The cable car in Bolivia

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A Bolivian public company has recently finished building a series of cable car lines in La Paz. It is, of course, too soon to run a cost-benefit analysis of the investment but it seems that the public has welcomed the cable car system enthusiastically. Travel times have been greatly reduced and the cable car seems the perfect method of mass transportation given the difficult topography of the city. As with any other public investment, however, I will remain skeptical about the sustainability of the service in the long run. Governments are, by definition, bad business managers and public companies typically become political trophies and sources of rampant corruption. I wouldn’t be surprised, therefore, if the cable car company in Bolivia adds in the end to the long list of inefficient public enterprises in Latin America. Only time will tell…

The building of a cable car system has transformed the mass transportation market in La Paz. As it is always the case with the introduction of new technologies or innovations, old markets are destroyed and new ones are developed. The examples abound. The creation of MP3 files destroyed the market for CDs and the creation of computers destroyed the market for typewriters. That is the way technology works. It is inevitable and actually desirable. Schumpeter called it “creative destruction.” That is the way countries develop and grow. Did you ever hear the manufacturers of CDs or typewriters complain and demand compensation for the market/customers they lost when MP3s and computers were introduced? No. Did we give a compensation to VHS manufacturers after DVDs were introduced? No. Those are the rules of the game and everybody understands them. Should we then give a compensation to taxi and bus drivers in La Paz who lost their market when the cable car system was introduced? Definitely not! Of course, however, that is exactly what they are demanding. Interestingly, the populist Bolivian regime is not giving up and rejects to give these drivers any compensation. For once, I agree with them.

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