Private Sector Space Exploration?!

Last night a space rocket landed back on earth upright. That in itself is hugely impressive (although apparently it isn’t the first rocket to do that), but what’s perhaps most interesting is that this was done by a private sector company, SpaceX. Our instinct when it comes to space exploration is to think about public sector bodies like NASA, or the European Space Agency, yet this is a private company founded by Elon Musk, described on his Wikipedia page as “South African-born Canadian-American business magnate, engineer, inventor and investor”. Musk is also the man behind PayPal, and Tesla, the electronic car manufacturer.

Is there any reason why space exploration needs to be public sector? This is one of the challenging questions as economists we should ask. Why do we think the private sector could not deliver in this area? Why do we also instinctively think that trains should be publicly owned? Why a National Health Service but not a National Food Service? Surely the food we eat is just as important to our health as any actions the NHS takes (maybe after we’ve eaten some bad food)?

We won’t touch on such issues in Intro Macro (EC114) next term, but you’ll have covered many of the building blocks for such an analysis in Intro Micro (EC113) this term – an analysis of markets and market failure. Under what conditions do we expect markets to succeed, and in what ones do we expect markets to fail? Some of the answers relate to information (do buyers and sellers have equal information?), some to power (do buyers or sellers have greater power?), and others still to the cost of mistaken choice (how costly is it?). You’ll get plenty of opportunities to think more deeply about what the state should and shouldn’t do as you go through your three years with us. Challenge yourself on why you think things should be done particular ways whilst you’re with us…

Space and Economic Value

From wired.com, http://www.wired.co.uk/news/archive/2009-08/11/why-didnt-britain-win-the-race-to-the-moon

This morning at 11:03am, GMT, a British astronaut will be launched into space for the first time.

The Treasury, the part of the UK government that is all about spending and revenues, has taken the opportunity to laud the UK space industry and its support for it on Twitter. Indeed there’s a new National Space Policy, the first such thing to exist here in the UK.

The Tweet, and the policy blurb emphasise that the space industry is “worth £11.8 billion” to the UK economy. Where has this number come from?

One of the first things we’ll be doing next term is thinking about is numbers like these – where do they come from? With an industry like the car industry it’s much easier to work these things out, since people buy cars at a particular price, and we then assume that that price reflects the value we as a society place on that good (a debatable assumption, but an assumption nonetheless).

But with space? Who buys the produce of the space industry? Hence, if there is no end consumer in the same way as most industry, what do we do? The answer is we value by the value of the inputs that went into the process. What was the value of the labour, capital and land inputs that went into production in the industry?

If you’re starting to raise objections about this, that’s fair enough; it’s far from a satisfactory approach.  For example, given this the government could simply give all employees a pay rise to get a GDP increase. However, it’s hard to know what else could be done instead, if we wish to measure things like national economic activity. Some defence can be mounted; the amount paid to the factors of production employed in the space industry must be market rates – if the UK space industry paid too low, then their experts would seek employment elsewhere – space agencies overseas, or other areas of manufacturing, say, in the private sector. As such there is some basis in what we value as a society in these calculations, even if it’s not as direct as in, say, private sector manufacturing.

In addition, the methods employed by the UK when calculating national income are the same as other countries around the world use. Hence at least if our measure is bad, it’s only as bad as what everyone else is doing, and still affords us a basis for comparing between countries.