What Aerospace Startups Need: Clarity, Not Handouts

Top aerospace companies have received billions of dollars in tax breaks and other subsidies from state and local governments in recent years through policies meant to boost local economies and create jobs and opportunities for residents. Pressure to adopt similar policies will only grow with the success of SpaceX and its historic $2.1 trillion valuation, but officials need to remember how the world’s leading firms got where they are today.The next SpaceX will emerge from a clear policy environment that strikes a balance between innovative freedom and legal protections. Many of America’s smartest innovators understand this, and government handouts undermine such an environment.SpaceX ascended by providing better, cheaper services than its older competitors while creating new markets for satellites. It thrives by providing superior technologies for the American space program and follows a formula for economic success that, then and now, requires clear rules and fair markets.

Clear rules are especially important for frontier technologies like rocket ships and satellites. Investors and customers will be reluctant to put money into new markets with unclear policy environments.Crucially, policymakers must establish new rules without sacrificing the flexibility that innovation requires. Vague or prohibitive laws halt businesses worried about regulatory compliance and buyers scared of legal action. Innovators cannot work without knowing what is legal, and few companies will change the world when laws threaten to restrict access to supply chains or capital.Building on its history as the nation’s major rocket launch site, Florida has established clear legal frameworks for future space activities. In 2023, for example, the Spaceflight Entity Liability Act clarified when space launch operators are legally responsible for accidents. Companies are now statutorily protected against legal claims if crew members sign acknowledgements of the risks associated with spaceflight. Space firms may still be sued if they intended harm, had knowledge of dangers that led to harm or were grossly negligent.

Florida has also cleared the way for electric helicopters to serve as air taxis. Through HB 1093, state officials created uniform regulations for electric vertical takeoff and landing vehicles. The bill enables further aerospace infrastructure investments while streamlining regulatory approval for new projects.When innovators and consumers understand the rules of the game, they are more likely to play. But these rules must also apply evenly. Government contracts like those that SpaceX receives — business transactions based on which company delivers the right tech for the right price — are one thing. Tax breaks or other subsidies are another, and they alter the aerospace industry in two problematic ways.First, established companies are more likely to secure handouts, given their greater lobbying resources and government relationships.Texas’ Space Exploration and Aeronautics Research Fund, for example, gave $7 million to Jeff Bezos’ Blue Origin. Alabama, Washington state and other space hubs are approving financial packages for large, established companies. States already possessing major aerospace industries would be better off serving all firms equally, ensuring they remain attractive for the new entrepreneurs who will eventually be needed to keep the sector thriving.Startups are often the ones bringing important new ideas into the field. SpaceX itself was a startup not long ago. It now employs more than 20,000 people directly and many more indirectly. Former employees have gone on to start dozens of other companies worth billions of dollars.By putting startups at a disadvantage, state leaders risk closing the door to the most transformative innovators with the highest potential for SpaceX-like success. Funding older ideas can even keep newer ones out entirely; in the end, it prioritizes unstable favoritism over the stable growth that a competitive environment provides.Second, financial handouts weaken the incentives to innovate.Firms understand that without government intervention, success depends on providing goods and services that people are willing to pay for. That’s why SpaceX built Starlink, a network of satellites capable of delivering high-speed Internet. It connects people and economies across the world, stimulating economic growth and creating jobs.When government handouts are on the table, it’s rational to pour resources into lobbying rather than creating the best technology. That’s why this industry’s subsidies and tax breaks make it less accountable to the public good. The problem is not that heavily subsidized firms like Boeing do not innovate. Rather, it’s that the industry will be far more innovative when success depends more on profits and less on lobbying. Consumers benefit from one and pay for the other.Resisting the political pressure to publicly finance aerospace companies is crucial to the industry’s own long-term success and to the communities that rely on these businesses. State and local leaders should not repeat previous mistakes by trying to pick aerospace winners. Instead, they should make their jurisdictions attractive for all space companies to do business, creating the legal clarity innovators need to do their work.Maxwell Harden is a research assistant at Florida State University's Institute for Governance and Civics.Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

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