SF and Economics
Technological development and economics are entwined. That’s why I think it’s a good idea for science fiction writers, or at least, those who take predictions of the future at least moderately seriously, to have some basic understanding of the fundamentals of economics.
Take robotics. Why don’t we all have personal robot servants by now? Or at least, why aren’t the more menial jobs, like garbage collection and street sweeping, done by robotic vehicles? The technology is clearly here, there’s no doubt it’s all technically feasible.
Well, it’s the economics, stupid. The Japanese are developing robot staff for hospitals and aged care homes, to take a load of work off the human staff. In Japan, that might make sense, because wages are high and immigration is low. A robot might cost $200,000 (for the purposes of illustration, all figures shall be in US dollars) but considering that a regular staff member might be $40,000 per year in Japan, the robot will pay for itself in five years. Or maintenance and power included, maybe six or seven. By which stage it will probably be obsolete, but if the design is modular, and CPUs, sensory systems etc, can be upgraded, perhaps that can be extended.
But there’s no demand for robots to take menial jobs in a place like, say, France, because unemployment is high, and there’s loads and loads of North African or Turkish immigrants who’ll do the work far cheaper. Ditto poorer countries like China and India, even mores. And that’s as should be -- it would be both economically stupid, and morally repugnant, to be depriving poor workers of the opportunity to work by replacing them with expensive machines. Deprived of a viable market, there’s little investment in these fields of commercial robotics, and the technology growth is restrained. Of course, when world poverty is history, and everyone is wealthy, that will change.
Then there’s space exploration. Every new piece of territory conquered by a human civilisation has been consolidated (or not) through trade. The British Empire, and the Roman one before it, and (if one subscribes to the term, which I don’t) the American Empire, even mores. If we go to space to stay, it’ll be because there’s profit in it. Profit, of course, is a capitalist term, and all the empires named above were certainly capitalist. The problem with the current approach of organisations like NASA is that they are communist in nature, and we’ve already seen what happens to communist empires.
There’s only one thing that will get the human species back into space to stay, and it’s not another multibillion dollar NASA contract to Boeing or Lockheed-Martin to build some already-obsolete piece of junk that will be horrendously expensive to use for everyone but NASA. Whenever you hear on the news some latest ‘plan’ by some big organisation to go to Mars or the Moon or whatever, ignore it. It won’t be a ‘plan’. The only growth worth having is organic growth, because that’s the only kind that lasts.
The thing to do is quite simple -- lower the prices to the point that lots of private players can enter the market, and then get out of the way. Capitalism at its best can do amazing things, and this promises to be capitalism at its best. Already there are many competing sub-orbital vehicles under development for tourism purposes, and the economics of their operation promises to be very interesting, and hopefully, quite competitive.
Let’s assume the private sub-orbit companies can make money, as I believe they will (some of them, anyway). Critics point out that sub-orbit is one-twenty-fifth the velocity required for orbit, and the technological achievement to get to sub-orbit is thus insignificant. But those critics miss the point that technology alone is only a small part of the equation required to make the human race a space faring species. We need operators (spacelines, if you like) with experience and skills. We need manufacturers, both of complete vehicles, and of key components, like rocket engines, heat shielding systems, avionics, etc. We need logistics. We need personnel management -- tourism companies that know how to make space-tourists comfortable, healthy and nausea-free on their adventures. And we need insurance, and investment, and established stock prices, and good legislation, and for the media to get a handle on what the whole industry is about.
A competitive, profitable sub-orbital industry could establish all of these things, well before orbital travel becomes commonplace, and thus lay the groundwork. Furthermore, if all the participating companies are making profits, then they stand a good chance to get venture-capitalists interested, thus attracting large sums of money into all the relevant R&D projects, thus eventually solving the technology problem too. But investors won’t invest in industries where there’s no proof of a profit, so sub-orbital industries can establish proof-of-concept too.
The way to spot a market boom on the horizon is to spot future potential mismatches of supply and demand. Those don’t get much bigger than in space travel. Sure, not many people would want to do it as it stands today -- not only is it horrendously expensive, it’s also difficult, strenuous, and dangerous. So imagine it becomes as cheap as a luxury ocean liner cruise, and about as safe (although those lukewarm smorgasbord lunches can be lethal). Your market is the entire human species. That’s six billion people, heading toward seven. Only about a billion of them are ‘first world wealthy’, but China and India are booming, and they have nearly 2.4 billion between them... and they’ll pull lots of other nations up behind them. Millions of people take luxury cruises every year. How much more exciting is space?
If someone becomes convinced enough of the prospects that they put a few billion toward the development of orbit-capable scramjets, and the price-to-orbit suddenly drops to about $10,000 per person (apparently possible, although it won't happen SUDDENLY, I'm just illustrating), there’ll be several million people from all over the world astonished to find themselves above the income threshold where holidays in orbit become affordable. You’d see a massive infrastructure boom in orbit to accommodate them all, with grand space stations and rapid technological advances (they’d have to be big, economies of scale mean facility operators would make more profit per head by reducing infrastructure costs per person, just like in regular hotels). Imagine the capacity requirements. Getting to the moon from orbit is relatively simple, so lunar infrastructure would boom too.
With tourism as the kick-starter, costs would fall sufficiently to bring other business models from the red into the black. All this construction activity would do the same thing that construction booms do anywhere in the world -- create big markets for construction materials, mining, transport and labour. Need metals for those big facilities? It’s still probably cheaper to get it in space than lug it up from Earth, so mine an asteroid... also apparently quite feasible, if there’s a market. In fact, it’d be cheaper to make most things locally (off Earth) than lug them up from the bottom of a gravity well, so there’d be a rush of localisation to lower costs -- manufacturing, food production, oxygen, water, basic consumables, you name it. For example, they could grow wheat in lunar hydroponic facilities, harvest it, make dough, and export it to all other facilities that want bread. I foresee facility managers going over their manifest of items imported each week from Earth, and ticking all the ones they’d save money on by producing locally, and those would be the new local industries. The desire to localise everything to save money will create all kinds of off-Earth production technologies, and help create more and more self-sufficiency. That self-sufficiency will increase as the off-Earth economy, facilities, and... hell, let’s call them colonies (oh please let’s!) become larger, and acquire economies of scale of their own.
From there, the solar system beckons, and we’d be acquiring all the skills and knowledge required to move out into it. NASA, and agencies around the world like them, would be freed from their current straightjacket, and would take on the new role of exploring the solar system... before the private companies get there first. They’d do the stuff, and the science, that the private sector can’t do, or shouldn’t be expected to. Like exploring Mars, or the Jovian System, or the Saturnian System... with people, not robots. Which would be the coolest thing that could ever happen to NASA, certainly much cooler than running a glorified but dangerous lorry service to a space station that is already obsolete, has no apparent function, and will become even more anachronistic in years ahead.
There are other economic issues that need to be considered, too, when thinking about the future. Take space elevators. Arthur C Clarke says they’re technically viable, and I’m not stupid enough to argue with an endorsement like that. My problem with the concept is this -- the engineers said the Channel Tunnel between England and France was technically viable too, and they were right. What they didn’t consider were the commercial challenges faced by fixed infrastructure against flexible transport. They failed to foresee the rise of low-cost airlines, and now Channel Tunnel users are only a quarter of their projected numbers. Instead of going next door, English and French holiday makers can now afford to go to Spain, Italy or further afield in Europe, thanks to low cost airlines. And the tunnel is struggling to pay off the enormous debt of its own construction.
I foresee something similar with space elevators, if they’re ever built. When we get an orbital boom, (and if elevators brought the price down as low as some pundits are claiming, that by definition creates an orbital boom) can they handle all the traffic? If it takes a few hours to get to orbit and back on the elevator ribbon, that’s, what, maybe six trips a day? You can’t run multiple cars on the ribbon, because they’d be too heavy and pull the counterweight out of orbit. If each of these cars is big, and carries anything up to fifty people, it’s still not enough to service the demand I see coming. Not nearly enough. We’re talking millions of people a year, here. And those passengers won’t all be wanting to go to the same destination in convenient groups of fifty -- no, you’ll have fifteen going to the Hilton 2 in 18 degrees elliptic at 680,000 feet, and twenty one people going to the Pleasure Star at 21 degrees elliptic at 820,000 feet, and another five going to New Haven City on the Sea of Tranquility via a three day stopover at the Emerald Star in geosynchronous orbit... etc. Ask anyone who’s ever worked in logistics, it’s a hell of a complicated business. Reliability, flexibility, and rapid turnarounds are key. Fixed infrastructural bottlenecks are murder, especially on the bottom line.
So build many elevators, to cater to all this demand. Okay... but you’ve still got scheduling problems. You’d have to book weeks in advance, for one thing, or there’d be chaos. But schedules change. Unforeseen circumstances are, well, unforeseen. Flexibility, as in all business models, will save money, and inflexibility will cost it. And elevators can only deliver cargo to fixed spots in space, the rest is orbital manoeuvre... so you wouldn’t save time, because you can’t go directly to your location, as a spaceplane would. Some desirable locations (hotels in higher orbit, or even geosynchronous, for that awesome, more expensive view) wouldn’t even be accessible -- elevators could take a week to get to geosynchronous, which would delay all other traffic for that week, which would thus be economically unviable. And most of them would be located on the equator, because the high-altitude winds at other latitudes would turn them into the world’s largest skipping ropes... so if you’re not easily accessible from equatorial orbit, tough. The problem with space elevators is their supposed attractiveness is based only upon the orbital market as it stands today... but if there was a boom, the orbital market would transform radically, thus sowing in the space elevator concept the seeds of its own demise. All these hidden costs, bottlenecks and delays... there may be a niche for elevators, but when the boom really hits, I’ll bet on the inherent flexibility of airline-style services, point-to-point travel and charter flights. They may look more expensive on paper, but in practise, I’ll bet otherwise.
Aircars are another fascinating one. There’s a guy called Moller who’s building real flying cars. Whoopee. Whether they actually work or not is another question... but let’s assume they do, and let’s assume they cost half a million each. At that price, who’d be able to afford them? That’s what I thought at first... but think about it. How much does an inner city or suburban house or apartment cost in a big city? You could be looking at close to a million in anyone’s currency these days.
Moller’s aircar can cruise at 300mph for three hours. So if you don’t mind a one-hour commute to work (much better view from 20,000 feet than on the subway, I’d guess) you could live 300 miles from work. On a farm, in a small town, in the middle of nowhere. 150 miles, half an hour’s travel. How much does property cost out there? $200,000 for a nice big farmhouse? Plus the half-a-million aircar, and you’ve saved $300,000 on that million-dollar house in the city, and have a better quality of life... if you like the country, anyway.
City prices could plummet, if aircars caught on. My guess is they wouldn’t collapse, because cities have an intrinsic attraction for many people, and if everyone left for the country, the country would start resembling the city, and then wouldn’t be the country anymore, would it? But certainly that one invention could completely change the demographics and economics of modern human civilisation. But no great surprise there -- cars did, as did trains, as did aeroplanes... and so will spacetravel, one day. Transport is intrinsic to all civilisations, and always will be.
That’s for starters, and I’m sure there’s all kinds of other economic angles for the above mentioned technologies I’ve missed. This is the kind of analysis, for me, that determines whether or not something’s actually likely to happen. Not that any of us, of course, have any REAL idea what’s likely and what isn’t...
Take robotics. Why don’t we all have personal robot servants by now? Or at least, why aren’t the more menial jobs, like garbage collection and street sweeping, done by robotic vehicles? The technology is clearly here, there’s no doubt it’s all technically feasible.
Well, it’s the economics, stupid. The Japanese are developing robot staff for hospitals and aged care homes, to take a load of work off the human staff. In Japan, that might make sense, because wages are high and immigration is low. A robot might cost $200,000 (for the purposes of illustration, all figures shall be in US dollars) but considering that a regular staff member might be $40,000 per year in Japan, the robot will pay for itself in five years. Or maintenance and power included, maybe six or seven. By which stage it will probably be obsolete, but if the design is modular, and CPUs, sensory systems etc, can be upgraded, perhaps that can be extended.
But there’s no demand for robots to take menial jobs in a place like, say, France, because unemployment is high, and there’s loads and loads of North African or Turkish immigrants who’ll do the work far cheaper. Ditto poorer countries like China and India, even mores. And that’s as should be -- it would be both economically stupid, and morally repugnant, to be depriving poor workers of the opportunity to work by replacing them with expensive machines. Deprived of a viable market, there’s little investment in these fields of commercial robotics, and the technology growth is restrained. Of course, when world poverty is history, and everyone is wealthy, that will change.
Then there’s space exploration. Every new piece of territory conquered by a human civilisation has been consolidated (or not) through trade. The British Empire, and the Roman one before it, and (if one subscribes to the term, which I don’t) the American Empire, even mores. If we go to space to stay, it’ll be because there’s profit in it. Profit, of course, is a capitalist term, and all the empires named above were certainly capitalist. The problem with the current approach of organisations like NASA is that they are communist in nature, and we’ve already seen what happens to communist empires.
There’s only one thing that will get the human species back into space to stay, and it’s not another multibillion dollar NASA contract to Boeing or Lockheed-Martin to build some already-obsolete piece of junk that will be horrendously expensive to use for everyone but NASA. Whenever you hear on the news some latest ‘plan’ by some big organisation to go to Mars or the Moon or whatever, ignore it. It won’t be a ‘plan’. The only growth worth having is organic growth, because that’s the only kind that lasts.
The thing to do is quite simple -- lower the prices to the point that lots of private players can enter the market, and then get out of the way. Capitalism at its best can do amazing things, and this promises to be capitalism at its best. Already there are many competing sub-orbital vehicles under development for tourism purposes, and the economics of their operation promises to be very interesting, and hopefully, quite competitive.
Let’s assume the private sub-orbit companies can make money, as I believe they will (some of them, anyway). Critics point out that sub-orbit is one-twenty-fifth the velocity required for orbit, and the technological achievement to get to sub-orbit is thus insignificant. But those critics miss the point that technology alone is only a small part of the equation required to make the human race a space faring species. We need operators (spacelines, if you like) with experience and skills. We need manufacturers, both of complete vehicles, and of key components, like rocket engines, heat shielding systems, avionics, etc. We need logistics. We need personnel management -- tourism companies that know how to make space-tourists comfortable, healthy and nausea-free on their adventures. And we need insurance, and investment, and established stock prices, and good legislation, and for the media to get a handle on what the whole industry is about.
A competitive, profitable sub-orbital industry could establish all of these things, well before orbital travel becomes commonplace, and thus lay the groundwork. Furthermore, if all the participating companies are making profits, then they stand a good chance to get venture-capitalists interested, thus attracting large sums of money into all the relevant R&D projects, thus eventually solving the technology problem too. But investors won’t invest in industries where there’s no proof of a profit, so sub-orbital industries can establish proof-of-concept too.
The way to spot a market boom on the horizon is to spot future potential mismatches of supply and demand. Those don’t get much bigger than in space travel. Sure, not many people would want to do it as it stands today -- not only is it horrendously expensive, it’s also difficult, strenuous, and dangerous. So imagine it becomes as cheap as a luxury ocean liner cruise, and about as safe (although those lukewarm smorgasbord lunches can be lethal). Your market is the entire human species. That’s six billion people, heading toward seven. Only about a billion of them are ‘first world wealthy’, but China and India are booming, and they have nearly 2.4 billion between them... and they’ll pull lots of other nations up behind them. Millions of people take luxury cruises every year. How much more exciting is space?
If someone becomes convinced enough of the prospects that they put a few billion toward the development of orbit-capable scramjets, and the price-to-orbit suddenly drops to about $10,000 per person (apparently possible, although it won't happen SUDDENLY, I'm just illustrating), there’ll be several million people from all over the world astonished to find themselves above the income threshold where holidays in orbit become affordable. You’d see a massive infrastructure boom in orbit to accommodate them all, with grand space stations and rapid technological advances (they’d have to be big, economies of scale mean facility operators would make more profit per head by reducing infrastructure costs per person, just like in regular hotels). Imagine the capacity requirements. Getting to the moon from orbit is relatively simple, so lunar infrastructure would boom too.
With tourism as the kick-starter, costs would fall sufficiently to bring other business models from the red into the black. All this construction activity would do the same thing that construction booms do anywhere in the world -- create big markets for construction materials, mining, transport and labour. Need metals for those big facilities? It’s still probably cheaper to get it in space than lug it up from Earth, so mine an asteroid... also apparently quite feasible, if there’s a market. In fact, it’d be cheaper to make most things locally (off Earth) than lug them up from the bottom of a gravity well, so there’d be a rush of localisation to lower costs -- manufacturing, food production, oxygen, water, basic consumables, you name it. For example, they could grow wheat in lunar hydroponic facilities, harvest it, make dough, and export it to all other facilities that want bread. I foresee facility managers going over their manifest of items imported each week from Earth, and ticking all the ones they’d save money on by producing locally, and those would be the new local industries. The desire to localise everything to save money will create all kinds of off-Earth production technologies, and help create more and more self-sufficiency. That self-sufficiency will increase as the off-Earth economy, facilities, and... hell, let’s call them colonies (oh please let’s!) become larger, and acquire economies of scale of their own.
From there, the solar system beckons, and we’d be acquiring all the skills and knowledge required to move out into it. NASA, and agencies around the world like them, would be freed from their current straightjacket, and would take on the new role of exploring the solar system... before the private companies get there first. They’d do the stuff, and the science, that the private sector can’t do, or shouldn’t be expected to. Like exploring Mars, or the Jovian System, or the Saturnian System... with people, not robots. Which would be the coolest thing that could ever happen to NASA, certainly much cooler than running a glorified but dangerous lorry service to a space station that is already obsolete, has no apparent function, and will become even more anachronistic in years ahead.
There are other economic issues that need to be considered, too, when thinking about the future. Take space elevators. Arthur C Clarke says they’re technically viable, and I’m not stupid enough to argue with an endorsement like that. My problem with the concept is this -- the engineers said the Channel Tunnel between England and France was technically viable too, and they were right. What they didn’t consider were the commercial challenges faced by fixed infrastructure against flexible transport. They failed to foresee the rise of low-cost airlines, and now Channel Tunnel users are only a quarter of their projected numbers. Instead of going next door, English and French holiday makers can now afford to go to Spain, Italy or further afield in Europe, thanks to low cost airlines. And the tunnel is struggling to pay off the enormous debt of its own construction.
I foresee something similar with space elevators, if they’re ever built. When we get an orbital boom, (and if elevators brought the price down as low as some pundits are claiming, that by definition creates an orbital boom) can they handle all the traffic? If it takes a few hours to get to orbit and back on the elevator ribbon, that’s, what, maybe six trips a day? You can’t run multiple cars on the ribbon, because they’d be too heavy and pull the counterweight out of orbit. If each of these cars is big, and carries anything up to fifty people, it’s still not enough to service the demand I see coming. Not nearly enough. We’re talking millions of people a year, here. And those passengers won’t all be wanting to go to the same destination in convenient groups of fifty -- no, you’ll have fifteen going to the Hilton 2 in 18 degrees elliptic at 680,000 feet, and twenty one people going to the Pleasure Star at 21 degrees elliptic at 820,000 feet, and another five going to New Haven City on the Sea of Tranquility via a three day stopover at the Emerald Star in geosynchronous orbit... etc. Ask anyone who’s ever worked in logistics, it’s a hell of a complicated business. Reliability, flexibility, and rapid turnarounds are key. Fixed infrastructural bottlenecks are murder, especially on the bottom line.
So build many elevators, to cater to all this demand. Okay... but you’ve still got scheduling problems. You’d have to book weeks in advance, for one thing, or there’d be chaos. But schedules change. Unforeseen circumstances are, well, unforeseen. Flexibility, as in all business models, will save money, and inflexibility will cost it. And elevators can only deliver cargo to fixed spots in space, the rest is orbital manoeuvre... so you wouldn’t save time, because you can’t go directly to your location, as a spaceplane would. Some desirable locations (hotels in higher orbit, or even geosynchronous, for that awesome, more expensive view) wouldn’t even be accessible -- elevators could take a week to get to geosynchronous, which would delay all other traffic for that week, which would thus be economically unviable. And most of them would be located on the equator, because the high-altitude winds at other latitudes would turn them into the world’s largest skipping ropes... so if you’re not easily accessible from equatorial orbit, tough. The problem with space elevators is their supposed attractiveness is based only upon the orbital market as it stands today... but if there was a boom, the orbital market would transform radically, thus sowing in the space elevator concept the seeds of its own demise. All these hidden costs, bottlenecks and delays... there may be a niche for elevators, but when the boom really hits, I’ll bet on the inherent flexibility of airline-style services, point-to-point travel and charter flights. They may look more expensive on paper, but in practise, I’ll bet otherwise.
Aircars are another fascinating one. There’s a guy called Moller who’s building real flying cars. Whoopee. Whether they actually work or not is another question... but let’s assume they do, and let’s assume they cost half a million each. At that price, who’d be able to afford them? That’s what I thought at first... but think about it. How much does an inner city or suburban house or apartment cost in a big city? You could be looking at close to a million in anyone’s currency these days.
Moller’s aircar can cruise at 300mph for three hours. So if you don’t mind a one-hour commute to work (much better view from 20,000 feet than on the subway, I’d guess) you could live 300 miles from work. On a farm, in a small town, in the middle of nowhere. 150 miles, half an hour’s travel. How much does property cost out there? $200,000 for a nice big farmhouse? Plus the half-a-million aircar, and you’ve saved $300,000 on that million-dollar house in the city, and have a better quality of life... if you like the country, anyway.
City prices could plummet, if aircars caught on. My guess is they wouldn’t collapse, because cities have an intrinsic attraction for many people, and if everyone left for the country, the country would start resembling the city, and then wouldn’t be the country anymore, would it? But certainly that one invention could completely change the demographics and economics of modern human civilisation. But no great surprise there -- cars did, as did trains, as did aeroplanes... and so will spacetravel, one day. Transport is intrinsic to all civilisations, and always will be.
That’s for starters, and I’m sure there’s all kinds of other economic angles for the above mentioned technologies I’ve missed. This is the kind of analysis, for me, that determines whether or not something’s actually likely to happen. Not that any of us, of course, have any REAL idea what’s likely and what isn’t...
3 Comments:
An economic case similar to the channel tunnel was Teledesic (and Globalstar). Satellite-based mobile phone service sounded OK, except by the time the birds got launched the terrestrial cell service was ubiquitous and cheap.
As for flying cars -- yeah, they're great as long as you're the only one who has one. But I shudder to think of the rush hour skies filled with small aircraft and incompetent pilots, with every fender bender resulting in a spectacular firey tailspin!
But, good to see there's one Sci Fi writer who's thinking about economics. I gave up reading Fantasy & Science Fiction mag after one article too many showing a perverse ignorance of economics.
Kevin
Hi Kevin
Teledesic is an excellent example, it's why whenever there's some new whizzbang technology, I always reckon its safer to wait a few years before buying and see which way the market consolidates. Beta-max videos anyone?
With flying cars, the idea is to create a centralised, automated traffic control system using all the fancy new GPS gear, and all the aircars will fly on autopilot. And yeah, I could immediately write an essay on all the stuff they'll have to solve before THAT one happens... like who'll pay for it? And what happens in an in-flight emergency if none of the passengers are pilot-rated? But that's another post...
You're right, there's NOT a lot of SF interested in economic realism... and that's another post too! But another book coming soon to my US publisher Pyr is Infoquake, by David Louis Edelman, which is on my 'to buy' list and is entirely set in a corporation...
Joel
I really like this analysis on the economics of space travel and flying cars.
I have a few points I'd like to bring up though:
I'd imagine that the market that the flying cars will appeal to would be wealthy professionals, the sort of people who would take flying lessons for light airplanes like Cessnas. I'd sure they wouldn't mind having to take lessons and be certified for flying cars in a manner similar to licensing for airplanes.
I don't really see many people switching over from car + inner city to aircar + rural mansion. People who do live in the inner city and prestige suburbs like the convenience and lifestyle, in Sydney, it also acts as a badge of class. If they have a fancy mansion in the middle of nowhere that can only be accessed by aircar it'd be difficult to invite their friends there.
As to those who are already living in the outer suburbs around the periphery of the city, they are either too poor to afford it or having families, which would also make it unlikely for them to want to live in the sticks.
If you consider the social factors I think you'll find that the most likely early adopters would be millionaires who would use them to visit holiday houses (rather than primary dwellings), country clubs, golf courses and marinas etc.
Of course, I may be completely wrong considering the case of all the U.S. companies that moved HQ's from N.Y. to conneticut to save their C.E.O.s a long commute.
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