Elon Musk, Secrecy, and Efficiency

It’s obvious in elementary economic theory that free information permits optimal competition, pricing, economic growth, and social health in many other forms. This theory, however, is often practically contested. This article gives a concrete example of secrecy impacting competition.

Elon Musk has a company called SpaceX. This company can, among other things, launch satallites. The US government has an expensive Department of Defense (DoD) program called the Evolved Expendable Launch Vehicle (EELV). The program was previously contracted to a particular vendor who charged a ton more money than Elon wanted to charge. Elon indicates over 75% per-mission savings at one point. The exchange is interesting along a number of lines. Elon comes prepared with the facts and is able to dispute most of the legacy provider’s main talking points, such as a 100% mission success rate. Elon pretty much owns the discussion – except for one weird part.

Beginning around 41:30, Mr. Gass begins to invoke his cleared knowledge of ‘unique requirements.’ There’s a good bit from 41:30 to about 45:00. The most specific example Mr. Gass gives, however, is later on at 1:10:35. There is a reference to a requirement for ‘nitrogen purges’ which are only needed for a particular mission and not utilized by commercial providers. He also indicates that some legislators share the same privileged knowledge Musk does not have access to:

Secret information shared among the legacy provider, United Launch Alliance, and legislators. It’s the military-industrial complex at it’s finest! This is a rather stark and well-documented case, but by no means a rare case. The lack of transparency inhibits competition in the first place and it also prevents voters from assessing the competency of legislators. How can we know that a demand for 100% success is justified if we aren’t familiar with the mission details? Satellites are often leveraged for surveillance missions. The American people may well prefer 0% success on missions of these kinds. It’s a rarity in economics where 100% demand is ever the efficient allocation.

Moreover, if Musk’s rockets are more than 75% cheaper, wouldn’t 50% success be fine in theory? As long as two rockets are simultaneously prepped, just launch another one and you still come under budget. To repeat: It’s not at all clear that 100% success is ideal. Not just in the eyes of a rational economist, but in the eyes of voters.

This is an interesting case-study, but the problem is general: Secrecy breeds inefficiency. Free information is just another way of saying “no secrets.” This is one of many ways to illustrate that very important, elementary piece of economic theory in a concrete way.

This is by no means a consideration constrained to pecuniary transactions. Secrecy harms social interaction, and all sorts of human interaction, just as much. So free information and lack of secrecy would involve honesty in communication. This would, for example, facilitate social trust and more accurate individual reputation. This drives down social costs in quantitative and qualitative ways of many kinds.

In this particular case we can end on a happy note. In 2017 SpaceX won a $96.5M bid against competing ULA. They seem to have positive prospects in the space.

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