South Africa: When Markets and Mobility Collide

opinion

Petrol is supposed to be combustible. But why has it also become politically explosive, as the eruption of massive protests in Ecuador and Chile suggests?

While the Ecuadorean case involved a significant increase in the price of petrol, the revolt in Chile was triggered by a puny 3% scheduled increase in fares on the Santiago metro. Whether or not foreign meddling was involved, the fact remains that the protests, if not the accompanying violence and destruction, have had significant public support.

The economic case against petrol subsidies seems ironclad. Subsidies are inefficient because they lead to consumption benefits that are worth less than what it cost society to provide them. They are environmentally harmful because petrol consumption generates negative externalities: not only global warming, but also local pollution, congestion and road degradation. (If anything, petrol should be taxed in order to take account of these costs.) And they are deeply unfair, because the rich consume more petrol than the poor, meaning that they get a bigger chunk of the subsidy.

But the economic case against subsidies misses other dimensions of the problem that help make sense of public opposition to meddling with transportation costs. Recognising and understanding them is crucial...

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