In 1942, Joseph Schumpeter wrote that creative destruction "is the essential fact about capitalism." Innovations destroy old monopolies, and powerful companies collapse even if they have done nothing out of the ordinary. This is what drives growth. It is the possibility of new, entrepreneurial entrants into the marketplace—what Schumpeter called "the perennial gale of creative destruction"—that keeps market ventures lively, even as bureaucracies ossify and government projects drag on for decades, unfinished.

A liberal, and literal, interpretation of the phrase sheds some light on the two challenges that have faced the world of space flight in recent days, and the risks faced by private space ventures versus those of NASA.

All week, NASA has been tearing out its collective hair deliberating over the problem of a three-inch gouge in the protective foam on the bottom of the shuttle Endeavour. The injury exposed a small slice of felt, the heat barrier of last resort for the shuttle's aluminum frame. The team finally decided against repair efforts late yesterday night, because of the risks of a space walk and the possibility of doing more damage while attempting the repair.The gouge is unlikely to cause fatal problems when the shuttle heats up on reentry, but it might damage the underlying structure enough to require repairs once back on Earth, as well as a delay until the next launch.

Meanwhile, a July 26 accident at Mojave Spaceport in California was more prosaic, and more deadly, than Endeavour's gouge in the vacuum of space. Several engineers working for spaceship builder Scaled Composites were administering a routine test to check the flow of nitrous oxide through an opening when an explosion occurred, according to company CEO Burt Rutan. Three people died, and several more were hospitalized. There were no rockets fired at the time, and no one was in zero-g.

The reactions to the two accidents offer a quick primer on what it's like to operate on the government's time and dime, versus operating in a competitive market. Both accidents have brought out the best in the major players, who have reacted calmly and competently. But there are subtle, fundamental differences in their respective aftermaths.

Statements, official and unofficial, about the shuttle problem were phrased in terms of sunk costs, established hierarchies, and contingency plans. "We have really prepared for exactly this case, since Columbia," said John Shannon, chairman of Endeavour's mission management team, "We have spent a lot of money in the program and a lot of time and a lot of people's efforts to be ready to handle exactly this case."

For days, astronauts in the Endeavour waited for pronouncements from the corps of engineers and decision-makers at mission control, who have the spectre of congressional fury hanging over their heads.

On Wednesday, Shuttle Commander Scott Kelly was wondering what the decision might be from the geeks on the ground:

"And, ah, no indication of which way they are leaning?" Kelly radioed Mission Control.

The response from Mission Control was less than informative: "Unfortunately, we have no idea which way the wind is blowing at the moment."

The gouge was caused by falling foam, the problem that resulted in the explosion of the shuttle Columbia in 2003. The falling foam issue has plagued many previous shuttle launches as well, but flights were still given the go-ahead.

Congress has actually been more attentive to NASA since the Democrats took power, and lawmakers were already somewhat peeved before the most recent falling-of-the-foam. A report last month from the Government Accountability Office cited $94 million in misplaced equipment [PDF] over the last ten years, with unsatisfactory explanations like this one:

This computer, although assigned to me, was being used on board the International Space Station. I was informed that it was tossed overboard to be burned up in the atmosphere when it failed.

In contrast, the Mojave accident prompted a rash of speculation about the viability of the private space industry, and whether the accident would result in the collapse of Scaled Composites, the company also providing hardware for bad boy billionaire and entrepreneur Richard Branson's venture, Virgin Galactic. But it's the very possibility of failure, the possibility that the industry, or this company, or this technique might have to be scrapped altogether, that it might be destroyed by events or competitors, is what gives the private space industry strength and flexibility.

But even in acknowledging that possibility, industry watchers and participants seem confident the accident won't derail the space tourism industry. Michael Belfiore, author of a new book about the industry called Rocketeers, said: "Since it wasn't actually in flight, it's hard to see it as a strike against space technology as a whole....It's tragic and very sad, but I don't know if it's going to have a chilling effect on the industry."

Virgin Galactic President Will Whitehorn added, "Clearly, in the context of what's happened, given the personal tragedies, this is of course a setback."

New Mexico Spaceport Authority Chairwoman Kelly O'Donnell expressed a similar sentiment: "I would characterize [Mojave] as a tragedy, but I would not, at this point, characterize it as a setback either for commercial space or for Spaceport America."

X Prize founder Peter Diamandis took a similar tack. "This was an industrial accident. This has nothing to do with spaceflight. I have complete confidence that they are building a safe and robust spaceship."

At Mojave airport, $40,000 went to an independent consultant to investigate the airport's procedures. Scaled composite is conducting its own inquiry. The National Space Society statement put a fine point on it: "Let us not shirk from what happened yesterday. Professionals will find the cause. The program will continue."

Meanwhile, when costs go up on the private space side, they work around it. Bigelow Aerospace, another private space company in the midst of assembling an orbital hotel, has decided to skip a step in its scheduled sequence of test modules as "inflation, previously artificially low launch costs and the falling value of the U.S. dollar" have forced its hand. The company uses Russian rockets for now, which has become an increasingly expensive proposition. Rather than just ask for more appropriations and plod ahead, Bigelow will consign a series of tests to a terrestrial hangar, then send up the next module.

Bigelow has also long made it clear that when good orbital space ships become available, the company will be a good customer. Its willingness and ability to be fickle with suppliers might be the key to its success. NASA suffers from being locked into certain suppliers and techniques (like the troublesome foam insulation), as contracts are often determined more by congressional politics than by what's needed for a particular mission, or what might be cheaper in the long run.

And then there are the attitudes of the engineers and astronauts themselves: NASA astronauts accept risk in a way that is comparable to the risk taken by soldiers and Marines in Iraq. They have volunteered, they know what they're getting into, and they're facing it bravely. But they're doing it on someone else's terms. Decisions are made with big things like national interest, congressional appropriations, and national glory in mind.

The people who died in the Scaled Composites explosion, and everyone who works in the fledgling private space industry took on similar risks, but in a more personal, direct way. They made the choice to go in on a small company in its early days, one that might never get off the ground (so to speak) at all. The risks they take are physical, but they are also financial, professional, and personal. The Personal Spaceflight Federation touched on this theme in their statement: "We are engaged in a demanding endeavor - opening the space frontier. It is not easy, but it is a goal worthy of our highest efforts. We are aware of the risks and every day we take the highest precautions." After pledging openness, honesty, and a thorough investigation into what went wrong, they've also promised to "persevere—we believe that we can best honor those pioneers who were involved by carrying on their work."

One of the dead, Glen May, also had a rocket biking hobby, "He would work on his rocket motors, strap them to the bike, don his helmet and heat suit and attempt to zoom down the flight line. After a fizzle or two, he was successful in rocketing his bike in front of his admiring Scaled audience." Risk is in the blood of entrepreneurs and spacemen, perhaps doubly so in the blood of those who opt for employment in the still-young private space industry. The perennial gale of creative destruction will overwhelm the weaker companies. But the stronger, safer, most efficient ones will emerge.

Katherine Mangu-Ward is an associate editor for reason.