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State Incapacity And Taxi Cartels In South Africa

By Matthew Yglesias on July 26, 2011 at 12:59 pm

"State Incapacity And Taxi Cartels In South Africa"

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Ryan Cooper, a Peace Corps volunteer living in South Africa, has a couple of interesting posts (1, 2) on the subject of cartelization, lack of competition, and inefficiency in the South African taxi market. This is obviously a subject I’ve written about a lot in the US context. But while in the United States, the cartel typically arises by the government stepping in and setting a cap on the number of taxis allowed to operate in a given city, in South Africa the situation is arguably the reverse. Thanks to a weak state and poor governance, taxi proprietors are basically able to just muscle competition out of existence. He cites Adam Smith’s dictum that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

I’m obviously not familiar with the details of the situation in South Africa, but the analysis seems about right. This is one of a very large number of issues where I think the putative contrast between “big government” and “small government” outcomes proves to be somewhat illusory. A dysfunctional outcome can be obtained through private interests formally capturing public institutions and writing well-enforced anti-competitive rules, or else it can be obtained through private interests filling a void created by non-functioning public institutions and creating de facto anti-competitive rules.

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