As the U.S. government once again considers taking equity stakes in private companies it deems strategically important, the Space Force should proceed with extreme caution. History offers ample warning: from the Chrysler bailout during the Reagan era to the Obama administration’s investment in Solyndra, government involvement in private enterprise has produced successes but also costly failures. The difference between the two is rarely intent and almost always in planning and execution.
If the Space Force begins investing directly in commercial space companies, there are five essential rules it must address to avoid undermining the very innovation it seeks to harness.
1. Protect creative destruction.
Both NASA and Space Force leaders routinely argue that the commercial space sector’s greatest contribution is technological innovation. That innovation depends not only on capital but on creative destruction — the ability of better ideas to replace worse ones. Government actions that shield companies from failure, even unintentionally, erode this natural market process and ultimately weaken the entire ecosystem.
2. Allocate capital on performance, not politics.
Government-backed companies risk surviving not due to their performance, but because political constituencies and quid pro quo arrangements form around them. History shows that once jobs, congressional districts, and campaign donors are involved, underperforming programs become nearly impossible to terminate. Markets require failure to function; politicians and political parties resist it.
3. Avoid crowding out private capital.
The federal government is already a monopsonistic customer in national security space. If it also becomes an owner, private investors will reasonably fear that procurement decisions will favor government-owned firms. The result would be less private sector risk-taking, not more, and a smaller, less dynamic industrial base.
4. Prevent conflicts of interest.
The government cannot simultaneously regulate, competitively procure from, and partially own the same company without creating unavoidable conflicts of interest. Even the perception of such conflicts undermines trust in acquisition decisions and distorts competition across the sector.
5. Preserve exit discipline.
Government equity must never become permanent by default. Each transaction should include clear conditions under which the government exits. Potential exits could include buybacks, sale, or dissolution. Without credible exit mechanisms, investment drifts toward de facto nationalization.
Recent history offers clear examples of the harm caused by nationalizing private enterprise, including in Venezuela. Hugo Chavez enjoyed broad popular support when he moved to nationalize the oil industry, promising that government control would allow profits to be distributed to workers. What followed was anything but that. An industry built with American capital and know-how quickly fell into disrepair, and whatever profits remained flowed to political cronies rather than being reinvested in innovation, productivity, and efficiency. The same fate could await the U.S. space industry if policymakers are not vigilant. The downfall will be reverting to the marketplace we jettisoned over a decade ago, and hope to never return to. One dominated by just a few companies, incentivized to deliver obsolete systems late and at the highest cost.
None of this is to argue that government equity is always wrong. In some cases, it may be necessary and justified. But unless these five essential rules are addressed deliberately and transparently, government investment risks undermining the very outcome it seeks: a healthy, innovative and competitive commercial space industrial base capable of sustaining U.S. leadership in space for decades to come.