November 23, 2021

Import Substitution Is a Harsh Mistress

Attention conservation notice: 1400 words on the development economics of space colonization from someone who is neither an economist nor even a rocket scientist. Yet another semi-crank notion, quietly nursed for many years, drafted in this form in 2011, posted a decade later because I can't stand to do any more grading and want to procrastinate of Very Important Reasons I am not at liberty to reveal at this time.

So, what with the end of space shuttle flights and all, my feed-reader has been filled with people bemoaning the state of human space flight. While I share the sheer romantic longing for it (expressed with greater or lesser sophistication), if we want to consider other rationales for sending people into space, it's hard to come up with anything which can't be done better by robots. The only one I can think of is providing, as it were, a distributed back-up system for humanity --- places which could carry on the species should the Earth becomes uninhabitable. If this is the point, it imposes some constraints which are not, I think, sufficiently appreciated.

Colonies which could help in this way have to be at least potentially self-sufficient, without dependence on the Earth --- no spare parts, no processed intermediate inputs, nothing. Since there are no natural environments off Earth in which people can live, they will have to create artificial environments, which means that extra-terrestrial human societies must be industrial civilizations. Self-sufficiency means creating, in miniature, a whole industrial ecology.

Go read Brian Hayes's Infrastructure if you haven't already; I'll wait. We're talking about replicating all of those functions, and more. Now, remember that all the technologies whose complexities Hayes documents so lovingly have been developed to assume, and to make use of: gravity of 9.8 m s-2, ambient temperatures between ~230 and ~320 K, an unlimited supply of atmosphere which is about 20% oxygen at a pressure of about 105 N m-2, abundant and cheap liquid water, etc. Moreover, our technologies assume that their environment is big, so they can dump waste products, starting with heat and mechanical vibrations, into the environment. Simply sticking terrestrial machinery inside a small, fragile, carefully-controlled artificial environment is not going to work well. (You want to try running a smelter inside your space habitat?) So duplicating these capacities for a space colony will mean re-designing everything to fit local conditions profoundly different from anything we've faced before.

This will take a lot of design work and trial-and-error, hence it will be expensive: the workers and designers could have been doing other things, the parts and resources would have been put to other uses. How are these development costs to be recovered? The extra-terrestrial market, we will have to assume, will begin and long remain very much smaller than Earth's, so sharing those fixed development costs over a small population implies high average costs. (Colonies in different parts of the solar system will face different local conditions, and need to develop largely different technologies, so we can treat this colony by colony.) What about expanding the market by exporting? Suppose momentarily a complete subsidy for the fixed costs, and so think about marginal cost pricing. For exportable items, their cost at Earth will equal marginal cost of production in space plus marginal cost of interplanetary transport. Unless making comparable items on Earth is (almost literally) astronomically more expensive, there will be no export market for the colonies. And this is assuming, again that investors were willing to write off all development costs.

(At this point, readers may be tempted to invoke comparative advantage, and say that even if Space is less efficient at producing everything than Earth is, both Space and Earth will be better off if Space makes what it is relatively better at. Carefully examined, however, what the classic Ricardian argument proves is that there is an opportunity cost to not using the less-efficient country's factors of production, viz., the stuff which it could have, inefficiently, produced. To minimize the opportunity cost of letting those factors go idle, they should be employed in their least-inefficient use. So even if making widgets costs 1000 times as much in Space as on Earth, if widgets are the least-inefficient of Space's factors of production, it should make widgets, and trade them for other things. But this presumes that Space and its factors would exist without the trade. Since, for us, the whole question is whether there should be any workers, capital, etc., in Space, this line of argument just doesn't apply.)

Unless people come up with something valuable which can be made in space but cannot, or almost cannot, be made on Earth, it's hard to think of any manufactured goods which it would be sensible to export from space. What might make sense would be for space colonies to find comparatively cheap natural resources, requiring minimal on-site processing, and export them to Earth, in exchange for, well, everything else. Ideally the exports from the colonies would also be very stable physically and chemically, so they could be sent by slow, low-energy, automated (and therefore cheap) orbits to Earth. When you figure out what those resources are, especially ones that Earth doesn't already have in abundance, let the worlds know; please don't say "helium 3". Alternatively, one thing which can be produced on (say) Titan vastly more cheaply than on Earth is the experience of being on Titan: encapsulated in the form of science or entertainment, that experience could be shipped very cheaply to Earth, which might be willing to pay for it. Of course, neither an economy based on resource-extraction nor one based on scientific papers and reality TV would be self-sufficient. The logic of endogenous comparative advantage would, in fact, lock in place the mother of all core-periphery divisions, with the space colonies as the eternally dependent periphery.

A colony could, I suppose, decide to impose on itself the costs of developing its own industrial infrastructure, so as to replace imports from Earth. Those costs, to repeat, would be very high. Moreover, there's really no substitute for experience and experiment in improving technologies, so the initial quality and reliability will be low. Since, again, the local market will be small, it will not be able to support many producers, perhaps just one in each sector. There will be little scope for a diversity of local approaches to the problems of the industry, slowing innovation. There will also be little or no competition, with all that entails.

The picture of space colonies which might actually become self-sufficient, then, looks something like this. The population is forced by its leaders to endure endless privations to build monopolistic industries which produce inferior goods to those already available on the universal market, grimly tending towards autarky while exporting primary goods for the time being, on the promise that one day all of these sacrifices will be redeemed when they become the future of humanity. Somehow, I doubt there are many who find the idea of building socialism in one habitat compelling; Ken MacLeod may know them all by name.

(I have assumed everything stays within the solar system, because, pace Krugman, interstellar trade makes no sense at all. A civilization which could command enough energy to accelerate a large object to a significant fraction of the speed of light, so that trips between nearby stars take only decades, has no economic problem. At perhaps-attainable velocities, with thousands or tens of thousands of years of travel time, exchange is economically irrelevant, though it might still be attempted for cultural reasons. The obstacles in the way of human interstellar travel are of course immense. I have long thought it vastly more plausible to send robots which could then build suitable environments in which to grow human beings [also recently proposed by Charlie Stross], and that involves bio-engineering hand-waving of epic proportions.)

Comment, Nov. 2021: On re-reading, my treatment of the Ricardian argument is a little cavalier, but I don't feel energetic enough to write out and solve a New Economic Geography model where population and comparative advantage are both endogenous. If anyone is inspired to do this properly, though, I'd be genuinely fascinated to read it, and promise to link here.

The Eternal Science of These Infinite Spaces; The Dismal Science

Posted at November 23, 2021 10:45 | permanent link

Three-Toed Sloth