Tsang must back his words with action on competition

PUBLISHED : Tuesday, 18 October, 2005, 12:00am
UPDATED : Tuesday, 18 October, 2005, 12:00am

'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.'

Adam Smith, 1776

Adam Smith, the 18th-century Scottish economist, is regarded as something of a hero in Hong Kong. The adoption of his free-market principles by Sir John Cowperthwaite, financial secretary from 1961 to 1971, is widely credited with unleashing Hong Kong's astonishing bout of wealth creation.

Donald Tsang Yam-kuen, too, claims to be a disciple. In a 1997 speech, the then financial secretary heaped praise on the Scottish thinker, declaring himself to be 'spiritually descended from him'.

Yet although Hong Kong has enthusiastically embraced Smith's doctrine of laissez-faire economics, it has conspicuously failed to follow his ideas in one key area. For while Smith was an ardent believer in the efficiency of free markets, he was passionately opposed to business monopolies, oligarchies and cartels that squeezed out competition and ripped off the customer.

The message is clear: businesses should be allowed to operate freely but only within a framework that forbids anti-competitive practices.

No such framework exists in Hong Kong and as a result, cartels are legal here and price fixing is widespread.

Over the past year, cartels of launderers, noodle-makers and driving instructors have all conspired to fix prices, according to Mark Williams, an associate professor of law at the Hong Kong Polytechnic University.

Professor Williams said other suspected cartels operated among travel agents, textbook publishers, petrol suppliers, ports, supermarkets, cement suppliers and property developers.

Cartels are secretive organisations, and assessing how much damage they inflict on the economy is difficult. But by conspiring to fix prices above the natural level determined by the free forces of supply and demand, cartels suppress economic activity and transfer undue amounts of wealth from customers to the cartel operators.

Just as bad, cartels discourage innovation and so act as a brake on economic development by shielding businesses from free competition. In other words, underhand practices make a few rich at the expense of many.

With so much at stake, it is no surprise that Hong Kong's big businesses and their friends in government have long resisted calls for a competition law and an authority to enforce it. Now things may be beginning to change.

In June, the government set up a nominally independent committee to review competition policy. At first, this looked like it would be a whitewash, with the committee packed with big business representatives such as electricity monopolist CLP Holdings group managing director Andrew Brandler.

In July, a Hong Kong General Chamber of Commerce committee, also including Mr Brandler, reported 'the status quo is not satisfactory'. Although the chamber stopped short of calling for a competition law, the door to legislation appears to be opening at last.

Mr Tsang yesterday said he would 'vigorously uphold ... a level playing field for business'.

'We are keeping an open mind on whether a comprehensive, cross-sector fair competition law is right for Hong Kong,' he said.

The door may only have opened by a crack but if Mr Tsang wants to prove himself a true spiritual descendent of Smith, he should now push hard to open it fully.