>NASA Technological Spinoff Fables
Many supporters of the space program have placed great stock in the
benefits of technological spinoff from the space effort for the
American economy. Proponents estimates of the rate of return from
NASA spending range from $7 in return from every $1 of NASA
spending (Lyttle, David, "Is Space Our Destiny?" Astronomy,
February 1991, page 6) to $23 in return for every $1 of NASA
spending (Chase Econometric Associates, "The Economic Impact of
NASA R&D Spending," prepared under NASA contract NASW-2741, April
Popular citation of these figures to bolster support for NASA
funding are quite misleading, since they overlook the methodology
by which they were derived. It is popularly claimed that studies
have "concluded" that NASA research produces an "above average"
rate of return. The reality is that these studies have "assumed"
that NASA research has an "average" return relative to other types
And a General Accounting Office review of NASA studies of economic
benefits concluded that their results were (General Accounting
Office, "NASA Report May Overstate The Economic Benefits Of
Research and Development Spending," PAD-78-18, 18 October 1977):
"... not crucial to deciding whether more or less money
should be spent on NASA R&D, because similar effects
could be obtained by other forms of government spending
-- such as defense procurement or energy R&D. Tax cuts
are, of course, a comparable alternative..."
Spinoff proponents overlook the fundamental difference between
private profit-seeking R&D and federal expenditures that are
labeled R&D. A 20% return on investment is an equilibrium value for
the typical rate of return currently required on commercial
investments. Those R&D investments promising higher rates of return
are funded, and those with lower rates of return are not funded.
This is simply saying that an private commercial investor will seek
about this rate of return.
This is not to say that any expenditure labeled "R&D" will provide
this return. Commercial and government R&D have little in common
beyond the fact that both are performed by scientists and
engineers. Federal "R&D" expenditure levels are determined by a
wide range of factors that seldom includes expected rate of return,
and thus there is no basis for assuming that government research
investments will realize a rate of return commensurate with private
One could just as easily assume, absent evidence to the contrary,
that NASA R&D has a rate of return of about zero, since otherwise
the R&D would be conducted by the private sector. And there is
little homogeneity in what is considered "R&D" by the government.
NASA's "R&D" budget declined in the early 1980s when the Shuttle
was declared "operational" by administrative fiat, but this had
little impact on actual Shuttle program technology content.
The argument in favor of spinoffs is further flawed by its failure
to distinguish the relative contributions of technology push and
market pull in the transfer process. The implicit assumption of the
spinoff advocates is that the primary bottle-neck to technical
innovation is the absence of new technology, rather than the
absence of a market. But in general, the range of technologies that
are feasible from an engineering standpoint is much broader than
the range of technologies that pass the test of marketing
feasibility. One has only to look at the fates of quadrophonic
sound systems, Betamax video cassets, and laser video-discs to
understand that inadequate engineering ingenuity is not the main
barrier to commercial success.
A closer examination of the spinoff record would provide little
comfort for space advocates. One recent German analysis of space
spinoffs concluded that (Schmoch, Ulrich, et al, "Analysis of
Technical Spin-Off Effect of Space-Related R&D by Means of Patent
Indicators," 41st Congress of the International Astronautical
Federation, 6-12 October 1990, IAA-90-610.):
"The overall conclusion to be drawn from this is that the
spin-off rate is very low in highly specialized space
projects -- a conclusion which coincides with the finds
of other investigations. The concept of a decisive spin-off in the narrow, real sense of the term cannot
therefore be validated on the result of these findings...
many standard examples of spin-offs may be traced back to
the first R&D boom in the Sixties... only in the rarest
of cases do the spin-offs prove to be identifiable as
classic cases in which the source can be associated
exclusively with space technology and the diffusion be
associated with a sector unrelated to space technology.
In the majority of cases, both source and diffusion can
be associated with multiple purposes both within and
outside space technology."
The most comprehensive recent review of the impact of NASA
technology benefits to the commercial sector was conducted for NASA
by the Chapman Research Group in 1989 (Chapman Research Group, An
Exploration of Benefits From NASA "Spinoff", June 1989, under
contract 88-01 with NERAC, Inc.). This study evaluated the benefits
derived from technologies identified in the annual NASA report
Spinoff during the period from 1978 through 1986.
Unlike the previous econometric studies which simply assumed that
the activities NASA labels "research" have the same payoff as
commercial research, this study actually sought to quantify the
econcomic side-benefits of NASA activities.
A total of over $21 billion in sales and savings benefits were
identified as resulting from NASA activities. However, the report
conceded that only about $5 billion of this total was due to actual
spinoff, that is "instances in which a product, process, or even an
entire company would not have come into existence had it not been
for the NASA furnished technology." Most notable among these is the
$1.6 billion in medical instruments, frequently cited as a major
NASA spinoff. The remaining $16 billion in benefits were in areas
where "the NASA technology contributed to the sales, but that
contribution can vary widely, from a relatively small percentage of
the total sales or savings..." And in this area, additional sales
of commercial aircraft accounted for over $10 billion.
The significance of these findings is best appreciated in the
context of overall NASA spending during this period. The total NASA
budget from 1978 through 1986 amounted to over $54 billion, of
which about $2.5 billion was devoted to aeronautical research and
development. NASA efforts in aeronautical research would seem to
have been quite effective, with a $2.5 billion investment yielding
$10 billion in benefits. Such a 4-to-1 payoff is not too
surprising, given that work in this area is specifically targeted
to improving commercial products.
But the fact that the total NASA investment of $55 billion yielded
a paltry $5 billion in true spinoffs, creating entirely new
products or industries, suggests a very poor return of ten cents on
the dollar. Again, this should not be surprising, given the highly
specialized nature of much of the engineering and development work
conducted by NASA.
So rather than being an unusually good investment paying 7:1 or
22:1 for each dollar invested, NASA has an astoundingly bad 1:10
payoff -- about a factor of 100 worse than the commercial economy
as a whole.