The West has met Russia’s invasion of Ukraine with a strong and unified response from both the public and private sectors. Elon Musk has been among the most prominent figures in the second group, using the assets of his company SpaceX to offer direct help to Ukrainians on the ground. In doing so, Musk has demonstrated that SpaceX is a strategic national asset for the United States. More importantly, his success has shown the potential of using government procurement policy effectively to jumpstart new markets in critical sectors.
Last Thursday, Dmitry Rogozin, director general of Russia’s space agency, Roscosmos, tweeted: “If you block cooperation with us, who will save the ISS [International Space Station] from an uncontrolled deorbit and fall into the United States or Europe?” Musk wordlessly replied to Rogozin by posting the SpaceX logo. In other words, the U.S. isn’t as reliant on the Russians for cooperation in space as we used to be.
Then, last Saturday, Ukraine’s vice prime minister Mykhailo Fedorov tweeted a direct plea for assistance to Musk: “while you try to colonize Mars—Russia try to occupy Ukraine! While your rockets successfully land from space—Russian rockets attack Ukrainian civil people! We ask you to provide Ukraine with Starlink stations.” Musk replied ten hours later, saying that Starlink had been activated over Ukraine and that more ground terminals were “en route.” On Monday, the vice prime minister posted a picture of the ground terminals being delivered. Some users said that they were experiencing download speeds greater than 200 megabits per second.
Musk is known for overpromising and underdelivering on ambitious timelines, but in this case he seems to have the goods. To understand how we got here, it’s important to recognize that SpaceX has been a major beneficiary of the government’s role in creating new markets—as is also true for many of Musk’s other companies.
Government funding has been critical for getting the commercial space industry off the ground. According to a 2019 report by the investment firm Space Angels, between 2000 and 2018, 67 space companies received $7.2 billion in funding from the U.S. government. One of the largest beneficiaries of these programs was SpaceX, which, in its first decade, operated on a total budget of $1 billion—about half of which came from government contracts from NASA. And just last year, SpaceX won a $2.9 billion NASA contract to build a moon lander.
Most critical of all was the Commercial Orbital Transportation Services (COTS) program, an innovative procurement model that NASA used to award contracts for resupplying the International Space Station. As Eli Dourado, a senior research fellow at the Center for Growth and Opportunity at Utah State University, explained, COTS had three critical elements: shared development costs, milestone-based fixed-price payments, and goal-driven evaluation. These features proved to be a potent combination that resulted in multiple new capabilities for resupplying the International Space Station. This particular design is far superior to the more commonplace “cost-plus” model of procurement, in which the government covers the costs of development plus an additional payment to allow for profit. The incentive problem with this method is obvious: companies make more money when costs go up.
SpaceX’s Starship, its fully reusable and super heavy-lift launch vehicle, will revolutionize commercial-launch costs. As Casey Handmer, a former software system architect at NASA Jet Propulsion Laboratory, explains, most of the space community still doesn’t realize how much of a paradigm shift Starship will be for mission designs. It will enable “a conveyor belt logistical capacity to Low Earth Orbit (LEO) comparable to the Berlin Airlift,” increasing LEO payloads from a historical total of 500 tons per year to 500 tons per week. Launch costs are predicted to drop as low as $50 per kilogram, about 100 times lower than today. This radical change in the economics of space launch will enable new kinds of missions that the space community is just beginning to contemplate.
What will all those rockets be carrying to space? Well, in 2020, SpaceX received $885.51 million in subsidies from the FCC to provide Starlink broadband to more than 600,000 rural homes and businesses in the U.S. over a ten-year period. That type of guaranteed funding enables SpaceX to borrow money from banks or raise more funding from venture capitalists to fund the capital expenditures and R&D necessary to put satellites into orbit.
Starlink has launched more than 2,000 satellites into space to create a constellation that can provide high-speed broadband to virtually any place on earth that can see the sky (though in practice, it offers the greatest speed advantage in rural areas). As Russia continues its invasion, the traditional broadband system in Ukraine has started experiencing outages. In contrast to more centralized fiber-optic cables or microwave cell towers, Starlink is a decentralized network—each customer receives his own ground terminal to access the satellites—which means that it’s more resilient to disruptions. This approach also makes the network censorship-resistant. Last September, Musk said that the company was planning on launching inter-satellite laser links that would require no local downlink. When CNBC reporter Michael Sheetz asked how transmitting into a country without a local downlink would work on the regulatory side, Musk responded, “They can shake their fist at the sky.”
The U.S. needs more moonshot projects like SpaceX—both literally and figuratively. The federal government can play an important role as a buyer-of-first-resort in industries that offer public goods. When done right, the purchasing power and certainty of the government, combined with the ingenuity of the private sector, can accelerate and shape the future of technology in the U.S. and around the world.
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