It’s the Relative Size of the Space Economy, Stupid
· By Torben Schütz ·
No analysis of the future of space is complete without referencing some projection on the size of the space economy. Expansion is all the rage, in terms of compound annual growth rates and absolute numbers. This makes sense, as the size of the space economy has many implications for the role of government and economic opportunities for other stakeholders.
Yet reaching a market size of even a trillion dollars or more says nothing about the commercial maturity of the industry. If commercialization is to bring the benefits observers expect and state actors, especially, seek, the relative size of the industry to the size required to reach true or near self-sufficiency—that is, the independence or near-independence from government demand—is what counts.
Commercializing space is closely tied to expectations of innovation (technological, procedural and organizational), economies of scale and learning, and reduced costs resulting from those factors. Combined, these advantages would then initiate a virtuous circle of further innovation and decreasing costs spurring further commercial activity. Such an expectation is especially pronounced in the United States, where this playbook was used in similar commercialization efforts in other fields of technology. Semiconductors, for example, outgrew their massive government support and prospered as the government’s share of total demand declined. They consistently increased their performance per dollar over time.
The United States or China, for their part, expect to reap the fruits of their early support to exploit innovation and, eventually, its lower cost, primarily for national security purposes. Other international actors supporting further commercialization of their space sectors like Germany broadly follow these expectations of innovation and decreasing costs, though not necessarily the purposes. Beyond already existing benefits of activities in space, contemporary visions of humanity’s future there also largely depend on the innovation brought forward by private industry.
Unfortunately, how large a market and how large the commercial share of that market must be to initiate the innovation that state actors seek is a known unknown. The numbers will be different for different segments of the space sector, but even a total estimate now is impossible. That is problematic because the inability to quantify needed market sizes risks changes in government policy that could erode support for burgeoning technologies.
It is reasonable to assume that some segments of the space industry, such as the communication satellite business, have already reached a high level of maturity as the private and commercial sectors constitute the sources of most demand. But private and commercial involvement makes up only a minority of one industry segment that is the basis for any bright future in space—heavy launches. Government activity is still needed here.
Private investment in the space sector plummeted as post-pandemic interest rates rose and is only now slowly recovering. But government spending, likely due to its emphasis on security and defense, is up consistently since 2022. For the overall space sector to mature, this balance must shift again. A self-sustaining commercial system must become a pull market that is not reliant on government-financed push. Rather, demand must come from outside the core market. And possible market entries by non-space companies from more established and mature industrial sectors is one key development to watch here. Once, for example, pharmaceutical companies recognize the full potential of manufacturing drug precursors in space, this could have transformational effects on demand for launch and orbit-to-earth transport services due to the continuous and large-scale nature of the business.
Historically, technical complexity, performance and maturity are key factors in determining this demand, which is initially dependent on state investment and other forms of support, such as knowledge transfer, subsidies and conducive policy. Yet as long as the analytic community cannot determine if segments of the space economy are about to decouple from government demand, sensational news about eye-popping growth rates are little more than headlines designed to capture readers’ attention. More importantly, without quantifying this threshold, government policy changes run the danger of reducing support in all its forms too early. If commercialization of space is to occur, government’s role for now must be retained, if not increased, in several critical segments of the space industry.
Contextualizing indicators like market sizes accurately and weighing them against the goal of commercializing the space sector is key. The space sector must become a self-sustaining and constantly improving ecosystem that is far less dependent on government demand if it is to realize its supposedly revolutionary potential. And we all would benefit from knowing when this happens, instead of simply cheering on to growth in overall projections.