If you like rockets, jets and space this BBC interview has both. In the article, Jonathon Amos interviewed Reaction Engines Limited’s Alan Bond at a key test for an engine component that allows air to be cooled from 1000 celcius to minus 140 celcius in 1/100th of a second without frosting up and stopping the whole engine dead. Frankly, that sounds like a lot of cooling, very fast, with extreme and difficult constraints. A little bit science fiction, to be honest.

How does REL get investment for this difficult technical project?

“What we have learned is that a little bit of government money goes a long way,” said Mr Bond.

“It gives people confidence that what we’re doing is meaningful and real – that it’s not science fiction. So, government money is a very powerful tool to lever private investment.”

And here we have a problem. This is a project for which credibility is a serious issue. Investors are looking for a company capable of making something quite surreal – a space plane – a commercial reality. Investors want to know that the engineering will work and the space plane will fly passengers between continents safely.

Governments on the other hand are incentivised by votes, and funding an exciting sounding company could plausibly encourage votes. As would keeping a whole lot of scientists and engineers in jobs for a long time while they try to solve a very difficult problem. It would buy votes from the scientists, their families and a whole bunch of other people from the supply chain, academia and so on that are involved indirectly. Whether the plane will actually fly through space is perhaps a factor, but not the main factor. The main factor is looking good and buying votes.

So, what I don’t understand is why Government moneyinspires this particular reaction. Is it simply that the sharing of risk pushes the output from some mathematical profit equation over some acceptable boundary?

Perhaps the Government has managed to attract top scientists and economists who have invented some awesome method of evaluating an engineering idea, unmatched in commerce? The European Space Agency who prounounced the engineering free of “show stoppers” sounds pretty impressive, but is this really something that the market couldn’t do? And if the people at the ESA are so clever, why aren’t they out making a fortune in the private sector?

I wonder, fearlfully, if investors have some in built respect for authority figures and the endorsement from the Government actually persuades them, despite the mismatched incentives?

There’s a fair amount of detailed audio and video attached to the article, well worth a listen if you are into the engineering, but it clear to me that the main reason that the Government money brought forward investment is because it funded the creation of new knowledge about the idea. After this knowledge was created, investors had more to work with and a better understanding of the risks. Knowledge is inversely proportional to risk and effort in intellectual projects, so it would de-risk an investment and bring it within the scope of possible investments for a broader range of investors.

The problem for me, is that none of this seems like a problem that the market is fundamentally unable to solve. It might take longer, but there will always be a level of investment available for the bleeding edge since the potential returns are huge. The current system is a subsidy on risk, and can only pull investments away from bread-and-butter projects. This might, just, help us achieve some techno-utopia a few days earlier but between the tax and market distortions will only make the here and now a hard place to live.

The test went well, apparently.