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Space: The Final Frontier of Economics
And a new arena for US-China competition
EconVue Newsletter - June 11, 2023
Many are concerned about the consequences of a Second Cold War, but the battlegrounds of the future might be extraterrestrial. I’m not referring to intelligent life elsewhere, but human competition for space’s vast geography and its treasures as they come within our grasp for the very first time.
Economics is about scarcity, but the universe is about abundance. Assuming we can conquer the distance between what we need and where we live, everything we know about supply could come into question. I heard an intriguing comment from one expert saying in effect that space will eventually define the global economy. I’m not sure of the timing on that. Admittedly, it is difficult to fully imagine the consequences of easy transport between earth and other planets. But I will boldly go and offer a few thoughts.
From what we cannot hold, the stars are made. W.S. Merwin
Beginning in the 50’s and throughout the 60’s, space exploration was a hallmark of the Cold War between the US and the Soviet Union, a showy display of technological prowess. Things have changed, and there are now some 70 players in the space game. 16 countries are now capable of completing space launches. Just three—the US, Russia, and China have conducted human space flights. Only the United States has landed humans on the moon.
That could change in 2030, when China launches its first manned moonshot. NASA has plans to return to the moon and have its astronauts set up basecamps in 2025, but SpaceX issues could delay the Artemis program until 2026. Given national rivalries, space competition can be expected to become increasingly fierce between the US and China. The stakes for supremacy in outer space, from both a commercial and a defense point of view, could not be higher.
Investment in the space industry is difficult to parse out in terms of public and private funding, especially in the US and China, where lines are blurred and the funding environment is dynamic. This is a rough estimate of government budgets, but what really matters is the relative spending between countries.
Space Investment by Country
US - $26 billion. In 1966 NASA received a whopping 4.41% of the US federal budget- which makes the incredible feat of landing on the moon in 1969 seem a little more plausible. And demonstrates what that kind of leap took in fiscal terms.
Subject to a series of ups and downs, by 2009 NASA was 1.1% of the US budget, and now is about .5%. Part of this decline is due to the increasing role of private industry in space, including companies such as Boeing and SpaceX.
China - $12 billion. The key competitor to the US in space, China spends about half as much as the US but the true figure might be impossible to calculate. China does not need to get its space budget reviewed openly by the National People’s Congress each year. Private industry loosely defined is also playing a major role in China with some 150 companies involved in the industry.
Europe - $8 billion shared by 22 countries through the European Space Agency (ESA)
Russia - $5 billion through Roscosmos
Japan - $2.5 billion through Japan Aerospace Exploration Agency (JAXA)
India - $2 billion through the Indian Space Research Organisation (ISRO)
(All figures approximate subject to both new budgets and currency rates)
The Privatization of Space
Space has no earthly dominion. Where will the US and China set up camp on the moon? Who owns space resources? The Outer Space Treaty of 1967 is the key multinational agreement, mainly promulgated as a prohibition against the use of nuclear weapons in space. However, it does not say anything about astro-mining or the commercialization of space, areas of future international rulemaking. As in most cases, conflicts will occur first, and negotiations and regulations will follow.
How do we place a value on space? There are many unknowns, so we are most likely underestimating the future impact of the economics of space, just as we underestimated the value of the Internet in the 1990’s. A half-trillion dollar industry today, The European Space Agency has called space the next trillion dollar business. In time that prediction could look timid. It does not include for example the Tang effect, heightened use and awareness of innovations such as Teflon and Velcro that existed before their applications in space, but which were then launched into public consciousness and trickled down to consumers.
Transportation and communications are the principle focus of commercial space activities. It has been suggested that all heavy-payload transport be contracted by NASA. Commercial satellites are growing in number and now circle the earth’s upper atmosphere, along with a lot of space junk. Companies who develop these capabilities will likely prosper, and companies that depend on terrestrial telecommunications could find themselves alone on the playing field, if the full promise of satellite communications is met. There are endless implications for transportation as well. It is no accident that American visionaries such as Elon Musk and Jeff Bezos are mesmerized by space travel.
In terms of mineral resources, space could eliminate most scarcities. Our world is constrained by the supply of every kind of resource. However, in space there are most probably unlimited supplies of every mineral we can imagine. For example, gold has already been proven to exist in outer space. So when these places are readily accessible, and mining begins, what will happen to the price of gold? I know that the expense of astro-mining will most probably mean that prices do not go down immediately, but eventually they will fall, and markets will anticipate that trend. Space is deflationary over the long arc of time, just as China’s reopening was deflationary for the world. Both represent supply shocks.
The China Factor
China got a late start in space compared to the US and Russia, and has a specific administrative structure to develop opportunities. China National Space Administration (CNSA) is an agency created in 1993 when the Ministry of Aerospace Industry was split into CNSA and the China Aerospace Science and Technology Corporation (CASC). The former was to be responsible for policy, while the latter was to be responsible for execution, and it has worked. This is a highly prioritized sector.
There have been a series of successes recently:
China is currently developing plans to build its own low Earth orbit satellite megaconstellation that would provide its own answer to Starlink. It would provide satellite internet infrastructure for China and potentially rival Starlink and other systems, while also positioning China as a provider of global infrastructure.
My easiest prediction is that when China achieves a manned landing on the moon, the cries to increase NASA’s budget will become very loud. It will be our new Yuri Gagarin moment. Here is a clip from the CASC with an animation of China’s planned moon landing in 2030, and a one-hour presentation by CASC head Wu Yansheng. You don’t need to understand Chinese to get the gist of their plans. You’ll find an animation of Chinese astronauts landing on the moon at about 51:00:
The US Approach
According to the Reason Foundation the US is not structurally prepared for this competition and to do so would take 10-20 years at current funding rates:
America’s future success in space depends on restructuring our approach for financial sustainability. While NASA has contracted with the private sector for innovation and cost savings, it continues to use the same antiquated and constraining structure that was first developed for exploring space. This carries an opportunity cost that slows the private sector’s plans to harness space’s many viable materials and properties, compared to the pace it could attain with a more market-friendly approach. Such activities could help solve Earth’s most pressing problems and foster a space industry that sustains itself financially.
According to their report: “Many space-based activities have commercial potential.” For example:
tapping space-based clean energy sources
mining asteroids for useful raw materials
developing safe venues for scientific experiments
upcycling/sequestering hazardous but valuable debris currently in space
tapping sources of water already in space, to decouple into oxygen and hydrogen for space fuels and oxidizers, and to provide radiation shielding mass
using the low-gravity, low-temperature and other properties of space for many
activities, including manufacturing and research.
We have been focused on AI as the next big thing, but companies that fail to understand and position themselves directly or indirectly to enjoy the benefits of the expansion of the global economy into outer space will fall behind, much as the companies that were late to understand the implications of the Internet had to scramble to catch up.
Although activities such as astro-mining could take time to become cost-effective, when they do (as with the shale revolution) their impact will quickly change the geopolitics of natural resources. Will our activities in space increase our energy and food supplies? Will cryptocurrencies find their moment as true universal, non-national currencies? What kind of infrastructure will be needed, and who will build it?
It is interesting to imagine what could be accomplished if the US increased NASA’s budget to what it was back in 1966, 4% of government spending. We probably don’t have enough talent and other resources to utilize that kind of increase. But an increase of 100%, from .5% to 1% could be transformative. It could be that this is the one area where we shouldn't cut costs if we are serious about remaining competitive.
Back to Yuri Gagarin, the first human in space, who died at the age of 34 in the crash of a MIG-15:
Looking at the earth from afar you realize it is too small for conflict and just big enough for co-operation.
Thank you for reading the EconVue newsletter. A special welcome to our new subscribers, with thanks to John Mauldin and Joel Ross for their kind mentions last week. Please do not hesitate to post a comment or send me an email with your thoughts.
Next week: The Hale China Report (for paid subscribers) and our next Hale Report podcast with Australian author and futurist Mark Roeder to discuss his book, What We Do Next Really Matters. Because it really, really does.
Our May podcast was with Daniel Yergin, On Energy