The Other Path by Hernando De Soto

Author:Hernando De Soto
Language: eng
Format: epub
Published: 2008-07-13T08:42:00+00:00

The crisis of formal transportation

The eighth advance occurred when the crisis and final bankruptcy of formal transport businesses considerably expanded the space to be occupied by informals.

By the late 1950s, traditional transport, as represented by APOUI, had ceased to be profitable. In 1959, when the El Sol Transport Company closed its doors, an unexpected succession of bankruptcies left Lima almost without formal transport services. By 1960, 32 of the 42 private bus companies then in existence had ceased to be operated by their owners.

At least three factors underlay this situation. Declining profits, a result of strict fare controls, forced formal companies to postpone dealing with the depreciation of their vehicles, with the result that their fleets became ramshackle and obsolete. Second, informal transport, since it was not subject to state control, was better able to adapt to the growing demand created by Lima's urban growth. Last, the increasing reserves which the formal companies were required to maintain to pay their workers' social benefits ultimately condemned them to insolvency.

The formal operators, in consequence, withdrew from the market, declared their companies bankrupt and, claiming that they were unable to pay the social benefits due them, transferred ownership of their companies to the workers. Some writers suggest that there was a shady side to these bankruptcies. Sanchez Leon, Calderon, and Guerrero, citing another study, claim that many owners systematically decapitalized their companies, arranging fraudulent bankruptcies either to avoid paying their workers' social benefits or to transfer capital to other, more profitable, activities. 17

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