National Aeronautics and Space Administration Economic Development Economic OF LOW EARTH ORBIT OF LOW Besha and MacDonald, Editors MacDonald, and Besha Economic Development OF LOW EARTH ORBIT Edited by Patrick Besha and Alexander MacDonald On the cover: Fire acts differently in space than on Earth. Sandra Olson, an aerospace engineer at NASA’s Glenn Research Center, demonstrates just how differently in her art. This artwork is comprised of multiple over- lays of three separate microgravity flame images. Each image is of flame spread over cellulose paper in a spacecraft ventilation flow in micrograv- ity. The different colors represent different chemical reactions within the flame. The blue areas are caused by chemiluminescence (light produced by a chemical reaction). The white, yellow and orange regions are due to glowing soot within the flame zone. This image won first place in the 2011 Combustion Art Competition, held at the 7th U.S. National Combustion Meeting. Image Credit: NASA Economic Development OF LOW EARTH ORBIT Edited by Patrick Besha and Alexander MacDonald National Aeronautics and Space Administration NASA Headquarters 300 E Street SW Washington, DC 20546 NP-2016-03-2140-HQ Table of Contents PREFACE v Patrick Besha and Alexander MacDonald, Editors CHAPTER 1 1 Selecting Policy Tools to Expand NASA’s Contribution to Technology Commercialization Gregory Tassey CHAPTER 2 23 Protein Crystallization for Drug Development: A Prospective Empirical Appraisal of Economic Effects of ISS Microgravity Nicholas S. Vonortas CHAPTER 3 43 Does Information About Previous Projects Promote R&D on the International Space Station? Albert N. Link and Eric S. Maskin CHAPTER 4 61 Venture Capital Activity in the Low-Earth Orbit Sector Josh Lerner, Ann Leamon, and Andrew Speen CHAPTER 5 113 Directing vs. Facilitating the Economic Development of Low Earth Orbit Mariana Mazzucato and Douglas K. R. Robinson ACRONYMS 131 iii Preface Patrick Besha, Editor, Senior Policy Advisor, NASA Alexander MacDonald, Editor, Senior Economic Advisor, NASA THE NEXT DECADE, NASA will seek to expand humanity’s presence in space IN beyond the International Space Station (ISS) in low Earth orbit to a new habitation platform around the Moon. By the late 2020s, astronauts will live and work far deeper in space than ever before. As part of our push outward into the solar system, NASA is working to help commercialize human spaceflight in low Earth orbit. After the government pioneers, develops, and demonstrates a space capability—from rockets to space-based communications to Earth observation satellites—the private sector realizes its market potential and continues innovating. As new companies establish a presence, the government often withdraws from the market or becomes one of many customers. In 2016, we are once again at a critical stage in the development of space. The most successful long-term human habitation in space, orbiting the Earth continu- ously since 1998, is the ISS. Currently at the apex of its capabilities and the pinnacle of state-of-the-art space systems, it was developed through the investments and labors of more than a dozen nations and is regularly resupplied by cargo delivery services. Its occupants include six astronauts and numerous other organisms from Earth’s eco- systems, from bacteria to plants to mice. Research is conducted on the spacecraft from hundreds of organizations worldwide, ranging from academic institutions to large industrial companies and from high-tech start-ups to high school science classes. However, its operational lifetime may be exceeded by the late 2020s, compelling its retirement to make way for new spacecraft and new missions. As NASA begins moving astronauts out to the lunar vicinity, Mars, and beyond, the Agency will leave the further development of low Earth orbit to private sector companies. This has the potential to be a historic transition—from a government-run laboratory in orbit to an independent human spaceflight economy. v ECONOMIC DEVELOPMENT OF LOW EARTH ORBIT In order for a viable, sustainable economy based on human spaceflight to emerge in low Earth orbit (LEO), a number of elements must be present. First, the market- place dynamics of supply and demand must exist. Second, the overwhelming reliance on government demand and public procurement must be transitioned to a market in which industry and other private sector demand is the primary market force, met by industry supply. The transition from government-led to private sector–led human spaceflight activity in LEO will constitute a great experiment in the development of American spaceflight capabilities, and the careful management of the dynamics of this transition will be of paramount importance. NASA has taken a number of productive steps to support the fledgling commer- cial human spaceflight industry, including the creation of several programs aimed at supporting private sector firms’ development of essential space infrastructure and transportation. Examples include the Commercial Orbital Transportation Services (COTS) program, which funded both SpaceX and Orbital ATK (formerly Orbital Sciences) to develop the capability to ferry cargo from Earth to the ISS. Building on its success, NASA then awarded commercial resupply services contracts to these providers and initiated the Commercial Crew Program, which is currently funding Boeing and SpaceX to develop spacecraft capable of transporting astronauts to the ISS. In 2015, NASA awarded a second round of resupply contracts to SpaceX and Orbital ATK, as well as a new provider, the Sierra Nevada Corporation. As contracted commercial suppliers, these companies, and the Commercial Crew Program compa- nies, will also have the legal right to sell flights of their vehicles to other customers, opening up opportunities for broader LEO commercialization. Similarly, NASA established the Center for the Advancement of Science in Space (CASIS) in 2011 to be the manager of the ISS National Laboratory. Given direction to fund commercial R&D, the Center has seeded dozens of projects that have flown in space. As the primary portal for companies interested in utilizing the ISS, CASIS is crucial to expanding private sector interest in LEO. Recent developments in spaceflight suggest there is ample cause to be optimistic about the future. The next generation of habitation modules, such as those that can operate in low Earth orbit and also around the Moon, are currently under develop- ment. In 2016, Bigelow Aerospace is slated to dock its experimental prototype module to the ISS in a first-of-its-kind demonstration and a clear signal that the beginning of the ISS transition era is upon us. Furthermore, the landings of reusable rockets by SpaceX and Blue Origin repre- sent a groundbreaking milestone in the history of spaceflight. In addition to greatly advancing the state of rocketry, the new capability may have a significant democrati- zation and commercialization effect, potentially enabling low-cost access to space for entrepreneurs, scientists, educators, and the general public. As the overall strategy for the economic development of LEO emerges, NASA asked a small group of prominent economists to examine some of the most important ques- tions facing the Agency as it enters into this historic transition. These papers provide vi Preface independent perspectives that do not necessarily reflect NASA policy but which we find to be valuable in raising important issues and asking challenging questions. In order to stimulate demand-side LEO commercialization activities effectively, the Agency will need a policy road map to make the best technology development decisions. Gregory Tassey offers a complex but logical path to success by outlining a system of policies based on the level and breadth of technology platforms desired. Such a plan could be used to implement elements of an active innovation policy and to integrate LEO activities more closely into the national innovation system. Nicholas Vonortas examines a crucial piece of this puzzle: what intrinsic qualities of space enable and support economic activity? He finds that the unique microgravity environment of space is perhaps its greatest untapped value. One of the most likely beneficiaries of microgravity research may be the biotech industry. A promising line of research suggests that the microgravity environment enables protein crystals to be grown significantly better than in terrestrial laboratories. Such crystals play a funda- mental role in pharmaceutical development. But how can we measure the additional- ity of microgravity? How might it improve pharmaceutical development? The paper provides a practical application of economic theory to a vexing measurement problem in the emerging LEO economy. What are the costs, both in time and money, associated with commercial oper- ations in space and how does knowing—or not knowing—that information affect investment decisions? To answer this crucial question, Albert Link and co-author Eric Maskin, a Nobel prize-winning economist, consider the current R&D environment on the ISS, with a goal to offer policy suggestions for improvement. They find that a lack of information about past projects, experimental success rates, and the flight process in general were major factors inhibiting both R&D and commercial growth. Without such information, researchers and companies were unable to accurately assess the risks involved. The solution? An easily searchable, highly transparent data- base could provide the necessary information to