica: Antarctica has a legal status similar to that of the Moon. It is utilized primarily for scientificresearch, and no nation can claim its land. Yet basic supplies and logistic support for U.S. operations onthe continent are provided by nonfederal organizations. Might this become a possibility in the future onthe ISS or the Moon? Fostering such an approach to space activities could mean that control of orbitallunar assets would remain with NASA, which would select and fund science projects, oversee policy,and cycle personnel as necessary. The operation of these stations, however, could fall to a companywith experience in remote locations, staffed by its own employees. Transportation to and from thesestations could also be provided by outside organizations. At the same time, commercial activities couldbe encouraged.Public Works: Frequently in the history of the United States, the federal government has developedcritical 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 approachesto this process has been the use of the government or quasi-government development commissions todevelop 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 uncontrolledbut 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 beenformed to create a more controlled development of the resource. Examples include the Isthmian CanalCommission (1904); the Bonneville Power Administration (1937); and the subject of this discussion, theTennessee Valley Authority (TVA, 1933). This entity was decentralized, not a conventional governmentagency. Congress provided at least initial appropriation, but the organization was intended to become3

HISTORICAL ANALOGS FOR THE STIMULATION OF SPACE COMMERCEself-sustaining while delivering a public service. Corporate entities associated with it were empoweredto borrow and spend as well as market goods and services. TVA served an important economic andsocial 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 TVA be capable of commerciallydeveloping 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 infrastructurefor NASA? Would this be followed by an effort to spur economic development?National Parks: In terms of applicability to the space frontier, the experience of the National ParkService is most germane in terms of space tourism efforts. When Congress created the U.S. NationalPark Service in 1916 to conserve natural and historical resources “by such means as will leave themunimpaired,” 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 privateentrepreneurs 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 inthe national parks. Those concessionaires then paid fees, which the National Park Service used to buildadditional roads and trails. Americans rode and drove to the national parks, vastly expanding tourismand creating the family vacation tradition.Government officials, as well as policy, could likewise encourage private-sector development in spacetourism, 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 ameans of encouraging public use and visitation. Private firms could pay fees, which government agencies could then use to expand and developfacilities. Government could create a favorable regulatory climate for space tourism. Private citizens could then experience space through both remote access and direct participation.Beyond these very specific possibilities, NASA could also award lease contracts for habitation/supportservices of facilities in orbit and on the Moon. Baseline development and operational costs could thenbe funded by NASA lease. As an additional revenue stream, companies could then add tourism formarginal costs. Such an environment could create a public-private space ecology with efficiencies ofoperations achieved through economies of scale.4

IntroductionIntroductionWith the rise of a range of private-sector entrepreneurial firms interested in pursuing space commercein the first decade of the 21st century, the process whereby those efforts might be incubated, fostered,and expanded comes to the fore as an important public policy concern in ways never before confrontedin the history of the Space Age.The United States is witnessing the convergence of several powerful economic forces. These includethe need to restore American capability to reach low-Earth orbit for the servicing of the InternationalSpace Station, the rise of a hospitality/tourism/entertainment industry interested in space, the place ofremote sensing and other applications in Earth orbit as well as their commercial appeal, and the possibilities envisioned for opening commercial space activities in the cislunar region. Among those lastefforts is the stimulation of several organizations to pursue a lunar lander and rover/hopper to capturea 25 million Google Lunar XPRIZE.Because of this broad-based set of initiatives, there is a renewed necessity to explore historical analogsfor the stimulation of private-sector investment in space activities. All of these represent various formsof public-private partnerships. The Council on Public-Private Partnerships defines this approach to bigprojects thusly: “A contractual agreement between a public agency (federal, state or local) and a privatesector entity. Through this agreement, the skills and assets of each sector (public and private) are sharedin delivering a service or facility for the use of the general public. In addition to the sharing of resources,each party shares in the risks and rewards potential in the delivery of the service and/or facility.”1There are many instances of these models of financing/governance/operations having been used throughout history. The National Council for Public-Private Partnerships offers these 10 statements about theirbroad use:1. Public-private partnerships are just what the name implies. Public-private partnerships area contractual arrangement whereby the resources, risks and rewards of both the public agencyand private company are combined to provide greater efficiency, better access to capital, andimproved compliance with a range of government regulations regarding the environment andworkplace. The public’s interests are fully assured through provisions in the contracts thatprovide for on-going monitoring and oversight of the operation of a service or developmentof a facility. In this way,

Historical analogs for the stimulation of space commerce / Roger D. Launius. pages cm. -- (The NASA history series) (NASA SP ; 2014-4554) Summary: “The study investigates and analyzes historical episodes in America where the federal government undertook public-private efforts to complete critical activities valued for their public good and .

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