Asia-Pacific space sector development should leverage comparative advantages

27 July 2021

Many countries in the Asia-Pacific are developing their space sectors. Countries in the Asia-Pacific also have various political economy types. These two facts make it clear that policymakers should consider their political economies’ comparative advantages when going about developing their space sectors. In pursuing national space sector development, they should consider political-economic qualities and tailor development initiatives accordingly.

At the moment, many countries in the region, especially New Zealand, Australia, South Korea, Japan, China, and the United States, are seeing the growth of launch-related businesses. Much of this activity is supported by government-led initiatives. While developing launch capabilities is certainly important, there are other segments in the space sector that policymakers should consider investing in to benefit national economic growth — communications, downstream data analytics, and others.

The varied political-economic scene in the Asia-Pacific

Asia-Pacific is home to several developmental states: Japan, Singapore, South Korea, and Taiwan. These political economies are noted for heavy-handed government interventions in markets. Governments see their proper role as guiding the behaviour of market actors and financially incentivising firms to invest in areas they consider important for economic development. Japan’s cultivation of the manufacturing sector after World War II and Singapore’s efforts to attract foreign firms to establish regional headquarters in the city-state are classic examples of such developmentalism.

At the other end of the spectrum are ‘market-rational’ political economies, which value markets’ ability to self-organise based on the autonomous behaviour of market actors. In these countries, governments view intervention with suspicion and tend to focus on facilitating firms’ ability to do business by reducing regulatory hurdles. New Zealand, Australia, and the United States fit this mould.

Other political economies in the Asia-Pacific are more difficult to classify. In China, for instance, Deng Xiaoping reportedly admired Lee Kuan Yew’s economic progress in Singapore, and the city-state served as an inspiration for economic reforms. However, unlike Singapore, China emphasises politics more than business; consider reports from China of party representatives influencing foreign firms’ decision-making and compare that to Singapore being repeatedly ranked by the World Bank as one of the easiest jurisdictions to do business.

In ASEAN, many countries have political economies that are difficult to classify. Several have aspired to become high-income countries, but none have been as successful as Singapore. Scholars have argued that patrimonialism — a political-economic characteristic of these countries — prevents their success; government bureaucrats are sometimes more loyal to particular leaders than they are committed to state-led economic development projects.

What should policymakers in the Asia-Pacific do?

This variation in political economies means different countries are likely better suited to developing different segments of their space sectors. Given their ‘market-rational’ systems, countries like New Zealand and Australia may find it more beneficial to develop business areas characterised by rapid innovation and those prioritised by market actors rather than government objectives. Governments in these countries should avoid overly incentivising firms to change course, and should instead stick to facilitating the pre-existing activity.

Policymakers in New Zealand and Australia may consider targeting the downstream analytics segment for development since it is arguably characterised by rapid innovation. In line with political-economic characteristics, it may make sense for policymakers to grow analytics in ways that build off pre-existing business. Both countries have significant primary goods sectors, for instance, with significant support services for agriculture. Policymakers may therefore support the use of space-collected data in downstream analytics for agricultural customers by lowering barriers to doing business (e.g. making it easy to get relevant licenses).

Downstream analytics is also attractive because of the profitability it offers businesses. Many companies are putting constellations of satellites in orbit, but the only reason those satellites are useful is because of their data. Building up a data analytics business requires less capital investment than building up a satellite constellation. And, if done in a way that responds to real needs, the time to making a return is also brief: if farmers are willing to pay to know when to apply pesticide, then an agriculture-focused analytics firm can quickly turn around its product to make a profit.

In countries like Japan and South Korea, on the other hand, their political economies arguably make them better suited to segments that require long-term cooperation among market actors. These countries may be able to use government incentives to achieve radical economic transformation; they have bureaucratic coordination capabilities that are better at changing the course of business activity rather than simply continuing the trajectory of pre-existing activity.

In terms of relevant segments, one that stands out is communications; building up networks of ground stations or popularising new technology such as optical communications are capital-intensive affairs that take many years to yield profits. Policymakers in Japan and South Korea could encourage cooperation among market actors in this sector by committing resources and creating “greenhouses” for firms with desirable profiles.

Communications, like downstream analytics, is potentially lucrative because all space activity depends on communications. Launch vehicles and satellite constellations are headline-grabbers, but they are useless without communication. Uplinking must relay instructions to spacecraft, and downlinking is required to turn the data they collect into valuable services. The communications segment has high barriers to entry, but if one can stomach the wherewithal required to enter it, then one can tap into a captive market.

Avoid rushing into space sector development

A useful metaphor to consider is a gold rush. By the time something becomes so popular that everyone is pursuing it, you can expect most participants will not achieve fabulous wealth. That’s the era we are currently experiencing in the space sector, particularly regarding launch services. Every government, it seems, is rushing to capture some of the economic growth space offers. Political economies with poor planning will end up like disappointed miners. In California in the mid-1800s, some entrepreneurs realised that rather than sifting for gold, it made more sense to sell equipment to gold sifters. Others realised that miners needed financing, while some focused on developing tangential logistical services such as transporting the miners to and from various hotspots.

Governments should engage with the space sector, but they should do so purposefully, with intention. They should make plans for developing their space sectors in a spirit akin to the thoughtful planning of an entrepreneur who decides to sell gold sifting equipment. They should not act like hasty gold-seekers. To policymakers in the region: do not use taxpayers’ resources mindlessly. Think about your political-economic advantages, measure those up against market trends in space, and then proceed accordingly. And repeat such assessments regularly.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biography

Nicholas Borroz is completing his PhD in comparative political economy at the University of Auckland. He manages Rotoiti, a firm supporting clients in the space sector. He also manages Filling Space, a website that features interviews with individuals working in the space sector. Image credit: Wikipedia.