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Space Economy Requires Property Rights, Free Market

October 1, 2019

New markets, systems, and innovations have the potential to transform civilization, offering greater wealth for society, as well as potential solutions to climate, energy, and resource problems.

The first launch of SpaceX’s Starlink broadband satellite constellation in May marked the beginning of what will soon be a multitrillion-dollar space economy.

Following on its heels of that event, NASA announced it will permit private companies and tourists to use the International Space Station.

The space economy is here, and the opportunity is overwhelming. New markets, systems, and innovations have the potential to transform civilization, offering greater wealth for society, as well as potential solutions to climate, energy, and resource problems. The promise of the space economy is huge.

‘Rules of the Road’

It is widely recognized among those who have studied space policy that for successful economic development of space, what is needed is an entrepreneurially driven, competitive market system—the decentralized model.  This requires the right “rules of the road”—the institutional framework that facilitates a competitive market system.

To flourish, the space economy requires policy reforms to establish a legal framework that fosters imagination, entrepreneurial innovation, and a free market, not government direction and central planning.

Basic rules need to be established that allow the development of private property rights, including intellectual property rights, over space assets such as installations on celestial bodies, positions within orbits, and spots on the electromagnetic spectrum. Rules are also needed for title registries, enforcement by courts of law, and markets for trading assets to facilitate deploying them where they’ll create the most value for humanity.

These are necessary for a sustainable space economy. Competitive markets direct resources to where they create the most value and curtail loss-making projects that consume resources more valuable than the output they create.

Problem: Space Junk

Private property rights and markets can solve some of our current challenges in space development. Consider, for example, the problem of space debris—defunct satellites and pieces of material that threaten to clog valuable orbits.

The current Outer Space Treaty recognizes space junk is the responsibility of the launching nation. This principle can be extended to establish that national and private ownership, and liability, remains after the satellites have been rendered inoperable.

With liability and enforcement, owners of satellites will have incentives to dispose of defunct satellites either directly or by contracting with others to do so. Thus, startup firms working on deorbiting, reuse, and recycling of junk would be promoted by the institutions of private property rights to purchase or be paid for junk and contract for its removal.

The establishment of general law, property rights, and an enforcement mechanism are all that is required to incentivize entrepreneurs to keep “open skies” over Earth in a cost-effective way.

Problem: Crowded Skies

Low Earth orbits and geostationary orbits and trajectories are currently open-access and are subject to scarcity. Defining tradable rights over them would solve the crowding problem.

High-value orbits such as geostationary slots are already well on their way to being definable “land” that can be owned and exchanged. Tradability would ensure they’d go to the highest-valued uses.

Conversely, a space regulator would allocate orbits to those with political clout instead of the most valuable uses. Establishing property rights for these limited resources would drive growth and cooperation, whereas government planning would only stunt and distort their utilization.

Problem: Spectrum Allocation

Similarly, private property and markets offer a solution to electromagnetic spectrum allocation. Once divided and allocated, the spectrum could be privately purchased and exchanged.

This may be why FCC Chairman Ajit Pai has indicated his desire to accelerate spectrum auctions, including bandwidth for space and 5G. Widespread auctions would open critical resources for development and allocate resources to the highest-valued uses through market transactions.

Many astronomers currently object that commercial use of physical space and the electromagnetic spectrum will block scientific research. Tradable property rights would help solve this problem by permitting these scarce resources to be allocated to those who value them most, by permitting positive-sum, mutually beneficial trading instead of zero-sum political competitions.

If researchers in basic science have insufficient wherewithal to compete in the market, it would make more sense to subsidize them and allow them to buy the assets most valuable for their activities, rather than impose a bureaucratic regulatory system that stifles the space economy in its infancy.

In the end, the expansion of space access and assets can benefit celestial observation, not harm it.

Problem: Centralized Control

Instead of limiting government involvement to creating the legal environment for commercial activities in space, such as establishing and enforcing property rights, some advocate having government manage every aspect of space development.

Centralized planning and regulation might sound attractive to some, but government planners have little incentive to make the right choices or improve their performance. They don’t bear the costs of poor decisions, nor do they reap the benefits of success. Without meaningful profit-loss signals, they can’t even distinguish between value-creating and wasteful activities.

In addition, regulators are susceptible to capture by special interests lobbying for privileges, slowing innovation by locking out startups and new competition.

Central planning would destroy the economic viability and sustainability of the nascent space economy.

By contrast, free markets and “creative destruction” of firms are results-oriented and reward valuable research and innovation.

Entrepreneurs, disruptive innovators, and engineers, not central planners, are the ones who imagine and build economies, whether on Earth or in space. Politicians and regulators can never have more than an enabling role. So, we say: Extend basic laws and regulation minimally, humbly, and carefully, and let mankind boldly go.

Ross Hatley (rosshatley@gwu.edu)  is a writer on space policy. Charles N. Steele (csteele@hillsdale.edu) is an associate professor of economics at Hillsdale College. A version of this article appeared in the Washington Examiner. Reprinted with permission.

Author
Charles N. Steele is an associate professor at Hillsdale College, where he holds the Herman and Suzanne Dettwiler Chair in Economics.
csteele@hillsdale.edu