political economy of outer space security€¦ · opaque novel space technological operations...

Political Economy of Outer Space Security

Vasilis Zervos

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Security Dimensions and Challenges in Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Economic Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Trade Balance Effects and Atypical Patterns of the Aerospace and Defense Sector . . . . . . . . 11Wider Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Commercial Space as a Space Race Catalyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Political Economy and Security in Space: Institutional Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

AbstractAs human civilizations increasingly explore, utilize, and compete in space, theman-made security challenges are evolving and the strategies and political eco-nomic rationales become increasingly relevant for analysis. Sustainability andefficiency call for exploitation of static economies of scale and scope in spaceindustries and services, yet the trade-offs in control, governance, and dynamicinnovation point towards autonomy and oligopolistic structures with overcapac-ity. The economic sustainability becomes a key element of the dynamic pursue ofspace policies and objectives at national and partnership levels. In the latter case,specialization and its implications for the wide economy through externalities andindirect effects receive increasing attention as space becomes contested,congested, and competitive. Notwithstanding the fact that they are largely gov-ernment controlled, aerospace industries play a crucial role in trading patterns.Hence, they can be considered a fiscal government spending element similar todefense expenditure. The country specializations and their evolution in

V. Zervos (*)University of Strasbourg and International Space University, Strasbourg, Francee-mail: [email protected]

© Springer Nature Switzerland AG 2020K.-U. Schrogl (ed.), Handbook of Space Security,https://doi.org/10.1007/978-3-030-22786-9_101-1

1

http://crossmark.crossref.org/dialog/?doi=10.1007/978-3-030-22786-9_101-1&domain=pdf

mailto:[email protected]

https://doi.org/10.1007/978-3-030-22786-9_101-1

commercial markets and alliances are focal points in the current global tradepolicy paradigm shifts, affecting performance and evolution of space programsand industries. The analysis concludes with the ever-increasing role of regulationand relative power balances across nations, companies, and terrestrial-air-spacesystems especially for telecommunication applications.

Introduction

Outer space security historically was shaped as a concept during the post-WWIIperiod with the space race focusing on hardware/space assets and weaponization.The maturing of relevant technologies and dissemination of space capabilities tolevels whereby undergraduate engineering students are involved in designing anddeveloping nanosatellites and space-proven software and hardware leads to thesustainability agenda evolving at a rapid pace for the future. Sustainability refersnot only to manufacturing and knowledge-developing space-based applications andsystems, but also to the economic model that reduces costs and augments relevantvalue to sustain national space industries. This has been critical since the Cold Warperiod that led to shaping of specialization within alliances of overall space supportinsofar as both civilian and security capabilities are concerned. As space becomesmore economically focused through time, such specialization brings forth commer-cial competitive pressures among allies and questions the initial specializationallocative principle. Thus, Europe, for example (but similar arguments could bemade for other allies like Japan, or ex-Soviet Union countries), for several decadeshas been actively pursuing the objective of space autonomy and commercial com-petitiveness within the western alliance, despite the US leadership since the earlydays and the resulting security inter-alliance specialization.

This framework has implications for geopolitical dynamics and partnerships, forefficiency and duplication, but also for the space race “proxied” by national spaceindustrial competition. The support of private-owned enterprises as the space indus-trial integrators has long (since the 1990s) been employed in the West as a championof competitiveness in commercial space markets. Leaner, streamlined enterpriseswithout the burdens of disclosure of information and profit assessment by share-holders have emerged. These enterprises are supported at large by high net worthindividuals attracted by space and investing through self-developed, financed, andassessed businesses. Ambitious plans of mega-constellations of telecommunicationand other application satellites are being financed and developed avoiding businessrisks experienced with the post-Cold War period when shareholders were exposed toopaque novel space technological operations (Iridium as a characteristic exampleand others). The “new space” 2.0 thus is based on private initiatives and involvesmassive investments and production of smaller yet effective satellites in largeconstellations. The public sector endorses nationally controlled initiatives in thisdirection as it provides a sustainability of operations and low budgetary appropria-tions cost not only with regard to the economic resources and organization but also

2 V. Zervos

with regard to industrial scale capability to replenish and mitigate against man-madeand natural risks in the perilous space environment. However, the security aspectsand market failures associated with space and the overcapacity are expected to leadto real challenges for a competitive market framework and pose real threats toeconomic and physical sustainability of space resources.

The next section focuses on the background of the security challenges in space,the trade and industrial dimensions, as well as the new space initiatives and theirimplications for the evolution of space systems and security aspects.

Security Dimensions and Challenges in Space

A space race whereby multiple nations and alliances are involved is ongoing withaccelerated pace as new space powers and capabilities develop. Space faring nationsdevelop space branches in the armed forces either integrating aerospace and outerspace defense (Russia), or formulating a space force as a separate branch. The case ofthe USA as the leading space faring nation has characteristically led to a paradigmshift through the evolution of the Pentagon into a Hexagon, to incorporate by 2020 aspace force and associated command (DoD 2018: 7). (The structure of the DoD isthus planned to change from one incorporating five branches of the armed forces intoa six-branches one with the addition of the space force, by 2021.)

A popular space community say goes along the lines that if one was to lay downthe reusable vehicles reports and projects, they would reach the moon. Despite thehyperbola of this statement, space saw limited breakthrough developments in termsof technologies since the end of the Cold War, while numerous studies for ambitiousspace programs were created, but few going beyond initial paper stages. Commercialconsiderations and applications grew substantially as the post-Cold War worldenjoyed the (space) peace dividend in the form of a multinational space station(ISS), precision in positioning services (removal of selective availability fromNAVSTAR/GPS), high resolution imagery and associated applications, telecommu-nications growth, etc. This peace dividend was the result of technologies that haddeveloped but were reserved for military and associated security considerations.Such safeguarding of technologies and applications are explained by the principlethat in the presence of rivalry, it is the relative position that matters, unlike commer-cial (competitive) considerations that are assumed to rely on overall improvement ofpositions (Zervos 2011). Thus, selective availability ensured a significant divergencebetween civil-signal quality and military-signal quality and associated characteris-tics. Historically though, there have been security threats and military considerationsthat boosted space technologies development, starting from the very beginning (A4/VII WWII missile) and throughout the Cold War period.

Security is, so far as its space components is concerned, classified along twomajor areas:

• Nature related• Man related

Political Economy of Outer Space Security 3

Nature-related security threats incorporate elements such as near-Earth orbitthreats (asteroids), or solar activity and space weather. On the other hand, man-related elements are of a strategic nature, meaning that they focus on the relativeposition of agents within a rivalry framework. The USA, for example, identifies thefollowing specific strategic areas of a growing “contested and congested” spaceenvironment (see USAF 2013; DoD 2018: 5):

• Nuclear forces• Cyberspace• Command, control, communications, computers and intelligence, and

surveillance• Reconnaissance (C4ISR)• Missile defense• Joint lethality in contested environments• Forward force maneuver and posture resilience• Advanced autonomous systems• Resilient and agile logistics

Space is considered a strategic domain, similar to nuclear and other WMD(weapons of mass destruction) technologies. This is because space is a major enablerand multiplier in networks (one could draw a parallel with water, electricity networksof vital importance), while at the same time, it is borderless and unregulated bytreaties constraining dissemination of relevant satellite and launcher technologies,despite their inherent dual-application nature. Historically, its specific characteristicshave served as both a multiplier of force and a peace-through-verification function.Dissemination of technologies, despite being unregulated by treaties, is a majorelement in strategic security aspects and analysis, in view of the relevant positionprinciple. Thus, export controls exist on a global scale for trade in related items,while an illustrative example of its significance was experienced in the aftermath ofthe collapse of the Soviet Union, as the USA implemented policies of transfer ofresources and collaboration largely to avert a chaotic dissemination of the Sovietadvancements (Harford 1997). Clearly therefore, in a world whereby military alli-ances like NATO are critical for security, the inter-alliance specialization is ofparticular importance for stability, coherence, and economic (trade) profiles ofparticipating nations. Consolidation in space and the pooling of resources to avoidduplication of R&D and enhance benefits have been dominant reasons behind thecreation of space agencies like National Aeronautics and Space Administration(NASA) or the European Space Agency (ESA) at national and regional level. (Theearly development of space capabilities was characterized by strong competition notonly at institutional but also at personality level and led to consolidation at agencylevel to avoid costly duplication in R&D (see Harford 1997).) Interdependence isalso frequently seen as a contributing factor for club, or alliance stability, whichimplies specialization distributions. At the same time, however, this is an unstablemechanism as countries develop not only multidimensional evolving security poli-cies but also as economic considerations reflect such specialization. The following

4 V. Zervos

section examines the systemic interdependencies by focusing on the industry and itsstructure-conduct and performance link to public security and defense.

However, beyond the inter-alliance specialization and resulting strategic dynam-ics, dissemination of space capabilities leads to a “rush for green pastures” approach.This is reflected in two dimensions, the one is the orbital level and the second is thecelestial bodies’ level. To avoid conflict over natural resources associated with space,the International Telecommunication Union (ITU) established since the beginning ofthe space-based telecommunication systems a GEO-orbit and frequency allocationmechanism that employs the principle of equality, rather than first-come. The ColdWar-controlled environment has been exchanged for an environment of seeminglyfree commercial competition and exploration, whereby constellations of thousandsof small satellites are planned and materializing. Such constellations are developedwithin national industrial frameworks and are compatible with security concerns asthey sustain technology and production lines supporting responsiveness and ensur-ing rapid replenishment of assets/capabilities in case of conflict (see later section andButler 2015). At the same time, such constellations and the required vital space theyrequire for seamless operations lead to a contested and congested outcome across alot more than the geostationary orbit (USAF 2013). High capacity outcomes maybenefit civil users but may also exacerbate security concerns associated with earlierprojects like Iridium, whereby national service providers and authorities would seerestricted economic returns, while experiencing dependence for relevant telecom-munication security.

Economic Background

Industry

The space industry is subject to economies of scale/scope; market failure is present atseveral levels through the aforementioned cost and market characteristics leading toinfant industry arguments but also due to the strategic economic nature of the sector(airbus vs. boing and the launchers market analysis).

The Research & Development (R&D) intensity of the space sector is quite highcompared to other manufacturing and high-tech sectors. In the United Kingdom(UK), the R&D intensity of the sector is estimated at 8.1%, which is higher thansectors such as programming and telecoms but lower than the pharmaceuticalssector. Compared with the UK average, the space industry spends 6.5 times moreon R&D in value terms (HoC 2017). Other studies offer estimates for the Italianindustry of R&D intensity of 14% for the space industry versus 3–4% for the spaceservices sector (compared to 11% in aerospace; 4–5% in high-tech sectors and lessthan 1% in manufacturing; Graziola et al. 2011). The undoubtable relatively highR&D intensity is due to the high R&D requirements but also due to the limitedproduction levels (compared to car manufacturing or defense manufacturing), asmost programs are of a customized/limited production at national level nature.


This is clearly illustrated in the military satellites case whereby national consid-erations and preferential treatment are dominant. As Fig. 1 reveals, in military space,satellites are “home made” on a global scale. This phenomenon is not only due todemand side aspects whereby countries select their home industry to enhance itsscale and scope economies, as well as the security factors, but also due to the supplyside through export restrictions.

These export restrictions serve to safeguard technologies, as trade can rapidlydiminish technological gaps limiting the scope for global trade openness in thesector. An anecdotal illustration of the strategic nature of the space sector emergedduring a commercial space dispute whereby a US company filed a complaint withthe US administration over European free-trade violations and associated practicesin launching service provision through the heavy subsidization of the Europeanlaunch vehicles. This took place during the Cold War era in 1985 when a UScompany (Transpace Carriers Inc.) brought a legal case against ESA and its memberstates to the attention of the President of the USA claiming among other things thatArianespace faced a protected home market and this was violating the US Trade Actof 1974. The case was dismissed largely on the grounds that the US public sectorapplied similar protective processes to its domestic space industry (using provisionsrelated to “Buy American Act” and others):

Based on a petition filed by Transpace Carriers Inc., (TCI) the United States Trade Repre-sentative (USTR) initiated an investigation on July 9, 1984, of the European Space Agency’spolicies with respect to Arianespace S.A. Arianespace is a privately owned company,incorporated under the laws of France for the purpose of launching satellites. Arianespace’sshareholders include the French national space agency, and aerospace companies and banksincorporated in the ESA Member States. The petitioner alleged that 1) Arianespace uses atwo tier pricing policy whereby Arianespace charges a higher price to ESA Member Statesthan to foreign customers; 2) the French national space agency (CNES) subsidises launchand range facilities, and services personnel provided to Arianespace; 3) the French nationalspace agency subsidises the administrative and technical personnel it provides toArianespace; and 4) Arianespace’s mission insurance rates are subsidised. In addition to

0 50000 100000 150000 200000

Customer China

Customer Europe

Customer Ex-USSR

Customer India

Customer Japan

Customer USA

Customer Others

Supplier China

Supplier Europe

Supplier Ex-USSR

Supplier India

Supplier Japan

Supplier USA

Supplier Others

Fig. 1 Military spacecraft markets by customers and suppliers for selected areas 2013–2017(Mass-kgs). (Source: Copyright Eurospace/Pierre Lionnet – reproduced with permission)

6 V. Zervos

these allegations the U.S. also investigated three other areas: government inducements topurchasers of Arianespace’s services; direct and indirect government assistance toArianespace; and Arianespace’s costs and pricing policies....Pursuant to Section 301(a) ofthe Trade Act of 1974, as amended (19 U.S.G. 2413(a)). I have determined that the practicesof the Member States of the European Space Agency (ESA) and their instrumentalities withrespect to the commercial satellite launching services of Arianespace S.A. are not unreason-able and a burden, or restriction on U.S. commerce. While Arianespace does not operateunder purely commercial conditions, this is in large measure a result of the history of thelaunch services industry, which is marked by almost exclusive government involvement. Ihave determined that these conditions do not require affirmative U.S. action at this time. Butbecause of my decision to commercialise expendable launch services in the United States,and our policies with respect to manned launch services such as the Shuttle (STS), it maybecome appropriate for the United States to approach other interested nations to reach aninternational understanding on guidelines for commercial satellite launch services at somepoint in the future. (Reagan 1985)

In terms of trade patterns of space goods, for spacecraft and launch vehicles,export performance is led by OECD countries and reveals upward trends as moreand more countries become involved in space technologies and applications initiallythrough trade. Figure 2 from OECD 2019 compares exporting snapshots for 2002,2010, and 2018 illustrating relative export positions of groups of countries (constantUSD) and revealing positive trends.

With reference to the breakdown of export performance by country in spacegoods, France appeared the leading exporter in 2018 data with nearly 28% of thetotal, followed by China (22%), the USA (20%), Japan and Germany at about 8%each, and Israel at nearly 6% (OECD 2019, using ITCS classification 7925 –spacecraft and spacecraft launch vehicles). For time comparison purposes, it isworth noting that the HS 880250 figures reveal that in 2017, the US exports wereslightly higher (USD 1.48bn) than the ones of France (USD 1.72bn) highlighting thevolatility of the time series data in view of the institutional nature of trading partnersand limited overall values involved (Data source: UNComtrade database).

Europe and France have historically focused on an export-led model on thegrounds that the “domestic” market size is too small to support an efficient size ofoperations of the aerospace industry in general (owing to the economies of scale andscope) compared to countries like the USA.

Trading performance is generally expected to be linked to budgetary appropria-tions that support and develop space technologies of domestic industries. This isowing to the fact that the space industry is subject to some traditional market failuressince the early days such as:

• Public goods. The two characteristics of public goods, jointness of supply (zeromarginal production costs) and non-excludability are found in the provision ofgoods, such as national security and defense based on strategic space capabilities.Prominent examples are the space-based defense applications of earth observa-tion (EO), navigation, and telecommunications, vital elements of national defensecapabilities of NATO and Warsaw Pact countries during the “Cold War.” Despitevariations in the supply of such goods across the NATO alliance, for the country


that owns space assets with defense and security capabilities, the respectivebenefits accrue to all its citizens. Beyond the public goods nature of space servicesby nature of the service itself, there is also public good by convention. Anexample of this is the geo-navigation and positioning systems, whereby theUSA offers a free to users signal along with its protected (encoded) militarysignals. This means that there is no rivalry and non-excludability (by convention)to the users (Zervos 2018).

• Natural monopolies. Where there is decreasing costs, production mode of a goodand a sole provider reduces duplication (see later) and is also desirable forsecurity reasons. The use of decreasing costs arguments has been used in theprovision of space-based goods by “natural monopolies,” such as telecommuni-cations services prior to the recent privatization of telecommunication organiza-tions in Europe. Prominent examples are the case of the internationaltelecommunications satellites organization (INTELSAT) and international mari-time satellites organization (INMARSAT). INTELSAT, the first civil globalcommunications network, was created in 1964, followed by the launch of the“Early Bird” satellite. Prior to the end of the “Cold War” and the commercializa-tion of major telecommunications service providers in Europe and Asia, it wasimplicitly agreed by its members that INTELSAT is a “natural monopoly” (Snow1976, 1987a, b; Rostow 1968) and a procedure has been determined (Article XIV(d) of the Intergovernmental agreement) to establish whether other commercialsystems would inflict any “significant economic harm” to its operations. Therapidly expanding size of the global telecommunications market and the large-scale privatization of telecommunications in Europe and the USA led to uncer-tainty surrounding the continuous non-rivalry to INTELSAT by private systems.Following increasing competitive pressures, INTELSAT’s assembly of

USD Million4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

0OECD G7

2018 2002 2010

EU 28 BRICS

Fig. 2 Space export performance of selected areas. (Data source: OECD 2019: 31). Notes: OECDfigure is based on UNCOMTRADE database and HS classification coding 880260 that is comprisedof spacecraft and suborbital and spacecraft launch systems. (Direct from the UNComtrade databasedata is unavailable for HS 880250 (spacecraft and launch systems – without inclusion of suborbitalvehicles), and there may well exist discrepancies across “as reported” data, with the values for EU28as a group reported lower than the sum of the countries (no clear indication of consolidation), aswell as for SITC 7925 (“as reported” for the selection of countries like USA, China, France, andothers for 2018))

8 V. Zervos

parties (shareholding organizations, commercial, civil, and national) decided torestructure the organization and ultimately commercialize it by July 2001.Despite the growth in telecommunication service providers, the significant marketconcentration and network-economies associated with satellite systems signifyoligopolistic markets with economies of scale and scope in operations. This isexpected to extend to planned mega-constellations of satellites leading tocontested and congested orbital space with potential overcapacity. Overcapacityand the ability to replenish basic operations in case of accidents or hostileoperations provide first-mover advantage to space-faring nations whose industrywill operate such constellations (See Commercial Space as a Space Race Cata-lyst). (See Rostow (1968) for an early policy-economics analysis and discussionon newly developed challenges from space-based telecommunications. Keypoints identified relate to avoidance of concentration of power and control tothe hands of the government or the industry, while recognizing the naturalmonopoly challenges. The X-inefficiency (innovation factor) and power dissem-ination forces are arguably operating against the single-natural monopoly solutionin a static decreasing-costs sector.)

• Uncertainty, risk. The risk associated with new space technology was and is high.As technologies for some space products mature the risk associated with suchapplications decreases and commercial markets are more willing to finance andsupport them. Telecommunications organizations and firms can thus afford toinsure against a variety of risks the satellite and the launching process are subjectto.

• Externalities. Positive production and consumption externalities, as well as spin-offs. Social cost avoidance from using, for example, geo-positioning systems likeGPS on a popular basis saving on consumers’ transportation costs, congestionand pollution costs, and others. Spin-offs from space technologies and productioncost reduction for industries employing precision in location, but also timinginformation, along with technical progress associated with space goods (Zervosand Siegel 2008).

As a result of significant market failures, especially with regard to the positiveexternalities, public goods nature, and security considerations associated with pro-duction and control over national space assets, space-faring nations develop indig-enous capabilities reflected in budgets. In view of the non-tradable nature of mostspace goods, international comparisons based on monetary value pose challenges ofaccurate reflecting relative positions and capabilities.

In this context, budget information such as OECD (2019) provides relevantestimates (Fig. 3) of relative budgetary appropriations indicating prioritization thatare useful in indicating relative country positions rather than absolute numericcomparative statistics. (Clearly the downside of using percentage ratios is thatsmall-sized budgets may well lead to low overall scale of programs and industriesfor smaller countries.)


RU

SF

RA

CH

N1

ISR

1

US

A1

JPN

LUX

IND

BE

LIT

AD

EU

KO

RC

ZE

CH

EN

OR

ES

AR

OU

SW

EE

ST

GB

RE

SP

AU

TN

LDD

NK

CA

NF

INP

OL

SV

NG

RC

PR

TB

RA

IRL

HU

NZ

AF

ME

X0.

006

0.00

70.

007

0.00

80.

008

0.01

10.

012

0.01

30.

014

0.01

60.

016

0.01

60.

018

0.01

80.

019

0.02

10.

022

0.02

20.

025

0.02

60.03

50.

036

0.03

90.

039

0.04

00.04

70.

049

0.04

90.

0620.06

90.

0700.07

60.

105

0.16

50.

248

Fig.3

Space

spending

asapercentage

ofGDP.(Sou

rce:OECD20

19:24

)

10 V. Zervos

Trade Balance Effects and Atypical Patterns of the Aerospace andDefense Sector

Space versus aerospace when considering trade patterns overall performs quiteinterestingly. In aerospace, especially civilian commercial airliners, the dominantcompanies (namely Airbus and Boeing) are largely unchallenged and their exportperformance act as balancing forces in otherwise unbalanced trade patterns, espe-cially with countries like China, space (military) as we saw has a different behavior.Figure 4 reveals that the USA experiences significant overall trade deficits that arepersistent in recent decades.

The economics and overall rational of this global trade pattern is a point ofcontroversy in terms of policy and trade agreements on a global scale recently, yetit is worth noticing that aerospace acts as a balancing sector with regards to specificcountries such as the USA and China. Figures 5 and 6 reveal that the USA’saerospace balance has the opposite trend of the overall trade balance, mitigatingsomewhat overall deficits.

As Fig. 7 further illustrates, US (aerospace) exports are specifically significantwith regards to China, which specializes in non-aerospace sectors in terms of exportperformance.

Fig. 4 Global trade patterns. (Source: OECD database)


The Chinese export performance is gradually shifting towards the aerospacesector, though the trade specialization overall is focused on alternative industries(Fig. 8).

The same is seen when considering other Western nations like France and the UKthat are traditionally considered as underperformers in trade balances. By examiningtrade balances overall and comparing them to the sector of aerospace goods andservices reveals that for major trade performers like Japan, China, the aerospacesector acts as a balancing element compared to countries such as the USA and France(Figs. 9, 10, 11, and 12).

Clearly, specialization plays a key role in trade patterns. In addition though,political aspects, such as heightened tensions and sanctions, seem to impact upontrade patterns and benefit (in relative terms) the aerospace industry. The trade pattern

010,000,00020,000,00030,000,00040,000,00050,000,00060,000,00070,000,00080,000,00090,000,000

100,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Fig. 5 US balance of trade for aerospace goods. (Source: OECD database)

0%

20%

40%

60%

80%

100%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

srotc es5

ehtfoerahs

eg%

YearRailroad and Transport Equipment, not elsewhere classifiedAircraft and SpacecraftFood products, Beverages and TobaccoMining and QuarryingAgriculture, Hunting, Forestry and Fishing

Fig. 6 US exports sectoral distribution. (Data source: OECD database)

12 V. Zervos

changes from the USA and France to Russia illustrate this in Figs. 13 and 14 as risingtensions and sanctions seem to result in a notable increasing aerospace share ofoverall export performance.

Export restrictions play a significant role in trade patterns and reveal a significanttrade-off between short-run sales and maintaining of technological edge as perceivedby dominant powers like the USA. Thus, the domestic “demand” for space-relatedsecurity is very high in the USA, but the same can be said of other major spacepowers as they themselves invest in space unilaterally when it comes to critical spacetechnologies, while they also do not release technologies on par with other(exporting) sectors. This is compatible with the dual-use, as well as the securitystrategic nature of space. Space capabilities are conceivably on-par in terms of their

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

France Germany Italy Japan United Kingdom China India Russia

Fig. 7 US exports in aircraft and spacecraft (constant values). (Data source: OECD database)

0%10%20%30%40%50%60%70%80%90%

100%

Agriculture, forestry and fishing Mining and quarrying

Food products, beverages and tobacco Air and spacecraft and related machinery

Railroad equipment and transport equipment n.e.c.

Fig. 8 Chinese exports specialization. (Data source: OECD database)


-4,000,000

-2,000,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Fig. 9 Balance of trade in aerospace goods for the USA. (Data source: OECD database)

–6,000,000

–5,000,000

–4,000,000

–3,000,000

–2,000,000

–1,000,000

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Fig. 10 Balance of trade in aerospace goods for Japan. (Data source: OECD database)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Fig. 11 Balance of trade in aerospace goods for France. (Data source: OECD database)

14 V. Zervos

security special “weight” with nuclear weapons but not bound by any treaties interms of their development. The aerospace goods and services trade patterns areclearly not applicable in the case of military satellites as seen earlier in Fig. 1.

Industries subject to economies of scale and scope are long considered as strategicon the grounds that they exhibit significant industrial consolidation, frequentlyresulting in national champions that may collaborate in multinational institutionalmarkets either at the industry or at the government level, while at the same timecompete in commercial markets. Figure 15 captures such a framework for the spacesector (not unlike the wider aerospace and defense sectors) and the resultingformation of institutional-industrial complexes.

In its simple form, such a framework is depicted by a structure whereby a nationalindustrial champion exists (largely owing to the economies of scale and scope costcharacteristics) that must also provide a level of national security in autonomousprovision of security-sensitive goods. Such national champions face domesticmonopolistic markets, while compete in commercial markets of an internationalnature.

–30,000,000

–25,000,000

–20,000,000

–15,000,000

–10,000,000

–5,000,000

0

Fig. 12 Balance of trade in aerospace goods for China. (Data source: OECD database)

0%

20%

40%

60%

80%

100%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

DSU

sdna suohtnitnuo

mA

YearRailroad and Transport Equipment, not elsewhere classifiedAircraft and SpacecraftFood products, Beverages and Tobacco

Fig. 13 Sectoral breakdown of French exports to Russia. (Data source: OECD database)


0%10%20%30%40%50%60%70%80%90%

100%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Agriculture, forestry and fishing Mining and quarrying

Food products, beverages and tobacco Air and spacecraft and related machinery

Railroad equipment and transport equipment n.e.c.

Fig. 14 Sectoral breakdown of US exports to Russia. (Data source: OECD database)

Fig. 15 The space industrial complex analytical framework. (Source: Zervos 2018)

16 V. Zervos

A further element in this analysis is the nature of the “domestic” governmentspace good or service (defense/security), as they may well constitute in the presenceof an alliance public goods. Public goods within an alliance or a research organiza-tion are complex goods and services. For example, “security” within NATO wouldrefer to more than a single technological asset (ICBMs) but would require a networkcomprised of supportive nodes (including assets like GPS, intelligence, logisticalsupport, tactical weapons, NATO localized basis, etc.). Thus, the main provider isseen more as an integrator and less as a vertical integrated entity. There are clearresemblances with supply chains and production technologies where “subcontrac-tors” or lower tier suppliers exist and contribute at different levels. The distributionof alliance member contributions in the presence of economies of scale and scope isof paramount importance for the allocative efficiency.

Furthermore, following an extension of the Balassa-Samuelson framework,where a competitive tradable sector affects the relative wages of the non-tradablesector, tradable-sector specialization and development can have multiplier effectsacross the economy. This is not only in the presence of global supply chains but alsoin the case where the specialization follows a collaborative negotiated and agreedapproach across partners, as is the case of alliances (NATO), or joint organizationslike the ESA. Zervos (2011) shows how in strategic industries where economies ofscale and scope co-exist with a tradable and governmental non-tradable sectors(defense), the non-tradable sectors are not only interconnected but can also havean unexpected impact upon the performance of the tradable sector by perverseincentives. That means that the economy with the cost advantage in the non-tradablesector may not see this advantage extended into the tradable sector, since rent-seeking behaviors prevail. This leads to an introverted focus of firms to theirdomestic lucrative market, rather than the more competitive global one, even thoughthe country enjoys a theoretical cost advantage should its industry decide to capturethe global market.

Wider Economy

Significant externalities and hard to measure security benefits, but also linkages ofindustry create an atypical environment with significant market failings, but alsopotential crowding-out owing to the flag-carrier and prestige impact space enjoys.

Previously examined trade balance effects thus do not take into consideration theexpected greater impact of space sector manufacturing in terms of spin-offs andmultiplier effects, compared to other economic activities from services and else-where. In addition, successes in space that have an uplifting impact on society andare associated with flag-carrier effects are hard to monetize, but potentially can havea critical impact on future generations and science and technology developmentsthrough time. Thus, it is unsurprising that there have been several attempts toquantify the economic return of space activities, either at the business-planninglevel for commercially minded endeavors and public-private partnerships or at themicro- (sectoral) and macroeconomic levels (Hertzfeld 2002). There are evidentlysignificant methodological challenges to be considered, notwithstanding the “client


commissioned” approach that poses additional challenges to the uncritical adoptionof the results. This has been evidenced since the early US macroeconomic studies byUS institutions questioning the relevant methodologies insofar as the value of thefindings is concerned. Moreover, the partial nature of the analysis typically fallsshort of addressing the opportunity cost of appropriations devoted to space. (For areview, see Zervos (2002); regarding business studies optimism, a relevant exampleguiding public policy in Europe is the case of Galileo (Zervos and Siegel 2008).) Onthe other hand, the highly important security aspects are by-nature hard to monetize,despite the expected high value to economic activity and society.

Commercial Space as a Space Race Catalyst

The economic background indicates how the commercial markets connect seem-ingly unrelated monopolistic domestic markets (Zervos 1998). The conduct andperformance in commercial markets therefore impacts upon specialization dynamicswithin security/military alliances in a dynamic environment. Thus, governmentsupport for commercial performance may well signal conflict and competitivenessat government and security-levels, especially within alliances. It is noteworthy toobserve that trade specialization is thus not unrelated to alliance and geopoliticalframeworks. The commercial “new space” environment and aspirations were ini-tially experienced during the first wave of commercialization and following the endof the Cold War (peace divided applied to space) and led to sobering results (Iridium/mobile space telecommunications), following optimistic market projections of asimilar nature to the market estimations with regard to the Galileo system. Thenewly created space companies, with origins to be found in the support by wealthyspace enthusiasts like Branson, Musk, Bezos, and others, utilize capital to developspace technologies with the support of the public sector, but importantly, alsoseemingly rely on such support as a customer base. The commercial sector is thusgovernment-dependent and nationally bound, perhaps more so than earlier allianceslike SeaLaunch. The openness of the post-Cold War in industrial partnerships andexploration of space is therefore replaced by nationally confined considerationswhereby the newly sprung enterprises compete on grounds of efficiency withpublicly listed companies, focusing on innovative improvements, cost performance,and market share.

Commercial considerations are frequently evoked to equate success at the marketshare level (measured by market dominance and turnover), rather than a mature,government-independent industry with sound business investment (commercial)criteria. Thus, government-induced investments aiming at generating market reve-nue may prove to follow a nationally or geographically confined creation approach.The partnership approach utilized in other industries to avoid duplication in R&Dand exploit economies of size appears heavily constrained. “Galileo, for example, islikely to have progressed at a much smoother political route, fastest pace and lowercosts had the US participation been possible at contractor’s level, in exchangefor European industrial involvement on US relevant space projects” (Zervos andSiegel 2008).

18 V. Zervos

Political Economy and Security in Space: Institutional Dimensions

Assuming that the labeled commercial space programs act as an enhancer of conflictin space, they may hinder rather than promote security even with regards toconventional space collaborative programs like NEO threats. This is owing to thefact that the impact of government programs on the commercial competitiveness ofparticipating industry enhances transaction costs and rivalry. Thus, even thoughrivalry may benefit the industry through duplication of capabilities and globallyincreasing size and public spotlight (an impact identified since the days of Sputnik-Apollo), it may also constrain the short-run development of projects of commonsecurity interest. (In addition, such rivalry may well impact also upon collaborationin flagship programs like the ISS, as well as scientific and exploration ones.) Thecollapse of the Soviet Union and the resulting hegemonic position of the USdiminished the rivalry perceptions between the USA and Russia allowing for anumber of commercial and public collaboration, in contrast to the heightenedcommercial competition levels between the USA and Europe at the time. The riseof China, India, Japan, and others as they develop significant capabilities may wellresult in the future in relevant initiatives, but it seems that a rules of the roadapproach for the commercial markets and the conduct of industry/providers inthese is a critical element for global sector developments in the future. Clearly, theWorld Trade Organization (WTO) may be a challenging environment for suchdevelopments, hence further research and novel approaches may be developedtowards enhancing sectoral growth and security simultaneously.

Even though the WTO is of perhaps lesser concern to space, organizations likethe ITU are critical in dealing with spectrum allocation mechanisms as they evolveinto continuous liberalization from an initial equitable basis of global common goodare more space-focused in their agendas. Thus, the abandoning of the INTELSATmodel of globalization of telecommunications and allocation through an early globalpartnership and governance mechanism into a private enterprise-oriented one isimplemented through evolving mechanisms and licensing of orbit and spectrumallocations. The regulatory role is thus increasingly supplemented by heightenedmonitoring requirements requiring novel institutional arrangements as space isbecoming more congested and contested in Earth orbit, but also in potential futureexploration specific locations such as Langrangian points of interest, lunar hotspotones, or Martian and other celestial bodies.

The explosion of small-satellite constellations largely associated with the adventof global telecommunication services and mobile data leads to multiple levels ofcontestability and congestion starting from higher atmospheric through to highorbital planes. (The term is used in this context to describe low mass satellites(less than 500Kg mass) that include what is habitually defined as nanosatellites,picosatellites.) The situation is perhaps analogous to the pre-digitization era ofremote sensing satellites based on film technology that were used by the USA andthe then USSR to observe the Earth and their lifetime extended to the capacity of thefilm that needed retrieving at the end of each satellite mission (and its end of life),thus resulting in a continuum of launches and disposable film-containing satellites.


Longer lifetime, but small satellites requiring replenishment, and/or servicing areplanned to support 5G and other telecommunication systems. As Fig. 16 reveals,there are planned constellations that add up to over 10,000 new smallsats all ofwhich require their vital space in terms of physical proximity of operations andspectrum/interference topology, mitigation, disposal, and replenishment plans thatare harmonized on a universal level and require situational awareness and regulatoryevolution. In case of business failures, or abandonment of plans, such operationalcosts and legal challenges may lead to non-simple solutions requiring governmentsbeing able to support such instances when licensing and hosting relevant businesses.(It is evident that such industrial and network replenishment national industrialcapacity that is economically sustainable is welcomed by the security agencies forcountries like the USA. It would be significantly more costly to maintain industrialcapacity without exploiting the relevant scale and scope, producing just for military/security purposes along the lines of Operationally Responsive Space (ORS), devel-oped largely in response to the Pearl Harbor scenarios for space assets (Commission2001).)

In addition, this new trend is placing a burden upon the ITU’s role with physicaland spectrum space becoming scarcer and therefore adding the dimension ofplaceholding, moral hazard, and speculator behaviors. In response, the ITU hastighten up the licensing conditions and implementation requirements by relevant

38

2011 2015 2020 2025

Source: PwC Launch database, more than 70 constellations projects are considered in the forecast

2030

53

129

195172

131

342

Historical data Forecast

319352

548

806

928

Single-missionsConstellations

765737

821

892

1012 1010

896

956

Fig. 16 Trends in small satellites (single mission and constellations). (Source: PwC 2019)

20 V. Zervos

enterprises to avoid low-cost reservation of space with lengthy implementation andinactivity periods. The ITU is also faced with scarcity of spectrum as 5G systems andnew technologies offer great opportunities for users but also pose challenges on thespace/airspace/terrestrial architectures and allocation (as well as uses between tele-communications, science and exploration, and others). The ITU is thus planningfollowing the WRC-19 milestone to establish harmonizing conditions for thismultidimensional architecture to enhance order and efficiency in view of the con-gestion challenges (Fig. 17; Henry 2019; ITU 2015, 2016).

The global reach of such “utility” services raise the issue of governance ofnetworks, safety, and security standards and control of operations. The private natureof such global utilities and the different legal regimes between users and operatorsare expected to exert force towards multi-stakeholder partnerships, or quasi nationalautonomous systems. Thus, despite potential economies of scale and scope inoperations, it is likely that again there will be overcapacity and multiple systems inplace augmenting harmonization and efficiency challenges. A critical challenge,though, for future security lies ahead with regards to the utilization of resources,as technical capabilities increase and disseminate with a rising number of space-faring nations coupled with challenges to the status quo of space resources utiliza-tion. The partial application of an ITU-like model for specific space cases may be anoption, but it is not clear whether such an option would gather the analogousmomentum at global level when dealing with a variety of resources (besidestelecommunications/GEO). Moreover, space traffic management faces significantchallenges, when compared with the tested aerospace/FIR applications and opera-bility, that may though nullify as technical expertise disseminates.

5D

#18 #19

Report Technologytrends (M.2320)

TechnicalPerformanceRequirements

Proposals IMT-2020

Evaluation

Consensus building

Outcome &Decision

IMT-2020Specifications

Evaluation criteria &method

Requirements,Evaluation Criteria, &

Submission Templates

Circular Letters &Addendum

Workshop

Report IMT feasibility above6 GHz (M.2376)

Recommendation Vision ofIMT beyond 2020 (M 2083)

Modifications ofRes. 56/57 and

new Res. 65

Background & Process(IMT-2020/1,2)

(a) – five day meeting, (b)–focus meeting on Evaluation (Technology)Note: While not expected to change, details may be adjusted if warranted.

#20 #21 #22 #23 #24 #25 #26 #27 #28 #29 #30 #31 #31‘bis’

#32 #33 #34 #35 #36

5D

2014 2015WRC-15 WRC-19

2016 2017 2018 2019 2020

5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D 5D5Da 5Db

Fig. 17 ITU timeframe for regulating 5G. (Source: ITU 2016)


Conclusions

Outer space security is a multidimensional concept; the most usual direct applicationis found in near-Earth objects, as well as other natural threats (solar storms andothers). However, as humans increasingly explore, utilize, and compete in space, theman-made security challenges are evolving and the strategies and political economicrationales become increasingly relevant for analysis. Sustainable industries andefficiency call for exploitation of static economies of scale and scope in spaceindustries and services, yet the trade-offs in control, governance, and dynamicinnovation point towards autonomy and oligopolistic structures with overcapacity.The economic sustainability becomes a key element of the dynamic pursue of spacepolicies and objectives at national and partnership levels. In the latter case, special-ization and its implications for the wide economy through externalities and indirecteffects receive increasing attention as space becomes contested, congested, andcompetitive. Space and aerospace industries play a crucial role in trading patterns,notwithstanding the fact that they are largely government controlled, hence can beconsidered as a fiscal government spending element similar to defense expenditure.The country specializations and their evolution in commercial markets and alliancesare focal points in the timely global trade policy paradigm shifts, affecting perfor-mance and evolution of space programs and industries. The chapter concludes withthe ever-increasing role of regulation and relative power balances across nations,companies, and terrestrial-air-space systems especially for telecommunicationapplications.

References

Butler A (2015) USAF operationally responsive space office could oversee next SSA, Weather Sats.Aviation Week, February 12. http://aviationweek.com/space/usaf-operationally-responsive-space-office-could-oversee-next-ssa-weather-sats

Commission (2001) Report of the Commission to Assess Unites States National Security SpaceManagement and Organization. Commission to Assess United States National Security SpaceManagement and Organization, Washington, DC

DoD (2018) Summary of the 2018 National Defense Strategy of the United States of America.Unpublished, Department of Defense, US

Graziola G, Cefis E, Gritti P (2011) LÍndustria Spaziale Italiana nel Contesto Europeo. IL Muliko,Bologna

Harford J (1997) Korolev: how one man masterminded the soviet drive to beat America to themoon. Wiley, New York

Henry (2019) ITU wants megaconstellations to meet tougher launch milestones. Spacenews. https://spacenews.com/itu-wants-megaconstellations-to-meet-tougher-launch-milestones/?fbclid=IwAR0VpMhgrwveNmii_mNkC2a8inzFnG9Lhc_aspFLgAG_RoPcD4W6AsC5pII. AccessedJuly 2019

Hertzfeld HR (2002) Technology transfer in the space sector: an international perspective. J TechnolTransf 27(4):307–309

HoC (2017) Space sector report. House of Commons Committee on Exiting the European Union,London

22 V. Zervos

http://aviationweek.com/space/usaf-operationally-responsive-space-office-could-oversee-next-ssa-weather-sats

http://aviationweek.com/space/usaf-operationally-responsive-space-office-could-oversee-next-ssa-weather-sats

https://spacenews.com/itu-wants-megaconstellations-to-meet-tougher-launch-milestones/?fbclid=IwAR0VpMhgrwveNmii_mNkC2a8inzFnG9Lhc_aspFLgAG_RoPcD4W6AsC5pII



ITU (2015) Improving the dissemination of knowledge concerning the applicable regulatory pro-cedures for small satellites, including nanosatellites and picosatellites, Resolution ITU-R 68.ITU, Geneva

ITU (2016) Workplan timeline process and deliverables for the future development of IMT.Unpublished Document, International Telecommunications Union, IMT-ADV/2 WorkingGroup TECH, Meeting 24 June, ITU, Geneva

OECD (2019) The space economy in figures: how space contributes to the global economy. OECDPublishing, Paris. https://doi.org/10.1787/c5996201-en

PriceWaterhouseCoopers (2019) Main trends and challenges in the space sector. PWC, ParisReagan R (1985) Determination under Section 301 of the Trade Act of 1974, memorandum for the

United States trade representative. The President of the US, White House, Washington, DCRostow E (1968) President’s task force on communications policy, final report. Superintendent of

Documents, US Government Printing Office (GPO 0-351-636), Washington, DCSnow M (1976) Communication via satellite – a vision in retrospect. A.W. Sijthoff International

Publishing Company, BostonSnow M (1987a) National monopoly in INTELSAT: cost estimation and policy implications for a

separate system issue. Telemetics Inform 4(2):133–150Snow M (1987b) An economic issue in international telecommunications: national monopoly in

commercial satellite systems. In: Macauley MM (ed) Economics and technology in space policy.R.F.F., Washington, DC

USAF (2013) Global horizons final report. United States Air Force, SAF/PA Public Release caseno. 2013-0434, June, US

Zervos V (1998) Competitiveness of the European space industry, lessons from Europe’s role inNATO. J Space Policy 14(1):39–47

Zervos V (2002) The economics of the European space industry. DPhil thesis, University of YorkZervos V (2011) Conflict in space. In: Braddon L, Hartley K (eds) Handbook of the economics of

conflict. Edward Edgar Publishers, CheltenhamZervos V (2018) Vasilis Zervos: “public goods, club goods and specialization in evolving collab-

orative entities”. In: Vliamos S, Zouboulakis M (eds) Institutionalist perspectives on develop-ment – a multidisciplinary approach. Palgrave Macmillan, Cham

Zervos V, Siegel D (2008) Technology, security and policy implications of future transatlanticpartnerships in space: lessons from Galileo. Res Policy 37:1630–1642


https://doi.org/10.1787/c5996201-en