Space travel is a business now. That's good

MUCH of the commentary celebrating last weekend's anniversary of the space flight that brought man to the moon rightly focused on the sheer scale of the accomplishment. But now that the Champagne bottles are empty, it's worth considering the economic lessons that outer space holds.

One is the central role governments play in the provision of public goods. These types of goods are unusual in two respects: no one can be excluded from consuming them, and one person's use of the good doesn't diminish another's. Left on its own, the private market would not produce the amount of a public good that is best for society.

The Apollo moon-landing programme was a public good. All Americans consumed the same amount of national pride and human achievement 50 years ago when Neil Armstrong and Buzz Aldrin walked on the moon. One objective of the programme was to beat the Soviet Union in space exploration. This required centralised government action, and the US spent an astonishing US$7 out of every US$1,000 of national income on the budget of the National Aeronautics and Space Administration (Nasa) in the mid-1960s.

In a paper published last year, the economist Matthew Weinzierl documents what came next. After having defeated the USSR in space, Nasa faltered in the absence of a clear objective. The space shuttle programme had mixed results, and after operating for three decades, was ended in 2011, leaving the US unable to put a human back in space.

During this period the US government changed its relationship with space exploration. A presidential commission came to this conclusion in 2004: "Nasa's role must be limited to only those areas where there is irrefutable demonstration that only government can perform the proposed activity."

For roughly the past decade, the commercialisation of space has advanced at a rapid clip. Professor Weinzierl lists several dozen active companies. Some are "space access" companies, which focus on launching people and payloads into space; some are "satellite data and analytics" companie; "habitats and space station" companies plan to allow for manufacturing, research and tourism in low Earth orbit, altitudes between roughly 160 and 2,100 km. Other companies want to mine asteroids and colonise the moon and Mars.

Prof Weinzierl reports that investment in startup "new space" firms has increased by a factor of five over the past two decades, from less than US$500 million a year during the 2000s to roughly US$2.5 billion a year in 2015 and 2016.

Financing for these companies comes in part from entrepreneurs wealthy enough to handle the high fixed costs that come with entering the market for space commerce, including familiar names like Elon Musk, Jeff Bezos, Richard Branson and Paul Allen.

The economic lesson from this exciting activity is as familiar as the importance of government-provided public goods: Markets, with their ability to aggregate information, foster innovation and allocate resources and capital, are well suited to develop this new commercial sector. And the enormous potential profits from space commercialisation attract investors and entrepreneurs willing to take significant risks.

This new sector shows the importance of other lessons, as well. For example, the role of externalities in private markets.

Prof Weinzierl reports that there are now, in low-earth orbit, an estimated 23,000 objects larger than 10 cm in diameter, 500,000 between 1 and 10 cm, and over 100 million smaller than 1 cm. The amount of space debris increased dramatically on Feb 10, 2009, when a US communications satellite collided with a defunct Russian satellite; two years before that, China destroyed a weather satellite with a missile. Over the past two decades, the amount of space debris rose by roughly 67 per cent.

Even tiny pieces of space debris can inflict enormous damage on satellites, spacecraft and space stations. One solution would be to impose a tax on debris, raising the price of creating it. But nobody has the authority to impose taxes in space. Another standard solution would be to assign property rights to the debris to a relevant commercial party. But there are no property rights in space.

Opportunity cost permeates the discussion of space exploration. Would the dollars spent exploring the cosmos be better used to solve problems on earth?

The economic problem of discounting - figuring out how much benefits in the future are worth in the present - is central to both government and commercial space activity.

A compelling argument to colonise Mars - and, more broadly, to become a spacefaring civilisation - is insurance against the risk that the human species is vulnerable to extinction if it inhabits only one planet. But those risks may not materialise for centuries. How important is the welfare of our great grandchildren's great grandchildren? How much investment should we make today on their behalf?

These questions don't have easy answers. And economics is not foremost in most peoples' minds when they think of space exploration. But the days when that is true are numbered.

As space becomes commercialised, the profit motive will push humanity out of its cradle and into the stars. BLOOMBERG