(Reprinted from HKCER Letters, Vol.20, May 1993) 

 

Speech in the Legislative Council

Christine Loh

 

Traditional Non-Interventionism

Hong Kong has traditionally favored free and fair trade and investment, and has, by world standards, an exemplary record of openness and transparency in these areas. There is no particular prejudice in Hong Kong against a dominant market position. The presumption is that the market will sort things out, and in the context of Hong Kong, that presumption has indisputably been the correct one.

Therefore, any consideration of trade and investment policy must start with the recognition that Hong Kong's tradition of non-interventionism (now renamed "minimum interference") has worked exceptionally well. Hong Kong's markets are probably more free and more open than those of any other economy in the world, and Hong Kong has prospered as a result.

To say that the system works well is not, of course, to say that it cannot be improved. If we believe free and fair trade to be inherently virtuous, then there are certainly areas of restricted competition in Hong Kong which might benefit from fresh scrutiny. But we are talking here about marginal gains, not about fundamental change.

Do we have a policy?

Do we have a fair trade policy? What we have is a halfway house between the Honourable Mr. Li's and the Honourable Mr. McGregor's positions. Government has a policy to regulate monopolies and an ad hoc policy on competition.

I suggest that the government spell out clearly what it considers to be its policies, or at any rate, its principles, in regard to competition and fair trade. This will be of help for further examination.

Government and Business

The government as a matter of policy invites the recognized leaders of the private sector to sit on the boards of statutory bodies and to advise on government policy via the Executive Council, this Council, various committees, and more recently, the Governor's Business Council.

Hong Kong has, and indeed actively approves, a close relationship between business and government, which sometimes gives the impression that we do not generally care to ask ourselves whether such a practice has disadvantages as well as advantages. Obviously there are disadvantages, for example, where there are conflicts of interest, like the Housing Authority being packed with developers and other people who might stand to gain.

The community, including government, should keep an open mind on how to look at fair trade. To question the bases on which government has made particular decisions is not to make presumptions that something is wrong, but merely to make sure that everything is right.

Motion and Amendment

In respect to both the motion and the amendment before us, we must take particular care in defining what we might consider to be "unreasonable market dominance." The phrase should not be allowed to mean simply a very high market share. It is not in the logic, the policy, or the tradition of Hong Kong to penalize companies which build up a high market share through supplying a better product or a better service at a reasonable price.

If, and only if, "unreasonable market dominance" refers to a dominance achieved by erecting artificial barriers against prospective competition, then may there be a case for action.

The most obvious areas of restricted competition are those covered by government franchises and schemes of control. These relate primarily to public utilities, where to use expensive equipment and plants at a sufficiently large and efficient scale, only a single company or a small number of companies can be allowed to enter each market.

Other situations may be identified in which the government authorizes or facilitates the restraint of competition for more pragmatic reasons. Thus, the Interest Rate Agreement enables banks to manage their collective market more profitably. The one-airline one-route policy has helped Cathay Pacific gain its present stature. And certain professional bodies are allowed to protect the position of their members against entrants from overseas. For example, in the law, where solicitors are also allowed the exclusive preserve over conveyancing.

There is no reason why the rationale underpinning these special cases of restricted competition should not be re-examined from time to time. The question is whether it is necessary to create a bureaucratic and legislative apparatus in order to do so, as the Honourable Fred Li proposes.

I doubt it. And for that reason, my sympathies are more with the Honourable Jimmy McGregor's amendment than with Mr. Li's motion. Hong Kong is too small a place to support a proliferation of regulators. Nor, surely, does it want to encourage the American-style approach of elaborate anti-trust legislation and incessant litigation.

The Way Forward: AdHoc Committees

If government declares itself to be in favor of "minimum interference" and market forces, it must accept that there is a case for re-examining those areas, including franchises, schemes of control, banks, airlines, the professions, and any area where competition is restricted at the government's insistence or with the government's blessing.

The community wishes to ensure that the government's decision-making process will not suffer from inertia or timidity, and that public policy ensures that those who benefit from being given special positions will still continue to striv for higher productivity.

No doubt members of this Council would wish to be involved in any such re-examination. The vehicle for conducting it might be an ad hoc committee associated with this Council or even with the Economic Services branch of government. The formal parentage would matter less than the willingness of those involved to bring an open mind to bear on the problem and to confront conventional wisdom with constructive skepticism.

This committee might discharge two main functions: (i) to look systematically and dispassionately at each instance in which government deliberately restricts (or proposes to restrict) competition through authorizing a monopoly or cartel, and to question whether such restrictions are both necessary and satisfactory; and (ii) to investigate distortions and to deal with specific complaints about collusion and unauthorized, irregular, or informal obstacles to free and fair trade.

In either case, its powers would be limited to the publication of reports on which government - prodded, where appropriate, by this Council - might choose to act.

I presume that this ad hoc approach would fall within the scope of what Mr. McGregor calls the "existing institutions." Subject to my earlier reservations about the construction to be put on the phrase "unreasonable market dominance," Isupport the amendment.

The Honourable Christine Loh is an appointed member of the Legislative Council.

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