Economists should turn their attention to the stars" - this is how economists Alessio Terzi (European Commission, Cambridge University) and Francesco Nicoli (Ghent University) titled their recent column. For too long, space has been considered as a sphere of scientific activity, technological rivalry of states or just as a source of inspiration for science fiction writers, but today it is a dynamically developing market. Many economic concepts can be applied to the space: resource shortage, incentives, transaction costs, external effects, economies of scale.
According to some estimates, in 2022, about $0.6 trillion of the world economy depended directly or indirectly on space, which is comparable to the GDP of Austria or Thailand. At the same time, the average annual growth rate of the "space economy" over the past five years is almost three times higher than the "terrestrial" economy. According to some experts, the expansion of economic activity in space can spur the growth of the world economy - through the development of innovations that increase productivity both in space and "on Earth".
What is the space economy
Space economy, according to the definition of the OECD, covers all activities and resources that contribute to the progress of mankind through the development, exploration and use of space.
The space era began with the Soviet Union's launch of the first satellite in 1957. The following decade was a period of "space race" between the USSR and the United States, which invested huge amounts in space programs the most famous of them were the first human flight into space and the landing of astronauts on the moon. For several decades, the governments of the two powers have focused in space programs on what economists call public goods national security and basic science.
Both civilian space exploration institutions (such as NASA) and the military worked for these purposes. As a result, much has been achieved, notes Harvard Professor Matt Weinzirl, who deals with economics and business in the field of space:
"from the space transportation system ("Space Shuttle") to scientific instruments such as the Hubble telescope and the International Space Station the pearls of the first half of the century of the space age and the efforts that united Russia and the United States, among many others, in an encouraging symbol of the power of space, capable of overcoming earthly differences".
Over the past 20 years, the centralized state model of space research has shifted to a new one in which state initiatives coexist with private ones. Today, about 80 countries have their own satellites in space, and about 80% of all satellites are commercial. The key factor in the development of the "commercial space" was the reduction in the cost of launch: according to Terzi and Nicoli's calculations, the average cost of launching 1 kg into orbit fell from $87,000 in 1960 to $15,000 in the early 2000s and to about $4,000 in 2023. Over the past five years, more objects have been launched into space than in all previous six decades since the beginning of its development; in 2023, the number of launches exceeded 2,600.
"The review effect"
Cosmonauts who have been in orbit are undergoing changes in world perception, called the "review effect". It manifests itself in the human sense of beauty and fragility of the Earth, which looks like a ball suspended in the void, defenseless and vulnerable, and in an increased sense of unity with other people and the planet as a whole. According to astronauts, all interstate and national conflicts look insignificant from space, and the need to protect the planet seems obvious. The term "review effect" was introduced by researcher Frank White in his book of the same name in 1987 - he himself experienced a similar feeling in "light form", looking out the window of the window of a flying plane, and then found it in current and former astronauts. The first person to experience the "review effect" was apparently the first ever cosmonaut Yuri Gagarin, who owns the famous phrase: "Having flown around the Earth in a satellite ship, I saw how beautiful our planet is. People, let's keep and multiply this beauty, not destroy it!"
The space economy can be divided into two spheres "space for space" and "space for the Earth". The first includes the production of goods and services in space intended for use also in space. In the 1970s, a study commissioned by NASA predicted the emergence of a space economy that would meet the needs of thousands and even millions of people living in space, but humanity seems to be still very far away from that.
It is just beginning to approach the sphere of "space for space": SpaceX's Crew Dragon flight the first NASA certified flight of a commercial company can be considered the beginning of the upcoming new era of mass private space flights.
But so far, almost the entire space economy is represented by the sphere of "space for the Earth". In the terminology proposed by the World Economic Forum (WEF) and McKinsey, this area can also be divided into two main parts: "core" and "radius of coverage".
The "basis" of the space economy is space equipment and the services it provides: satellites, launch vehicles, satellite television, GPS. They provide income directly to suppliers of space equipment and services. However, this part accounts for only half of the $600 billion space economy.
Its second half is its "radius of coverage". Thanks to "space" technologies, many other businesses "on Earth" are being developed, not directly related to space in any way, from meteorological services to parcel tracking and food delivery. Entire markets would simply not exist if it were not for the "coverage radius" of the space economy: for example, without a combination of satellite signals and chips inside the smartphone, taxi aggregators would not be able to scale and implement their business in many cities.
According to forecasts, the "radius of coverage" of the space economy will grow one and a half times faster than its "basis", and by 2035 will exceed $1 trillion (with the volume of the entire space economy by that year of $1.8 trillion).
Economic activities related to space can be classified on the basis of the connection of goods and services produced with the Earth or with space, Alessio Terzi and Francesco Nicoli offer their typology.
Their classification includes three types of goods and services:
pure use of space: activities that can only be carried out in space, such as scientific research or space tourism;
space goods and services that can be produced in space for consumption on Earth, if the conditions of competition with "terrestrial production" are suitable (for example, space solar energy can generate energy in space and transfer it to Earth);
goods and services that can be produced in space for use in space (e.g. fuel, food or 3D printed components for space stations).
Revolution of space
The cost of access to space will continue to decrease, Terzi and Nicoli predict.
According to their estimates, the cost of launch almost perfectly corresponds to Wright's law according to which each doubling of production leads to a reduction in costs for it by a certain percentage. Even in the most conservative scenario in the 2030s, the cost of launching will be almost 90% cheaper than in the 1990s.
This can make the same revolution in the space economy as the invention of containers for shipping, which sharply reduced the cost of international logistics, made in world trade.
This may give impetus to the development of the sphere of "space for space", which so far boils down to supplying a small group of astronauts in space. SpaceX has huge plans to popularize space tourism, but so far all their activity in the segment of "space for space" is the fulfillment of government orders. However, as launches become cheaper, SpaceX and other companies will be able to scale their offers and send more people into space, turning experiments into a large-scale sustainable industry, according to Matt Weinzirl.
The prospects for the development of the "space for space" economy already require the development of "space rules", Weinzirl believes: from preventing the monopolization of markets to thinking about how, for example, the ownership of limited resources will be regulated - water on Mars, ice on the Moon or slots in orbits (a space analogue of parking spaces).
It is necessary to create not only new rules, but also, perhaps, new international institutions that guarantee the implementation of these rules. This will require states to forget about "earthly contradictions": "The growing economy of "space for space" can become a unique force that will unite the whole world," Weinzirl hopes.
Otherwise, space may become a victim of the "tragedy of communities", or the so-called tragedy of common resources. This is an economic concept that describes the contradiction between the interests of individuals regarding the common good.
The "tragedy" is that all users of a common resource benefit from it, but the costs of maintaining such a resource cannot be attributed to someone specifically.
Thus, the reverse side of active space exploration has already become the growing amount of space debris in orbit, which increases the risk of satellite collisions with it and may make some orbital spaces inaccessible in the future. The model in which the satellite, on the one hand, provides services to the terrestrial economy and increases production capacity, and on the other hand, increases the risk of collisions, shows that in the long run, if garbage is not removed, it can cause damage to the world economy in the amount of about 1.95% of GDP, Japanese scientists calculated. But so far, the problem of space debris disposal has not been regulated in any way.
Science will be the main beneficiary of the "space for space" economy, even if its main elements (for example, space tourism, resource extraction activities on the Moon or asteroids and the possibility of large-scale construction in space) do not develop in the first place, argues Ian Crawford, professor of planetary and astrobiology at the University of London.
In the relatively short term (in the next 50 years), as a result of the gradual development of the space economy and related infrastructure, such scientific directions as the construction of large space telescopes, ambitious space missions and the creation of research stations on the Moon and Mars may be simplified.
Interstellar trading and key rate
In 1978, the future Nobel Prize winner in Economics Paul Krugman wrote a humorous scientific article "The Theory of Interstellar Trade", in which he derived two fundamental theorems of interstellar trade. The first is that the interest costs on transported goods between two planets, the Earth and the fictional Trantor, should be calculated taking into account the time on the planets, and not on the ships plying between them, since the opportunity cost of trade for example, if a businessman instead of trading invests money in securities on Earth or Trantor is calculated using a planetary clock.
The second theorem is that competition equalies interest rates on both planets. Krugman's article inspired Tyler Cowan, a professor at George Mason University, to reflect on the economic consequences of interstellar travel. He argues that a person who left a penny in a savings account on Earth could make a space flight at a speed close to the speed of light, and eventually return "many years later" as a billionaire, since it would take very little time for the traveler. In such worlds, the real interest rate and, accordingly, its management by the central bank may lose their current importance, and the concept of people's temporal preferences (comparing the utility of current and future consumption) may be meaningless.
For the Earth's economy, space acts as a powerful incubator of innovation: many technologies originally developed for space exploration made it possible to create products that changed everyday life on Earth.
For example, laptops, CT scanners, wireless headphones and even baby food were created with the help of scientific developments of space.
In the modern world, space technologies are used to monitor climate variables, identify foci of infectious diseases, and economists have the opportunity to analyze and evaluate economic activity, including those not observed by statistical methods, with the help of data from space.
The UN considers space as a driving force of sustainable development: space science and technology and applied space technologies make an important contribution to economic growth and improving the quality of life around the world, according to the UN resolution 2021.
According to forecasts, five sectors of the space economy will develop the fastest in the next decade:
supply chains and transport;
food and beverages;
national defense;
retail trade, consumer goods;
digital communications.
Their development is associated with the growing demand for:
satellite Internet, for example, to provide access in remote areas to e-commerce and online services such as banking and education;
positioning and navigation services, such as vehicle tracking and personal devices;
information obtained through artificial intelligence (AI) and machine learning
For the space economy, the turning point has come when companies will be able to deploy large-scale activities in space. Although government agencies continue to be a key source of financing, the combination of lower costs and more sophisticated technologies attracts more investment from private investors, a trend that stimulates innovation.
In 2021, private sector funding for space-related companies exceeded $10 billion, showing a 10 fold increase in 10 years, and the share of global space R&D funding from the U.S. government decreased from about 70% to about 50%.
Commercial financing can surpass state financing for 20 years, Brookardt predicted. However, public funding sources remain crucial in key segments of the space industry, despite the fact that access to private financing has improved significantly over the past decade, the OECD report in April 2024 notes. On average, state funding of space by OECD countries is 0.1% of their GDP, the United States - 0.25%.
The space economy is more opportunities than the Internet, which was emerging at the dawn of the millennium, says Chad Anderson, a venture capitalist and founder of Space Capital, author of a book on the space economy. In difficult economic times, one thing is for sure: space technologies play an increasingly important role in the world economy, Anderson believes.
Technologies such as GPS, geospatial intelligence and satellite communications are an "invisible foundation" that feeds the largest industries and play an incredibly important role in everything from financial services to agriculture, insurance, telecommunications and information technology.
Prospects of a trillionaire
Elon Musk, who earned most of his fortune (as of mid-November 2024, it was estimated at $307 billion) at Tesla electric car company, can earn much more on the business related to the space industry and thanks to him become the world's first trillionaire, Morgan Stanley analysts predicted in 2021, a year after Musk SpaceX was the first commercial company to send people into space in May 2020.
SpaceX's Starship rockets, capable of delivering people and cargo to the Moon and Mars, can change investors' expectations for the space industry, explained one of the analysts at Morgan Stanley, adding that "talking about space before the appearance of Starship is like talking about the Internet before the appearance of Google".
Our grandchildren are likely to live in a world where space is just another dimension of economic activity, just as we grew up in an era when the digital market provides services and utility in ways that did not exist for our grandparents.
The sooner humanity understands this, the more likely it is to be able to take advantage of this new economic frontier and era of discovery…
