Keith Cowing is reporting that a “compromise” is taking shape and will be what is announced at the Tax Day summit in Florida.
If true, the good news is that Ares, like Francisco Franco, is still dead. The bad news is that with the Orion lite, NASA will once again be competing against private industry for a viable commercial activity. I like competition, but as in health care, the notion of competition from a taxpayer-subsidized entity remains anathema, if not an oxymoron. Also as in health care, the solution is not “competition” from the government, but to set up a structure that forces real competition among providers.
Beyond that, I think that a a Shuttle stretch and a Shuttle-derived sidemount is a waste of money, and a quarter of a century too late. It looks mainly like a jobs program to me.
Which would be all right, if it’s what is necessary to get political support for killing off the Ares disaster. The problem is that the new plan doesn’t fit the budget. As John Shannon said, Shuttle extension costs a couple hundred million a month, and with a low flight rate, each flight will be well over a billion, and not particularly safe, because it’s probably too low a rate for the operations people to maintain their edge.
“Red” has his estimate of the additional cost of this, over at Clark’s place:
Even just the Shuttle/sidemount Block 1 will be about $13B assuming those numbers. Let’s say you could gather funds from the 2011 budget for it as:
$1.5B – from the 2011 budget Constellation transition
$1.5B – from the KSC modernization
$0.6B – from the Shuttle slip contingency
$3.0B – from the HLV and propulsion research line
Also assume $0.4B gets directed to it from really fast pre-2011 budget work.That’s $7B, leaving a $6B shortfall, even without starting Block 2 (if needed), Orion lite, exploration craft, or systems to integrate with ISS.
The remaining big new budget items (assuming commercial crew is protected as Keith suggests) are (setting aside Earth observations and Aeronautics which I assume are off the table):
$5B – space technology
$7.8B – exploration demos
$3.0B – robotic precursors
$2.4B – ISS increaseEven that $6B would put a huge hole in that, and the $6B is just a start, using optimistic assumptions. Also realize that even Griffin’s Constellation had IPP (now hidden inside space technology) and LRO/LCROSS as robotic precursors, so you’d be getting close to Griffin-esque territory already.
That was the problem that the new budget was supposed to solve. My biggest fear (in addition to the crowding out of commercial) is that once again the technology budget will be sacrificed. I notice in Keith’s report that there are two players who aren’t mentioned — OMB and Congress. Where is the money going to come from?
Also, I wonder why Tax Day was chosen as the date for the summit. In addition to its conflict with the National Space Symposium, it doesn’t seem a very propitious day to be announcing an increase in discretionary spending on an agency whose public support is broad but shallow, in a year in which spending and deficits have risen to the top of the public concern.
[Update a few minutes later]
There’s a lot more discussion over at Space Politics.
There’s no reason for governments to be sending humans into space period. End funding for the HSF program AND the COTS program. Shut ISS down in 2015 like the plan.
I agree with you on the Shuttle derivatives. These are PowerPoint-ware many orders of magnitude divorced from economic reality. The chances of any such thing actually flying are small given the budget realities, and even if it flies the chances of it being economically useful are nil. But it will make dandy make-work jobs for people who can’t get real jobs.
As for Orion Lite “competing against private industry for a viable commercial activity”, I’m afraid your mind has here drifted into some other galaxy than the one we are actually living in. These companie(s) are not competing with government in HSF, they are getting all their HSF revenue from government space agencies. Every “competitor” in this business is 100% government subsidized.
If we must have government fund economically useless astronaut heroics, then having government owning a capsule with a standard form factor that can launch on multiple satellite launchers, and then buying the launches, makes a lot of sense. It is the most commercial of the possible alternatives, and has the greatest chance of keeping our heavenly heroes flying.
Purchase of services is not a “subsidy,” except in your alternate universe.
NASA will once again be competing against private industry
Govt. should not be allowed to use the word compete. Competition as a positive thing only exist within free enterprise. I suggest replacing all uses with respect to govt. with the word destroy in such context.
It is the most commercial of the possible alternatives
Really? Think about it.
I guess it’s now a case of “space technology, exploration demos, robotic precursors.” Pick any two.
Rand,
[[[I like competition, but as in health care, the notion of competition from a taxpayer-subsidized entity remains anathema, if not an oxymoron.]]]
And what is COTS but the tax payer subsidizing launch entities? And what are the milestone payments, which don’t provide any services to NASA, just hardware to SpaceX and Orbital, but taxpayer subsidies to SpaceX and Orbital that raises the barrier to entry for non-subsidized firms to compete in future commercial markets? And future government contracts?
So the only difference between this and the original version of commercial crew is that one winner (Orion lite)will be funded directly by NASA, while the other “winner” is subsidized indirectly. But NASA is still picking winners and distorting market supply in the process so the two proposals are not greatly different in the economic sense.
BTW, for those who genuinely believe that there will soon be a sufficiently large market for orbital tourism independent of NASA funding, there is an easy way to prevent NASA from competing with it — ban NASA from flying tourists on its capsule once a private company has reached the point where it can fly the tourist to the same or similar destination. Of course, if one is merely using the supposed promise of orbital tourism to troll for NASA contracts this kind of solution is anathema.
So the only difference between this and the original version of commercial crew is that one winner (Orion lite)will be funded directly by NASA, while the other “winner” is subsidized indirectly.
But that is a difference. And an important one.
But NASA is still picking winners and distorting market supply in the process so the two proposals are not greatly different in the economic sense.
NASA “picks winners” when it chooses what airline to fly as well. What’s your point?
Rand,
[[[NASA “picks winners” when it chooses what airline to fly as well. What’s your point?]]]
But NASA is not paying the airline to design and build their airliners, or even to buy them like they are SpaceX and Orbital under commercial crew/COTS.
.
At least with Orion Lite NASA will get to own the spacecraft they are “buying”.
This article makes some great points for anyone interested in commercial space. I especially agree with Aldrin’s assessment of the space tourism market being peanuts, and his criticism of NASA sticking their nose into every detail of a program.
http://www.spacenews.com/civil/100402-commercial-crew-plan–hinge-risk-sharing.html
I’m wondering: has there been any word on whether the expected commercial purchases will be fixed-price or cost-plus? I think I’ve been assuming fixed-price because of the COTS precendent, but I can’t remember anyone saying one way or another.
Googaw
[[[ban NASA from flying tourists on its capsule once a private company]]]
Since NASA has never allowed space tourists on the Shuttle, its difficult to see that possible changing with the Orion Lite, which under the compromise will likely be owned by NASA as well since its being funded directly.
So in that sense this is really a very good thing for SpaceX since if NASA only picks one of the Merchant 7 and SpaceX is most likely since its furtherest along). With the government subsidizing 100% of the development cost of the Dragon/Falcon 9 SpacxeX will be given aninsurmountable advantage over any competitors for any commercial customers that might be out there. Which is probably good as its unlikely that commercial markets are large enough at this point for two or more firms to make it financially.
With the government subsidizing 100% of the development cost of the Dragon/Falcon 9 SpacxeX will be given aninsurmountable advantage over any competitors for any commercial customers that might be out there.
The government is not doing that.
I don’t understand the argument over ideological purity, in which any addition of government money, in any form, no matter how small, no matter how structured, makes an activity indistinguishable from an activity done by and for the U.S. government.
Moving from a fee-for-effort to a fee-for-delivery model seems to be a clear win for the taxpayers, and offer better health for the industry. What’s the problem?
Rand,
So exactly what is your guess of the percentage of the development costs for Falcon 9/Dragon that is being subsidized with COTS? As long as its greater then zero it gives SpaceX an advantage.
Jeff,
The problem is calling a spade a spade. COTS and Commercial Crew are clearly government subsidies of the New Space industry. And by the government subsidizing some New Space firms and not others the government has essentially replaced the market in picking winners.
Of course that also means the commercial market is no longer driving the orbital portion of the New Space industry, the government is with its subsidies. As long as New Space is honest enough to admit that, and that the commercial market driven policy it advocated for years has failed, at least in terms of orbital flight, I will be fine with it.
commercial market driven policy it advocated for years has failed
That may be a bit premature. Free enterprise works. This is just a case where the barriers to entry are high and the market itself is still small. That can all change.
Shuttle sidemount? I thought the SSME production line was closed, the staff at Michoud doing the drop tanks laid off, etc. So how are we going to do Shuttle sidemount? The time for that is long gone. I would have liked seeing the SSME, or something similar, being retained for an RLV. However it is not going to happen.
I think NASA should get crew delivery services, not buy into any actual vehicle. Nor should it fund just one service, but two or three. Winner takes all would most likely end up like all the other previous attempts at replacing Shuttle.
They should also demand a flying demo.
“… government has essentially replaced the market in picking winners. ”
Then every time a NASA SBIR grant leads to a commercial product, one can say that the govt. unfairly subsidized that grantee, even though it had to win a competitive process to get that funding. Similarly, every firm that got a DOE, NIST, NSF, etc. grant that eventually led to a commercial product received an unfair subsidy advantage over those firms that didn’t get a grant.
You are welcome to advocate elimination of all govt R&D funding and jointly funded programs like COTS but the broad consensus is that these have worked out very well and involve a proper role for the govt.
“the commercial market is no longer driving the orbital portion of the New Space industry… commercial market driven policy it advocated for years has failed”
That’s mischaracterization of what has been advocated. COTS and commercial crew service are exactly the sort of approach that has been advocated since the 80s by advocacy groups like SFF. It was such advocacy that got language put into NASA’s charter requiring it to encourage commercialization and to use commercial transport services.
The goal has been to create a commercial orbital HSF market where one does not currently exist (other than the Soyuz flights to the ISS). NASA needs lower cost transport for exploration. (During the Gap, it needs transport, period.) The commercial companies need to bootstrap creation of both low cost transport and destinations in order to create a viable orbital commercial HSF market. The commercial transport services approach benefits both the govt and private industry.
Again, govt help in this sort of bootstrapping situation has long gotten broad consensus support.
Regarding spades, for COTS the companies had to put up roughly 50% private funding. RpK’s contract was canceled because they did not find sufficient private money to meet its obligation. The other 50% can be called a subsidy but it is also an investment in what is essentially a joint venture that will provide the government a service that it needs and that will save it considerable amount of money over developing and operating its own system.
Clark,
[[[Then every time a NASA SBIR grant leads to a commercial product, one can say that the govt. unfairly subsidized that grantee, even though it had to win a competitive process to get that funding. Similarly, every firm that got a DOE, NIST, NSF, etc. grant that eventually led to a commercial product received an unfair subsidy advantage over those firms that didn’t get a grant.]]]
100% correct. In all those cases the government is distorting the market by subsidizing R&D for some firms and not others. Its picking winners and losers in place of the free market.
[[[You are welcome to advocate elimination of all govt R&D funding and jointly funded programs like COTS but the broad consensus is that these have worked out very well and involve a proper role for the govt.]]]
To the contrary, I have been advocating government subsidies for over twenty years back when Spaceport America was the Southwest Regional Spaceport. Its the New Space Advocates that have been calling for the government to “get out of the way” and to “stop picking winners”. Its good to see that they are belatedly getting it, that a pure capitalist approach has its limits.
[[[The commercial companies need to bootstrap creation of both low cost transport and destinations in order to create a viable orbital commercial HSF market.]]]
Its not bootstrapping if the government is subsidizing it. Please do some research on the terms you use. Bootstrapping means accomplishing something without any external support.
[[[The other 50% can be called a subsidy but it is also an investment in what is essentially a joint venture that will provide the government a service that it needs and that will save it considerable amount of money over developing and operating its own system.]]]
A subsidy is not an investment. An investment creates ownership rights. Under COTS the government is not getting any ownership in Falcon 9 or Dragon.
A subsidy is government funding that closes the gap between the free market and the cost of production. In this case its closing the gap between the costs of developing a new launch system and the money being raised from investors to develop it.
And its wonderful to see New Space Advocate being such fans now of government subsidies. Maybe now that they accepted the markets are not out there in the size or configuration they believed the space policy debate could move on to the best subsidy strategies, drawing on the extensive economic literature, to use to develop the industry so it doesn’t follow the same path as the American shipbuilding industry in which subsidies guided it into an uncompetitive dead end.
Maybe New Space Advocates will also stop referring to the traditional model as socialism since the last I looked Boeing, Lockheed Martin or ULA were not anymore owned by the government then SpaceX is.
Well, that was quite a few straw men in one post, Tom.
An investment creates ownership rights.
No, an investment (in the broadest colloquial sense, which is what we’re doing here, not pedantry) provides a return. It may or may not create ownership rights.
And its wonderful to see New Space Advocate being such fans now of government subsidies.
What “New Space Advocates” were ever opposed to government subsidies? Is this straw man generalization like Mark Whittington’s fantasy “Internet Rocketeers Club”?
Maybe now that they accepted the markets are not out there in the size or configuration they believed the space policy debate could move on to the best subsidy strategies…
Who says that they’ve “accepted the markets are not out there in size or configuration they believed”? They still think that the markets are there, and that commercial ventures can ultimately be successful without the government as a customer. But directing NASA funding to them in a way to make the government a good customer can accelerate the process. There is nothing inconsistent with these beliefs.
Maybe New Space Advocates will also stop referring to the traditional model as socialism since the last I looked Boeing, Lockheed Martin or ULA were not anymore owned by the government then SpaceX is.
Apples and eggs. Why do you not understand the difference between the cost-plus design bureau approach and a milestone-based fixed-price approach to provide a service?
Rand,
[[[Apples and eggs. Why do you not understand the difference between the cost-plus design bureau approach and a milestone-based fixed-price approach to provide a service?]]]
Why don’t you understand the difference between a government contractor, government subsidies and free markets?
[[[No, an investment (in the broadest colloquial sense, which is what we’re doing here, not pedantry) provides a return. It may or may not create ownership rights.]]]
Funny, that doesn’t fit any of the stated definitions
http://www.google.com/search?hl=en&defl=en&q=define:investment&ei=iMW7S6ChJYGAswP80aV-&sa=X&oi=glossary_definition&ct=title&ved=0CAYQkAE
Now COTS would be considered an investment if the winners were required to provide the government with a discounted price over commercial customers for their service.
Why don’t you understand the difference between a government contractor, government subsidies and free markets?
When are you going to stop beating your wife?
Now COTS would be considered an investment if the winners were required to provide the government with a discounted price over commercial customers for their service
COTS provides the government with a discounted price relative to what they will pay in the absence of COTS. What others pay is irrelevant.
Jeff and/or Rand,
You’re getting exactly to my question. I don’t remember seeing in Bolden’s remarks or anywhere else whether NASA intends to purchase commercial orbital launch on a cost-plus or fixed-price basis. The point that, “moving from a fee-for-effort to a fee-for-delivery model seems to be a clear win for the taxpayers” and prevents the kind of aging of technology that cost-plus contracts encourage is absolutely right. Has anyone said that NASA will purchase non-COTS launch contracts fixed-price? What happens when they launch OSIRIS REX, or anything else that’s not going to ISS? Will it be cost-plus or fixed-price?
I’ve been wondering this for the last couple of days since a phone conversation with Dannie Stamp. It seems to me that a fixed-price procurement will stimulate the growth of the industry and allow new models of vehicles to be developed and stay up with the cutting edge by encouraging cost reduction. Doing this cost-plus will infect even the new companies like SpaceX with the government paradigms that have gotten us into so much trouble already.
My understanding is that COTS will be the model for commercial crew. Does that answer the question?
“Its the New Space Advocates that have been calling for the government to “get out of the way” and to “stop picking winners”. Its good to see that they are belatedly getting it, that a pure capitalist approach has its limits.”
That’s a gross generalization of an extremely broad and diverse number of people and groups with many different views. As I pointed out, for example, getting NASA to use commercial space transport services has been advocated for at least a couple of decades by groups that fit within the general New Space tent. There is nothing new or inconsistent about it.
“Its not bootstrapping if the government is subsidizing it. Please do some research on the terms you use. Bootstrapping means accomplishing something without any external support.”
I’m well aware of the definition and it applies very well to what I’m talking about. You can’t get std investment or recycled profits to develop low cost orbital transport without an existing proven market with destinations to go to. But you can’t have an existing proven market with destinations to go to without low cost orbital space transport. The only way out of that situation is by incremental bootstrapping, i.e. grabbing onto whatever you can to develop both destinations and transport simultaneously. Govt grants, angel investors, credit cards, whatever. Literal bootstrapping is impossible. In the real world, though, it has happened many times in many industries and govt has often been a part of it.
“A subsidy is not an investment. An investment creates ownership rights. Under COTS the government is not getting any ownership in Falcon 9 or Dragon.”
No it’s obviously not a standard investment in that sense but it is a co-funding arrangement to create something that meets the needs of both parties. It helps the company develop its hardware and in turn a needed service is provided to the government. It is not just money granted with no obligations to the government as with an SBIR or similar R&D grant.
The rest of your comments deal with silly caricatures that I find irrelevant. I’m interested in what works, not ideologies.
Yes, Rand. Thank you.
Thomas, you wrote:
Funny, that doesn’t fit any of the stated definitions
I see a bunch of definitions where this applies:
investing: the act of investing; laying out money or capital in an enterprise with the expectation of profit
money that is invested with an expectation of profit
the commitment of something other than money (time, energy, or effort) to a project with the expectation of some worthwhile result
The third definition of “investment” is near equivalent to Rand’s use of the term.
Karl,
[[[the commitment of something other than money (time, energy, or effort) to a project with the expectation of some worthwhile result
The third definition of “investment” is near equivalent to Rand’s use of the term.]]]
Last I looked SpaceX was getting money from NASA, not time, energy or effort 🙂
Rand,
[[[COTS provides the government with a discounted price relative to what they will pay in the absence of COTS. What others pay is irrelevant.]]]
So Elon is charging NASA less per ll then the Progress costs?
Clark,
[[[The rest of your comments deal with silly caricatures that I find irrelevant. I’m interested in what works, not ideologies.]]]
Funny. I thought New Space is all about ideologies and philosophies, free markets versus socialism, or to use Rand’s words above:
[[[the difference between the cost-plus design bureau approach and a milestone-based fixed-price approach]]]
I guess the definition has shifted again. Perhaps now its just short hand for the New Space contractors 🙂
I expressed my fears about this reported plan in a post at Clark’s the other day. I see no reason to change them as they state the essence:
“Government airways, here we come. No doubt they will force all the private fliers to be _at least_ as costly by jiggering 30000 human-rating _requirements_ rather than allowing similar safety _results_.
“Lousy unneeded Shuttle side mount
“Dollars for Technology all sucked away.”
(Sorry for this epic piece; this was going to be the thesis of a paper for a conference, and then I ended up not being able to do it, so it’s all pouring out) There’s a big difference between an abstract ideology or socialism vs. free markets and cost-plus vs fixed-price. Procurement methodologies have a major impact on how markets work. It matters in government, it’s a major factor in distinguishing market segmentation, in the private sector, etc.
I recommend the books “Innovator’s Dilemma” and “Innovator’s Solution” by Clayton Christensen. Consider these two factors in the development of what he calls “sustaining technologies” over time (technologies, whether incremental or radical, that improve the ability of a technology to meet the needs of the current group of customers the company currently serves, like greater miles per gallon in a car or increase storage in a 3″ hard drive). The motivators for technology improvements are 1. increasing margins for existing customers and 2. the pursuit of higher-margin customers with more significant technological demands. If you operate in a cost-plus enviornment 1. there is no monetary incentive to reduce costs because lower costs means lower profits, absolutely, and 2. there is no higher margin customer, because all customers pay the same margins. So, the mechanisms for sustaining improvements in technology are disabled in cost-plus environments. This is a serious problem.
Consider for a moment the true weirdness that Elon Musk was able to find Tom Mueller essentially through an amateur rocketry club (http://www.popularmechanics.com/science/air_space/4328638.html) to build a new kind of engine to do exactly what Boeing and Lockheed did (before ULA), serve the same customers that Boeing and Lockheed did (before ULA), and basically do exactly what Boeing and Lockheed did (before ULA) except Mr. Mueller was able to pursue it with his own money at RRS, even before SpaceX. That kind of thing almost never happens. New technology innovations typically only lead to new companies when the new technology serves new customers; serving existing customers better is almost always done by the R & D, licensing, or acquisition by incumbent companies.
I’m told that the Long March (China) and the Proton (Russia) rockets are in some fashion “better” than most American launch systems (I don’t know why that is). But they do the same thing. By the time the technology is ready when designing the Long March, why aren’t American firms using that technology in the existing rockets? That’s what every other industry does. The research by Dr. Christensen shows that, historically, most of the time companies can keep up with even radical technology changes so long as they are answering the demand of the same customers over time, and that’s the case here, except that the levers that allow customers to demand R & D are missing in a cost-plus environment.
This isn’t some ideological crusade. Differences in procurement methodologies have huge ramifications on the course of the events in business. If the weak-link of American Big Business is that it’s “money, money, money all the time”, it stands to reason that paying attention to the money is worth some effort.
It may or may not create ownership rights.
Stocks and bonds. Stocks represent ownership. Bonds do not. Both are investments (providing capital to a company and return hopefully to the investor.)
Last I looked SpaceX was getting money from NASA, not time, energy or effort 🙂
As I said, “almost equivalent”. You’re just playing semantic games here.
Do the adults commenting here really need a dictionary to know what the meaning of investment is? Really?
“Funny. I thought New Space is all about ideologies and philosophies, free markets versus socialism, or to use Rand’s words above:
[[[the difference between the cost-plus design bureau approach and a milestone-based fixed-price approach]]]”
It’s all about effectiveness. The cost-plus model has failed to lower the costs of access to space or of anything else in aerospace. Milestone-based fixed-price approach and commercial services purchases look to provide many advantages over standard cost-plus, govt. led projects. They might not work in every govt program, e.g. a very specialized military system, but they should always be considered as one of the primary options for NASA.
“I guess the definition has shifted again. Perhaps now its just short hand for the New Space contractors.”
As I said, pushing NASA towards encouraging commercialization and using commercial transport services has been going on for decades. Nothing has shifted. Virgin Galactic is New Space with little govt involvement (maybe research flights) while SpaceX with lots of govt involvement is NewSpace. It’s an issue of circumstances, roles and how those roles are best played. Here’s my definition of New Space.
BTW: In thinking about it, I don’t believe the COTS money for development is, in fact, properly described as a subsidy. The money should be considered as part of the overall purchase price for the service. It is similar to the way that big manufacturers, such as the car companies when developing new models, give up front money to a supplier to retool its factory as part of an a multi-year contract for the parts. NASA could lose its “investment” 😉 if a COTS or commercial crew company fails to get the service operational, (just as a car company could lose its money if a supplier fails) but otherwise the initial money can be considered a part of the overall cost of the service.
Clark,
What is wrong with calling a spade a spade? Or a subsidy as a subsidy? Or is subsidy a dirty word to New Space Advocates like government contractor is so you need to dance around it? If both contractor and subsidy are “bad” words then its highlights more then ever the New Space is more an ideological movement rather then anything else otherwise New Space Advocates would not be so touchy about them.
In the business world they are used all the time and their is no sigma attached to them. They are just normal terms to describe behavior and relationships. So why is there a sigma to them in the world of New Space?
Also I seem to recall there was no guarantee the COTS winners would be picked for station resupply which invalidates your argument. In the business world the supplier pays back the money through an contract that guarantees delivering a set number of units at a set price, usually below what would be a market price.
I have to disagree with the claim that COTS is a subsidy. First, the firms that received the funding had to compete for it. They have to provide significant, concrete technological achievements (the “milestones”). The service that NASA is buying at the moment is technology demonstration. And they have to do it for a fraction of the cost of a traditional “cost plus” contractor. So the price paid for the service of technology demonstration seems in line with the value of the service.
Otherwise, you’re left with the view that all government spending is considered a subsidy, regardless of the value of what is purchased with that spending. Then what is the point of labeling government spending as a “subsidy”? What meaning do you get that you didn’t already have in the first place?
“What is wrong with calling a spade a spade? Or a subsidy as a subsidy?”
What’s wrong with disputing whether a card with clubs on it is a spade? It’s not about whether subsidy is a dirty word but whether it is the correct word. The commercial services approach is not the same as simply giving a no-strings-attached, lump sum of money, i.e. a subsidy. What’s wrong with admitting that that is true?
“…not be so touchy about them.”
It’s really not a big deal for me. If subsidy is the proper word, so be it. (BTW: I don’t speak for New Space. We don’t get together in a big hall at night and decide how to respond to Thomas Matula’s latest vicious attack on us!) I hadn’t even thought about it until you brought it up. COTS, CRS, commercial crew, etc are new types of relationships between companies and NASA. Finding the best way to describe them is interesting to ponder.
Say the govt wants ULA to compete with Arianespace for commercial satellite launches and gives it money to make up the difference in prices between the Atlas V and Ariane 5. That to me is a subsidy, i.e. a gift of money intended to further some political end not directly related to carrying out a particular govt task.
When the government purchases a service that lowers its own costs for a task that it otherwise would do itself, then it is not a gift, i.e. not a subsidy.
If subsidy means any govt money under any circumstance for any purpose that helps a company meet internal costs, then subsidy does describe COTS, etc. I just don’t think it should be used so broadly.
Even though Thomas and I are on nearly opposite poles politically, I find myself agreeing with everything he has said in this thread except that I hardly share his happiness about the fact that some New Space people are advocating heavy subsidies. Which is of course exactly what they are, euphemisms and obfuscations notwithstanding. Indeed, these New New Spacers have evolved into advocating 100% subsidies — subsidies infinitely larger than the actual domestic market — based on fantastic theories about hypothetical future markets. They have evolved into this position because these markets on which they staked all their hopes have failed to materialize and government remains the only significant source of HSF money.
Thomas has good reason to be happy because the failure of HSF as real commerce has turned a number of formerly libertarian astronaut fans into crypto-socialists who pretend that with some contractual cleverness NASA HSF funding can be made practically as good as free market funding. That as Karl suggests politicians are just as good as real markets in determining what has “value”. The New New Spacers are engaging in a pathological abuse of the English language and traditional understandings of markets when they conflate the workings of free or natural markets with those of government spending: effectively enshrining socialism as equal to a free market as long as it is done with a fixed-price government contract. By the same philosophy, when state-owned Soviet enterprises paid each other a fixed price per unit (which was in fact their usual practice) this was according to the New New Space philosophy actually a commercial practice after all rather than a socialist one.
Rand, although nothing has been decided yet, I’m sure you’re aware that ULA and their ilk are starting to push for a cost-plus contract for development and fixed-cost contracts for operations. Maybe I just don’t understand but couldn’t NASA fund COTS-D right now from discretionary funds? Not that I’m saying they should or would want to, but they could right?
But yes, I completely expect NASA to blow billions on developing crew launch capability, and paying fixed costs higher than Soyuz for operations too. Which means that from a purely NASA budget maximizing perspective it makes no sense to engage dinospace to develop crew launch capability.. just use Soyuz for LEO access and move on. Form a real partnership with Russia on a beyond Earth orbit mission and you’ll likely get the rides for free.
Subsidy is defined as something that changes the normal supply/demand curve (either the demand curve up or the supply curve down.) Since anything the government purchases is not with it’s own money, all of it’s spending is to a greater or lesser extent a type of subsidy. Free markets by definition define what is normal.
How the government does it’s purchasing is a factor in how much it distorts normal markets. Ideally, it’s best when it distorts the least so that a healthy market with lot’s of competition (many suppliers) exists.
So COTS is a subsidy, which Elon himself has said put Dragon on a faster development. Dragon was in development before there was any subsidy.
Ken, I disagree on the definition. Else I’d be “subsidizing” my local gasoline station every time I tank up the car, since additional demand changes the demand/supply curve.
Let me put it this way. Here’s my test for whether a good or service is subsidized. Is the consumer deliberately overpaying for the value of the good or service received? In the COTS example, NASA currently spends somewhere well over a billion dollars a year maintaining the ISS. COTS has the potential to greatly reduce the cost of that maintenance. I don’t know by how much though.
In particular, SpaceX looks to be paid something like $130 million per launch for a set series of Falcon 9/Dragon flights to the ISS. That apparently is well above SpaceX costs. So from their point of view, since the customer could have gotten the missions for less, they are getting overpaid. OTOH, NASA is probably getting these flights for a lot less than they could with the Shuttle (at over a billion dollars per flight). So from the customer point of view, this wouldn’t be a subsidy.
Thomas has good reason to be happy because the failure of HSF as real commerce has turned a number of formerly libertarian astronaut fans into crypto-socialists who pretend that with some contractual cleverness NASA HSF funding can be made practically as good as free market funding.
Can you provide some examples? Or is this your imaginary Internet Rocketeers Club (i.e., yet another straw man)?
No one that I know of (at least no libertarian, “former” or otherwise) thinks that government funding can be made as good as private. But it can be made to be better than no funding at all, and better than the horrific waste of the past. I wouldn’t weep if NASA stopped wasting billions on HSF, but that’s unlikely to happen politically, so I’m just trying to divert some of it in a useful direction. You have to take what you can get.
Rand, although nothing has been decided yet, I’m sure you’re aware that ULA and their ilk are starting to push for a cost-plus contract for development and fixed-cost contracts for operations.
Of course they are. If I were them, I’d be doing that as well. They have a responsibility to their shareholders to try to maximize profit at minimum risk. That doesn’t mean that NASA should do it.
Can you provide some examples? Or is this your imaginary Internet Rocketeers Club (i.e., yet another straw man)?
As a thought experiment, let’s accept Googaw’s definitions for a minute. His own definitions make him a “libertarian astronaut hater turned crypto-socialist”?
According to Googaw, communication satellites are the only “real” (Politically Correct) market. But satellite companies don’t behave in the Politically Correct manner Googaw says commercial companies must behave. They serve both government and commercial customers. Iridium, for example, has the government as its primary customer.
Now, according to Googaw, the fact that a company sells anything to the selling anything to the government proves that “the markets on which they staked all their hopes have failed to materialize” is equivalent to “advocating 100% subsidies — subsidies infinitely larger than the actual domestic market.” (The concept of any number other than zero, infinity, and 100% apparently does not exist in Googaw’s world.)
In fact, it’s worse than that for Googaw. Not only do satellite companies receive payment for services (which are not “subsides” to anyone except our two resident ideological zealots), they also receive genuine, actual subsidies. The US Air Force subsidizes the cost of the launch ranges they use and, prior to the development of spectrum auctions, the FAA simply “gifted” satellite companies with free spectrum.
Of course, this argument does not have anything to do with actual subsidies (as defined by 99.99999% of the human race). It has to do with ideological opposition to humans in space (in Googaw’s case) or humans who are not blessed by and working for the Great God Apollo (in Tom’s case).
Clark,
Here is a definition of subsidy. Perhaps it will help you see COTS is one.
http://www.merriam-webster.com/dictionary/subsidy
c : a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public
COTS is assisting SpaceX to develop the Falcon 9/Dragon and I am sure you would agree that reducing the cost of spaceflight is advantageous to the public, so COTS fits the standard definition perfectly. And by subsidizing the development of the Falcon 9/Dragon COTS is reducing the break even point needed for it to be competitive in commercial markets. Now these are good things, but its important to be accurate as well and not try to call a spade a club because you have some negative image of subsidies.
Again there is nothing bad about subsidies. The government has been subsidizing American business is day one. One of the bills passed by Congress in the 1790’s subsidized stagecoach lines through the carrying of mail.
And no Karl, its not the government buying technology because NASA doesn’t own the patents or any intellectual rights to the Falcon 9/Dragon as a result of COTS, those stay with SpaceX. Now if the government was buying the Falcon 9/Dragon outright, as it bought the Shuttle from North American Rockwell, then no, it would not be a subsidy, and your argument would be valid since it would just be a purchase, no different then if I go to a tailor and pay them to design and make me a custom suit.
Part of the problem I have with space advocates, especially the ones that consider themselves New Space advocates, is their clumsy use of business and economic terms. Poor usage muddles the thinking and prevents you from seeing linkages that could be beneficial in improving policy.
Poor usage of economic terms also prevents advocates from looking at similar subsidy programs from the past to learn from them. COTS may be radical “new” ground for New Space but only because the advocates haven’t familiarized themselves with the long history of government subsidy programs, or government procurement for that matter.
New Space advocates especially need to learn from that history if they want to advocate for subsidy models that will actually be effective in achieving their goals. In particular you should look at the subsidy programs that were created in the 1930’s to help the merchant marine compete in global markets that resulted instead in its decline, especially as it has many elements in common with COTS and commercial crew. I also refer you to the subsidy program the U.K was using to develop its airline industry following World War II and compare it to the model used to develop the U.S. airline industry in the same period. You might see COTS and commercial crew are not really new one ideas and understanding how similar subsidy programs turned out may prevent the New Space firms from the same fate.
Karl,
[[[Else I’d be “subsidizing” my local gasoline station every time I tank up the car, since additional demand changes the demand/supply curve.]]]
No. Only governments do subsidies by definition.
[[[NASA is probably getting these flights for a lot less than they could with the Shuttle (at over a billion dollars per flight). ]]]
Sign… But the Shuttle carries 9 times as much cargo and 8 people as well for that billion dollars. To make a apples to apples comparison you have to compare that billion for a shuttle flight to the $1.3 billion for 10 Falcon 9/Dragon flights.
Otherwise is like saying is costs me less to drive my pickup to Las Vegas then an 18 Wheeler. So we should replace all 18 wheelers with pickups…
No. Only governments do subsidies by definition.
By your definition. Not by most peoples’. If a company sustains a loss-making division with profits from another, it is subsidizing it.