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Wednesday, August 05, 2009

X-PRIZE FOUNDATION ACT - £68 Billion into the economy for £88 million

I just wrote on the growth of private enterprise space prizes (7.3 fold increase in 10 years = 22% annually). I also wrote on the fact that the world space industry (ok that is a contradiction in terms) amounts to $257 billion annually. The 3rd leg of this stool is how fast is it growing.
aggregate space sales of the companies surveyed increased 44% (10-15% annually) for the 2003-2006 period. Domestic non-defense sales grew 63%, primarily in the space services and ground equipment segments. Domestic defense sales grew by 29% - pdf p23
That 63% of non-defence sales amounts to an increase of 17.6% annually.

In Britain our space industry is growing at what the government clearly feel a very healthy rate:
The entire UK space sector currently contributes £6.5 billion to the UK economy, supporting around 68,000 direct and indirect jobs. The recession busting trends of the space industry has enabled it to successfully ride the downturn, and it is also predicted to grow by an average of 5% per year until 2020.
5% a year would mean our space industry would be worth £11.1 bn by 2020 whereas if we could just match the US rate it would be £38.7 bn, such is the spectacular effect of compound growth. If we could improve on the US rate by 10%, which should be fully achievable if we put in a proportionately substantially greater effort than the relatively little the US is doing, we would manage £95 billion ($156 bn) by then. This is more than half the entire current commercial space effort worldwide.

So what is required? We need space X-Prizes. The official primary remit of The British National Space Centre is to "win an increasing share of the global market in space systems, services and applications in the race to develop tomorrow's economy". This is an entirely market orientated requirement which would clearly be served by X-Prizes or other encouragement of commercial ventures & is negated by the fact that they actually just send their £275m annually to Europe where ESA will achieve virtually nothing with it. I have previously called for that money to be put into a British X-Prize Foundation & in light of yesterday's article about US private enterprise X-Prizes have devised this which involves a minimal amount of new government cash & a massive increase in investment.


1 - Set up a British X-Prize Foundation, run by independent Commissioners appointed for expertise in science, engineering & venture capital not politics or civil service, to award prizes for space & in due course other technology achievement prizes. Also a Register of independent technology prizes, carrying out the functions of the Charity Commission for such prize funds, including ensuring the prize money is there.

2 - Government undertakes to provide the foundation with the £275 million currently given to ESA & to increase that proportionately to either twice the current rate of space industry growth or 10% more whichever is the lower.

3 - Government to allow tax rebates of 3 times the basic tax rate as Giftaid for donations to the Foundation or other science & technology prizes. This rate to be raised or lowered by not more than 5% annually to keep receipts paralleling those promised under section 2. Rebates to be by the Foundation & register issuing vouchers to be immediately honoured by in the simplest possible way to ensure every income tax payer can benefit.

4 - All Corporation Tax paid by space related sections sections of companies & 50% of income tax by employees in such sections tom be zero rated for a period of 25 years.

5 - The Foundation, with the full cooperation of the civil service to draft, at least annually, legislation to repeal or alter existing regulations which are economically damaging to space industry. Such legislation to be presented to Parliament unless the government finds them unreasonable & all reasons for finding them so, to be published.

6 - The foundation be allowed to announce prizes based on cash in hand & cash expected over the subsequent 5 years initially & 6 years after 1 years working. In the event of a shortfall, either due to several prizes being won very quickly or a downturn in the expected rate of growth, government shall guarantee loans on outstanding liabilities but no further prizes to be announced until the fund is back in surplus.


I think that would do it.

The only immediate net cost to government is 2 of the 3 times normal income tax rates (the 1st is already refunded for all charitable donations. With income tax at 20% that is [£275m x 20% x 2 / 130%(from every £1.30 of taxes collectible only about £1 is not avoided or spent in the collection)] £85 m million. The £275m of direct payment under section 1 comes from money previously given to ESA. The reduced taxes under 4 would, under the Laffer curve, be expected to be at least matched by increased economic activity both in these companies & spin off activity. Note that because space is the same distance from all countries & involves no significant use of local natural resources it can move fairly easily to any country with an advanced education & technological infrastructure. That makes it particularly easy to attract via tax breaks.

The prize money investment would be [£275 x 2] £550 million in the first year. Assuming, conservatively that space industry growth continues at 5%, meaning the fund increases at 10% that would be £605m in the 1st year, & £665m, £732m, £805m &£886m subsequently totalling £4 billion ($6.6 bn). This would immediately fund Jerry Pournelle's proposal for a commercial orbital shuttle & for a commercial space station. If the rate of growth in space industry increased, as it could hardly fail to do, the fund allocation would increase which, together with each new year's allocation would see a fast, self financing, exponential growth in technology investment. For example if growth went up to the US level of 17.6% the allocation in the next 2 years would be £1.34 bn &£1.47 bn plus revaluation of the intervening years. Since this could only happen if there was a fast growth of the space economy following the introduction of this programme payments in subsequent years would be likely to be less than the increases to the Exchequer from economic progress.

What would be the total extra economic investment in the British economy from this programme? Well according to the article discussed yesterday "Since SpaceShipOne took the Ansari X PRIZE in 2004, public and private investors have spent more than $1.5 billion to develop this nascent industry" for a space X-Prize investment of $88 million. That is a ratio of 17:1. There may be other reasons for that much investment but it was done without the subsequent tax reduction in section 5 so it is not unreasonable to stand by that (indeed it would not be unreasonable to go beyond it but I won't). At that ratio we get British commercial investment of £68 billion, which is not a bad return for government spending of £85 million. While this could be opposed by Luddites opposed to any form of economic growth I don't think it could be sensibly opposed by anybody else, unless they could dispute the figures here by more than a hundredfold.

Other countries - the figures here are scalable. Scotland at 8% of UK GNP could, for a similar level of effort, do this by putting up £22 million as equivalent to the ESA contribution & running the charitable refund through the rates system. 8& of $6.6 bn is $528 million which would just finance a commercial shuttle according to Pournelle's most recent figures. This also applies to any developed country & a lot of US states with GNP down to $213 billion annually which includes Hong Kong, Czech Republic (both 40) & Ireland (34). Singapore would have to make marginally more effort but, noting both their technophilia & equatorial location, can see them doing so.

Japan, Germany, China, France, Italy & probably Russia could match the full programme. The USA could do so with ease. Whether they have the gumption to do so is questionable but certainly somebody is going to. The future & untold wealth is out there for any country progressive enough to reach for it.

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