We are coming up on a year since President Obama signed the Spurring Private Aerospace Competitiveness and Entrepreneurship (SPACE) Act into law. The SPACE Act aims, in part, to “promote the right of United States Citizens to engage in commercial exploration for and commercial recovery of space resources free from harmful interference, in accordance with the international obligations of the United States and subject to authorization and continuing supervision by the Federal Government.”
However, this law is controversial in policy and scholarly circles. Despite its stated intent to comply with existing international law, government protection of space property rights may run afoul of the 1967 Outer Space Treaty, and specifically Article II, which forbids the extension of territorial sovereignty to space. Many legal scholars argue that government protection of space property rights is a de facto extension of sovereignty. If the SPACE Act is incompatible with international law, some other means must be found to promote space property rights, and hence space commerce.
Fortunately, we may already have an answer without realizing it. The answer is to embrace private law — property rights and dispute adjudication that arises out of contractual relationships among commercial entities, and does not rely on sovereign enforcement. At first, this solution seems incredible. How can we have private property, and the law that governs its use, without sovereign enforcement? The answer is that property rights and their attendant rules can be self-enforcing.
A large and growing body of economic scholarship shows that traders are able to define and enforce property rights and contracts without making use of the state’s role as an irresistible monopoly enforcer. In fact, a body of such law already exists: that which governs international trade.
States are sovereign, but there is no international super-sovereign. Those engaged in international trade are almost always in a “state of nature” with respect to each other. And yet international trade occurs regularly, and usually without incident. Despite the absence of sovereign enforcement, international traders almost always respect each other’s property rights, as enshrined in voluntary contract. And when there are honest disputes, there are almost always provisions in these contracts for pursuing private arbitration or mediation.
In fact, Peter Leeson, an economist at George Mason University, estimates that over 90 percent of international trade contracts contain clauses that state parties will pursue arbitration if a dispute arises. International organizations such as the International Chamber of Commerce (ICC) and the International Center for Dispute Resolution (ICDR) offer arbitration services, which are used by traders from hundreds of countries in contractual disputes that can sometimes be worth billions of dollars. Leeson further estimates that 90 of these arbitration decisions are complied with voluntarily. Even if a trader loses a judgment, defecting on a previous agreement to abide by an arbitrator’s judgment will render that trader untrustworthy, making it extremely difficult to continue in business in the future. International traders have an incentive to play nice today, for the sake of profit tomorrow.
Just as traders find themselves in a position of “international anarchy,” future space commerce entities will find themselves in a position of “celestial anarchy.” But while this means — at least if international law is not significantly amended — that sovereignty is ruled out, orderly interaction and commerce are not. The body of private law that successfully governs international trade shows that a lack of sovereignty does not preclude the existence of property rights, rules for adjudicating disputes over those rights, and mutually enriching trade resulting from exchange of those rights. Admittedly, we cannot say with certainty what the specifics of space commercial law will look like. The basic rules of property and contract in international trade have existed for centuries and are unlikely to change, but extensions to new contractual disputes will require the creation of new law, which must emerge out of the particulars of those disputes themselves. But that we cannot foresee in advance the development of private commercial space law is not a weakness; it is a strength. If we were going to plan a legal regime for space, the sophistication of that regime would be limited to the intelligence and knowledge of those drawing up the laws. By instead allowing commercial space law to emerge out of contract adjudication, we can harness a much higher degree of social intelligence: the evolutionary process underlying the development of new law is “smarter” than any one person or group of persons.
Space commerce can be privately governed. And given existing international law, it should be. Solutions for commercial space governance that involve extending the jurisdiction of public organizations runs afoul of Article II. But this does not mean that domestic agencies have no role in blazing the final frontier. Domestic agencies are well suited to enforce rules relating to launch safety, which can prevent those engaged in space commerce from inadvertently harming the earthbound, as well as de-orbiting guidelines for useless space debris, which will keep important orbits uncluttered. But with respect to space commerce, we must avoid what F. A. Hayek, legal scholar and Nobel laureate in economics, called the “pretense of knowledge.” The wealth creating potential of outer space is enormous. We cannot afford to whittle that wealth away through badly designed, top-down law. Given the constraints posed by current international law, a purely private legal regime for defining and enforcing space property rights is our best bet.
Alexander William Salter is an assistant professor of economics at Texas Tech University, where he is also a research fellow with the Free Market Institute. He has published several scholarly articles on law and economics issues in space.