Testimony to the U.S. House of Representatives Science Committee's Subcommittee on Space and Aeronautics
Dr. James Richardson, Vice President for Research, Potomac Institute for Policy Studies
February 25, 1999

Good morning Mr. Chairman, and thank you for the privilege of addressing your committee on this very important topic. The Potomac Institute for Policy Studies performed a NASA-funded study on commercializing the International Space Station (ISS) in 1996. During the study we collected and analyzed publications and sought extensive counsel across industry and government. Beginning with our panel, chaired by Mr. James Beggs, we interviewed over 200 people, representing approximately 50 companies, universities, and government agencies. We also conducted 12 case studies to look at potential utilization of piloted orbital space.

Quickly paraphrased, the study suggests that commercialization of human orbital space could yield considerable benefits. But, although there are some plausible commercial space-based ventures, we found no corporations that could access space without government help. The amount of help needed from NASA is considerable, for we found that successful ISS commercialization demanded a broader context than the ISS, involving space access and other orbital resources. In the face of this, NASA had articulated considerable support for commercialization, but had failed to commit the resources needed.

I have submitted a summary of the report for the record, which provides details and supporting data. During the next few minutes, I would like to offer some pertinent findings and recommendations from the Institute’s study.

THE RESULTS OF THE STUDY CONVINCED US THAT COMMERCIALIZATION OF HUMAN ORBITAL SPACE FLIGHT COULD OFFER SIGNIFICANT BENEFITS TO NASA AND THE NATION.

Benefits to NASA’s mission include:

• better and more affordable space assets
• increased utilization of the Shuttle, ISS and Reusable Launch Vehicle
• release of NASA resources for application to new science frontiers
• leveraged private investment
• improved innovation and importation of commercial technology to space endeavors
• increased public support for space operations

Three national benefits identified were:

• enhancement of U.S. industry competitiveness
• spin-offs of new technologies to non-space industries
• national prestige

WE ALSO FOUND INTERESTING AND PLAUSIBLE SPACE-BASED COMMERCIAL VENTURES.

The most viable opportunities lay in the privatization of government functions, such as resupply and operation of the space station.

Emerging privatization opportunities encouraged industries to develop better and more affordable operations, services, support, and space equipment. Importantly, this also enables industry to better serve commercial space ventures.

Commercial research ventures, in biomedicine and materials, have provided important insights into earth-based processes.

Near-term commercial opportunities existed in education, entertainment, and advertisement.

HOWEVER, NO COMMERCIAL VENTURE WAS ABLE TO GET INTO SPACE WITHOUT HELP FROM THE GOVERNMENT. Major problems cited included high launch and operation costs, low flight frequency and reliability, long launch lead times, and expensive indemnification against flight failure. Government help in situations like this is consistent with historical precedents set during the initiation of U.S. transportation systems, such as canals, rail, air, and interstate highways.

NASA HAD INDICATED A DESIRE TO TRANSFER ISS AND OTHER HUMAN ORBITAL SPACE FLIGHT ACTIVITIES TO THE PRIVATE SECTOR. THEY HAD ALSO AGREED WITH THE CONCEPT OF OFFSETTING NASA’S EXPENSES THROUGH A HEALTHY COMMERCIAL MARKET. EVEN SO, NASA’S EFFORTS TO FOSTER COMMERCIALIZATION WERE DECLINING. NASA’s superb accomplishments in space science continued, despite diminishing manning levels and budgets. But, in the inevitable tradeoffs between mission areas, commercialization seemed to be losing. For example:

The percent of NASA’s budget dedicated to commercialization declined steadily since 1993. At its highest, this portion was still less than one percent.

Reorganizations left NASA without an institutional center to accommodate commercial participants.

NASA lacked a coherent outreach program to commercial business.

Many publicly-stated promises went unfulfilled.

And, although procurement and procedural inflexibilities have been reduced, they are still too typical of NASA’s operation.UNDER THESE CIRCUMSTANCES, CORPORATIONS CONTACTED TENDED TO ASSUME THAT SPACE ACCESS WOULD REMAIN TOO RISKY AND SUBJECT TO BUREAUCRATIC PROCESSES. This stifled creative thought about space utilization in corporate boardrooms around the country, and posed a serious detriment to commercialization.

WE SUGGESTED A STRATEGY OF PRIVATIZATION-TO-COMMERCIALIZATION OF HUMAN ORBITAL SPACE AS A LOGICAL MEANS OF ACHIEVING NASA’S AIMS. Many components of our recommended strategy are reflected in NASA’s recent ISS commercialization plans.

SUCH A STRATEGY WILL NOT BE AN EASY UNDERTAKING. It will demand enthusiastic follow-through, with active support from the highest echelon of NASA. There must also be an implementation arm to create a more innovative and productive link between NASA and the private sector, and to develop and husband supporting policies, directives, and strategies. Some characteristics of the proposed strategy are:

• Clearly stated commercialization goals, with a focal point within NASA to effectively pursue them.
• Private sector representation in formulating plans, strategies, and policies, which should include an outreach program to convince commercial industry of the viability of operating in space, from both a technological and business perspective.
• Compelling incentives for NASA management and personnel to support and accomplish commercialization goals.
• A "Privatization-to-Commercialization" approach, with sufficient NASA investment to support it.
• This approach must mandate the use of privately developed infrastructure by outsourcing and discouraging in-house competition with the private sector.
• It must support the use of privatized facilities for commercial ventures.
• It must support a realistic return on equity for the private sector, considering risks.
• And, NASA should accept the role of anchor tenant, where appropriate.
• A policy of providing support, encouragement, advice, and space access to diverse commercial sectors.
• Added emphasis on reducing impediments to more frequent and affordable space access.

A Commercial Development Office (CDO) and a Space Economic Development Corporation (SEDC). The need for commercial advocacy within NASA is sufficiently compelling to warrant changes in organizational structure. First, NASA should form an in-house CDO to serve as a focal point and to advocate commercialization within NASA. The CDO should then organize a public/private partnership SEDC, which would take over some of the functions of commercialization and, eventually, most of the commercialization effort.

The CDO would begin this process by refining NASA’s strategy, developing contacts within the private sector, consulting with NASA Offices and Field Centers, recommending some early policies, and developing innovative approaches to privatization. The CDO should contain sufficient governmental expertise to coordinate actions and obtain support from within NASA. The major thrust of the CDO, however, would be business; therefore, it must include personnel with extensive experience in the business world. Venture capitalism, business and legal processes, as well as technology and product development must be represented. The staffing for the business side of the CDO should be found outside of the government. Such people would also help to form the SEDC.

The SEDC would represent the link with the private sector, providing a business environment to those industries seeking access to space for commercial purposes, or to those interested in privatization of space assets. It would begin as a quasi-government corporation. Its mission should include forming consortia, negotiating business agreements, formulating venture plans and strategies, and performing other functions that government cannot accomplish. The SEDC could accept funds from government or the aerospace industry. Large space assets ventures, such as the RLV could form their own development corporation, or rely on the SEDC. This organization would eventually lead the commercialization effort, acting in the role of a true development corporation. Until this "spin-off" occurs, they would support the CDO in conducting a series of outreach programs, encouraging industry to consider human orbital space flight, reaching a better understanding of the special problems of the private sector, and exploring benefits of space to the commercial marketplace. The SEDC would also help NASA become more appreciative of private sector values and approaches.That concludes my comments. Again, thank you for this opportunity. I would be happy to address any questions you may have.

Contact Dr. Jim Richardson at (703) 525-0770, or send e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it., for more information.