The United Mars Company

Leiden, a.d. X Kal. Oct. MMDCCLXIX A.U.C.,

On the 27th of September Elon Musk, CEO of SpaceX and Tesla, announced his plans to colonize Mars. Besides having to solve countless technical issues before the mission can be a success, Musk should have a look at the social and organizational problems of going to Mars. This post will try to map some of the social and organizational problems (and possible solutions) that a private company, let’s call it the United Mars Company, will run into as it colonizes the red planet.

The current plan is that SpaceX cooperates with NASA. I am a bit skeptical about public-private cooperation, often we end up with the profit making of the private sector and the efficiency of the public sector, rather than the efficiency of the private sector and the ethics of the public sector. However, this is an extraordinary mission, calling for an extraordinary combination of resources, combined into the ‘United Mars Company’ (UMC). Yet, we need to make sure that SpaceX does not take UMC’s profits, while the government pays its bills. This in fact raises the first question: how will this enterprise become profitable? Apparently the main goal is to make sure humanity survives, but seeing how difficult it is to even solve the climate change problem, who is going to pay for this lofty goal, beyond Elon Musk himself?

While to some it may seem strange that a company is going to explore and colonize Mars, there are plenty of historical precedents of privately funded colonization. Notable examples are how the United East-India Company (VOC) conquered and ruled large stretches of Indonesia, Sri Lanka, Taiwan, India, and South Africa, and the East India Company which ruled supreme over India. Both were among the first multinationals and the first companies to issue stocks. Moreover, they had powers akin to sovereignty. They could wage war, write and enforce laws, negotiate treaties, strike coins and establish colonies. Ultimately they all ended similarly: the mother country decided that its colonies should not be ruled by a private company. We will come back to those companies several times in this post, as they present what most closely resembles a historical precedent to the colonization of another planet.

So what could UMC look like? What could a Martian society founded by a company look like? Firstly, this partly depends on the answer to a question which only time can answer, namely how expensive it will eventually be to go to Mars. Even though Musk’s ideas seem unlikely to succeed now, if he manages to profitably go to Mars, we should expect many other companies to obtain the know-how to compete with SpaceX. If China, Europe and India ever plan to go to Mars, it could be necessary for the US government to give UMC the American monopoly on going to Mars.

This is something that happened in all successful colonizing countries, unless colonization was government run. The costs of going to a far away colony were huge, while the risks were very high. With both domestic and foreign competition, the commercial enterprise of sending ships to the other side of the world was often not profitable. So, countries united their domestic trading companies into one national company (hence the name ‘United East-India Company’). This way competition within countries was reduced, ensuring profitability for their national companies. Moreover, there is also the dynamic of the zero-sum game in obtaining new areas for the company and for the mother country. Imperialism did not emerge from white people being evil, it was a game all sovereigns played, more or less successfully, at the expense of others. Seeing how empty Mars is now, it would not be strange if the superpowers of the 21st century will all want to be there first, because the first one to get there gets the biggest piece of the Martian pie. Seeing this dual logic of profitability and the imperialist zero-sum game, it seems likely that the US government will want to give UMC a monopolistic edge.

Secondly, the early colonizing multinationals always ran into principal-agent problems. It is very hard to control people who are several months away from you. As headquarters you basically do not know what they are up to, although modern communication methods will make this much easier. However, the governance problem is much bigger than that. How should the colony be run? How should conflicts of interest between the colony and UMC be solved? Musk wants the Martian colony to rule itself through direct democracy, rather than representative democracy. With regards to the size of the young colony, this makes a lot of sense. One hundred people can easily decide on their laws together. Yet, democracy and profitability for UMC may clash. What the Martian colony wants, and what is profitable for UMC may be completely different things.

Even if Elon Musk cares so much about the human species that he is willing to run a loss on the Martian colony because it chooses policies which harm UMC, it is unlikely that his shareholders, or his successors will be equally happy to lose money. Colonization of Mars will only succeed in the short term if it is profitable to investors, so if local democracy hampers profitability, as seems likely, democracy is not an option on the short term. So, while on the long term the American Martian colony should be ruling itself, on the short term the profits of UMC will have to determine policy on Mars for the colony to survive.

Yet, it will be necessary to have some democratically elected body of deliberation, if only because it will present a platform to rally around for democrats if the governor behaves as a tyrant. The founding constitution of a colony can have a long term impact on that colony through path dependency. If the government purely aims to extract resources from the government, as autocratic government are much more likely to do, this form of extractive governance can reinforce itself, and lead to a vicious cycle of autocracy and resource extraction.

So, there is a trade off to be made between how democratic the colony should be, and the unchecked authority UMC should have in order to ensure its profitability. This will simply have to be experimented with. If the colonists see that UMC’s profitability is necessary for their own survival, than their interests and UMC’s interests overlap, which allows for local democracy. Especially if UMC uses its monopolistic power to extract resources from the colonists, a powerful democratic council will be necessary. On the other hand, if the colonists do not subscribe to UMC’s need to be profitable, then the council should have less powers. In that case it will have to be very clear what the powers of the Martian congress vis a vis the powers of the UMC appointed governor will be. For instance, it could appoint judges to enforce the laws of the colony. It should at least have the right to advise and monitor the governor appointed by UMC on all issues. In any case, on the long term, the American colony on Mars should of course have a democratic government.

The development from small centrally controlled colony run by a company to large more decentralized colony run by a government will certainly be interesting to follow. In the beginning everyone on Mars will work for UMC, to found the colony, to make Mars livable, to prepare the colony for the arrival of more colonists, and to find natural resources which could be profitably sold to terrestrials. Again at this founding stage all efforts will be focused on the profitability of the enterprise.

Particularly, the small size of the colony will mean that cooperation between colonists is still relatively simple. The colony can be centrally led, as it is still clear to the central administrator how many goods and services are required when and where, and there will be few principal-agent problems on the planet itself: people know each other, so they can trust each other. Under these circumstances, as Coase’s ‘Nature of the Firm’ indicates, the cost of running a centralized organization will be lower than the transaction costs of using the market, because it means that only contracts need to be negotiated, after which people sell their labour to UMC, instead of having to negotiate and pay through the market for every single good and service each individual produces. So, a centralized system is the right system to ensure the survival of the colony.

However, as the size of the colony increases, and complexity increases exponentially, the organization of the colony will have to change entirely. Firstly the central administrator will lose 1. the capability to know what goods and services are necessary, and 2. the possibility to monitor his agents. This will have a profound impact on the efficiency of organizing everything centrally in the colony. This means that private goods and services should increasingly be produced by the market. Secondly,  public goods provision will become necessary once the colony is reaching a certain size. Public goods provision is not profitable, as individuals can shirk from paying for the public goods they use, so companies will not be likely to want to do this, so a government will be needed.

So, the central administration should leave the production of some goods and services to be done by the market, while other goods and services will have to be provided by a government, which can force people to pay their taxes, in order to overcome the collective action problem. Of course UMC could force people to pay taxes too, if it retains its sovereign rights. However, it is a truly creepy idea that a company aiming to make profits would be able to force individuals not working for that company to pay for its services and goods. No taxation without representation! However, will the central administration be willing to release its initially necessary autocratic powers? Will the Martian congress be able to organically increase its powers as the colony grows, and the public good of the colony and the interests of UMC start to diverge increasingly?

What about the long term political development of the colony? Whether the Martian colony will stay American on the middle long term will largely depend on how the demands for more democratic government will be met by the American government. In ‘Empire’, Niall Ferguson shows how the British responded entirely differently to demands for self-governance from the American colonies than to demands for self-governance from Canada. Initially the British saw self-governance (‘responsible government’) for the American colonies in the 1770s as a danger to the empire. However, after Lord Durham’s report from 1838, self-governance came to be seen as just, leading to the implementation of responsible governance in Canada in 1848. The USA was quick to kick the British out, while the Canadians had much closer ties with the UK until after WW II. So, if the USA sees the colonists’ demands as a threat to its transplanetary empire, it will try to suppress these demands, which will ultimately lead to the colony declaring its independence. If it sees their demands as just, and sides with them against UMC, the Martian colony could become part of the American federation or commonwealth for a very long time.

Musk has once more surprised everyone. Colonizing Mars will be an epic feat, and is indeed required for the long term survival of humanity. However, I do hope that Musk realizes that beyond the technical challenge, there lies a social challenge. Interestingly, constitutional design and corporate governance are very much the same in this scenario, and studying the colonizing companies of the 17th and 18th century will be very worthwhile to learn about how to arrange these kind of long-distance enterprises. I hope Musk will hire some historians, anthropologists, sociologists, and political scientists, and not just business administration experts and economists, to make sure that there is a well thought out plan about how to organize Martian society, and how it relates to the private-public partnership that creates it. Not too long ago, the US government and its allies embarked on a much simpler enterprise, the 2003 invasion of Iraq, and got hundreds of thousands of people killed by not thinking ahead about what to do with a liberated Iraq. Let’s hope that the difficulty of constitutional design is not underestimated again, so that if the Martian colony lasts for a thousand years, in freedom and prosperity, people will still say, this was their finest hour.

Bottom Line: Apart from the technical challenge of going to Mars, there is an equally large organizational challenge. We will have to combine the most advanced human knowledge on constitutional design, corporate governance, economics and psychology in order for this project to be successful. Historical private colonization could provide a blueprint.



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