11 August 2016

Space is the next economic revolution, and Europe could miss it


Private appropriation of space is on the way and it could be a great news for those involved.  A major technico-economic mutation always has unexpected consequences. Who could have foreseen, ten years ago, that the Moore law and the NBIC mutation (convergence of Nanotechnologies, Biotechnologies, Informatics and Cognitive sciences) would dramatically reduce the costs of spatial exploration? Thanks to entrepreneurs and innovators, space is becoming cheap.

Today’s most promising business model in the sector is Elon Musk’s SpaceX. It is based on three pillars: being a start-up able to bootstrap with a staff working until exhaustion; using the most recent technologies, especially in electronics (tomorrow in artificial intelligence); and vertically integrating the largest part of the value chain to be independent from other companies and to promote as much innovation as possible. The combination of these three ingredients has allowed SpaceX to shrink the launch cost from 200 million dollars yesterday to 60 million dollars today and 20 million tomorrow.

But, from a European perspective, SpaceX is the tree which hides the forest. In the US, large territories, from the Silicon Valley to Seattle and parts of the desert, are experiencing an economic and financial effervescence related to forthcoming spatial exploration. Last July, Moon Express got the American FFA (Federal Aviation Administration) authorization to send its MX-1E spacecraft to the moon for a payload mission. The ultimate goal of this private company is to mine the resources of the moon, especially Helium 3, an energy dense isotope of the helium gas found on Earth, which could open the door to a new energetic revolution. In the same vein, the FFA granted a license to Virgin Galactic in August, for the commercial exploitation of Spaceship2, its suborbital plane intended for spatial tourism. Beyond these two topical events, a true private space industry ecosystem is emerging, mostly concentrated in the US and marginally in China, with dozens of start-ups attracting a growing number of investors.

According to the Tauri Group, $2.3 billion was invested in space companies in 2015 – more than in the previous 15 years combined. In other words, the space sector is growing exponentially, and leading to greater business diversity as costs and risks decrease. Chad Anderson, the leader of Space Angels Network (a network for angel investors focused on space), used to split the market into three parts: terrestrial business which create value on earth (satellites and launchers for example); in-space business (space manufacturing, space-suit, habitat construction); and planetary space (robotics, cargo to the moon, prospecting and mining resources).

With the dramatic reduction of costs, the space sector is becoming “contestable”, which means that more and more companies can and will enter the space exploration and space tourism businesses. This newly competitive market makes the old situation , where only huge Governmental agencies and state-owned companies were operating with deceiving results, obsolete. And what economics teaches us is that this new configuration will lead to an expansion of production, innovation and further decrease of prices.

From a European perspective, this promising economic trend reveals two important facts. First, European firms are almost absent in the private space industry ecosystem, due to a lack of capital risk and capital investments. In 2016, the Director of the European Spatial Agency announced a project of building a permanent base on the moon; a great project but unlikely to trigger the renewal of the European industry since 90% of the space companies come from the US and China.

Second, a legal battle is going to arise to define private property and property rights in outer space. Today, outer space is governed by a 1967 international treaty authorizing space exploration by the private sector but excluding the definition of clear space property rights. Recent technical and economic developments call for the next step, i.e. clear definition of property rights as exploration, mining and tourism cannot exist otherwise. Thus, new international treaties and agreements are needed. As always, the final results will depend on countries’ relative bargaining power which in turn depend on their opportunities and economic perspectives. In this context, Europe will not be in a good position unless some important changes take place to promote investment in this new sector. Europe is already a simple follower in the NBIC revolution. It could miss the next space revolution.

Nicolas Bouzou is an economist. He is the founder and the director of Asterès, a consulting firm based in Paris, and co-founder of the Belém Circle, a European think tank