Business in Space

The weightless environment of space, in which valuable new commodities can be manufactured more efficiently than on Earth, may be the next economic frontier for American companies

BY DAVID OSBORNE

CHARLES WALKER LEFT HOME LAST AUGUST ON AN unusual business trip. An engineer at McDonnell Douglas Astronautics Company, in St. Louis, Walker was to spend six days in a new laboratory processing a secret drug, for later clinical testing on animals and human beings. Rumors about the drug abounded: according to one story, it was a treatment for patients prone to blood clots; according to another, a single-injection cure for diabetes.

What was truly special—indeed, historic—about Walker’s work, however, was not the identity of the new drug. Rather, it was the nature of the laboratory to which he reported. On August 30 Charles Walker became the first commercial scientist to work in outer space, on board the space shuttle Discovery.

Walker’s six-day sojourn heralded a new era in the use of space. In years past the country’s interest was mainly in exploration: most notably, of course, in sending astronauts to the moon. Recently attention has shifted to the Reagan Administration’s desire to put anti-missile weapons in orbit— the Star Wars scenario. The real story of space today, however, is the opening of a new economic frontier.

“The benefits our people can receive from the commercial use of space literally dazzle the imagination,” President Reagan declared last July, when he announced a national policy to accelerate the commercial development of space.

“We can produce rare medicines with the potential of saving thousands of lives and hundreds of millions of dollars; we can manufacture superchips that improve our competitive position in the world computer market; we can build space observatories enabling scientists to see out to the edge of the universe; and we can produce special alloys and biological materials that benefit greatly from a zero-gravity environment.

Reagan’s speechwriters were not exaggerating. Today, just a quarter-century after the first human being ventured into space, hundreds of corporations are directly involved in the space business. Twenty-five years from now the scale of industrial activities in space may rival that of today’s computer industry. The quarter-century after that will bring even greater triumphs, visionaries tell us: mileswide solar arrays in space, beaming power down to Earth by microwave; mining operations on asteroids and the moon; perhaps a human colony on Mars. Peter E. Glaser, a vice-president of the consulting firm Arthur D. Little, in Cambridge, Massachusetts, is one of the chief advocates of using satellites to relay solar power. “I believe that space

in the twenty-first century will probably be what aviation, electronics, and computers were, together, in this century,” Glaser says. “It is the next evolutionary step for humanity.”

HOW FAST THE NEW ECOnomic frontier will be opened depends in large part on the actions of the United States government, and also on what the Soviet Union, Japan, France, and West Germany do. Like the transcontinental railroads that opened the West and the national highway system that propelled the country into an era of rapid mobility, space ventures require investments beyond the capacity of the private sector. Already the National Aeronautics and Space Administration (NASA) has spent more than $200 billion (in current dollars), much of it to create the infrastructure needed to exploit space.

Consistent with its free-market philosophy, the Reagan Administration intends to turn over as much as possible of that infrastructure to private corporations, in order to encourage business enterprise in space. Some of the Administration’s initiatives appear wise, others unwise; none, however, has received the degree of public scrutiny that one expects for policies affecting conventional industries. An examination of those initiatives is overdue. But first let us survey the new industries that lie over the horizon.

The first industry in space is already mature: satellite communications. It generates some $3 billion a year from the transmission of television and radio broadcasts, telephone conversations, electronic mail, and business data. The second industry to appear on the horizon, known as remote sensing, is at least a decade behind the first. Remote-sensing satellites are often referred to as “spies in the sky,” because they are used extensively by the military. But they have myriad civilian applications as well. The satellite-relayed weather maps on local news programs, which have dramatically improved forecasts and reduced deaths from hurricanes and the like, are an obvious example. Remote-sensing satellites can also detect air pollution (a federal experiment is under way to track the sources of acid rain, for instance) and measure ozone and other critical atmospheric elements.

From a commercial standpoint the most promising use of remote-sensing satellites is in providing pictures of the earth’s surface. Photographs from the five Landsat satellites launched by NASA since the early 1970s have proved invaluable in the mapping of remote areas. They have revealed unknown lakes, islands, and underwater shoals and reefs. They have also been used to map routes for railroads, pipelines, and electric-power lines; to run rough population surveys; and to guide ships through iceberginfested waters.

The most extensive commercial uses of Landsat data are in mineral exploration and agriculture. By studying satellite images of known oil, gas, and mineral deposits, scientists have learned to identify features that might point to new deposits. Oil companies look for folds and domes capable of trapping oil or gas. Minerals experts search for clays often associated with uranium, or plants that grow on tin or molybdenum deposits. Landsat’s multispectral scanner records the reflection of light off the earth with a sensitivity to color far surpassing that of the human eye; by enhancing colors digitally, explorers can detect features they would have missed if they had walked the land themselves.

In agriculture satellite images are used chiefly for crop forecasting. The Russian wheat deal in 1972, in which 20 million tons were bought at low cost from American trading companies, thus sharply inflating the price to consumers here, persuaded the Department of Agriculture to begin monitoring the Russian crop by satellite. The United States exports as much as two thirds of the harvest of some crops, and so estimates of international supply and demand are crucial.

The Earth Satellite Corporation, a Maryland-based company founded in the early 1970s, provides daily cropsupply predictions. The company breaks up the globe into units that are about the size of a midwestern county. Landsat data on the vigor of crops in each unit are integrated with weather information, and the resulting forecasts are relayed by computer to subscribers. Satellites are even sensitive enough to track crop-killing frosts; by one estimate, Florida citrus growers save $35 million a year because satellite data tell them precisely when to turn on the burners in their orange groves.

THE ECONOMIC POTENTIAL OF COMMUNICATIONS and remote-sensing satellites notwithstanding, there is a feeling among space buffs that the real revolution will come only when we are actually manufacturing in space. Many experts believe that space-based “materials processing”—as the production of materials as diverse as drugs, alloys, and crystals is called—will be more important commercially than genetic engineering.

On Earth gravity influences every physical process, however minutely. For example, when two metals of different densities are mixed to form an alloy, gravity causes the heavier metal to drift toward the bottom. The resulting mixture is not uniform and thus not as strong or durable as it could be. In a weightless environment this defect is avoided and superior alloys can be produced.

This is not to imply that an object in orbit around Earth—the space shuttle, for instance—ever escapes gravity’s pull. The combination of the shuttle’s fall toward Earth and its forward momentum is what defines its orbit and keeps it from veering into deep space; this state of free fall produces the effect of weightlessness. Imagine being in a broken elevator as it plunged toward the ground: if you dropped a coin as you fell, it would seem to float, because your body, the coin, and the elevator would all be falling at the same speed. That is roughly what happens to objects in orbit. Thus, while press reports often refer to zero gravity, scientists use a different term: microgravity.

Corporations can exploit the weightless environment of space to learn how to refine the manufacture on Earth of such heavy products as lead alloys. Given the cost of getting into space, however, only products of extremely high value per pound, such as pharmaceuticals and crystals, will ever actually be manufactured there. According to Gregg Fawkes, the director of a study on the commercial development of space for the National Chamber Foundation, the research arm of the U.S. Chamber of Commerce, “There are a bunch of materials that are in common industrial applications that are worth literally millions of dollars a kilogram. For instance, a lot of pharmaceutical materials are very valuable, because you can save human life with them.” Some, such as urokinase (an enzyme that dissolves blood clots), can be produced on Earth only in minute quantities and at great expense. Jesco Von Puttkamer, a long-range planner at NASA, says that studies done for NASA five years ago showed that space manufacturing could bring the production cost of urokinase down from $1,200 a dose to around $100. (Blood-clotting disorders kill some 200,000 people every year.)

An obvious advantage of manufacturing in space is that molds and containers are not necessary. For example, crystals can be grown with no risk that they will touch a surface and absorb alien molecules. Or objects can be made perfectly spherical, with none of the distortion that comes from resting on a surface. The first commercial products manufactured in space, in fact, were tiny spheres, which NASA made last year for the National Bureau of Standards. The bureau sells “standard reference materials”: devices for measuring microscopic electronic components, for instance, or for calibrating instruments like filters and porous membranes, which measure tiny particles. The spheres—droplets of polystyrene—are 1/2500th of an inch in diameter, or about the size of a red blood cell. They are sold 15 million or so to the vial; each vial is the size of a little finger and costs $400. Businesses will use the spheres in counting blood cells, measuring particulate pollution, producing finely ground products such as paint pigments and chemicals, and so on.

NASA plans to make four sizes of spheres for the bureau, using an instrument designed by John W. Vanderhoff, a professor of chemistry at Lehigh University. Once NASA has shown that the process will work, it will turn the business over to Vanderhoff.

Vanderhoff’s company, Particle Technology, Inc., is the first private enterprise to have sold a product manufactured in space. The runners-up will probably be McDonnell Douglas and Johnson & Johnson, which have already sponsored joint experiments on five shuttle flights. They have done work on a number of substances, including urokinase and the pancreatic cells that secrete insulin. They had hoped to be testing their first product—Charles Walker’s secret drug—on human beings by now. But the batch that Walker brought back last September was contaminated by bacteria when the equipment malfunctioned and the temperature of the solution was allowed to rise. As of this writing Walker was scheduled to try again in March.

Walker’s research group uses a process known as continuous-flow electrophoresis, in which molecules like proteins and enzymes are separated by means of electrical charges. Such separation is fundamental to biological research. Electrophoresis—a common technique—does not work reliably in Earth’s gravity field; samples of dense materials, for example, tend to collapse in a blob. McDonnell Douglas reports that one experiment in space produced as much as 716 times more separated product than its equivalent on Earth would have, with a fourto five-fold improvement in purity.

McDonnell Douglas and Johnson & Johnson hope to sell their first product in 1988. In addition, McDonnell Douglas has a shopping list of as many as twenty other difficult-to-isolate products that it might develop independently; these include interferon, skin-growth agents, and a potential treatment for emphysema. By the mid-1990s it hopes to be making three of the twenty in space; by the late 1990s, if a space station is available for commercial work, it hopes to be making as many as fifteen.

The pioneer in crystal growth is Microgravity Research Associates (MRA), a small Florida-based company founded in 1979. Several years ago NASA predicted that two or three $500 million satellites outfitted as space factories and serviced every three months by the shuttle could meet half the growth in U.S. semiconductor demand over the next decade. MRA is trying to fulfill that prediction.

MRA’s first product will be crystals made from gallium and arsenic, two soft metals. Gallium arsenide crystals, which conduct electrons ten times faster than silicon, can be used in computer chips, lasers, switching devices in fiber-optic systems, high-frequency antennas, solar-power arrays, and other wonders of the high-tech world. They are particularly useful in anything sent into space, because they are quite resistant to radiation and heat and their tremendous speed yields more work per unit of weight.

Crystals are normally grown in long cylinders. After they reach a diameter of three to four inches, they are sliced into the thin wafers used to manufacture chips and other devices. When grown on Earth, however, gallium arsenide crystals suffer serious imperfections. The executive vicepresident of MRA, Russell Ramsland. Jr., describes the convective flow that creates the imperfections this way: “It’s just like when a cold front moves through an area and you have a high wind, because you have cold, dense air moving in where there was hot, less-dense air. That wind is really a convective flow. You have the same thing taking place at a molecular level in a crystal, where you have a hot liquid transforming into a cold solid.” As hotter, less-dense material rises, cooler molecules move in. “Inside that convective-flow storm you’ll have molecules being displaced, vacancies being created, dislocations—and all of those will result in structural-integrity and chemical-homogeneity problems for the crystal,” Ramsland says.

When the effects of gravity are absent, a convective flow cannot occur, because the changes in density and weight that take place as a substance cools no longer provoke any movement. Lighter molecules no longer rise; denser molecules no longer sink.

Ramsland and his associates believe that gallium arsenide, because of its high conductivity, will be instrumental in the development of the next generation of computers— perhaps in the pursuit of “wafer-scale technology,” with which the industry dreams of putting an entire computer on one wafer. MRA’s president, Richard L. Randolph, expects the company’s niche to be at the upper end of the market, “in sophisticated and costly devices where the demand for utmost performance, reliability, and durability will justify the greater cost necessitated by space production.” Randolph hopes to move on to other, more complex materials after production of gallium arsenide crystals is under way. Already he has competition, however. Another start-up operation, called Microgravity Technologies, Inc., in Alabama, has announced its intention to produce crystals in space. And the giant 3M Company, which has submitted a proposal to NASA for a ten-year materials-processing research project involving as many as seventy-two shuttle flights, has also done crystal work.

“One of the things about growing large crystals is that you can look at the molecular structure,” Henry Owen, a 3M spokesman, says. “They’re large enough to put under an electron microscope and really get into them. Maybe you can find a way that you can make them on Earth, then. On the other hand, you may come upon something that can only be done in space. That being the case, you’ll manufacture there.” Scientists at 3M see advanced crystals as the key to an entirely new kind of computer, one that uses light rather than electrical current to process data at superhigh speeds.

Other companies active in materials processing in space include Grumman Aerospace, which plans to experiment with alloys on at least three shuttle flights; Battelle Columbus Laboratories, which has shown interest in processing collagen fibers for the repair and replacement of human connective tissues; Union Carbide, which has signed an agreement with NASA to research glass-forming alloy systems; and Westinghouse, which is examining the possibility of manufacturing ultra-pure, bubble-free glass.

Few companies are ready to risk much money on materials processing, however. According to Isaac Gillam, who runs NASA’s new Office of Commercial Programs, by last December only eight firms had signed “joint-endeavor agreements” with NASA to exchange access to experimental results and equipment for free rides on the shuttle. Only eight more agreements were under discussion.

Even so, Russell Ramsland is optimistic. He says, “The number of calls we get now from major companies is astonishing. In ‘82 or ‘83 we couldn’t even get people to return calls. By the time you get a McDonnell Douglas and a Microgravity Research, and maybe one or two others bringing something down that is really new and can make some money, I think there’s going to be a pretty interesting rush at the research doors—which is what this country needs. Because right now, if I had to name four or five products you could make in space that would be good commercial ventures, I couldn’t do it. But I could name you about twenty-five areas that I’d love to have money to do research in that might produce good commercial ventures.

TO CASH IN ON MATERIALS PROCESSING, COMPANIES will need more than the shuttle. They will need orbiting space factories and crews (or robots) to run them. They will need, in other words, an infrastructure of support facilities and services—the fourth major industry, along with satellite communications, remote sensing, and materials processing, on the horizon.

In the past NASA provided the infrastructure, but since Reagan took office emphasis has shifted to the private sector. The administrator of NASA, James Beggs, has talked about transferring the shuttle to private ownership late in this decade. Moreover, five companies have been established so far to build small rockets that would launch satellites that the shuttle can’t handle. (One, Space Services Inc. of America, in Texas, caused a minor sensation this winter when it announced its plan to put the cremated remains of thousands into orbit.) Other firms build “upperstage” rockets, to send satellites from 150 miles or so above Earth—as high as the shuttle can carry them—to an altitude of 22,300 miles, where geosynchronous orbit can be achieved. (At that height a satellite can orbit at the same speed at which the earth turns. If the satellite’s path follows the equator, its position with respect to Earth will be fixed, and it will be able to stay within reach of its ground stations.)

Fairchild Industries is developing small space laboratory platforms called Leasecrafts, the first of which may be ready in 1988. McDonnell Douglas may use a Leasecraft for early production, but it is also contemplating the construction of a larger space factory. Space Industries, Inc., a young Texas-based company run by Maxime Faget, who supervised NASA’s development of manned spacecraft for twenty years, is building a thirty-five-foot-long industrial space facility with a pressurized compartment in which visiting astronauts could work.

The Queen Elizabeth of space, however, is the space station, and that remains a federal project. Though slippage in the schedule is probably inevitable, the Reagan Administration hopes that the station will be launched in 1992, which is the 500th anniversary of Columbus’s voyage to the New World. Optimistically budgeted at $8 billion, the station is to be manned and is to serve as a laboratory for materials processing and research, as a permanent observatory for astronomy and remote sensing, as a storage depot for spare parts, fuel, and supplies, and as a base from which to service other satellites and platforms—perhaps clustered together to form the first space-based industrial park.

The space station is not without its critics. Several studies have suggested that “free-flying” factories independent of any space station and tended by robots might do just as well for less money. (The shuttle has enemies too, particularly in the liberal press. The $14.2 billion spent on it to date makes it an inviting target. Rarely do the critics consider, however, the potential economic impact of space-based materials processing or the crucial roles that the shuttle can play as a research laboratory and, if space factories become a reality, as a delivery vehicle.)

A federally built space station may or may not be necessary, but clearly it would accelerate the development of space commerce—just as federally subsidized railroads and highways have accelerated economic development in years past. A space station would make possible permanent crews of astronauts, and their presence would improve the economics of any investment dramatically. “Should there be any malfunction, they can go out and correct it, and the factory will continue to produce,” Isaac Gillam, of NASA, says. “You could put an automated factory up there without the station, but once it breaks down, you’ve got to make a special shuttle flight up to fix it. And if it breaks down again, you’ve got to make another, and that becomes prohibitively expensive. The idea of having people present at all times, to monitor production changes, adds to the economics of the situation and makes more projects viable.”

People in the business stress that the station would persuade investors that NASA is serious about space commerce. “We feel that a lot of companies will wait, in terms of raising significant amounts of capital, until they know whether there’s going to be a space station for sure,” says Brad M. Meslin, of the Center for Space Policy, a consulting firm in Cambridge, Massachusetts, that specializes in evaluating industrial opportunities in space. The large appropriations needed to lock in the station are scheduled for the 1987 budget, which will be up for final votes in mid1986.

Private enterprise could handle many services necessary to support space manufacturing: power generation, orbital refueling, waste management, food supplies, health care, and so forth. Rockwell International is looking into an inorbit electric utility—a huge solar array, projected to cost more than $1 billion, to supply power to an industrial park in space. NASA has let contracts with two aerospace firms, Boeing and Martin Marietta, to develop concepts for a “space tug” to take payloads from the space station up to geosynchronous orbit. Among other things, the tug would be used in repairing and retrieving satellites in high orbit, just as the space shuttle was used last year to repair one satellite and retrieve two others in low orbit.

Once this capacity exists, perhaps by the late 1990s, the nature of geostationary satellites is likely to change. Today the average communications satellite lasts eight or ten years, after which it is moved out of the way to make room for a new model. If it fails prematurely, it must simply be abandoned. Its rescue or repair is impossible, because the shuttle’s range does not extend far enough to reach it. When communications satellites can be serviced, many experts predict, they will give way to large platforms that will house not only antennas and transponders for a range of communications services but also observatories for scientific exploration and perhaps giant solar arrays for power generation. Such a trend would create a new wave of economic activity based on the production, launch, and assembly of these vast structures.

WHEN DISCISSIONS MOVE FROM SPACE STATIONS and orbiting platforms to the next cycle of innovations, the true visionaries take over. Besides solar-powered satellites they dream of nuclear-waste disposal in space; mining operations on asteroids rich in precious minerals; and 10,000-square-meter solar sails, driven by photons from the sun, for long space voyages. Robert Frosch, a vice-president of General Motors, who was the administrator of NASA from 1978 to 1980, has proposed solar-powered mining and manufacturing centers on the moon that would replicate themselves, and thus turn out more products every year.

Thomas O. Paine, who was the administrator of NASA from 1969 to 1970, said at a recent NASA symposium on lunar bases that if the United States did not plan a mission to Mars soon, the Soviets would beat us to it. Paine explained that a first step toward Mars would have to be a permanent moon base, “to leave behind selected materials, equipment, and supplies, with qualified men and women remaining to work between regular supply trips.” Why the United States or the Soviet Union would want to go to Mars is another question. The answer begins with the fact that after Earth, Mars is more hospitable to human life than any other planet in the solar system. The Viking satellite mission in 1976 revealed that Mars has an atmosphere, at least a small amount of water, and an accommodating surface. The planet might thus serve as a staging area both for the mining of asteroids and for exploration of the outer reaches of the solar system.

The science-fiction writer Arthur C. Clarke has shown an uncanny knack for predicting activities in space. He is intrigued by the notion of a “space elevator: a structure made of very strong but lightweight materials that would stretch from Earth to the altitude of geosynchronous orbit and beyond. The elevator would use the weight of a descending capsule to pull another capsule up. It could carry people to facilities in geosynchronous orbit without the enormous expense of energy entailed by, say, a moon launch. Or, acting as a kind of sling, it could hurl space vehicles beyond the reach of gravity for long voyages. Clarke predicts that the space elevator will be built “about fifty years after everyone stops laughing.

With the exception of the self-replicating factory and the space elevator, these proposals have actually been studied by NASA. For instance, John S. Lewis, a professor of planetary sciences at the University of Arizona, has applied for a grant from NASA to build a piece of automated equipment that could be used on the shuttle to extract iron, nickel, and cobalt from debris collected on asteroids. Lewis hopes to test the machine on the shuttle before long and speaks of commencing mining within fifteen years.

Observers skeptical of such notions abound, of course. Daniel Deudney conducts space-related studies for the World Policy Institute, in New York City. In a recent paper for the Worldwatch Institute, he labeled satellites for solarpower transmission, asteroid mining, and colonies on the moon “the most grandiose hallucinations of technological civilization.” Even Peter Glaser, who popularized the solar-power-from-satellites idea, agrees that serious problems remain to be solved before such dreams can come true. But he also says, “When the Wright brothers started to fly their airplanes, you couldn’t quite predict that you would have 747s flying the Atlantic, or the Concorde. It’s hard to predict what the space industrial infrastructure will look like fifty years from now.”

HOW REAL IS THE ECONOMIC PROMISE OE SPACE? Consider the numbers. According to Jerry Grev, the publisher of the magazine Aerospace America, space is a $22-to-$23-billion industry today. The satellitecommunications business takes in perhaps $3 billion a year, NASA spends $7.5 billion, the military spends more than $10 billion, and another billion or two comes from peripheral businesses: remote sensing, publishing, and so on.

Satellite-communications revenues are growing at a rate of 20 percent a year, and Grey projects annual revenues of anywhere from $40 billion to $100 billion by the turn of the century. He estimates that materials processing could be worth another $10 billion to $20 billion, launch services $5 billion, NASA $8 billion, and the military perhaps $25 billion, unless there is a major arms treaty limiting space weapons. Throwing in remote sensing and other space-related activities, Grey foresees a $100to $200-billion industry by the year 2000. As a point of reference, the aviation industry—including aircraft construction, airline revenues, airport operations, and so on—is a $100 billion business today. Electronics manufacturers took in $125 billion in 1982. The Center for Space Policy, which released its own estimates recently, is more optimistic than Grey about materials processing but less optimistic about satellite communications. It foresees a $55 billion business—not counting NASA or the military—by the year 2000.

Even these estimates may be overstated. Deudney, for one, feels that the projections of what he calls “space promoters and enthusiasts” are inflated. “Until we’ve actually done more R&D work on materials processing in space, it seems to me that estimates of commercial marketplaces are extremely premature,” he warns. “At this point it’s essentially unknowable.” Deudney questions even the potential of producing pharmaceuticals in space—an enterprise that many observers consider all but a sure thing. “There’s just going to be such a cost differential between doing something in space and doing it on the ground that there’s always going to be an incentive to take what you learn in space and do it on Earth,” he says.

Where so little is known, there is much room for disagreement. John F. Yardley, the president of McDonnell Douglas Astronautics and the former chief of the spaceshuttle program at NASA, predicts a market for spacemanufactured pharmaceuticals of a billion dollars a year just ten years from now. And Gregg Fawkes, of the National Chamber Foundation, believes that the major profitmaker in the year 2000 “will probably be something nobody’s even thought of yet.” Fawkes expects space-based manufacturing to boom, but he also expects processes on Earth to benefit enormously from technologies invented for the purpose of exploiting space. He cites artificial intelligence, robotics, remote manipulators, high-speed communications, light-based computation and communications, and cryogenics (the use of supercold materials), among other fledgling enterprises. “You can probably look at that suite of technologies as the base of the next wave of industrial expansion and growth, steel having been one wave, aerospace and computers and electronics in general another,” Fawkes says. “If you went into space only to find out about those technologies and apply them on Earth— even if there’s nothing you’re doing in space that makes money—that’s more than sufficient reason to do so.”

Every year NASA publishes a book describing about fifty products developed by its researchers that have been in commercial use or service. Leafing through successive editions, one sees robotic systems, high-temperature lubricants, protective coatings, medical-scanning equipment, tough new ceramic surfaces, even ingestible toothpaste. The best-known example, however, is solar technology. Because satellites use solar arrays for their power, NASA has been the driving force behind advanced solar research. If satellites get larger, and if the space station is built, the quest for ever more power from ever less hardware will continue. One of the most promising avenues for solar-cell technology is, again, gallium arsenide, which is a more efficient transformer of energy and is more stable at high temperatures than the silicon used for cells now.

Brad Meslin, of the Center for Space Policy, compares the development of space to that of the American West a century ago. “Anyone who was sitting around in 1840 thinking about this railroad thing couldn’t imagine a fraction of the economic potential that would eventually be realized by opening up the West,” he argues.

IN THE END THE IMPORTANT QUESTION MAY BE NOT how abundant the fruits of space commerce will be but who will enjoy them, and how soon. The Europeans, Soviets, and Japanese are in the race, and in some areas they are ahead of us.

Since 1971 the Soviets have had rudimentary space stations (Salyut 1 through 7) in orbit. While the United States has run perhaps a hundred materials-processing experiments in space, the Russians have conducted some 1,500. They have developed infrared receivers using cadmium mercury telluride crystals made in space; they have tested the synthesis of interferon, urokinase, and other drugs; and they have produced metal alloys and special glasses for optical devices.

In 1979 R. Z. Sagdeyev, the director of the Soviet Space Research Institute, predicted that a “vast amount of industrial activity will begin in orbit” in upcoming years.

That activity will probably revolve around a complex space station, with room for as many as twelve cosmonauts, that the Russians expect to place in orbit by the end of the eighties. Other Soviet investments are also impressive. William Claybaugh, a partner in Space Fund I, a venturecapital firm for projects in space, based in New York, describes the program and its implications as follows: “The Russians are months to a year or so away from launching a space shuttle—one which is about the same size as ours, but which may carry considerably more payload. They also have a little space plane, which I’m sure is the envy of every officer in the U.S. Air Force. And finally, they have a Saturn V-class booster, something that looks like it’s going to be capable of putting about 300,000 pounds into orbit. That set of infrastructure, assuming the early test flights go well and all that hardware works, positions the Soviet Union to do things in space that we couldn’t possibly duplicate. Mars is plainly within their capabilities, but more to the point, they are building the infrastructure to set up a complete Earth-moon transportation system. That’s something that could be sprung on us any time in the next five years. If the Russians have a lunar base in the early nineties and we can’t begin to think of doing that until ten years later, you’re then talking about national psyche, a nation’s understanding of itself and its role in the world.”

The Europeans and Japanese, as one might expect, have invested more in commercial sectors within which they might leapfrog the United States. Typically, the French are concentrating on glamorous hardware that will enhance national prestige. They operate the world’s only successful commercial rocket system, which now boasts thirty firm contracts and eleven reservations for satellite launches—$875 million worth of business. This fall they plan to launch their first remote-sensing satellite, whose state-of-the-art design may well dominate the emerging market.

The West Germans, also playing true to national form, are concentrating on materials processing, where the greatest commercial potential lies. They have been the prime movers behind Spacelab, the European laboratory that flies on our shuttle, and Eureca, a free-flying researchand-manufacturing facility scheduled to begin operating in 1987. According to Hans Ulrich Steimle, the project manager of a Spacelab mission whose crew will include two German astronauts and that will concentrate on materialsprocessing research, “Our heavy interest in materials sciences obviously is not shared in other countries. But we should not be shortsighted. This may be only a very small, narrow program, but in the long term we can be the leader in it and it will pay its own way.”

The Europeans are also designing a new generation of space vehicles: a French mini-shuttle and heavy rocket, a largely German laboratory module for the U.S. space station, and a British space tug. It is not clear whether all or any of these ultimately will be produced, however.

The Japanese, who protect their infant space industry by forbidding purchases of American satellites, have sent up some twenty-five satellites on Japanese launch vehicles, and they plan to send up fifty more by the year 2000. Japanese corporations dominate the world market for satellite ground stations. More important, the Japanese space agency is ahead of all competitors in research on the next generation of communications-satellite technology, and it is working hard to catch up in remote sensing.

Both Japan’s government and its private sector are also taking an interest in materials processing. The government plans to construct a laboratory that will be part of the U.S. space station, along with two free-flying manufacturing platforms, at a total cost of more than a billion dollars. Four major Japanese trading companies have formed teams of as many as fifty corporations, each to pursue commercial opportunities, particularly in materials processing, in space. And Japanese corporations are investing in new American firms that are involved in space commerce. Richard Randolph, the president of MRA, bemoans the contrast between American investors, whom his company pursued for several years with limited success, and the Japanese, who came knocking on his door.

FOREIGN COMPANIES, PARTICULARLY IN FRANCE, Germany, and Japan, have expressed a willingness to invest now for profits that they may not see for fifteen or twenty years—a luxury that very few American companies can afford. What’s more, our overseas competitors have the advantage of being technological followers, rather than innovators. “The French and Japanese and German space programs are very consciously picking off the commercial opportunities that were identified as a result of U.S. research activities,” Fawkes says. “Where we have fallen down is in stimulating a commercial response within the U.S. community.”

Part of the problem is that not enough basic research has been done on the behavior of materials in space to persuade American corporations to invest. In 1978, when NASA began to solicit applications for sending experiments up in the shuttle, it projected that by 1982 twenty flights a year would be reserved primarily for research. Because of budget cuts and delays, NASA has approved only twentyfive experiments for funding, and only four of these have been scheduled. Richard Halpern, the director of NASA’s Microgravity Sciences Division, says that more than anything, he needs “flight time to convince people that the potential of materials processing is real and not just something I stand up and talk about.”

With so much basic science remaining to be done, the risks of investing in materials processing are especially high, and the payoff, at this point, is still in the ten-year range—beyond consideration even for many venture-capital firms. Given the short-term focus of most American corporations and financial institutions, the American economy depends to a great extent on entrepreneurs to provide the technological breakthroughs important to growth. So much capital is usually needed to work in space, however, that few garage entrepreneurs have a chance. According to Jerome Simonoff, a vice-president of Citicorp Industrial Credit and an expert on financing space projects, “Where the entrepreneurs will come from, more often than not, is the dissatisfied employee working for the big company who lost his argument to build his pet project and who says, ‘I’m going to go out and form my own company.’ ” By then, of course, foreign competitors may have the jump on us.

Even aerospace companies, which have the expertise to create new industries in space, are not expected to take the initiative. (McDonnell Douglas is the exception, no doubt because its president, John Yardley, headed NASA’s shuttle program.) Having generated guaranteed profits for their stockholders for years on government contracts, aerospace executives are unlikely to roll the dice on a new product or service whose market is not guaranteed.

In France, Germany, and Japan the government develops strategies for the commercial exploitation of space and then works hand-in-hand with business to bring them to fruition—a textbook example of “industrial policy.” Industrial policy is anathema to the Reagan Administration: its goal is to get government out of the marketplace, not further in. At the same time, however, President Reagan is a pragmatist. He wants to encourage the commercial development of space, and in space a government role is inevitable. Private corporations could never have invested $200 billion to create the infrastructure necessary to do business in space. The Reagan Administration has not only accepted this fact but has worked out an energetic set of policies to subsidize and promote private investment in space.

Consider the space shuttle, on which NASA has spent roughly $14 billion so far. At the moment, taking up a full payload, which can consist of as many as four communications satellites, costs as much as $250 million. But the agency charges only $74 million—leaving as much as $175 million per mission to be subsidized. Moreover, NASA signs “joint-endeavor agreements,” in which private companies such as MRA and McDonnell Douglas get free shuttle flights in return for allowing access to experimental results or use of the equipment being tested. NASA also offers bargain-basement prices for single experiments (“getaway specials” is the agency’s phrase) and free rides for industry scientists and for certain new pieces of hardware.

NASA works hard to get the private sector excited about space. The agency has paid two major consulting firms a total of several million dollars to interest executives in the idea of doing business on the space station. NASA goes out of its way to make the data and technology it has developed available free of charge to the private sector, and often its own scientists help private companies develop their space-research programs. The agency even develops complex new technologies that the private sector needs but will not pay for, such as the next generation of communications satellites.

The Reagan Administration is streamlining the regulatory maze that hampers private space ventures and reforming the tax code so that investments in space will get the same breaks that investments on the ground do. Reagan has also pledged to expand research and development in areas that have commercial applications; to give industry a larger role, through advisory committees, in determining the federal agenda; and to pursue long-term contracts with new space ventures “if the government has a need for the product and if the purchase would be cost-efficient.”

THE ADMINISTRATION’S efforts to stimulate the commercial development of space are impressive, and they are nothing if not industrial policy. But their ad hoc nature, as well as the unspoken conflict between free-market ideology and government intervention, has created problems. The inconsistencies threaten to cripple two industries that the Administration wants to turn over to the private sector: rocket-launch services and remote sensing.

Rockets are known in the trade as expendable launch vehicles, or ELVs, and the predicament they are in is relatively simple. To save money now that the shuttle is flying, NASA is turning over its Titan, Atlas/Centaur, and Delta rockets to companies that plan to use them to launch satellites. At the same time, however, NASA feels compelled to justify the shuttle’s tremendous cost by selling its own launch service. NASA’s subsidized price, which will be in effect until October of 1988, makes it difficult for private rocket companies to compete. Thus, while the Reagan Administration is creating a rocket industry with one hand, it is destroying that industry with the other.

Both General Dynamics and Transpace Carriers, the firms that are taking over the Atlas/Centaur and Delta rockets, have made it clear that unless the Administration soon announces a realistic price for shuttle space after 1988, they will abandon the launch business. The last rockets to be manufactured for NASA are under construction, and once the assembly lines shut down, they will be impossibly expensive to start up again.

The solution to all this depends upon whether we want a rocket industry, in order to compete with the French, Japanese, Soviets, and Chinese. Many believe that ELVs will continue to be of great value to the satellite industry.

No one is certain just how much traffic the shuttle will be able to carry, and satellite owners say that they find launching on a rocket much simpler and less time-consuming than launching on the shuttle. David Grimes, a former NASA official who founded Transpace Carriers, warns that we are about to lose “the pickup trucks of the space age.” Given that American taxpayers have invested billions of dollars in NASA’s ELVs, it seems reckless simply to discard them.

The Department of Transportation has appointed a committee of industrial advisers on commercial space transportation. It grappled with these questions at its first meeting, last October, and came up with sensible advice. Essentially, the group recommended that NASA raise its shuttle fares so as not to place private ELV operators at a disadvantage, announce the new fares as soon as possible, and quit worrying about justifying the shuttle on the basis of how many commercial satellites it launches. (The advisers hope that once this is done, the French will raise the rate for their Ariane rocket, which many believe is subsidized to be competitive with the shuttle.) Sentiment was strong that the unique capabilities of the shuttle—rescuing and repairing satellites, providing an orbiting laboratory for materials processing, and so on—should be given priority over its abilities as a satellite launcher.

The status of the Landsat remote-sensing system is more complex. Landsat satellites were designed as experimental, not commercial, vehicles. The pictures and data they sent back to Earth were available to all comers for the cost of reproduction. Foreign countries were encouraged to build receiving stations and allowed access to data for next to nothing. Gradually a market began to emerge, consisting primarily of governments (state, federal, and foreign) and oil-and mineral-exploration companies. All grew accustomed to bargain-basement prices. In the late 1970s, when the Carter Administration decided to commercialize the system, it was obvious that this would have to be done slowly, because the market was still relatively small and could not sustain prices high enough to generate a profit. The Carter plan called for a ten-year transition, in which more and more services would be contracted out to private industry. Eventually the entire system would be sold.

The Reagan Administration, however, decided to turn the Landsat system and, for good measure, the federal weather satellites as well, over to industry right away. Congress quashed the idea of selling the weather satellites, but not Landsat, and the Administration started looking for a buyer. Soon it became apparent that federal subsidies for Landsat would have to continue, even if the system were sold. Negotiations were under way with two finalists, Eastman Kodak and EOSAT, a joint venture of RCA and Hughes Aircraft, when the Office of Management and Budget suddenly deleted Landsat from the fiscal 1985 budget. Outraged, officials of the Commerce Department, which has responsibility for Landsat, wrangled the promise of a $250 million subsidy from the White House. Because the figure was so low, Kodak dropped out and EOSAT won by default. Then, before Congress voted on the $250 million budget item, it adjourned for the year. The Administration has continued to negotiate a contract with EOSAT, but it must resubmit legislation authorizing the sale and subsidy.

This comedy of errors may kill the prospects for an American remote-sensing industry. When the Landsat satellite that still works was launched, in 1984, its life-span was expected to be just three years. It will take three years or more to build and launch a new satellite, private or federal. (NASA may be able to retrieve and repair Landsat 4, which broke down after only a year, but there are no guarantees.) Thus any company thinking of using remotesensing data knows that it cannot rely on the U.S. system. Meanwhile, France will launch its first satellite this fall. If our satellite goes dead and the French succeed, any U.S. comeback will be difficult. The French will reap the economic and diplomatic benefits of providing remote sensing for the world market, and a U.S. investment of at least $3 billion will go down the drain.

AT THE MOMENT, WE HAVE A CLEAR LEAD IN THE race to commercialize space. We have the space shuttle, and we will probably have a space station by 1995. But the experience of the past fifteen years is cause for concern. We have developed one new technology after another—from video-cassette recorders to machine tools to semiconductors—only to watch the Japanese take the market from us.

Many ideas have been put forward for securing our hold on the markets, not just in transportation and remote sensing but in materials processing and communications as well. They include seed money for applied-research projects with commercial potential, special tax credits for space commerce, and federal insurance to limit the risks of investing in space. Because ideas like these call for further government intervention in the marketplace, they have generated controversy. But as we have seen, not only is the government already in the space business, it created the marketplace. Some consideration of how it can best steer that marketplace is surely in order.

Successful precedents for aggressive federal intervention do exist. For example, from 1925 to 1975 the federal government channeled more direct support for technological research to aviation than to any other industry. Most of the money was spent to develop commercial products— spent, that is, on applied, rather than basic, research. The National Advisory Committee on Aeronautics, NASA’s predecessor, built huge wind tunnels and other facilities where companies tested their designs. The government also provided an enormous demand for aircraft, first with its airmail contracts and later through military procurement. With so much federal support, American firms excelled at moving products to the marketplace. Even though the British invented the jet engine, it was the United States that captured the commercial market. Aviation is still one of the country’s export powerhouses.

The computer industry is another triumph of government intervention. The first electronic computers were invented on military contracts signed during the Second World War. As the first machines went into operation, few foresaw any commercial market for them. The transistor was invented independent of military procurement, in 1947, at Bell Laboratories, but until 1955 virtually all other computer-related research continued to be funded by the government. Even from 1955 to 1960, when entrepreneurs poured into the computer business, the chief impetus was government contracts. Both of the breakthroughs that made IBM a success during this interval—the random-access magnetic-core memory and transistorized computers—were federally funded. After 1960 the demands of NASA and the military for computers that could fit inside missile cones and spacecraft led to the creation of the semiconductor industry. Both the silicon transistor and the integrated circuit were developed for military or NASA use. Large-scale production of integrated circuits got off the ground with NASA’s decision to use them for guidance on the prototype Apollo spacecraft and with the Air Force’s demand for an improved version of the Minuteman ICBM guidance system.

Federal intervention has led to some spectacular failures, as well. In the late 1960s the government decided that the United States needed a commercial supersonic transport (SST) to compete with the British-French Concorde. When industry failed to put up its own capital, the government stepped in. In 1971, after several years of mounting costs, technical problems, and opposition from environmentalists, Congress killed the SST. The market has since vindicated that decision. The Concorde has cost the British and French governments several billion dollars.

In the late 1970s, when it appeared that oil and naturalgas prices would only grow, Congress approved a $15 billion program of loan guarantees and price supports for synthetic-fuels production. Within three years we were in the midst of an oil-and-gas glut and it became obvious that synthetic fuels would not be profitable for decades. Though the program has been cut back, much of the several billion dollars that taxpayers have invested so far will undoubtedly have to be written off.

Two lessons emerge from this quick survey. The first is that the government can work wonders when it funds applied research to develop commercial products. The second is that it will occasionally back the wrong horse. Freemarketeers conclude that because the government cannot be sure of picking winners, it should not even try. This notion ignores the fact that our government is already deeply involved in picking winners, with its provision of $400 billion a year in special tax breaks and trillions of dollars in loans and loan guarantees—most of which has gone to businesses.

THERE ARE WAYS FOR THE GOVERNMENT TO PROtect its bets. One is to target whole technologies rather than specific products. Richard Kline, the director of space-station programs at Grumman Aerospace, suggests that NASA might make grants of up to $100,000 for research aimed at developing commercial products in space. “We’ve done a fair amount of talking with non-aerospace companies, and we now understand the position of many would-be entrepreneurs in some of the traditional companies in the United States,” Kline explains. “It’s an uphill battle for them to bring their system to the top of their organization, and what I’m talking about is really a way to let this entrepreneur get his feet underneath him, get his plan put together, so that he will be able to convince his board or CEO or whoever he must go through that they should take a flyer and see if there isn’t a new market to be found in space commercialization.”

An interesting model is the Industriefunden, a small government institute in Sweden, staffed largely by engineers, which awards grants to industry of up to several hundred thousand dollars for the development of new processes or products. The Industriefunden negotiates loans to fund perhaps 30 percent of the research, which the companies repay only if the project is successful.

When our government distributes money for research and development, it would be wise to consult potential buyers of the new technologies in question. When a government agency like NASA lets a contract for its own project, it knows what it needs better than anyone else. The situation is quite different when an agency wants a product made for the marketplace and does not allow the marketplace to define what will sell. The histories of the Concorde and synthetic fuels demonstrate that the result may well be an unsalable product. In cases where the government is not the consumer, every effort should be made to turn over decisions about funding to groups of advisers from the private sector.

Direct procurement will always be the most powerful tool available, of course. When the government creates a market for new technologies, investors are attracted to them. Traditionally, this occurs when the government needs a new product for its own purposes. The Japanese have been known to guarantee markets (for robotics and computers, for instance) in the absence of such a need, simply to get a promising new industry off the ground.

The Reagan Administration intends to use procurement as an incentive for commercial projects in space only when the government needs a product and its purchase is “costefficient.” It might be wise to go further. For instance, crystals made in space are likely to be instrumental in future defense and NASA missions and critical to coming generations of technology; aggressive procurement, beyond what might be cost-efficient in the short run, could help the United States win the race to commercialize them. Remote sensing is another obvious example: since federal and state governments are the primary consumers of Landsat data, any plan to turn the satellites over to business should use government procurement to guarantee at least part of the market.

The favorite method of picking winners in this country, the tax incentive, is extremely inefficient. The problem is that tax breaks can be applied to almost anything: research that would have been done regardless, activities other than research and development but disguised as such, and so on. Edwin Mansfield, an economist at the University of Pennsylvania, has found that the Reagan Administration’s research-and-development tax credit is stimulating only about thirty cents’ worth of new research and development for every dollar of tax revenue lost. If the government had spent each dollar on direct grants, it might have generated three times more research and development. The Japanese and the West Germans seem to understand this point; they rely much more heavily on outright subsidies than on tax credits.

No matter how careful the government might be in making its choices, anything put into space—a communications satellite, a shuttle, or an orbiting factory—can fail. When that happens, a major investment can be wiped out. A few dollars’ worth of faulty insulation on a wire can damage a $270 million satellite, as it did Landsat4. The satellite industry, which has had to write off as lost roughly one out of six satellites launched since the mid-seventies, protects itself by buying insurance. In 1983, however, three major losses cost the satellite-insurance industry $300 million—more than it had earned in premiums since it began to issue policies. Rates have doubled, and many underwriters worry that the market cannot cover a full shuttle load of three or four satellites. Jerome Simonoff has proposed that the federal government act as insurer of last resort, just as the Federal Reserve acts as lender of last resort to protect banks from the risk of failure.

If the emerging space industry demonstrates anything, it is the central role that the government already plays in economic development. We can ignore that role and continue to manage the process in an ad hoc, often contradictory way. Or we can acknowledge the existence of our many industrial policies and try to refine them into a coherent strategy to preserve our leadership in a changing international marketplace. How we respond will tell us a great deal about our capacity to adapt to the realities of a new economic era—and thus to remain pioneers well into the twenty-first century.