The Space Program: No Prize; F. Giarrusso and G.C. Hudson

NASA controls all aspects of the civil space program in the United States. Fifteen billion dollars filter through NASA each year to fund shuttle launches, space station designs, and one of the largest and least cost-effective bureaucracies to grace our land. To most people, NASA is the U.S. space program. The very term "space program" is prob lematic, however. A program implies a sin gle, concerted effort, usually by govern ment, to perform some task. Typically, this effort is at odds with a capitalist system, in which profit and individual motivations dic tate performance. Imagine where California would be if its exploration and settlement had occurred under the federal government's "Gold Rush Program." Sufficeit to say, San Francisco's football team might well have been called the" '98ers." We have all seen the failures of a com mand economy in the rest of the world; why is it so difficult to recognize those failures Frederick Giarrusso is a doctoral candidate in Engineering-Economic Systems at Stanford University; Gary C. Hudson is an entrepreneur engineering nongovernmental space launch sys tems.

29 when they occur within our own borders? When a command economy allocates re sources, it changes the incentives of the people involved-otherwise there would be no need for the "command"; it would sim ply be an economy. When a government agency dictates development i~ a particular industry, it changes the incentive system in that field. The result is profound ineffi ciency. The lack of an appropriate incentive system can lead to some interesting-and expensive-results. Consider the pressure suits worn by our astronauts. NASA estimated the cost of designing a new space suit for the planned space station at about $350 million-manu facturing costs not included. These suits are expected to withstand 5-8 psi of internal pressure in a relatively innocuous environ ment. Space suits are similar to the rigid, deep ocean suits worn by divers. While maintain ing a single atmosphere environment for the diver, deep ocean suits must withstand ex ternal pressures of over 500 psi, as well as operate in a corrosive environment. In ad dition, they must be very durable. Minor leaks in an astronaut's space suit would not necessarily kill the astronaut; such failure in a deep ocean suit would certainly doom the diver.

The International Hard Suits company of Vancouver, B.C., manufactures the state of-the-art one-atmosphere diving suit, the Newtsuit®. The suit is available for approx30 THE FREEMAN • JANUARY 1994 imately $400,000 each, and is presently in full production for military, scientific, and commercial use. NASA, on the other hand, would have to make over 875 space suits at no cost to justify the expense of their own design. Instead, NASA would expect to make only a handful of suits, with significant manufac turing costs. Although such an existing sup plier of space suits would have been more cost-effective, NASA chose to contract out for a new design-essentially to reinvent the wheel. This represents a minimum of $345 million down the drain; $1.38for every man, woman, and child in the United States, thrown away. And that's just the space suits. Costs Continue to Soar Then there is the story of the Saturn 1B, an expendab.1erocket. The Saturn IB cost $3.4 billion to develop and $156 million per flight to operate. It was able to lift about 40,000 pounds into orbit. However, rather than continue to use the Saturn 1B, NASA spent ten times as much money to develop a vehicle that cost twice as much to perform the same job.

The Space Shuttle represents no great payload improvement over the Saturn lB. Like the Saturn, the Shuttle is able to lift 40,000 pounds into orbit. Yet it cost $34.7 billion to develop and, by NASA's own rather low estimate, $301 millionto operate, per flight. As of 1990 the Shuttle had flown 44 flights, for a total cost of $55 billion. For that same $55 billion, the Saturn IB could have flown 350 flights, placing in orbit ten times the total Shuttle payload to date (all figures are in constant 1986 dollars). But what about all of that valuable re search performed on the Shuttle? Put another way, for approximately $5 billion the Saturn IB could have placed the same amount of payload in orbit as the Space Shuttle has. With the remaining $50 billion, the taxpayers could have purchased outright the top ten laboratories and re search universities in the world and per formed all the research they wanted. Or funded the National Science Foundation for 25 years.

On top of that, the Space Shuttle is consid ered so unreliable that another branch of the federal government, the Department of De fense, has recently opted to boost its satel lites using Titan rockets-a technology de veloped three decades ago. The problem with NASA is less NASA itself than the mentality that suggests the United States should even have a "space program." Capitalism works. Free markets work. Command economies fail and they fail in the most expensive manner possible. If we agree that space development is a worthwhile goal, then the question becomes how best to get there. There are at least two options. Assuming a continuing drive for some form of federally funded space effort, the maximum leverage of taxpayer dollars might come from a system of prizes. In combination with this approach, tax incentives for investment and tax breaks for profits earned from commer cial space ventures could stimulate the flow of significant private dollars for high-risk projects. We should recognize that the free market has been distorted by tax policy which inhibits investment in high-risk, high payoff industries. Indexing capital gains, or better still, following the Japanese lead and eliminating all tax on long-term investments would be a useful start. While we prefer a hands-off policy, these options would help to undo the decades-old damage of the present space program.

Burt Rutan, designer of Voyager, which circled the globe unrefueled in 1986, has suggested an incentive-based system to de velop one NASA/USAF project: the Na tional AeroSpace Plane (NASP). To date, more than a billion dollars has been spent for this plane, with the expectation that ten billion dollars might be spent on the actual manufacturing and flight tests. Rutan's sug gestion is to take out an ad in Aviation Week, at a cost of a few thousand dollars, offering a billiondollar prize to the first company to fly a plane coast-to-coast in under an hour-NASP's ultimate goal. This idea is far from new; using just such Instead of using the technology already developed in International Hard Suit's Newtsuit, NASA chose to contract out for a new design-essentiallyto reinvent the wheel. THE SPACE PROGRAM: NO PRIZE 31 an incentive system the British Crown es tablished a prize for the means of discover ing the longitude of a sailing vessel. A similar competition for $25,000 prompted Charles Lindbergh to make his famous solo flight across the Atlantic in 1927. Prizes work to stimulate innovation. An incentive would encourage companies to compete in a cost-effective manner and, where appropri ate, to team together to overcome common problems and share risks.

To date, the conventional attemptto com mercialize space activities has been a fail ure. Most firms participating in this much ballyhooed effort are simply selling their products to the same old· buyer: the U. S. government. If there is to be a true industrial revolution in space commerce, we must open new markets. The record of our gov ernment in creating such markets is dismal. Which federal government manager would envision, for example, that space tourism might well become a ten billion dollar annual global market in just fifteen years? Dr. Patrick Collins of the Japanese National Aerospace Laboratory has sug gested just that-and you can be certain Japanese firmsare listening. A recent visit to Shimizu Corporation, the largest construc tion company in the world, elicited color brochures depicting space hotels, lunar set tlements, and "space weddings." Whether such visions are practical or not, this exam ple serves to illustrate that, as with so much else, federal government policies have forced innovation and vision away from our shores. It is past time to change the way we address the promise of the space frontier.

We should scrap policies that inhibit our ability to profit from this opportunity. We won't get to the high frontier with a modern-day "Gold Rush Program." But we might get there with a modern-day gold rush. [] THEFREEMAN IDEASON LIBERTY THE BEST ALTERNATIVE by Roger M. Clites T hose of us who advocate the free market are regularly frustrated in attempts to discuss economic issues with people af flicted with the anti-capitalistic mentality. In many such situations about all we can do is try to part on amicable terms. After all, it's all but impossible to reason away prejudice. However, occasionally I do encounter a mind that is not completely closed. In that case I usually can get my ideas heard and considered if I establish an identity of inter ests. That is, I try to show my challenger that we are seeking the same goal, and differ only as to the means of attaining it. In the case of the person who challenges, "I'll bet you are one of those people who think that we should not have the Federal Reserve System" a helpful response might be, "My desire is to have such things as a currency that retains its value so that sav ings, life insurance policies, and other in vestments do not lose their value over time. " If the challenger pauses before re plying, I might add: "And I'd like to see an economy without frequent severe down turns. " Sometimes this will lead him to respond with an open mind. It won't always do so but most times it will achieve a much more favorable response than does a simple statement to the effect that yes, we should do away with the Federal Reserve System.