[Niklas Blanchard]

Casually browsing the Economist's site, I came across this rather short article focusing on Bolivia's Evo Morales' scuffles with the transportistas, a political interest group (ostensibly union) representing the owner-drivers of buses and taxis. The very short article offers tons of economics lessons to the discerning reader. A few "quick and dirty" points:

The first clash was in December, when the government announced a steep rise in the price of petrol only to back down within days. The second has involved a tortuous row over imported second-hand cars. Three years ago Mr Morales banned imports of the oldest among these smoke-belching jalopies, to cut air pollution and traffic congestion.

But this month the government performed a U-turn, and declared a 25-day amnesty in which owners could register illegally imported vehicles and pay a fine. That recognised reality. The ban notwithstanding, Bolivia's roads are choked with unregistered vehicles, which skip road tax or use false number plates. Last month the police chief was fired after it was revealed that some of his officers were providing the plates.

The first clash, of course, warns of the inherent problems of command and control of prices in a planned economy. The government subsidizing the price of gasoline in Bolivia is obviously in the interests of the drivers themselves ... but, as with any country, there are opportunity costs to having the subsidy in place. These include congestion and pollution, but less obvious is that Bolivia has paid the price in density. Bolivia is even less densely populated than the United States (at 23/sq vs 87.4/sq mi, respectively). There are obvious benefits to scale in living close to other people in many areas of life, not the least of which is wealth generation.

The second clash, and subsequent "u-turn" taken by the government illustrates the importance of quality institutions, both in markets and in government. There is always going to be some skimping by the rules in any society, but to have the practice institutionalized is the mark of ineffectual government leadership, low trust and poor institutions. I would wager a bet that the officers were running a larger racket than just providing the plates, which included various levels of extortion. This is highly inefficient, and exacerbates the problem of Bolivian roads being in awful shape.

Of course, that's not the end of the story, and the last leg to drop warns us against the use of state power to grant protection to incumbents in an industry.

The amnesty also angered Bolivia's taxi drivers, who fear competition from the new imports. "The cities will collapse," predicts Raúl Alcoba, a drivers' leader. The transportistas called a one-day strike. So the government swerved. It issued a decree banning the use of vehicles more than 12 years old for public transport. But that covers 95% of buses and taxis, say the transportistas. Although the decree gave them seven years to adjust, they called an all-out strike.

Obviously there is a very high demand for affordable transportation in Bolivia. While Raul may have a point that "the cities will collapse," this isn't because of his fear of competition, this is because all along the government has been mismanaging markets in transportation, mismanaging institutional capital and mismanaging what is currently public infrastructure