Ok, my post got excessively long so I am breaking it into two parts…..
The Economic Development of the Solar System and the Role of Private Enterprise Envisioned by Cordiner
In his lecture Cordiner laid down a stepwise vision of the economic development, not just of earth orbit, but for the solar system. In summary there are three stages:
This was followed by an absolutely visionary three graphics to show the implementation of this grand vision:
In the beginning. We have only gotten beyond this in a transitory manner. Stage II:
Fifty five years later and we are not there yet. Stage III:
We are not even thinking about this one yet (well maybe Elon and a few others of us are). Again, Cordiner is not some wide eyed private enterprise only person, thinking that it can do it all. However, his philosophical underpinning of government basically setting the requirements (as in the COTS and commercial crew contract) and letting the private companies find the best path, remains. As he states when discussing stage II:
The scale of this exploratory work, the cost of it, the lack of any financial return for a long time, and the extra expense of hurrying because of international power politics, almost necessarily makes the exploration of space primarily a government-sponsored and government-financed operation. It is useful to remember that the voyages of exploration in the fifteenth and sixteenth centuries, opening up the Americas and the Orient to European development, were also government-sponsored. But the successful economic development was done in the followthrough period by private traders and colonists-at first with direct government support and sponsorship, and later with the governments serving only to maintain order and provide military and naval protection. On the space frontier, the scientific voyages of exploration will also be government-sponsored and financed.
However, the management and operation of these exploratory operations should be done primarily through government contract by private firms, with competitive incentives for superior performance and penalties for failure. Private firms and private universities should design and produce most of the apparatus required to get there and do the exploratory work.
This approach will not only utilize the most experienced scientific and technical organizations in the country, but will also accomplish the objective faster and more economically, and will help prepare the companies for the day when commercial businesses can be conducted utilizing space technologies.
It is sad to say that these warnings were both prophetic and unheeded after the election in 1960. Cordiner foresaw some of the problems that would crop up almost immediately in the Kennedy space age and had a great analogy to what was avoided in the development of the air age:
In these areas with commercial potential, the government should avoid the temptation to build operating facilities (under the guise of demonstration units) that will tend to pre-empt the field for tax-subsidized government enterprise and prevent the establishment of private facilities. For example, if in the 1930s the United States had established a nationalized airline instead of helping Pan American to lay the ground work for international air travel, it is likely that international air travel would still be a government monopoly as far as the United States is concerned. The public then would not have the advantage of many private airlines competing for their transoceanic business.
Private industry should move as fast as possible to establish these early space businesses, so that the government can shift its efforts to the many other areas of exploratory work.
The government, and especially the “whiz kid” Robert McNamara, got it almost exactly wrong, both in the Apollo program, as well as the many other space programs started by the government in that era, some of which still bedevil us and the treasury today. Not only was the Apollo program a government directed enterprise, executed through the NASA centers (as is the case today with whatever the name of our exploration five year plan is today), but also the two fields that everyone agreed was ripe for early commercial activity were co-opted by the government. These fields were communications and weather forecasting.
TELSTAR, COMSAT, Nimbus and the Technocratic Path
Just two years after these series of lectures the first commercial communications satellite, called TELSTAR, built by AT&T Bell Labs and launched by NASA entered service. The TELSTAR 1 satellite was the first to relay television, telephone, and fax service between the U.S. and Europe. It pioneered the use of the AT&T invention in traveling wave tubes for space transmitters. It carried the first of what we now call C Band transponders. It was first in every respect in these areas. Interestingly at the time, NASA was precluded from building an active communications satellite by an agreement with the defense department. Robert McNamara had this rescinded and NASA was off to the races.
One of the 1960 University of California lectures was by the CEO of AT&T Frederik R. Kappel. Here is what he had to say about private enterprise in space:
Here I am looking ahead quite a bit. In the present stage of experiment and exploration, with space vehicles being launched for many different purposes, it is natural for the government to take the lead in putting up satellites. But when we come to providing communication service, I think we in the Bell System should take all the responsibility we can— under public regulation— for the job that is given us to do.
To be more emphatic, I am certain that this will be in the best interest of the United States. We need only look at the record to know that private enterprise has given this country the finest, the most complete, the most dependable communication system in the world. I strongly believe that private enterprise will also keep this country out in front in space communications, just as we have led the way on land and by sea. It was the Bell System, I may remind you, that pioneered world-wide telephony, first by radio and later through cables. We want and intend to be pioneers tomorrow too. We are ready, willing, and able to push ahead. All we need is the leeway, the freedom, to do our best.
AT&T and the Bell system as it was called at the time was by far the largest communications company on Earth, the Google of its era. It controlled more than half of all global communications at the time and had the financial resources to build satellites without government subsidy. The first TELSTAR was a success, but immediately on its heels the government came in and set up the Communications Satellite Corporation (COMSAT) to push spacecraft located in geostationary orbit (GEO), all owned by the government chartered corporation.
The Webb-McNamara report completely ignores the fact that AT&T was already constructing a fully private and commercial satellite. Though its publication date of May 8th 1961 (just after Shepard’s suborbital Mercury flight), was more than a year before the launch of TELSTAR 1, it is impossible that McNamara and Webb (since NASA provided the Thor-Delta launch vehicle) did not know about it. However, this is what the Webb-McNamara report says about commercial communications satellites:
Satellite based telecommunications systems are another application of space technology which will be of great commercial/civilian interest and value in future years. In fact, numerous U.S. commercial enterprises, both equipment manufacturers and common carriers, are greatly interested in this field. Both NASA and the DoD have undertaken projects for the development of communications satellites. Both agencies have studied the subject in depth.
Both agencies have worked closely with the FCC, the OCDM, the Whtie House state, and other agencies and officials concerned with this subject. Despite the interest evidenced by commercial companies, the technology is not in hand. It is likely that the major preliminary steps leading to the development of commercially feasible communications satellite technology, including the acquisition of environmental data needed to design the satellite vehicle for successful operation, must be done by the Government. Otherwise we must wait until the state-of-the-art generally has been developed and deployed on a commercially economical basis.
Yea, a whole year. Compounding this egregious misrepresentation of the truth, was the passage of the Communications Satellite Act of 1962, barely a month AFTER the launch of TELSTAR 1. The Act created a public monopoly corporation, called the COMSAT corporation to develop commercial satellites. The COMSAT corporation’s directors were chosen by the president of the United States. The COMSAT corporation in turn set up the actual operating company called the International Satellite Corporation (INTELSAT).
No more TELSTAR satellites designed by AT&T ever flew. AT&T had talked about a constellation of Medium Earth Orbit (MEO) satellites to provide continuous global communications. This never happened because of the Communications Satellite Act of 1962. When the act was passed, Senator Russell Long of Louisiana (who knew quite a lot about corruption) was heard to exclaim “When this bill first started out I thought it was as crooked as a dog’s hind leg. I am now convinced that that would be a compliment. This bill is as crooked as a barrel of snakes.” [Wikipedia reference] Considering that it is pretty evident that McNamara grossly misrepresented the state of the art of private commercial satellite technology at the time, this is not an inaccurate characterization.
A factor may have been competition with Hughes, which was supported by NASA and the defense department in the development of GEO communications satellites. The first of these, SYNCOM 1 was launched on Valentines day of 1963. In contrast to the privately funded and developed TELSTAR, it was technically inferior and it failed before operational status was reached. SYNCOM 2 was launched in July of 1963, becoming the first spacecraft to successfully operate from GEO orbit. When INTELSAT finally got around to launching their own first spacecraft in 1965, it was also Hughes built, using the same bus as the SYNCOM satellites. This was three years after AT&T’s first successful operational satellite launch.
Ralph Cordiner’s prediction regarding the difficulty of commercial space getting a foothold if the government ownership route was taken was proven to be correct. In 1972 the U.S. congress passed an open skies law providing new entrants access to Intelsat satellites. The problem that developed is that INTELSAT, having the governments of over 100 countries as signatories, had monopoly power. Through a series of revenue sharing agreements with those governments, the cash cows for many African and other governments was protected from competition. However, in the 1980’s the dogged determination of Rene Anselmo, founder of Panamsat, began to break the hold of the monopoly in the U.S. Other companies around the world were growing up as well and circumventing the now exorbitantly priced satellite service. It took until 2001 before INTELSAT became the privatized Intelsat, a fully commercial company.
It is even worse in the weather satellite business. It took from the early 1960’s until the 1990’s for the defense department to experiment with commercial low earth orbit imagery for intelligence gathering. Today there is a growing market in LEO imaging, driven mostly by third generation companies like Planetlabs and Skybox, supported by Silicon Valley capital. For weather satellites it is a complete and utter disaster. The government led NPOESS development contract turned to dust in the harsh light of congressional anger over multi billion dollar overruns and delays for the next generation DoD weather satellite. From a 2010 Spaceflightnow.com article:
The National Oceanic and Atmospheric Administration, NASA and the Air Force jointly manage the National Polar-orbiting Operational Environmental Satellite System, or NPOESS. The White House decided the cancel NPOESS after numerous delays and cost overruns that made the program the subject of Congressional ridicule and high-level government investigations.
The follow on program (JPSS) is in no better shape five years later. From a January 2015 article at spacepolicyonline.com :
Today’s GAO report on JPSS found that “recent cost growth on key components likely is unsustainable and risks remain that could increase the potential for near-term satellite data gaps.” It warns that “a gap in satellite data may occur earlier and last longer than NOAA anticipates.” Almost 40 alternatives have been identified for mitigating any gap, GAO reports, but NOAA’s contingency plan has “shortfalls” that GAO wants addressed. It made five recommendations and said the agency agreed with them.
The replacement for the current generation of GEO satellites is faring no better. Cordiner nailed the core problem in his lecture:
Some have taken this to mean that the United States, in order to move out ahead of the Soviet Union in space technology, must adopt something like the Soviet method of strict government control of that technology. In my opinion, such an imitative procedure is doomed to fail.
We in the space community part jokingly and part ruefully opine about the state directed space enterprises of Boeing, Lockheed, and Northrup Grumman. It is rueful in that these American companies are hardly distinguishable from their Soviet and now Russian counterparts. This is one of the core reasons that NASA’s beyond earth orbit exploration efforts have been so utterly bloated over the past few decades. You need look no farther than comparing the development of the Falcon series of vehicles with the NASA Ares 1, Ares 5, and now the Space Launch System. In the time that NOAA, NASA and the DoD have wasted money on the JPSS follow on to the horrendous waste of money of NPOESS, Planet labs has launched over half a hundred imaging spacecraft.
Public Private Partnerships
It has been the history of the United States of a fruitful partnership between the government and private interest in the development of the nation and its infrastructure. This goes far back in our history, to the time when a young state legislator from Illinois who was a rail splitter and later a railroad lawyer named Lincoln helped push local projects. In an online classroom missive on the subject it was said:
Lincoln biographer J. H. Barrett wrote that Lincoln “held it to be the duty of Government to extend Its fostering aid, in every Constitutional way, and to a reasonable extent, to whatever enterprise of public utility required such assistance, in order to the fullest development of the natural resources, and to the most rapid healthful growth of the State.
At this time the federal government did not do infrastructure. The democratic party, the strict constitutional constructionists of that era did not believe in it. Thus it first happened at the state level, especially in the more populous states of New York (Erie Canal), Illinois (Mississippi to Great Lakes Canal), and Virginia (Railroads). It was that same railroad lawyer turned president who in 1862 threw his presidential weight behind the passage of the Pacific Railway Act of 1862, which provided the funding to bridge a continent and bind a nation together east to west. That is an early example of the best and worst in Public Private Partnerships (PPP’s) as the western company, the Central Pacific, was a private commercial corporation while the Union Pacific was a crony laced government propped up fiasco even then.
The act authorized the postmaster general to contract for domestic airmail service with commercial air carriers. It also set airmail rates and the level of cash subsidies to be paid to companies that carried the mail. As Kelly explained: The act “permits the expansion of the air mail service without burden upon the taxpayers….” By transferring airmail operations to private companies, the government effectively would help create the commercial aviation industry.
The act did not require direct taxpayer subsidies, as it was done through the post office, and the burden fell only on those that used the airmail service. Today’s version which is the NASA COTS and NASA commercial crew contracts, are absolutely demonstrating savings to the taxpayer while advancing commercial space technology.
Other tried and true methods are prizes. Some quite innovative prizes have done a great deal to advance technology. Some of these are listed.
The Longitude Prize–Three prizes, 10, 15, and 20 thousand dollars for a reliable method of precisely determining longitude for ships. Won by Harrison
The Rainhill Trials–Contract prize for the best locomotive, won by the Robert Stephenson Company Rocket.
The Orteig Prize —-$25,000 for the first transatlantic flight. Won by Charles Lindbergh
The Ansari X Prize–A $10 million dollar prize for the first privately built human carrying reusable rocket, Won by Burt Rutan’s Scaled Composites.
NASA in recent years has also awarded prizes for various technologies of interest to the agency with some success and benefit to companies. Just think what could have happened had the government offered, in 1961 a prize of twenty billion dollars for the first private human mission to go to the Moon and return safely. That would have been the American way, and it would have saved taxpayer money! As I continue to deeply research the history, the more that I am convinced that an American company or a consortium could have pulled this off. Alas, this the fodder of alternate history.
Investment economics work fundamentally on two principles, fear and greed. The problem that we have today is that too many investors do not understand this new generation of commercial space and are thus fearful of it and unlikely to invest. There are great venture capital companies that do invest in space, and for those that do, they are generally patient as space is for the most part a capital intensive investment that takes a while to pay off. As technology has continued to move forward though, these cycles are getting shorter. However, if we are truly going to get private enterprise into the mix, incentives are required to decisively shift from fear and into the greed side of the equation. (Note: I use the word greed here in a positive light)
The best way that any of us have found to do this is to get beyond the PPP’s and to tax incentives, which we have called in the past, Zero G, Zero Tax. This is no different than the zero tax regime that the Internet enjoyed for years, and that produced a society paradigm shift in the way that we do business. The oil industry also enjoys considerable tax benefits for the risky business of oil well development. Several options exist there and these are recounted at this site.
The Zero G Zero Tax legislation is explained in detail in a previous blog post by me. Many of my fellow space advocates claim to love it while failing to push it. I am tempted to ponder whether or not they think that by trying to stack the deck with PPP’s that they can more directly benefit, but that is just a thought. It would not be the first time it happened. What Zero G Zero Tax (ZGZT) does is to remove taxation of all profits from a space venture that is outside of the bounds of current large scale markets such as launch vehicles, communications and remote sensing satellites, and certain other activities.
Since there is no companies really doing this besides maybe Robert Bigelow’s commercial space station, there are no tax implications, though it was scored at $10 billion dollars by the joint taxation committee in the year 2001. We said at the time this was absurd as there were no companies making any money doing what was covered at the time, but under static scoring rules this is how it came out. The good news is that in this congress, the House has switched to dynamic scoring, something that we discussed for years in our citizen congressional lobbying. What dynamic scoring means is that if you have $10 billion in profits that are offset by the tax credit, you probably have $30 billion in income taxes for your employees, thus providing the treasury a net of $20 billion dollars. Yes this makes sense and one wonders why it did not happen decades ago, but that is the wisdom of congress.
The bottom line on all of this is that we as a nation made a terrible mistake during the Kennedy and Johnson administration in trying to implement a government centric control and execution of our national space program. Right at the top of the list for the reasons that we have not gone back to the Moon since the Apollo era is that it was done for the wrong reason, prestige. McDougall goes into the meaning of the world prestige and in tracking down the definition from over a century ago, a prestigious man was basically a fraud.
A prestige based space program was at the end of the day, a fraud on the American people. Much better reasons for space exploration and the lunar landings were provided by many of the gentlemen who provided the lectures that were turned into the book edited by Ramo. If we had listened to these sometimes deeply insightful and inspiring reasons, in all likely hood we would not have to be going back to the Moon as we would have never left. As I have shown in several other posts (look them up), the issue was never money, never the deficit or any other manufactured excuses for killing Apollo, at the end of the day it was because the White House (LBJ) wanted to spend the money on other things, and space was no where near the top of the list.
In 1960 they knew that they were going to do this, start running up large deficits as it was considered that they were not evil and would bring prosperity to the nation. It did, for a while, but like Greece with a much smaller economy, it is going to haunt us some day if we do not start investing in the future. The United States economy has been wonderful in the areas that are private, in creating new wealth. Indeed it can be seen that the beginning of the explosion of computer technology and Silicon Valley started when all of those aerospace engineers, that concentrated cadre of talent as McNamara called them, started being entrepreneurs again, (of necessity as they were laid off from the Apollo program and the end of Vietnam) they brought magic to the world.
MITS Altair built the MITS Altair 8080 at least partly in desperation because of the loss of contracts with Kirkland AFB in Albuquerque, NM. Intel was started by people like Gordon Moore, who left Fairchild semiconductor, a defense contractor at the time, to start the world’s largest chip company. A small company in Alabama called Space Craft Incorporated, possibly the first commercial space company, is now SCI-Sanmina (the SCI is for Space Craft Incorporated), one of the largest contract electronics manufacturers in the world. The untold story of Silicon Valley, going back to the 1950’s is just how much of the original capital that built the underpinnings here, goes back to the government spending of the 1950’s on electronics, test equipment, radio, and defense. Silicon Valley is also the tale of what can happen when free enterprise is unleashed from the tether of the government. Time to try that in space.
A beautiful thing that I have seen, based on some of our projects like our lunar research and the ISEE-3 project is those younger than 20-25 really love space and space is a source of excitement for this generation. This will change all the rules, especially as the part of space they are excited about is commercial space. We have a real chance today to make this happen the right way. The rationals provided by the University of California lecturers were great, the yearning of mankind to escape Earth, and the desire deep in our history to touch the sky. We have come so far since 1960 in space and it is time that this particular Pandora’s box be opened wide, and see the hope inside..