What Is “Commercial Space”?

Introduction

This editorial, the third in a planned series of four, addresses the meaning of the word “commercial” in the context of emerging space industries. The series started with a brief discussion of the origins of new industries and highlighted the 50th anniversary of the Apollo 11 mission. The second editorial in the series focused on the delineation of levels of analysis for organizational studies. Concluding the quartet will be a description of the phrase “New Space” (or “NewSpace”). It is with the hope of improving my presentation, logic, and conclusions that I ask New Space readers to submit comments or questions freely to any of the material written here (I can be reached at newspace.eic@gmail.com). But for this editorial, I want to review past work briefly, and then bring something new to the discussion.

Background

The goal of this editorial is to define better what is meant by the word “commercial” as an adjective (not a noun), especially in the context of space. Reasons for wanting to define the word “commercial” include avoiding unnecessary problems or miscommunications, nationally and internationally, due to the polysemic nature of the word, ¹ helping to represent the interests of all space stakeholders and achieving space policy goals, ² minimizing impediments to knowledge transfer through published materials, ³ and minimizing the effect of limiting discussion within an individual industry or discipline due to specialized jargon. ⁴

It is important to note that not all countries have explicit declarations of a commercial sector, let alone laws and regulations legitimizing the nongovernmental activities in space. In an article that discusses the intentional creation of the U.S. commercial space sector, then-NASA Headquarters General Counsel, Ed Frankle, wrote:

By the early 1980’s [sic], the concept of a separate “commercial sector” of space activity was forming. In 1982, then-President Reagan issued a new space policy intended to “set the direction of U.S. efforts in space for the next decade.” In this document, it became the official policy of the United States to encourage “domestic commercial exploitation of space capabilities, technology and systems for national economic benefit.” ⁵

This need to institutionalize commercial activities formally may be unique to the United States and is a result perhaps of the lower perceived status of commercial to governmental actors and activities. Specifically, commercial space activities are not perceived the same as U.S. governmental space activities. For example, the U.S. commercial air carriers have historically been willing to divert or delay their flights to accommodate launches of the Space Shuttle, which is very different from their reaction when directed to alter their flight plans for SpaceX launches.* Explaining the different reactions by the airlines as a result of competitive forces strains logic since commercial rocket launch services are not direct substitutes for commercial aviation services. Additionally, the additional cost of flight deviations is comparable for all launches from the Florida coast, whether governmental or commercial. More reasonable would be the explanation that the airlines are willing to accommodate governmental launches as a noble act, in “service to their country.” Hence, their reactions may be based on the lower status of commercial-sector actors with respect to governmental actors.

Beginning in 2009, I attempted to define what it means for an activity to be considered commercial. The data used for this discussion were compiled from emails I received, informal comments I heard at conferences, and from U.S. space policy statements or acquisition regulations, and posted to a publicly available Web site. ⁶ Most commonly, individuals referred to U.S. Space Policy Directive number 3 (SPD-3):

Commercial space sector activities are characterized by the provision of products and services such that: private capital is at risk; there are existing, or potential, nongovernmental customers for the activity; the commercial market ultimately determines the viability of the activity; and primary responsibility and management initiative for the activity resides with the private sector. ⁷

It was clear, from the variety and scope of the 30 collected comments, that there were some common themes, but no answers to the question of a clear definition. Among the wiki entries were five risks that characterized “commercial” activities, as proposed by Dr. Andrew Aldrin. These included market risk (consisting of market creation and development of consumer demand), oversight risk (including management performance and incentives), investment risk (including evaluation and benefiting from economic returns), performance risk (involving the technical performance and quality), and ownership risk (including liabilities in cases of off-nominal product performance).

Is “Commercial” Simply “Not Governmental”?

An early entry to the wiki list proposed defining what is meant by “commercial” by simply taking it to mean “not governmental.” In the United States, the Federal Activities Inventory Reform Act ⁸ defines “inherently governmental” as:

(1) The government bears substantial risk through an explicit guarantee of third party financing; (2) All of the risk incident to ownership of the asset does not remain with the lessor (excepting circumstances in which the government is at fault); (3) The asset is designed for a special purpose of the government rather than for a general purpose; (4) No private market for the asset exists; and (5) The asset is constructed on government-owned land (more applicable to office buildings and housing projects than to the development of new space-launch systems).

Finding the inverse, converse, or negation of these comments is not necessarily an obvious task. So, defining what is not “inherently governmental” is not straightforward. Also, since the conjunction “and” connects these five clauses, contradicting any one of them should identify an activity that could be “commercial.”

Qualitative Analyses

In 2016, I performed a qualitative study ¹ that did not include the wiki comments as a data source, but focused instead on official U.S. government policy, law, regulation, and guideline documents. Using a systematic, qualitative approach for new concept development, ⁹ I identified three aggregate dimensions, based on the secondary sources, that characterize “commercial activities”: (1) free-market driven (including second-order themes of investment risk, development and operation risk, market risk, general risk, managerial initiative, efficiency-seeking behavior, subjugation to market forces, and the existence of nongovernmental customers—which I'd now include in “market risk”), (2) legalization or legitimization, and (3) independence of goal setting from government. These last two dimensions are based on the observed evolution of markets from non-capitalist to capitalist economic systems. ¹⁰ In the same study, I asserted that activities could be commercial or governmental, but since many firms conduct both types, it would not be meaningful to label the company itself as one or the other.

Lal and Wei ² use a broader base of secondary sources, including the Commercial Space wiki comments, and propose a set of “common classifiers” that characterize commercial activities: investment risk, performance risk, market risk, private responsibility, private ownership, revenue generation, and existing or potential nongovernmental customers. They propose a two-by-two framework, based on “risk taker” (government or private/market entities) and “customer base” (government only or government among many).

Despite minor definitional differences or vagaries, all three frameworks include a common assembly of risks. My framework adds two topics not included by Aldrin or Lal and Wei: the concepts of market legality (or legitimization) and the goal setting (and property) independence from government. The market legality concept includes the passage of laws that legalize and legitimize a specific commercial market. These laws would need to be enforceable and enforced. Otherwise, the legal market would lack legitimacy. This dimension precludes a “black market” from earning the label “commercial.” The concept of independent goal setting implies that nongovernmental interests control the factors of production (traditionally identified as land, capital, and labor, but could possibly also include additional factors of data and time).

To augment these contributions by members of the space community, it occurred to me that academics in other disciplines and industries might have also pursued the question of how to define “commercial.” As it happens, the legal community made repeated attempts to identify the meaning of the word “commercial.” The legal imperative for defining the term was to “deny foreign states immunity when they engage in conduct that is based on a commercial activity carried on in the United States” as an exception to the Foreign Sovereign Immunities Act of 1976, ¹¹ or to identify the boundaries of First Amendment protection. ¹² Unfortunately, despite decades of decisions since the mid-1970s, multiple courts have not been able to define what constitutes “commercial speech.” Although these attempts do little to advance our particular definitional efforts, it was interesting (but not encouraging) to learn of their approaches, attempts, and continuing inability to achieve this goal.

Conclusion

There are more dimensions that can be added to this discussion, including the perspectives of evolutionary economics ¹³ and organizational behavior. ¹⁰ To complicate the definition of “commercial” further, I need to include the perspectives of countries that have different relationships between government and industry compared to the United States. I hope to include a greater level of detail to this discussion in a future article, but to meet publishing deadlines and retain reader attention, I'll offer the following characteristics of a “commercial” activity.

I'm sure this definition is not conclusive, but I hope this discussion has shed light on the complexities encompassing the meaning of the word “commercial.” In the next and final editorial of this series, I'll incorporate ideas from the preceding three editorials to discuss the meaning of “New Space.” Until then, happy reading!