The importance of co‐ordination in national technology policy: Evidence from the Galileo project1

Paper presented at the May 2002 Ehud Zuscovitch Memorial Conference, BETA, Strasbourg, France. The authors thank the organisers and participants for useful comments. The usual disclaimer applies.

Abstract

We assess the benefits from transatlantic collaboration in technology policy for publicly‐funded R&D space projects such as Galileo, a proposed European radio‐navigation space project. An industrial organisation methodology is employed to model negative security spillovers of ‘unilateral’ space projects such as Galileo, or space‐based anti‐ballistic missile defence, on the public sector of the other region (the US vs. the European Union). The findings imply that transatlantic co‐ordination in technology policy is required to allow the respective space industries (in the US and the European Union) to exploit the benefits of cross‐border strategic research partnerships (SRPs). This coordination not only reduces the costs of the respective programmes, but also addresses security concerns.

Keywords:

• Galileo
• navigation
• space
• technology policy
• transatlantic

Notes

Paper presented at the May 2002 Ehud Zuscovitch Memorial Conference, BETA, Strasbourg, France. The authors thank the organisers and participants for useful comments. The usual disclaimer applies.

For example, value added services include the incorporation of positioning functions for emergency services in mobile telephones, high‐precision navigation support for aircraft and in‐vehicle navigation services to drivers; see European Commission, The Galileo Program, report of the European Commission, Brussels, Belgium, 2002, online at http://www.europa.eu.int/comm/energy_transport/en/gal_how_en.html.

Ibid.

For example, the status of the US GPS can change, or problems with global security can arise, due to the non‐maturing of sustained commercial applications of high‐accuracy navigation. The bankruptcy of the space‐based mobile telephony service provider Iridium, which by the time it was built was too expensive to compete against the rival terrestrial networks, highlights how market studies often neglect the ‘reaction’, or development of competing systems.

The same can be said of the Internet, which was developed primarily by the US DoD, as noted in D. C. Mowery and T. Simcoe, ‘Is the Internet a US invention? An economic and technological history of computer networking’, Research Policy, 31, 8–9, 2002, pp. 1369–87.

The accuracy has gone down to a few meters by 2000, see Peter E. Dana, The Global Positioning System, 1999, online at http://www.colorado.edu/geography/gcraft/notes/gps/gps_f.html.

European Commission, Commission Communication to the European Parliament and the Council On Galileo, European Commission, Brussels, 2000.

Ibid.

See V. Zervos, ‘The markets for launching services and industrial space policies in Europe and the US’, conference paper, 51st International Astronautical Congress, Rio de Janeiro, Brasil, October 2000, American Institute of Aeronautics and Astronautics paper no.: IAA‐00‐IAA.4.1.04. Reprints available from AIAA, Washington, DC.

See V. Zervos, ‘The economics of the European space industry: the impact of the government space market on structure, conduct and performance’, in G. Haskell and M. Rycroft (eds), New Space Markets, Kluwer Academic Publishers, the Netherlands, 1998; V. Zervos, The Economics of the European Space Industry, D.Phil. thesis (Economics), University of York, UK, 2001.

For the ‘Buy American Act’, see Federal Acquisition Regulations–FAR, 2002, online at http://www.arnet.gov/far/current/html/Subpart_25_1.html. ESA applies the principle of ‘juste retour’ in its industrial policy, meaning that it aims to equalise member‐state contributions to space programmes with value of appropriations directed to the respective national space industry.

There is an extensive literature analysing the impact of monopoly markets on competition in a single product case. Refer to the relevant literature by J. A. Brander and P. R. Krugman, ‘A reciprocal dumping model of international trade’, Journal of International Economics, 15, 1983, pp. 313–23; A. R. Cooper and K. Hartley, Export Performance and the Pressure of Demand, University of York Studies in Economics, T&A Constable, Edinburgh, 1970; as well as the examining of a numerical example of a similar model with one monopoly market. See I. J. Bulow, D. J. Geanakoplos and D. Klemperer, ‘Multimarket oligopoly: strategic substitutes and complements’, Journal of Political Economy, 93, 1985, pp. 489–511.

Zervos, 2001, op. cit.

See T. Sandler and K. Hartley, The Economics of Defense, Cambridge University Press, New York, 1995; V. Zervos, ‘The impact of the strategic defence initiative on the space race’, Journal of Defense and Peace Economics, 15, 4, August 2004, pp. 365–77.

Zervos, 2001, op. cit.

See A. M. Taverna, ‘U.S., China, eye Galileo’, Aviation Week and Space Technology, 31 January 2005, p. 26.

Ibid.

Several reports on the European space industry (see Zervos, 2001, op. cit.,) indicate that there is no substantial cost differences between the US and European space industries, and this result seems plausible for the commercial products, given the commercial orientation of the European space industry. For the military space products however, due to their generic and custom made nature, this is hard to establish. This lack of substantial cost differences can also be attributed to the subsidisation of the EU space industry by the EU public sector, in the form of contributions to ESA and subsidisation of publicly owned or controlled aerospace firms.

It would be reasonable to expect that beyond some production level, the production of any good would be subject to diseconomies of scale.

There are a number of relevant studies for the commercial airliner manufacturers, such as G. Klepper, ‘Entry into the market for large transport aircraft’, European Economic Review, 34, 4, June 1990, pp. 775–803; G. Klepper, ‘Industrial policy in the transport aircraft industry’, in P. Krugman and A. Smith (eds), Empirical Studies of Strategic Trade Policy, NBER, University of Chicago Press, 1994; D. Neven and P. Seabright, ‘European industrial policy: the airbus case’, Journal of Economic Policy, 21, October 1995, pp. 313–58.

See V. Zervos, ‘A view to the future: trans‐Atlantic space firms and US–European industrial policy co‐ordination’, conference paper, 50th International Astronautical Congress, Amsterdam, the Netherlands, 1999, American Institute of Aeronautics and Astronautics, paper No. IAA‐99‐IAA.3.1.09. Reprints available from AIAA, Washington, DC.

Ibid., p. 449.