Best Practice Vol. 2 No. 2 by Lion Rock

BEST PRACTICE VOL 2 - NO 2

A Public Policy Journal for Hong Kong

www.albertoantoniazzi.com

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BEST PRACTICE VOL 2 NO 2 5

From the Editor

Contributors

Heard around Town ENTREPENEURIAL SERIES

鍾維傑說居者有其屋計劃有不足之處

Who to Hire: the Novice or the Experienced Shih Wing-ching comments on competitive ideas in the workplace and the surprising places they develop

The Hong Kong Entrepreneur ON POLICY

居者有其屋計劃

聘新人還是熟手好施永青對行業之間競爭的獨特見解。

ON PHILOSOPHY 46

An Interview with Reverend Robert A. Sirico Bevan Sabo and Ariel Goldring interview Rev. Sirico, President of the Acton Institute for the Study of Religion and Liberty

Positive Impacts of the Pre-Primary Education Voucher Scheme

Hong Kong Nguyen comments on the positive gains from the PEVS

GLOBAL PERSPECTIVE POLICY ANALYSIS

Negative Consequences from the Pre-Primary Education Voucher Scheme

The Antitrust Terrible 10: Why the Most Reviled “Anti-Competitive” Business Practices Can Benefit Consumers in the New Economy

28 32

Raymond Ho critically analyzes the success of the PEVS

Suitable Approaches to Private Heritage Conservation

Maggie Brooke on heritage in Hong Kong

Considering Trade Law with Regard to Human Rights Law: Perspectives on China Mallika Narain covers Tomer Broude’s study on the limits of the WTO as a promoter of free speech

AROUND THE WORLD 67

THE HK FREEWAY 35

The Home Ownership Scheme Stephen Chung comments on the Home Ownership Scheme’s inadequacies

Clyde Wayne Crews Jr. makes the case that coercive monopoly power stems from government protectionism – from the restriction of entry or the banning of competition

“欢迎来到美国馆” Welcome to the United States Pavilion Judy Shing interviews Frank Lavin on the Shanghai Expo

LEADER’S BOOKSHELF 73

Gregory Clark’s A Farewell to Alms Does natural selection favor the rise of capitalist economies? Reviewed by Judy Shing

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74 76

James R. Fichter’s So Great a Proffit An Evocative Portrait of Anglo-American Trade in Asia. Reviewed by Mallika Narain

Lion Rock At Legco

Edwin S. Rockefeller’s The Antitrust Religion Competition Law Undermines Competition and the Rule of Law. Reviewed by Bill Stacey

The Hype over the Expo Judy Shing questions the media coverage of the Expo

Hawking Hong Kong

According to Bill Stacey, variety is the spice of life

ODDS AND ENDS

A Free Marketeer’s Battle

Simon Lee admits the battle on minimum wage is lost, but the war has not ended

Minimizing the Damage of the Minimum Wage Judy Shing and Mallika Narain on the law’s impact

EDITOR

BEST PRACTICE ADVISORY BOARD

Nicole Idanna Alpert DESIGN & PRODUCTION

James A. Dorn, Alec Van Gelder, Philip Stevens, Tom Palmer, Reuven Brenner, Gary Shiu, Richard Wong, Francis Lui, Shih Wing Ching, Donald J. Boudreaux

Joshua Chu Design

BEST PRACTICE

COVER ARTIST

Best Practice is published quarterly by The Lion Rock Institute to encourage discussion of policy and current issues. Topics and authors are selected to represent a multitude of different views, and those opinions expressed within Best Practice do not necessarily reflect the views of The Lion Rock Institute.

Alberto Antoniazzi www.albertoantoniazzi.com

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The Lion Rock Institute welcomes reproduction of written material from Best Practice, but editor/author permission must first be sought. All articles submitted to Best Practice must be exclusive unless permission has been sought. Articles should range between 600 and 4,000 words but may differ if editor’s approval has been sought. Please send all articles with a cover letter giving a brief summary of the articles along with the author’s fax number, day and evening telephone number, mailing address, email address and short bio. Please send articles by email to Nicole.Alpert@LionRockInstitute.org Certain images within Best Practice are published under Creative Commons licenses. We endeavor to comply fully with the terms of such licenses to ensure attribution of the author of the relevant image. For more information or details about the authors of particular images, please view our website, www.lionrockinstitute.org, or inquire.

FROM THE EDITOR

From the Editor W

hen Hong Kong tycoon Li Ka Shing met with President Hu Jintao, the public viewed it with mixed sentiments. Increasingly, members of society perceive wealth and business in a negative light. It didn’t take very long for Li, the dubbed “Superman” of the East, to go from revered to reviled. Antibusiness sentiments are alive and well, but while these sentiments are popular, entrepreneurship is still, thankfully, flourishing. The winds of creative destruction have long blown over Hong Kong, and its dynamic free-market economy has prospered as a result. Reflecting on the continued importance of entrepreneurship in Hong Kong’s economic fortunes, Best Practice sits down with four up and coming entrepreneurs and explores their individual stories as they vie for success and recognition. Diverse in industry, personality and background, these four entrepreneurs are seemingly unalike. Peel back the ostensible however, and a common theme is revealed within all: at some point they have all taken great risks to get where they are now. Case by case, The Lion Rock Institute investigates the principles that define them, the aspirations that

motivate them, and the thoughts that inspire them in the newest section of our double issue, “Entrepreneurial Series.” The impact of the Pre-Primary Education Voucher Scheme, which moved in a direction different than Milton Friedman’s original idea, is debated in the section “On Policy” along with Margaret Brooke’s proposals on how to conserve privately owned heritage properties in Hong Kong without infringing upon private property rights and imposing burdensome costs upon owners. In our bilingual section, Stephen Chung comments on the Home Ownership Scheme’s inadequacies and Shih Wing Ching dispenses advice on the value of competitive ideas in the workplace and where to find them. We include delightful and thought provoking interviews with both Reverend Robert A. Sirico, who discusses his philosophy, and Frank Lavin, who wraps us up in his enthusiasm for the Shanghai Expo in “欢迎来到美国馆 Welcome to the United States Pavilion.’” Clyde Wayne Crews, Jr. debunks theories behind Competition Law in “The Antitrust Terrible 10,” arguing that the most loathed business practices actually

benefit consumers. The Leader’s bookshelf takes a look at the relationship between Competition Law and the rule of law, and the natural selection and development of economies. Odds and Ends looks at the current policies on the books. Bill Stacey appeals for hawking laws to be made more flexible, citing that “the main reason to revive hawking is that the people of Hong Kong, through their patronage of both legal and illegal vendors and despite forty years of suppression, show that they want these shopping and eating choices.” In earnest, Lion Rock asks that the Administration revisit the Minimum Wage. Hong Kong’s experience with Minimum Wage thus far is not unlike other jurisdictions’, in which automation has become the norm, as fast food chains are increasingly shifting towards more cost-effective business practices to cut costs given the raise in wages. We hope that you enjoy this double issue, and can be inspired from the hard working entrepreneurs and opinion leaders who work hard to change the world around them.

Let us know what you are thinking. Letters can be sent to best.practice @lionrockinstitute.org VOL 2 NO 2

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CONTRIBUTERS

Contributers Stephen Chung Stephen Chung is a chartered surveyor, independent real estate analyst, and writer and is involved in China / Hong Kong real estate development, investment, and management. He is Managing Director of Zeppelin Real Estate Analysis Limited and founder-developer of www.Real-Estate-Tech.com. He is also invited to deliver guest lectures or talks to audiences from universities, business associations, and professional institutes.

Raymond Ho Raymond Ho is the convener of Momentum 107, a Hong Kong organization which advocates low taxes, less waste and an efficient government. Raymond is a graduate of the Chinese University of Hong Kong, Peking University of Hong Kong and the Hong Kong Institute of Education. He currently works in the Sai Kung District Council as an elected member.

Maggie Brooke Maggie Brooke is the Chair of the Heritage Hong Kong Foundation and of the Best Practice Committee of the Harbour Business Forum. She is also a member of the Hong Kong New York Urban Planning Exchange and Planning Alliance. She has lived in Hong Kong for over 30 years, is a chartered surveyor and CEO of Professional Property Services Group.

Judy Shing Judy Shing is a rising sophomore at Georgetown University in Washington, D.C., majoring in Government. She interned with the V3 campaign where she researched the relationship between non-profit organizations and voting habits in the US. She is fundraising chair of UNICEF-Georgetown chapter. Judy is a native of Hong Kong and fluent in Mandarin and Shanghai Dialect.

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Rev. Robert A. Sirico Rev. Robert A. Sirico received his Master of Divinity degree from the Catholic University of America, following undergraduate study at the University of Southern California and the University of London. Father Sirico co-founded the Acton Institute with Kris Alan Mauren in 1990. Bevan Sabo and Ariel Goldring of Free Market Mojo conducted the enclosed interview with Fr. Sirico.

Shih Wing-ching Shih Wing-ching was born in Shanghai and brought up in Hong Kong. He is the Chairman of Centaline Group, which involves property agency, surveying and valuation, personnel consulting service, wealth management, information technology focusing on property data management and internet mapping service. Mr. Shih also launched the free daily newspaper am730 in Hong Kong in 2005.

Mallika Narain Mallika Narain is in her senior year at Columbia University, where she majors in EconomicsPolitics and minors in English. She is currently involved with a number of publications on campus, heading up the Columbia Undergraduate Journal of South Asian Studies and writing for the Columbia Political Review. For the past year, she has also led the In All Languages Department at WKCR, the college’s radio station.

Hong Kong Nguyen Hong Kong Nguyen was born in a Hong Kong refugee camp in 1990, returned to Vietnam in 1996 and grew up there. She is currently a rising junior at Columbia University and doublemajors in Philosophy and Political Science.

CONTRIBUTERS

Tomer Broude Tomer Broude is a Senior Lecturer at the Hebrew University of Jerusalem in the Faculty of Law and Department of International Relations and the Academic Director of the Minerva Center for Human Rights in Jerusalem. His fields of research are in international public law, with a focus on international economic law and international trade and the World Trade Organization (WTO).

Simon Lee Simon Lee is one of the three co-founders of The Lion Rock Institute, a Hong Kong based think tank promoting free market based public policy solutions. Simon, a seasoned communicator, served two veteran legislative councilors, took part in five electoral campaigns, hosted a financial talk show, authored two books and three newspaper columns, and has managed issues and publicity projects of different types.

Frank Lavin Frank Lavin serves as volunteer Chairman of the Steering Committee for the USA Pavilion, helping with government relations and corporate outreach. In his professional life, Lavin serves as Chairman of the Public Affairs Practice for Edelman Asia Pacific. As Chairman, Lavin works with companies across the region as they grapple with regulatory challenges and sensitive government relations issues.

Bill Stacey Bill Stacey is the Chairman of Hong Kong’s leading free market think tank, The Lion Rock Institute. He is on the Board of Advisors of the Mannkal Economic Education Foundation in Australia, and has been involved in advocacy of market reform for the last 25 years. Bill is currently Managing Director and head of the Asia equities business of Keefe Bruyette and Woods, a specialist financial services investment bank.

Clyde Wayne Crews Jr. Clyde Wayne Crews Jr. is vice president for policy and director of technology studies at the Competitive Enterprise Institute, a former scholar at the Cato Institute and former Senate and FDA staffer. Wayne is a co-editor of several books and reports, such as Who Rules the Net: Internet Governance and Jurisdiction (2003) and Copy Fights: The Future of Intellectual Property In the Information Age (2002).

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HEARD AROUND TOWN

Heard Around Town “This approach ensures we stay true to our commitment not to censor our results on google.cn and gives users access to all of our services from one page. We are therefore hopeful that our license will be renewed on this basis so we can continue to offer our Chinese users services via google.cn.”

“I have once described the relationship between the Executive Authorities and the Legislature as ‘stagnant’. Despite the efforts and interactions made by both parties over the past year, the interactions are mainly about complaining against each other and this has further worsened the Administration-LegCo relationship.”

Google Chief Legal Officer David Drummond on the decision to stop redirecting users in China to the Hong Kong website

Hon Miriam Lau on the relationship between the Executive and the Legislature

“I think that considering the limited space allotted to the Hong Kong Pavilion, they [management of the Hong Kong Pavilion] had made good use of it and definitely visitors will get the feel of the kind of high technology now applied in Hong Kong.”

“In the case of the minimum wage, the news clip demonstrates how figures can be used to deceptive ends. I imagine that the calculation that ‘a statutory minimum wage of HK$30 an hour would benefit 347,800 people’ is no more than a crude determination of how many people currently earn a salary lower than HK$30 an hour. This presumes that all those whose hourly salary will be hoisted to HK$30 following the new minimum wage enactment will in fact remain in employment. As businesses will not be able to retain all staff at higher cost, this is not the number of people that would be benefited, but the number whose employment is threatened by the minimum wage inception. Such statements mislead the general public as to the true fallout of such policy initiatives.”

Chief Executive Donald Tsang on the World Expo in Shanghai

“The police would have to prove the developer had such an intention,” he said. “They would also have to find victims. For example, buyers who suffered a loss as a result of the uncompleted transactions. There is little chance.” Barrister and lawmaker Ronny Tong Ka-Wah on the police raid on Henderson Land

Thomas Jessop on Hong Kong’s Statutory Minimum Wage

“Only two trades – the security services and cleaning services – would have their profit margins affected [by a minimum wage]. And they are in a good position to raise their prices.” Chairman of the group, Professional Commons, Albert Lai, on setting a minimum wage at the level HK$30

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THE HONG KONG ENTREPRENEUR

The Hong Kong Entrepreneur On the entrepreneurial road, every journey is unique

espite the financial crisis, the small business industry in Hong Kong seems to be thriving; as we walk by the rapidly proliferating dai pai dongs and Thai restaurants in our neighborhood, it seems as though the enterprising initiative retains its hold on the catering industry. In abolishing the wine tax in 2008, a concession widely celebrated in Hong Kong, the government seems to be acknowledging the importance of entrepreneurship to a national economy, and has attempted to step up efforts to stimulate the aforementioned. In basic economic theory, entrepreneurs and their start-ups are seen as crucial in the promulgation of innovative practices and dynamism in business. When an entrepreneur, in the form of his or her business, enters the playing field by edging out another business, it is because he or she is able to introduce a new product to the market or create an existing one in a more efficient or attractive way. Those who remain are forced to innovate and reorganize in order to keep up, which ultimately benefits consumers’ access to choices as well as economic productivity in general. According to the OECD’s Measuring Entrepreneurship, “the dynamic process of new firm creation introduces and disperses innovative products, processes and organizational structures throughout the economy,” which is why innovation and entrepreneurship are so closely

linked. In Hong Kong, a dynamic freemarket economy, the process of “creative destruction” is wholly relevant: as Joseph Schumpeter explained in Capitalism, Socialism, and Democracy, a capitalist economy is subject to constant spurts of change, as part of a grander evolution towards a more efficient state of affairs. For him, “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.” Hong Kong is indeed a testament to the sort of constant evolution that dynamic entrepreneurship brings with it; however, the process is not without its challenges. Competition, as we realize with the Competition Bill currently in the works, has already been labeled as the key to saving Hong Kong from economic stagnancy. The irony of the matter is, however, that the government could do more to abet entrepreneurs everywhere, by easing barriers to entry in supportedmonopolistic industries. Pinpointed less often is the importance of changing citizens’ perceptions of entrepreneurs, who are often viewed as bearers of unwanted change or harbingers of unemployment. In the newest section of Best Practice, The Lion Rock Institute seeks to

address this issue by offering the public profiles of entrepreneurs around Hong Kong, depicting the motivations and advantages of businesses on a microlevel. In doing so, we hope to portray entrepreneurs in a personalized way that appeals and inspires, making us question negative stereotypes and allowing us to identify within each of us the latent potential to innovate. Best Practice sits down with four budding entrepreneurs, who have experienced firsthand the climate for small businesses in Hong Kong: Cindy Cheung, William So, Jonathan Lee, and Lindsey Hermes. We hope that these passionate and motivated primary sources can convey to our readers the kind of investment – financial and emotional – that an entrepreneur makes by opening up shop in neighborhoods we know so well. VOL 2 NO 2

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Cindy Cheung

piece of…” is the creation of “spacecoat,” Cindy Cheung’s artistic cognomen, in which she seeks to achieve a balance of leisure and work. Felting with basic colours and minute characters are common features of her accessories. Mottos and concepts concerning care and respect for people are marked on tags of respective pieces, which make “a piece of...” more than just handicraft. She is currently writing A Cup of Time, which is a compilation of film photography and writings. “

Name of company a piece of…

Time in business 1 year

Location Stall events throughout Hong Kong

Website taocecaps@gmail.com spacecoat.wordpress.com

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I met Cindy at a coffee shop in Tsim Sha Tsui. She looks just like any other I would meet on the streets of Hong Kong, yet she seeks to express herself through her intricate line of handicraft, jewelery, accessories, and dolls branded under “a piece of...” She has immersed herself in the things she creates and made it very clear that it is not about making a profit. It was uplifting to see how Cindy has embraced her handicraft collection. She talked with me about balancing her handicraft creation and her full-time job. She does not want to mass produce but instead wants to

take the time to create something that will both inspire and encourage others. Cindy’s distinctive attitude towards entrepreneurship sheds light on why people pursue certain goals that others may not understand. The passion and commitment she puts in creating her handicraft collection demonstrates a different view of entrepreneurship in Hong Kong. Your handicrafts are very detailed, what inspired you to design these products? Where do you find your inspiration? I mainly design my handicrafts based on the color and the shape and see whether they match each other. I would always go with something simpler. The process of using wool, the techniques involved, are all written in the handbooks. However, handbooks are not my top choice because I want to do something that I like. I want to design something with an edge, not just another copy of what the handbook says. I would use the handbook for techniques, but I want my product to resemble my individual creativity.

THE HONG KONG ENTREPRENEUR

You have a full time job, do you think you have enough time to do what you like?

What is the most rewarding experience for you since starting your business?

It really depends on how active you are for example, stalling and going to promotional events. If you are not in a hurry to go to events and things, you do have enough time creating handicrafts. I don’t want to be in a hurry; it limits my creativity.

I think it would be meeting other handicraft designers and sharing with them. They are encouraging

Have you considered doing this full time? Or maybe even opening your own store? I believe opening a store requires management and business skills and I don’t think I’m very experienced in business management. As a designer/ entrepreneur, you have to take into account the level of your products, at the same time, being able to manage administrative things. This might affect the quality of my products. I like taking my time when it comes to creating something that I like. If I have to treat it as a business, then I’ll have to look at profits, costs, etc. Have you encountered any difficulties? Near Soho, there is a gallery which I attended. I understand that they have requirements but the disappointing thing was they didn’t give us a lot of opportunities. They didn’t post up posters to advertise the events, so very few people came. Their regulations were harsh. Even though they call themselves a “cultural gallery,” there wasn’t a lot of culture involved.

Cindy is not just your average entrepreneur. Her unique perspective on doing business is refreshing. Although she’s not able or interested in leaving her full time job, her commitment on keeping her products coming shows her

“I don’t think the government should be in charge of directing the future of handicrafters.” and we motivate each other, and they would post my products on their websites. They are willing to share their materials and skills with me and when we are frustrated we always find comfort within this group of friends. I believe it is this kind of care and love we show within this community that is difficult to find outside.

enthusiasm. She has identified her niche with a unique product and refuses to compete to be the lowest cost provider. She is starting a business that has a special meaning to her. Her use of social media such as Facebook brought a whole new demographic of customers to her business.

What do you think the government can do to help young entrepreneurs like you? I don’t think the government should be in charge of directing the future of handicrafters. I know that some factory space in Kwun Tong has been willing to rent workshops for designers like myself, which is a good way to recycle old buildings. I believe less regulation would be better for handicrafters. If the government interferes, there may be too many rules and restrictions which may actually hinder creativity and new ideas. It’s always different when the government gets involved.

On... On comparing herself to other entrepreneurs in Hong Kong: It’s hard to compare because our business models are very different. On time needed to finish a product: There are many procedural steps which makes it difficult to measure. Apart from designing and decorating my products, it takes an hour to make a necklace.

Editor’s Note VOL 2 NO 2

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William So

Name of company Barista Jam Time in business 6 Months Location 126-128 Jervois Street Sheung Wan Website www.baristajam.com.hk

illiam So, manager of Barista Jam, set up shop in February to spread the gospel of java to officeworkers and tourists in the Sheung Wan area. With the passion of an ideologue, So explains that coffee can bring together people in a social atmosphere as well as tantalize the taste buds. His choice of location and emphasis on gourmet coffee differentiate him immediately from his competition, but he nonetheless faces a number of obstacles to his business. Possibly the biggest risk he must negotiate is failing to convert customers in Sheung Wan to the pleasures of drinking specialty coffee, as the gourmet coffee market in Hong Kong is still undeveloped despite its decided potential. So’s experience running a café of similar scope in Australia has prepared him, to some extent, to open up in Sheung Wan, but, as he explains to LRI, importing a new way of life into an area with a well-established beverage culture can be extremely challenging. What inspired you to become an entrepreneur?

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The first thing is, I love coffee. I want [people] to know what real coffee should taste like. That is a very important message. Not just to differentiate our shop but, from the customers’ point of view, to enjoy every dollar that they spend. I do have experience in these things…I also owned a business in Sydney. Before coming to Hong Kong, I sold the business off to someone else. I’ve got family support – my wife is very good to me, and she supports me very well. [Also], I have flexibility on devising my target. Do you think Hong Kong is ready for this kind of coffee culture? Hong Kong people treat drinking coffee as a social event. They, at this moment, don’t really treasure the coffee beans, the fragrance, the taste profile of the beans. But it’s already started. It started a few years ago. Not everyone drinks coffee, it’s an acquired taste. And Chinese people particularly drink coffee for the sake of caffeine dosage. It’s not a sort of enjoyment. They want coffee to wake them up. The mentality and

THE HONG KONG ENTREPRENEUR

the way people drink coffee here is very different. I’m just trying to test

are friends. They don’t necessarily need to order anything. They don’t

“The mentality and the way people drink coffee here is very different. I’m just trying to test the market because what I’m doing here is actually pretty risky.” the market because what I’m doing here is actually pretty risky. Luckily our coffee shop does suit the local market, but at the beginning it was difficult. However, there are many foreign workers and expats in Hong Kong. They get used to the things we do. Most of our customers are foreigners. You’re not too afraid of the risk. Is that [an aspect] of your personality or does it come from elsewhere? Yeah, kind of my personality. That’s one point. I just always say that if you don’t try, you don’t know what will happen. [Laughs] Luckily, I don’t need to finance this shop, financially we’re healthy at this point. I already planned the scenarios, and we’re still falling in between, so it’s all right. You need to calculate very carefully in these situations. You have mentioned some of the similarities and differences between running a business in Australia and Hong Kong. Can you compare and contrast some of the elements that are different? In terms of customers, people come into your café a few times a day. We

rush you. They can wait until you are ready. In Hong Kong it’s different. Customers here have the mentality that when they pay, they would expect good service...that they deserve the table, [so] don’t try to rush them. In Sydney, people know what the normal waiting time is and they are willing to wait. Hong Kong customers can’t wait. They expect everything to be on their table in 10 minutes time. The supply is very different as well. The coffee shop overseas is like Hong Kong’s cha chaan teng (Chinese styled traditional cafés). They have a whole range of supplies and back up. However, in Hong Kong you have to find single pieces. The coffee culture is extremely different. People overseas know what a good cup of coffee should taste like, [for example] if the coffee is missing something or can be done better. People would tell you right away. They would say, ‘The milk is burnt, would you mind changing it for me?’ For the shop owner, it may not be very good. However, for the barista it’s very educational. While I worked in Sydney, a region called Little Italy, most of my customers were Italians.

When I first started working there I was very frustrated, since everyday there would be a couple clients who would bring the coffee back to me. Through that I can learn a lot. In Hong Kong, people are very polite, they wouldn’t tell you what you did wrong. In the long run, it’s not good for business because we are not improving. I would much prefer if the people let me know whether the coffee was good or not. What about in terms of government policy towards entrepreneurs? Does it differ between Hong Kong and Australia? In Hong Kong, there is a lot of paperwork and there are many departments doing different things, which makes the process of setting up a business harder. In Sydney, if someone is trying to open a restaurant or a café, all we need to do is to draft a proposal and send it to the right department. They would then send someone to take a look at your shop and then it’s done. It’s a relatively simple process. In Hong Kong, you need to organize different people to do different things. It’s more complicated in terms of paper work. Honestly, until now we still only have a preliminary license and not the full license. We are expecting the full license at the end of this month. What are some of the challenges you have faced so far? The investment. You can’t really see or tell how long until you will get paid back. Since the coffee market VOL 2 NO 2

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THE HONG KONG ENTREPRENEUR

just started, you are dumping investment into it. You are testing the market, [and] your pricing may be right or wrong. Since there are no rules in Hong Kong with regard to pricing, the coffee may range from HK$15-40. Whereas in Sydney, the coffee culture is mature, and everyone knows how much a good cup of cappuccino would cost from the range of AUS$2.50-4.00. It will always be within that range. [Here], you don’t know the pricing. Another issue would be stocking the coffee beans because coffee beans are perishable. You need to use it within 1-2 weeks. Starting the business is also very challenging. A lot of people don’t have experience serving in these kind of coffee shops, while it’s easier for people overseas to know how to serve customers in these type of coffee shops. Waiters would know what to say when the line is long, while in Hong Kong waiters feel rushed when there are a lot of people and when the work piles up. It’s difficult to find staff. You will have to train them on your own. No supply at all I would say. The staff would have to get used to the way we do things. They are surprised when we buy raw materials to prepare, since they are used to receiving food in a ready-made package. Editor’s Note So remarks to LRI, “We make adjustments so that the coffee taste[s] its best. We do not do rushed coffee.” And indeed, So’s 14

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So’s style of entrepreneurship focuses not on blinkered profit-making, but rather on perfecting a product that produces a sensation, a pleasurable experience for his consumers. style of entrepreneurship focuses not on blinkered profit-making, but rather on perfecting a product that produces a sensation, a pleasurable experience for his consumers. The boundaries between culinary artiste and businessman seem to blur at Barista Jam, where So – flanked by his employees – spends five minutes selecting, packing, and percolating for each cup of coffee that is ordered. The aromatic beans lined up against the wall, originating in Colombia, Brazil or Ethiopia and imported from Taiwan or the US, testify to So’s determination to provide customers with variety and quality. Entrepreneurs like So remain unperturbed by recent moves by the government in favor of labor interests – minimum wage, for example, is no issue for the owner of Barista Jam, who already pays above the likely minimum wage level in order to attract employees with skill, experience, and personality as well as guaranteed loyalty and motivation. Despite the higher costs involved, So also uses fair trade beans, although he doesn’t advertise this, because he finds them to be of good quality. “A good bean is a good bean,” he explains candidly. “It’s important to support the farmer, because most of the specialty coffee beans are farmer-

oriented, so specialty bean buyers just pay more and deal directly with the small farmer.” Ultimately, So looks to shift consumer tastes in Sheung Wan so that his emphasis on gourmet sensibilities can be appreciated and – perhaps more pressingly – so that Barista Jam’s products achieve high demand.

On... On “coffee geek” culture: The “coffee geeks” in Hong Kong really do fantasize about coffee culture overseas. They do know a lot about coffee. When we first started to put our name on the internet, everyone was very excited. On his riskiest decision: The location of the coffee shop, because in Sheung Wan, it doesn’t seem like there is a lot of commercial buildings. It is a relatively old region in Hong Kong. On the name “Barista Jam”: It’s about sharing our skills, technology, coffee beans, and getting together to do something.

Jonathan Lee

Name of company Berrygood Time in business 3 years Location Central, The Peak and Ocean Terminal Website www.berrygoodhk.com

onathan Lee, a young local entrepreneur, started the very first frozen yogurt chain in Hong Kong. With a background in business, he took on the challenge of testing the market. His passion and risktaking personality enabled him to jump start this type of business in Hong Kong. We sat in his store on a rainy afternoon and had a chat with him about Berrygood and he shared with us his perspective on entrepreneurship. What inspired you to start this kind of business? Did you see yourself becoming an entrepreneur growing up? I had a corporate job starting off for a year and I thought it was a bit mundane, so I wanted to further explore and see for myself what I can do. My parents were both professionals so I was brought up thinking that I needed to get a job at an office. I went to a liberal arts school in the United States and I majored in Economics. So I have some background in banking. I guess I am good with numbers, so opening

up a business is much easier. What is your view of entrepreneurship in Hong Kong? There is no entrepreneurship at all in Hong Kong. Children are brought up to think in a certain way. The school system is structured in a certain way that stalls creative thinking. Any thoughts about how you wish entrepreneurship could be fostered in Hong Kong? I grew up in an international school in Hong Kong. I guess the American system as you would say. So, I don’t know the local system very well. I think what they do [here] is that at a very young age they give kids a taste of what different industries may be like. They then tell the kids that once you know what the different industries are all about why don’t you start working towards that, let’s say at the age of 14. There isn’t the idea of: “kids why don’t you think outside the box, be more creative, learn more about the world.” I guess the American education system is VOL 2 NO 2

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focused more on the social sciences like history, which might help in that regard [when it comes to creativity]. When you first started your business, what were some obstacles you faced? Number one was real estate. Absolutely real estate. The gist of the business, actually modelling it out and everything wasn’t too difficult. Again I have the background so [it’s] just making the numbers work. I guess the creative marketing side of it, the way we designed the store. I was terrible at it. At The Peak, it’s much nicer than this store and we are opening in Tsim Sha Tsui in 2 weeks. We are going to hope that that design would come out much nicer than this one. So, just building on your past practices. Improving and innovating. But this is our first store, It’s okay. I feel comfortable sitting here. But it could be better. How do you see your business expanding in the future? Ideally, when setting up a business you just want to make a lot of money. Whether it be opening up 50 stores or whatever. More realistically, I got to think about where my career is headed. And this is more about entrepreneurship. Building your skill sets along the way. If I just looked at

the numbers, I wouldn’t be growing myself. So it’s actually right now I’m going through a lot of marketing stuff and forcing myself to learn more about marketing. Even though I suck at it, but I’m building my skill

His entrepreneurial spirit requires trust in himself and his intuition, an ability to make clear choices, a flair for mobilizing resources, and a capacity to move beyond obstacles created by fear. set. What I want to do in the future is more like business development. How do you grow something, innovate. Something along the lines of consulting. How to improve and grow something. Editor’s Note Jonathan’s willingness to test the market and his realistic view when it comes to setting up a business complements his entrepreneurial spirit. Despite obstacles he faced running his business, his passion for what he does is a constant. He is not afraid of failure and knows that ultimately it is a willingness to try new things that will take him the extra mile. We were encouraged by what he shared, and also reminded that entrepreneurship is not easy, but it can be done if we are not

“Children are brought up to think in a certain way. The school system is structured in a certain way that stalls creative thinking.” 16

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afraid to try. His entrepreneurial spirit requires trust in himself and his intuition, an ability to make clear choices, a flair for mobilizing resources, and a capacity to move beyond obstacles created by fear.

On... On his favorite fro-yo flavor: Passion fruit On his best experience as an entrepreneur: I guess the nature of my business being yogurt, I have a lot of anecdotes about people just enjoying themselves here. There was this girl who comes in a lot and her father was really sick. So 2 weeks before his passing, they just wanted to hang out together. And so they said, let’s go get some yoghurt and so he was sitting hooked up in a van with the oxygen mask outside the store. And his daughter comes in and gets a bunch of yoghurt and [they] hang out over yoghurt. And after her father passed, she comes in and tells us this story. I was so glad to hear that our yoghurt was part of people bonding and especially in that situation. It was touching.

Lindsey Hermes

indsey Hermes is a creative consultant in corporate branding and web development with an award winning background in public relations and marketing. Her passions for clear messaging and clean design add value to companies both big and small in the entertainment, technology, and retail industries.

Name of company Lindsey Hermes Limited Time in business 1 year Location Soho, Central Website www.lindseyhermes.com

In an economic environment that is often touted as lacking in creativity, Lindsey Hermes seeks to innovate and stylize consumer marketing with her services. For the past year, Hermes has worked on a range of projects incorporating web design and brand consulting. She has used her natural attention to aesthetics and background experience in the field to gain clients, big and small, as well as to achieve quality results in a city she deems “an excellent place to be an entrepreneur.” The fresh face behind Lindsey Hermes Ltd., Hermes fills Best Practice in on the risks and advantages afforded to the budding entrepreneur in Hong Kong.

What inspired you? Did you always see yourself becoming an entrepreneur? I have a very independent spirit, and I wanted to move to Hong Kong to be with my husband. So I left my corporate job and started working for my parents’ company, bringing the brand into the 21st Century...I thought that if I started my own company, got out there and offered my services, I’d have a plan – a real plan with goals. Right now, I’ve just been fortunate enough to have work come my way thanks to referrals. I started out...by really having people come to me, asking me for help, realizing there was a need for my services. When people keep coming back to you, it’s an excellent sign you’re doing something right for them. This made me realize...this is exactly what I wanted to do. I’ve always had a kind of entrepreneurial spirit, as a result of my upbringing. My parents took risks when they were in the middle of their careers and started their own company. It showed me that you can take a risk and...that it’s worth it. VOL 2 NO 2

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In ten years, when I’ve really been in my field for a decent amount of time, it could be a situation where I’m overseeing a group of people – which is where I’d like to be. What do you perceive as the value in what you do? With design in particular, if you look around you, everything has been designed. Someone has put thought into the way everyday objects and places look and feel – their shape, texture, and color, etc. – which are a part of visual communication. And that’s sort of where my role comes in for companies wanting to be re-branded or [that are] starting out, needing a brand. What I do sets the tone for what they’re trying to say. It can make very big differences in a company’s profit margins. But branding is more than logo and web design, it’s also about communicating the right messages to the right audience. A lot of organizations overlook design and branding, thinking it’s the last thing they should be spending on, especially in these economic times, when really it’s crucial to show your presence, to present your best foot forward.

“When you don’t speak the language, you don’t know what you’re doing, how people will process what they’re reading or seeing.” What is your view of entrepreneurship in Hong Kong? Hong Kong is an excellent place to be an entrepreneur – a lot of people come here for corporate finance jobs, and their spouses come along. They might have to leave careers they had in the past, but they come to Hong Kong with a renewed energy and a joie de vivre that they really want to bring to [their] professional endeavour. You can try all kinds of different things here. I have met several people who have started new businesses just because they’re in a new place and they have the renewed energy to follow their passions. What are some obstacles and challenges you have faced since starting out? The language issue exists here ... if you don’t speak Cantonese. What I do here, it’s information based. When you don’t speak the language, you don’t know what you’re doing,

“A lot of organizations overlook design and branding, thinking it’s the last thing they should be spending on, especially in these economic times, when really it’s crucial to show your presence, to present your best foot forward.” 18

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how people will process what they’re reading or seeing. So that’s one thing. When it comes to winning new business, there have been some projects that I’ve submitted proposals for, [and] some of the budgets have been large enough for me to hire some help to make sure what I’m doing is legible in [both] traditional and simplified Chinese. Stylistically, there are cultural differences. Color theory, that’s the obvious one. Red...is perceived in so many different ways here. It’s not so much different than in the States but I think it’s dependent on the message you’re communicating, and it’s specific to the client, dependent on which market they’re communicating to. For example, in Asia, there are a lot more flash sites than in the Western world, and that’s purely because of the way information is processed and retained. Homepages in Asia, when I see all those characters, it’s like they hit me all at once. The flash sites are there for the more unique experience, the detailed animations; in the US, it’s all pictures. Corporate sites are more like news sites these days. You’re trying to communicate so many things on one page. That’s just one example. Do you see a lot of competition in your area of work?I see a lot of

THE HONG KONG ENTREPRENEUR

According to Hermes, design’s contribution to a client’s ability to differentiate himself or herself in the market should not be underestimated. bargaining and competition, and it’s based on personal relationships, which is very customary here. For instance, I can go to a new printer for a competitive bid, and take it back to my everyday printer, but I’m not sure what their quality will be like, what the turnaround time will be. I know that with my printer I’ll get a discount for coming back to her and continuing to provide her with business. I find that to be very reassuring.

expanding to a marketplace I haven’t been. That said, if a good project came up, I would definitely consider expanding there. I’ve worked with a company in Singapore, and I’m looking at doing some projects in Japan as well. The experience I gained working on multilingual projects in Europe and the States definitely came in hand when working with new clients in Hong Kong, and I relish the opportunity to grow my business in Asia.

I’ve had people come back to me challenging my bids, saying ‘I’ve got someone to do this for X amount less.’ I always turn the question back around on them, asking, do you know what you’re sacrificing for that amount? I am always willing to negotiate, but it’s really about providing enough quality such that competition isn’t an issue. [You should] build brand loyalty and awareness. How do you see your business expanding in the future?

Editor’s Note

I have been thinking about employing more help, because my services are in demand – companies are spending money again. Right now, I manage my schedule so that I have to turn down work. I’m not sure I would prefer to expand into China, just because I haven’t even been there yet...I wouldn’t feel comfortable

According to Hermes, design’s contribution to a client’s ability to differentiate himself or herself in the market should not be underestimated. Design can be seen as an investment, Hermes suggests – during the financial crisis in particular, companies tended to cut back on advertising rather than taking the opportunity to funnel money into creatively re-branding, and eventually outwitting, their competitors. In Hermes’ opinion, had companies in a position to take a risk grasped the chance to invest in their future in 2008 by employing design consultants and working on rebranding – their websites, message positioning, and so forth – they might have found themselves better off in the present day. Like Hermes, the entrepreneur

seeks to channel his or her previous experiences and skills into something that is utile and desired by peers; in her particular case, the energy of being in a new environment, combined with her recognition that there was a design-related niche yet to be filled in Hong Kong, inspires her to continue providing her services to those around her.

On... On teaching entrepreneurship: I think facilitating entrepreneurship shouldn’t come from the government, [but] the people. You can’t teach somebody entrepreneurship. It can be observed, but you can’t tell someone to start a business. They have to have that fire, that passion, for business. Because otherwise, you’re just following the rules. On networking and marketing: Do your homework. Figure out how you’re different in the marketplace, and establish yourself by doing incredible work, and earning yourself some testimonials that speak for the quality and expertise that you’re providing. If it’s product-oriented, capitalize on your social network because those will be your greatest word-of-mouth people. And think about your website for credibility.

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Conclusion We have amongst us entrepreneurs seeking to create niches for themselves by converting established tastes, appealing to the consumer’s delight in the unique, as well as by focusing on the aesthetic – be this manifested in the perfect latte, a pristine website design, countless possibilities of fro-yo flavors, or heartfelt handicrafts. These local entrepreneurs are not only innovative but determined to showcase their talents and skills when it comes to new products and experiences. Their attitude towards entrepreneurial creation and willingness to try something new is inspiring. We thank each of them 20

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for their time and would like to wish them well in their future endeavors. Despite Hong Kong’s recent depressed economic environment, which could have dampened

desire and skills are still present and only need to be revitalized. William, Lindsey, Jonathan and Cindy are perfect examples of entrepreneurs who are willing to face the risks

Despite Hong Kong’s recent depressed economic environment, which could have dampened the propensity for creating and extending enterprises, Hong Kong people still aspire to have their own business. the propensity for creating and extending enterprises, Hong Kong people still aspire to have their own business. While depressed economic conditions may have made some people cautious, the entrepreneurial

and take their chances. Their realistic view of doing business, and acceptance that failure is a possibility, empower them to innovate and take bigger risks, to the benefit of us all.

ON POLICY

Positive Impacts of the Pre-Primary Education Voucher Scheme Hong Kong Nguyen comments on the positive gains from the PEVS

implementation of the voucher scheme and increasingly the public is now asking: has the PEVS achieved its goals? Many argue that the scheme has failed to improve school efficiency by creating more unwarranted paperwork for school administrators and teachers and by putting more pressure on them to acquire new certificates which consequently affects the quality of teaching. Opponents of the voucher scheme criticize it for implicitly driving unqualified private independent KGs out of business by funding nonprofit KGs almost exclusively, and by converting the qualified profitmaking KGs into non-profit through the tuition cap and discriminatory subsidy.

While there are negative consequences of the PEVS, it is nevertheless important not to disregard the positive impacts. Prior to the PEVSâ&#x20AC;&#x2122;s implementation, government funding in Early Childhood Education (ECE) was limited. As the government has committed to investing an additional HK$2 billion each year by 2012, not only will the quality of teaching be raised through improving teacher qualifications and pay, but the financial burden on parents will also be eased. Particularly, by the 2011/12 school year, the annual subsidy per student will be HK$16,000 and will be used entirely for fee subsidy. Many KGs are reported to have had their school fees revised to accommodate more students. Shho

n the 2006-07 Hong Kong Policy Address, the government of Hong Kong announced the Pre-Primary Education Voucher Scheme (PEVS), thus initiating a program that aims to enhance the quality of kindergarten (KG) education service in Hong Kong. The initiative serves to provide a direct subsidy to parents to afford a pre-primary education for their children aged above two years and eight months from the 2007/08 school year onwards. In the form of vouchers, an annual subsidy of up to HK$13,000 per student is given, of which at least HK$10,000 must be used on a fee subsidy, with the remaining money spent on teacher training. The professional upgrades of pre-primary principals and teachers must be completed by the end of the 2011/12 school year. In the five-year transition period, both non-profit and profitmaking KGs whose tuition fees do not exceed HK$24,000 for halfday and HK$48,000 for full-day supervision will be eligible for the voucher scheme. Furthermore, to improve transparency, schools participating in the vouchers are required to open their accounting books for inspection and fill out a Quality Review Report.1 Three years have now passed since the

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Surveys and studies have found that most parents, especially those with low incomes, are satisfied with the scheme. Further, the legislation includes a provision for KG teachers to receive a salary increase, albeit unclear how much, after obtaining

ECE more affordable and accessible. The purpose of this article is to evaluate the positive impacts of the PEVS within the last three years while taking its negative consequences into consideration. To fully understand what an

To fully understand what an education voucher program is and how unique it is in Hong Kong when compared with that of another country, we need to look briefly at the education voucher originally proposed by Milton Friedman in 1955.

M. & J. Hensdill

the upgraded ECE diploma. Therefore, despite its shortcomings, the PEVS has succeeded in making

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education voucher program is and how unique it is in Hong Kong when compared with that of another

country, we need to look briefly at the education voucher originally proposed by Milton Friedman in 1955.2 He argued that universal vouchers for elementary and secondary schools would usher in an age of educational innovation and experimentation, not only widening the range of options for students and parents, but increasing all sorts of positive outcomes. The government provides educational subsidies directly to the consumers of education, i.e., students, rather than to the suppliers of education, i.e., schools. Theoretically, both non-profit KGs and profit-making KGs are encouraged to participate in the voucher program. Schools are forced to improve their quality by offering more diverse courses and recruiting more qualified teachers to meet the preferences of parents and attract as many students as possible. Such a voucher program strives to enhance the quality of education by introducing more competition into the public school system and allows parents to be the ultimate decisionmakers in the education market. In practice the Hong Kong PEVS is not the same program that Friedman had in mind. It specifically excludes profit-making KGs that charge higher fees than the tuition fees cap and guarantees to subsidize qualified profit-making KGs only within the five-year transitional period. This feature is vehemently attacked for its potential to serve as a channel for government intervention in the supposedly private-owned sector, and it raises fears that the scheme may be rendered bias. Contrary to the existing voucher

ON POLICY

D. Sharon Pruitt

systems in the world, the PEVS limits Hong Kong parental choice primarily to non-profit schools. In fact, the problems that have arisen in the past few years had been addressed before. Many people were worried that the government was silently intervening in the natural development of preschool education through the voucher scheme. Such criticisms fail to consider the peculiar account of the KG service sector of Hong Kong. According to governmental statistics, 80% of Hong Kong KGs are private non-profit, while the remaining 20% are private profit-making KGs. To argue that by increasing its funding in ECE the government is trying to intervene more in this sector, and at the same time take away parents’ choice in choosing schools, ignores the above statistics. Government subsidy in education can be seen in a positive light as it reduces the financial burdens on both parents and school administrators, especially when the

of their status, KGs in Hong Kong have been plagued with high tuition, low financial transparency and poor quality. Because profit-making KGs do not receive governmental assistance and can pocket the money earned, they are not obligated to report their financial details to the government. Briefly put, government intervention in this case means

To argue that by increasing its funding in ECE the government is trying to intervene more in this sector, and at the same time take away parents’ choice in choosing schools, ignores the above statistics. majority of KGs in Hong Kong are privately run and non-profit-making. Moreover, within the transitional period, parents are allowed to send their children to qualified private, independent KGs, which actually enhances parents’ choice of desirable schools if those were inaccessible before. Prior to the PEVS, regardless

better education quality and higher transparency. Another striking effect of the PEVS thus far is its success in promoting the affordability of ECE. In a study carried out in September 2009 by some professors from the University of Hong Kong: “Most of the parents (75%) reported that

the PEVS had eased their financial burden. More than half of the parents agreed that their tuition fees had been adjusted (60%) and that they subsequently had more money to support their child’s extra-curricular activities (56%), and had already done so (54%). These responses suggest that the voucher system had a positive impact on parents with regard to the affordability of ECE.” 3 Looking back at the past few years, it seems that the policy has caused some positive changes in school tuition fees. In a Legislative Council meeting in October 2007, many members of the public noted that a number of government-subsidized non-profit KGs had increased their tuition fees in the current school year.4 Although that was the year parents began to receive a fee subsidy through education vouchers, they still found it difficult to afford the increased fees. The reasons for fee revisions were generally to include a salary adjustment for teachers, to VOL 2 NO 2

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$8,000 to cater for the different fee levels among KGs. ON POLICY

School Year

Voucher value (HK$/per child)

2007–2008 2008–2009 2009–2010 2010–2011 2011–2012

13,000 14,000 14,000 16,000 16,000

Amount of voucher Amount of voucher allocated to fee allocated to teacher subsidy development (HK$/per child) (HK$) 10,000 11,000 12,000 14,000 16,000

3,000 3,000 2,000 2,000 0

Table: The Allocation of Voucher Value. Source: EDB (2007, p. 7) Table 1: The Allocation of Voucher Value. Source: EDB (2007, p. 7)

undertake improvement to school KGs (see table above). next year, the quality review and The general consensus before the implementation of PEVS was primarily facilities and increased operational The general consensus before other related paperwork should be optimistic, such that it would ease parents’ ﬁnancial burdens as well as improve expenses. In January 2008, it is the implementation of the PEVS simplified in order to reduce pressure the qualiﬁcation of teachers and principals. By and large, the program has reported that some KGs had lowered was primarily optimistic, such that it on educators as well as to increase succeeded in making education more accessible and affordable to parents of their tuition fees to be eligible for would ease parents’ financial burdens school efficiency. different income levels. In looking at the difficulties that the PEVS has created voucher redemption.5 By August as well as improve the qualification A good education system cannot for teachers, we should keep in mind that this is a new program that is still in a 2008, however, the voucher is said of teachers and principals. be built one-sidedly; for the PEVS to have led some KGs to raise their By and large, the program has to satisfy everyone, compromises 6 tuition fees. This is because the succeeded in making education have to come from three sides: (1) tuition subsidy had not kept pace more accessible and affordable to the government, particularly the with the rise in fees. In June 2009, parents of different income levels. Education Bureau; (2) principals the Education Chief considered increasing the value of the voucher to offset this fee rise.7 To explain the cap on the tuition fees in the voucher system, we need to understand the limit of public funding and how to use it most efficiently by looking at the prevailing KG fees in the 2007/08 In looking at the difficulties that and teachers; and (3) the parents school year, which stood at about the PEVS has created for teachers, and their children. Facing the HK$10,000 a year. The voucher value we should keep in mind that this peculiar situation of the Hong Kong for that year was HK$13,000, with is a new program that is still in a kindergarten sector, the PEVS indeed HK$10,000 for fee subsidy and the five-year transition period. Teachers needs more revision and discussion remaining for teachers’ professional are bound to be under certain new from all sides involved. upgrades. With the proposed requirements, but the bright side of maximum school fee of HK$24,000, this issue is that, by the end of the Hong Kong Nguyen was born in the progressive increase of the 2011/12 school year, they will not a Hong Kong refugee camp in 1990, subsidy until the 2011/12 school face the time-bound pressure again. returned to Vietnam in 1996, and year has been put at $16,000 a year. It has been guaranteed that teachers grew up there. She is currently a rising Moreover, the government has also with professional upgrades will junior at Columbia University. provided a margin of $8,000 to cater receive an increase in their salaries. for the different fee levels among Before the evaluation of the scheme

A good education system cannot be built one-sidedly; for the PEVS to satisfy everyone, compromises have to come from three sides.

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Negative Consequences from the Pre-Primary Education Voucher Scheme Raymond Ho critically analyzes the success of the PEVS

t the start of the 2007/08 whose school fees did not exceed development. school year, the Hong $24,000 per student per annum In 2010, the government reported Kong Government initiated a (PSPA) for half-day, and $48,000 for that 85 percent of Hong Kong’s Pre-Primary Education Voucher whole-day, would be eligible for a 820 kindergartens had joined the Scheme (PEVS) to subsidize early voucher to be redeemed by the KG PEVS since its implementation in childhood education. According concerned. The value of the voucher September 2007. I undertook an to the Administration, the purpose was $13,000 PSPA in 2007/08. analytical increased operational expenses. In January 2008, it is reported that study someusing KGsinterviews of the Scheme has been to increase also sought to to evaluate5 the of the had lowered their tuition feesThe to scheme be eligible for voucher redemption. By effectiveness August investment in pre-primary provide financial support for all KG directed to principals’ and 2008, however, the voucher is said to have led some KGs tosubsidy raise their tuition 6 education. principals and teachers upgrade The results subsidy had to not kept pace teachers’ with thedevelopment. rise in fees. This is because the tuition fees. In June 2009, Chief considered increasing the valueand ofthe theconclusion was The aims of the scheme were the Education their professional qualifications. were mixed, 7 tothe offset this fee rise. threefold:voucher to alleviate financial Alongside the subsidy scheme, that the scheme could not achieve burden on eligible parents, improve the Education Bureau (EDB) the aims of providing quality preTo explain the cap on the tuition fees in the voucher system, we need to the quality of pre-primary education incorporated a five-year policy primary education. understand the limit of public funding and how to use it most efficiently by without the elaborate regulatory running from 2007/08 to 2011/12 The study found that there looking at the prevailing KG fees in the 2007/08 school year, which stood at controls embodied in the traditional to improve teachers’ abilities. The were many negative, unintended about HK$10,000 a year. The voucher value for that year was HK$13,000, with subvention model, and preserve voucher value is used by NPM consequences that arose from HK$10,000 for fee subsidy and the remaining for teachers’ professional the flexibility and adaptability of KGs as a general fee subsidy this scheme. Issues such as timeupgrades. With the proposed maximum school fee of HK$24,000, the kindergartens (KGs). Under this and for principals’ and teachers’ bounded pressure on upgrades, loss progressive increase of the subsidy until the 2011/12 school year has been put scheme, every child aged above two development. The chart below of teachers to larger KGs, limited at $16,000 a year. Moreover, the government has also provided a margin of years and$8,000 eight months attending illustrates subsidies allocation choices of approved courses as to cater for the different feethelevels among KGs. a non-profit making (NPM) KG, ratio between fee and professional well as additional unwarranted

School Year

Voucher value (HK$/per child)

2007–2008 2008–2009 2009–2010 2010–2011 2011–2012

13,000 14,000 14,000 16,000 16,000

Amount of voucher Amount of voucher allocated to fee allocated to teacher subsidy development (HK$/per child) (HK$) 10,000 11,000 12,000 14,000 16,000

3,000 3,000 2,000 2,000 0

Table: The Allocation of Voucher Value. Source: EDB (2007, p. 7) Table 1: The Allocation of Voucher Value. Source: EDB (2007, p. 7) VOL 2 NO 2 The general consensus before the implementation of PEVS was primarily optimistic, such that it would ease parents’ ﬁnancial burdens as well as improve

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administrative work due to the voucher system all adversely affected the quality of teaching. Time-bounded pressure on upgrades

Loss of teachers to larger KGs As stated by the guidelines of the EDB, the total amount of the teachers’ development grant provided to a certain school is based on the number of students that the school has. The greater the number of students, the larger the grant provided by the EDB to the

The study found that there were many negative, unintended consequences that arose from this scheme. Issues such as time-bounded pressure on upgrades, loss of teachers to larger KGs, limited choices of approved courses as well as additional unwarranted administrative work due to the voucher system all adversely affected the quality of teaching. most important goal for the coming few years, the other things are no longer important now.” One parent expressed his concern, “One time I was discussing my son’s learning difficulties with his teacher, but she 26

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corresponding KG will be. A full-time teacher explained: “I have just moved to teach at this school. In fact, although I like the previous workplace and teaching environment, it was faced with a

Shho

The cut-off for funding of professional development is the end of the 2011/12 school year. This condition means that all current KG principals and teachers who do not hold the Certificate in Early Childhood Education (CECE) are pressured to obtain it as a matter of urgency. One full-time kindergarten teacher outlined the problems with this rule: “I do not have a CECE, so I need to start my training now. I am afraid I will not have enough time to complete the qualification requirements if I delay the enrollment. This will therefore be my

kept looking at her watch. Finally she told me she had to catch up with classes and that we had to meet at another time.” According to the survey done for this study, working pressure placed on kindergarten teachers has increased 27 percent after the implementation of the voucher system, which, according to one parent, evidently affects the quality of teaching.

big obstacle of reducing student numbers. In order to ensure I receive allowance for teachers’ development and earn a stable job, I decided to transfer to a new school.” Based on the submission reviews of non-profit PEVs from the Early Childhood Education Council, there has been an unprecedented loss and transfer of teachers post-implementation of the voucher system. Limited choices of approved courses The courses that would be reimbursed by the PEVS for teachers’ development are very limited and confined to a few local universities. One full-time teacher said, “I wanted to apply for a short early childhood education course abroad, but there was no grant from the Government, so I disregarded the idea.”

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Additional unwarranted administrative work due to the voucher system One school principal explained: “I have a Bachelor’s degree and I am presently studying for my Master’s in Education. Although the PEVS does not focus on the young children’s teaching curriculum, it is the focus implied by the Government. It pushes us to pursue this qualification

Conclusion and Suggestions Teachers changing jobs for no other reason than accommodation of the grants system has an adverse effect on the quality of schools. The five-year time limit to obtain the CECE qualification affects the quality of teaching. Professional development, as well as concurrent system reform, creates a dual pressure on KG principals and

“Teachers and principals spend more energy than ever coping with educational forms and documents.” requirement. It is not easy to cope with the academic study and administrative work from the voucher system.” In fact, principals have devoted plenty of time on the administrative work for the voucher system, including the Quality Review Report. An executive officer of a sponsoring body disclosed: “As the Quality Review Reports will be posted online, the sponsoring body attaches a great importance to it and school principals will also be asked to do their best on it.” In addition, although parts of the professional development grants from the voucher system require a Teacher Development Plan, the application and submission procedures for it are very complicated. A school executive revealed: “Teachers and principals spend more energy than ever coping with educational forms and documents.”

teachers. In conclusion, this policy, which intends to upgrade KG principals’ and teachers’ professional qualifications, has created many unintended consequences that threaten the very objectives of the policy itself. This study suggests the following reforms: •

Abolish the time limit of the subsidy, and set up a funding department by sponsoring organizations. Funds should be released by the sponsoring organizations depending on the individual school’s needs. Sponsoring bodies should allow cumulative funding from the Government and distribute the resources to educate their staff. This would alleviate pressure on the reform process.

•

Withdraw the use of the total number of students as a basis to decide the amount of grants

for teachers’ training or further study in a certain school. The grants should be flexibly allocated by the sponsoring body. •

Increase the number of designated courses, and the EDB should allow teachers to choose courses at different institutions, including qualified overseas courses, in order to meet the demands of teaching in a globalized world.

•

Allocate the full amount of the subsidy by the sponsoring bodies and cancel the Teacher Development Plan. Sponsoring organizations take the responsibility to report allocation and the use of money to the EDB, not the individual schools. This method would reduce school administrative work and increase the flexibility of school sponsoring bodies.

Raymond Ho is the convener of Momentum 107, a Hong Kong organization advocating low taxes, less waste and an efficient government.

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Suitable Approaches to Private Heritage Conservation Maggie Brooke on heritage in Hong Kong

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Richard Wong

he urban development authorities have been rearing their heads in all sorts of places recently: on 9th July, the URA and Development Bureau released a list of 200 projects suggested by seven district councils. By de-federalizing their approach to renewal, these authorities have been able to come up with exciting, if not always pragmatic, ideas to revitalize different areas: for example, to build a waterfront park in Tsuen Wan, or establish a mobile tram museum in Central. As always, these sorts of studies beg certain questions, especially in densely populated areas: How can we force owners to hand over their property to the government, even for renewal purposes? Isn’t coercion as deplorable as the failure to rehabilitate old buildings or free up spaces with recognized historical importance? In Maggie Brooke’s article, we are thrown a metaphorical rope, and asked instead to consider solutions that can actually benefit both the citizenry and the private property owner – UK or, at the very least, leave the latter appeased. Brooke takes us through the mechanisms, pros and cons to non in-situ exchange, direct government

Tiger Balm Gardens 虎豹別墅 1997, Built in 1935, Closed in 2000. support of private developers, and the “transfer of development rights” based on gross floor area (GFA) calculations. The issue is that these solutions apply on a case-by-case basis, and lawmakers must use their discretion wisely as a result. Brooke’s article will be extremely relevant during upcoming debates in the years to come. Conserving privately owned heritage properties in Hong Kong Many of the buildings currently categorised by the Antiquities and Monuments Office as being appropriate for conservation

(whether Grade 1, 2 or 3) are quite small or remotely located and owned, and quite often also occupied by private individuals, companies or institutions. There is clearly a limit to the suitability of many of these properties to uses such as museums, social services facilities or for other public, Government or NGO-related uses. Many such heritage buildings are best suited to their current occupation as individual residences, or as shops or bars and restaurants with ongoing private use and management being their highest and best use given their scale and location, particularly in the case of

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Richard Wong

those graded either 2 or 3. However, restoring and maintaining an old building can be an expensive business and so there is a need to explore ways in which they can be protected without: a) taking away existing private property rights and b) imposing too much of a burden on their owners in terms of renovation and ongoing maintenance costs. There are several approaches that have been used in other jurisdictions which could be adopted here. In addition to outright purchases by Government or a heritage trust, these range from transfer of development rights, to surrender and grant of an alternative site of equivalent value, to grants to assist with renovation and maintenance – there are also several variations on these themes but these are the most straightforward. One area of particular interest is what in some jurisdictions is called “sale of air rights” but which in Hong Kong is generally referred to as “transfer of development plot ratio” or “transfer of development

Jordan Road No. 3 佐敦道馮氏大屋 1997, Built in 1920s, Demolished 1999. basis with specific private properties that appear to be in danger of demolition or major alteration) is as follows: In order for the sale of air rights (i.e., sale of the right to develop the space above a site) to work on anything but a “one off” basis, there has to be a mechanism whereby the gross floor area (the GFA) that might have been developed on the site if it were not for the existence of the listed heritage building can not only be recognised but also evaluated and

Isn’t coercion as deplorable as the failure to rehabilitate old buildings or free up spaces with recognized historical importance? rights.” This is quite a common approach overseas as a means of not only encouraging, but also funding, private heritage conservation and is only now being discussed as an approach suitable for Hong Kong. One methodology suggested in order to establish a general policy (as opposed to dealing on a case by case

therefore monetised. This involves assessing – and certifying – the GFA that is applicable to any specific site in accordance with a prescribed formula that would be linked to its location, the grade of heritage building involved, the terms of Government lease and the planning regulations governing the site. This

certified GFA could then be valued by reference to market comparables in the vicinity of the building to which it is attributable. The idea then is that the value of these GFA Certificates could be utilised as “cash equivalent” in the redemption of a range of land related charges such as purchase of Government land, premium settlement, short term tenancy and waiver fees, rates, property tax, etc. This approach would be similar to the former Letters A and B but each certificate would be registrable so that both Government and the development community can track how many certificates are outstanding at any one time. Registration would also ensure that the funds generated by the sale of each certificate would be used, firstly and as far as necessary, for the renovation and future maintenance of the heritage building in question – this would have to be to an agreed standard which would be monitored by the Heritage Commissioner’s office – and only then for other VOL 2 NO 2

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Central Public Dispensary 九如坊街坊會 / 中區公立醫局 1997, Built in 1907, Demolished 1997. purposes. This probably means that many, if not most, certificates have to find a third party buyer as relatively few private owners can afford the long term upkeep of their heritage buildings without some assistance. It has been suggested that the GFA assessed as part of such a system could be utilised to increase the plot ratio of proposed new developments or future redevelopments in that the award of bonus GFA is currently quite common in Hong Kong in return for the provision of green features, public areas, etc. However, the community generally has become concerned about the additional height and density that has been seen as a result of this approach. Furthermore, as the value of the GFA will differ in value from location to location, to assume that unused GFA from one site should merely be added to a new project elsewhere could be too simplistic. Hence the alternative proposal that “heritage GFA” should be monetised and used to meet a 30

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range of maintenance or land and development related charges. This would enable the existing owner of a heritage building to raise funds to allow restoration and ongoing maintenance of his property while the community would benefit in terms of renovation, adaptive reuse and upkeep of the city’s heritage.

the impact in each case of both the existing Government lease and any statutory planning implications as, clearly, if no development rights exist in connection with the property concerned, there are no foregone rights to be compensated. It would also put the obligation on the owner of the heritage property to use the proceeds of sale for renovation and maintenance purposes. The government – and the public – have a right to be assured that the cost to the Administration of accepting “heritage GFA” certificates in lieu of cash offers equal or greater public benefit in the form of well-preserved and accessible heritage buildings. Two other elements also need to be considered in order to make the scheme attractive, particularly to third parties. Firstly, a mechanism will need to be identified whereby the monetary value of a certificate can be kept current as at the time of its redemption. In this respect

However, sale of air rights, non in-situ exchange and the grant of additional onsite development rights can perhaps be used to offset, or at minimum postpone, the impact of such costs in the short term. Any policy (and supporting legislation, if required) introduced to encourage the transfer of air rights in the manner proposed would need to set out a methodology for assessing the extent of applicable “heritage GFA” together with the valuation parameters. In this connection it would be necessary to consider

the most obvious approach would be the establishment (possibly by reference to the Rating and Valuation Department indices) of an index system so that when, for example, a 2010 certificate is used to settle a relevant payment in say 2013, it is index linked to values prevailing at that time.

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(on which he will pay an appropriate premium) and will also repair and renovate the mansion prior to surrendering it to Government, who will oversee its adaptive re-use (for purposes as yet undecided). This works well where there is a suitable “swap” site close by, but if this is not the case it can be difficult for the parties to agree on valuation parameters which both consider equitable. Another case in Pokfulam has recently been resolved through allowing new development within the grounds of the heritage property which will be retained as a Clubhouse for the new residential project. This again was a “one off” solution as the site was subject to the Pokfulam Moratorium, and the Government, having stepped in to prevent the demolition of the heritage property, then assisted the owner to secure planning approval for development over and above the height limit imposed under the Moratorium. The party in question could then afford to refurbish and maintain the existing

Richard Wong

Secondly, third parties will have to be persuaded that purchase of “heritage certificates” is beneficial not only to the community but also in corporate social responsibility and image terms, and while there are certainly some developers who would welcome such an opportunity to demonstrate their concern for Hong Kong’s heritage conservation, this is not a universal attitude as of yet. A possible incentive might be for the Administration to accept such certificates in priority to cash at least for an initial period of time. Another approach to the conservation of privately owned heritage buildings that has already been used by the Government is what is usually called non in-situ exchange. This entails the surrender of the heritage site to Government in exchange for another site of similar value. This was the final solution reached in the case of King Yin Lei, the Chinese mansion on Stubbs Road that was declared a monument after the new owner started its demolition. The owner has now been granted a development site close by

building. While this would not be appropriate (or even feasible) in many cases, it does provide a possible alternative where an individual house is sited in generous grounds. Finally, where development rights do not exist and an owner faces difficulties in financing renovations or repairs, the Government is now in a position to assist with specific funds earmarked for the purpose; however, applicants have to understand that conditions apply to the use of such funds that will require them to forego any redevelopment opportunities for an agreed period of time. All of the above approaches can assist in conserving more of Hong Kong’s fast disappearing, privately owned, heritage. However, it is a fact of life that in any heritage conservation system, and in the absence of a dedicated Heritage Trust, the Government or, in the final analysis, the community will ultimately have to bear many of the costs associated with heritage conservation. However, sale of air rights, non in-situ exchange and the grant of additional on-site development rights can perhaps be used to offset, or at minimum postpone, the impact of such costs in the short term. Maggie Brooke is the Chair of the Heritage Hong Kong Foundation and of the Best Practice Committee of the Harbour Business Forum.

Prince Edward Road East No. 450, Built in 1920s, Demolished 2006. VOL 2 NO 2

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Considering Trade Law with Regard to Human Rights Law: Perspectives on China Mallika Narain covers Tomer Broude’s study on the limits of the WTO as a promoter of free speech

he recent and expansivelycovered developments between Google and the PRC sharply contrasted the relative sovereignty of Hong Kong – whose web outpost became a key part of Google’s legal maneuvers – with the limited freedoms evident in the Mainland. Those who equated censorship with an arraignment on the individual’s freedom of expression placed the tech giant on a moral pedestal in March of 2010, when Google pulled out of China. As the New York Times explained on July 9th of this year, “While Google’s stand against Chinese government censorship earned Google the good will of free speech and human rights advocates, it also came at a cost.” And this cost, in the form of a major loss of market share and potential profits to Baidu, was one that soon came to outweigh the perceived benefit of advocating against repressive tactics like hacking and censorship. With Google licensed in China once more, its brief departure and attempts to redirect users to google.com.hk seem to be rapidly relegated to history, and we are left questioning Google’s choice to renounce its moral high ground

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in exchange for access to the giant Chinese market. This has raised questions about whether organizations and corporations can truly make a dent in China’s firm grasp over its internal political climate, which is seen as a troublesome task on a purely political plane given the lack of compulsory enforcement mechanisms built into organizations like the United Nations. As a result, other avenues of influence are increasingly sought – and scholars have recognized the power of economics over political decision-making, especially in the case of states like China, that place economic liberalization foremost on their policy agendas. China’s commitment to trade modernisation was evidenced in their accession to the World Trade Organization in 2001, a major breakthrough towards establishing a climate of international cooperation. This is why the question has been raised by groups like the First Amendment Coalition as to whether the WTO, given its past ability to incite settlements to crossAtlantic economic concerns, would be able to successfully apply a similar decision-making process to cases like

Google’s. In Professor Tomer Broude’s July 21st talk at HKU, this precise topic was discussed in the abstract with reference to established international jurisprudence. “Although I am very sympathetic to the idea in the normative sense—to the WTO being empowered to take into consideration non-trade issues like human rights, environmental concerns, etc. – I am afraid that the WTO does not currently have the capacity to legitimately take into account such considerations,” Broude told the audience gravely. “The question is not whether the WTO can adjudicate human rights issues, but, rather, to what extent can the WTO’s dispute settlement system take into account human rights law, in those situations where there have been alleged violations of economic law?” But, as Broude points out, censorship cannot be directly equated with an inhibition on one of the economic freedoms initially outlined in the General Agreement on Tariffs and Trade (GATT). In other words, while recent WTO disputes have acted against China and – in appearance

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only – in favor of freedom of expression, this is no guarantee of the WTO’s human rights agenda in future instances. Rather, the dispute settlement system, which functions like a court and has the jurisdiction

aspects that discriminated against the US, violating the Agreement on Trade-Related Aspects of Intellectual Property Rights and impairing the State’s right to free trade with China. Here, the WTO sought to protect

“The question is not whether the WTO can adjudicate human rights issues, but, rather, to what extent can the WTO’s dispute settlement system take into account human rights law, in those situations where there have been alleged violations of economic law?” international access to copyright and enforcement against piracy; but, one can simultaneously see how the ruling, once implemented, might be seen as opening up the possibility of wider and fairer access for Americans to Chinese markets and, therefore, a wider spread of information in a legitimate way.

Altermundo

to hear complaints related to simply WTO disputes, only cited anti-competitive or discriminatory economic behavior in the recent Intellectual Property Rights and Audiovisual Distribution cases, but not the freedom of expression. The fact that the rulings could be construed as championing human rights was merely circumstantial, even misleading. In the IPR case, the WTO ruled in the favor of the complainant, the United States, who challenged that China was insufficiently protecting and enforcing intellectual property rights; one major issue it put forth was “the denial of copyright and related rights protection and enforcement to creative works of authorship, sound recordings and performances that have not been authorized for publication or distribution within China.” In 2009, the WTO dispute settlement body concluded that China’s Copyright Law and customs measures had

The AV distribution case, concerning Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products more directly opened up avenues correlating to freedom of expression as we know it; in 2007, the US challenged China on “certain measures that restrict trading rights with respect to imported films for theatrical release, audiovisual home entertainment products (e.g., video cassettes and DVDs), sound recordings and publications (e.g., books, magazines, newspapers and electronic publications); and...certain measures that restrict market access for, or discriminate against, foreign suppliers of distribution services for publications and foreign suppliers of audiovisual services (including distribution services) for audiovisual home entertainment products.” For the most part, the dispute settlement system ruled in the State’s favor here as well, in a move that would lead to

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broadened abilities for international companies to distribute materials – audiovisual as well as textual – within China. It is clear, however, that these two rulings were made in the interest of economic freedom, and without any obvious motives – or effects – that incorporated human rights law.

for free speech, trade law may turn human rights a cold shoulder. It’s not necessary for economic purposes, and economic law relates only to those rules needed for economic purposes.” He continues to explain and critique the idea of gaining confluence between trade and human rights law; these might

Emphasizing confluence – the linking of trade and human rights naturally or nonnaturally – may at first glance seem crucial given the likely nature of Sino-American relations moving forward, but according to Broude, it is an unreliable approach. As Broude explains, “Freedom of speech is not an absolute right [in international law]. It’s a relative right.” And, while trade rights are usually justified on a utilitarian basis, “The right to express ourselves and to receive information and opinion is protected as an intrinsic right, even if it doesn’t serve any purpose. When there is no utilitarian basis

include interpretation from a conflict perspective – i.e., the licensing of drugs curing malaria; a conditional perspective – i.e., trade concessions contingent on the fulfillment of other requirements, which could be moral or ethical; and constitutional and conformity perspectives – both which view trade rights as under the umbrella of a system, i.e., of human

Shho

rights law. Emphasizing confluence – the linking of trade and human rights naturally or non-naturally – may at first glance seem crucial given the likely nature of Sino-American relations moving forward, but according to Broude, it is an unreliable approach. In fact, despite past WTO successes in the name of human rights – with the IPR case possibly viewed as the very first WTO-administered human rights case – we cannot see this as easily systematized or consistently replicable. Rather, the WTO dispute system can very much work to the detriment of human rights like free expression, as in China’s invocation of the Public Morals exception during the AV case. China argued that restrictions on distribution of Hollywood movies was carried out in the name of public morals rather than with any repressive intent on freedom of information. It is with these concerns in mind that Broude and others warn against putting too much faith in inter-governmental organizations in human rights issues, even those, like the WTO, that have a history of success in other arenas of contention. We thank Tomer Broude, a Senior Lecturer at the Hebrew University of Jerusalem in the Faculty of Law and Department of International Relations, for his time. Mallika Narain is a student at Columbia University.

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The Home Ownership Scheme Stephen Chung comments on the Home Ownership Scheme’s inadequacies

here have been calls for reviving the Home Ownership Scheme (HOS) in view of rising residential prices, especially in the pricier sectors. A survey done by the Chinese University of Hong Kong seems to indicate a 75% support for the scheme, according to a recent news report in the South China Morning Post. For the uninitiated, HOS was created in the latter part of the last century by the government to help (lower) middle class households become homeowners, largely via government-developed residential units which were priced lower than the market. Your humble author thinks this is not necessary. Apart from the question of whether a government has the responsibility to make homeowners out of its citizens (if so, how about making them car owners too?), there are a few more: A) Homeownership is conducive to having a stable society. This is probably the most often quoted statement in support of homeownership and it seems to go largely unchallenged, akin at times to being put on a pedestal for worship. Your humble author begs to differ. Not that the statement harbors no substance, just that it may not be

correct or applicable in all and any circumstances. To begin with, the notion of a “stable society” carries different meanings to different people. If one is thinking of less protests and complaints, then probably more homeowners may actually lead to more. Why? Because one’s flexibility

more homeowners. B) University graduates cannot afford a home. This is another popular statement generally used by people seeking to establish that home prices are way too high. Well, home prices may indeed be pricey, expensive, way out of line, or simply too high but using the notion that

Using the notion that (even) college grads cannot afford to buy is misleading. in relocation is reduced (versus renters) leading to higher inclination to participate in social causes when and if property values and rights are perceived to be threatened (NIMBY?). If one is talking of higher interest in serving the neighborhood and society at large, then higher homeownership may be conducive toward achieving that. Readers may wish to refer to a study1 on homeownership and social stability done by Harvard University. While it does support the notion that higher homeownership leads to more stable societies in terms of volunteering service and the like, it also indicates higher homeownership has little or no effect on personal health, etc. Poor neighborhoods may also not benefit much from having

(even) college grads cannot afford to buy is misleading. Again, why? The notion seems to suggest that somehow college grads could afford to buy in the good old days, but this was (and is still) not the case. And your humble author has first-hand experience: he has relatives who graduated from the University of Hong Kong in the late 1960s in the professional disciplines and all they could afford were tiny rental homes in the first several years after graduation. Eventually they would buy their first (small) homes but not before they managed to save enough “down.” C) While technically home prices are on the high side, homes are still by and large affordable owing to the historically low mortgage rates. If VOL 2 NO 2

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one is to use the HK$4,300/ft2 or so (figure provided by Midland Realty over TV networks), and assuming an average floor size of 600ft2, then the total will amount to HK$2,580,000. Providing a 70 percent mortgage ceiling and using current rates, the household may need to dish out close to HK$10,000 per month in mortgage principal and interest payment. The “burden” is not overly light, but neither too heavy for most home buying households. D) Compared to other countries and cities, Hong Kong home affordability fares not too badly. See the following table:

than twice of that for Hong Kong, implying a heavier home-buying burden on Shanghai residents.

While technically home prices are on the high side, homes are still by and large affordable owing to the historically low mortgage rates. E) HOS is a waste of precious land resources. A site designated for HOS means 1 less for public (rental) housing thus lengthening the time for public housing applicants (which your humble author supports as society needs to care for the needy)

Country/City

Typical Home Price US$

Home Price/ GDP per capita

USA Canada UK Germany South Africa Israel Australia Mainland China Shanghai Hong Kong

47,440 45,085 43,734 44,729 5,685 28,409 46,824 3,259 11,000 30,726

330,000 303,614 249,000 354,850 130,000 229,500 468,001 108,000 252,000 335,400

6.96 6.73 5.69 7.93 22.87 8.08 9.99 33.14 22.91 10.92

Table 1

The lower the ratio is (home price or 1 less for private development thus divided by the respective GDP depleting government revenues. perReferences： capita), the higher the home The lingering question remains: h*p://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita affordability will be. As such, most why do we need to help some of h*p://www.globalpropertyguide.com/ developed h*p://www.buyusa.gov/china/en/shanghai.html economies have higher our residents, who are not too affordability than Hong Kong. poor or at least not the poorest in Yet, they also tend to have higher society, to become homeowners? taxations than Hong Kong, i.e., if Food for thought: some say the Amount of voucher Amount of voucher disposableSchool incomes were taken into households intoHong Voucher value percentage allocated of to fee allocated teacher Year (HK$/per child) subsidy development account, then Hong Kong might Kong who own their own(HK$) homes (HK$/per child) have similar affordability. When it is still low compared to say the US, comes to emerging Hong thus implying for 2007–2008 economies, 13,000 10,000 further room 3,000 2008–2009 14,000 11,000 3,000 Kong offers much better affordability, homeownership expansion. Yet 2009–2010 14,000 12,000 2,000 e.g., the Shanghai there are many tenants in 2,000 public 2010–2011ratio is more16,000 14,000 36

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16,000

housing estates who have been renting for decades and some of them now enjoy better household

16,000

incomes than when they first moved in many years ago. Some even own properties in the Mainland and/or Hong Kong. Nonetheless, as long as they continue to pay rents, they could stay in their public housing units. While not being formal owners of such units with property rights [some public housing estates are now actually selling these units to willing occupants], their continued possession (versus formal ownership) of the units make them “de facto” unit owners. Hence, when viewed in this way, the overall homeownership level in Hong Kong cannot be said to be overly low. Zeppelin Real Estate Analysis Limited, 2009. Reprinted with permission. Stephen Chung is the Managing Director at Zeppelin Real Estate Analysis Limited.

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居者有其屋計劃鍾維傑說居者有其屋計劃有不足之處。

近

Woodley Wonderworks

期閱報發覺重建居屋要求有所增加，且有大學調查顯示約百分之七十五受訪人士傾向贊成重建居屋 [南華早報2009年12月4日]。筆者不同意，除了懷疑政府有否責任令或幫助市民做業主外 (若有，那麽做車主呢？)，還有以下數點因由：一) 「業主多有助社區安定」不一定成事實 = 這是常被引用的道理，基本上沒有人質疑或批評，有如定律似的，神聖且侵犯不得。然而，筆者對此有保留，雖不否定，但也不認為業主百分比高就「必」有安穩社區。首先，甚麼是「安定」也可有不同界定；若是指少些抗議爭拗，則業主多可能更多，因有了物業便難隨意走，唯有抗議。若是指社區少些搬遷，則或許有點作用。此外，從網上搜集到哈佛大學

liho01-12.pdf，基本上支持置

業率高有助社區安定，如肯義務為社區工作等，但非所有情況皆是，如收入過低的未必有着數。二) 「大學生也買不起樓」= 是常聽到之句語，一般用來支持樓價高(不合理)之

「大學生也買不起樓」是沒有根據之論調。之置業率和社區安定研究報告 http://www.jchs.harvard.edu/ publications/homeownership/

意見。樓價高低，貴賤等是一件事，說(凡)大學生都皆應 (有能力)可買樓是沒有根據之

論調。原因很簡單，筆者有近親於上世紀六七十年代畢業於香港大學，且有專業的，但他們畢業初期亦只是「租細單位住」，置業也是數年後有了積蓄才行，而且亦只是普通住宅。簡單而言，大學生買不起樓也是正常的。三) 整體香港普通住宅價格以走勢計是偏高，但以供養能力角度看仍不算貴 = 以美聯物業在電視頻道公報的呎價( 港元4,300左右)計算，又假設單位平均600平方呎，總價便是2,580,000。若有首期三成，加上近年按揭息率之低，負擔應不算太重(月供10,000 港元左右)。 VOL 2 NO 2

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國家／城市美國加拿大英國德國南非以色列澳洲中國上海香港

人均生產美元

平均住宅價格美元

平均住宅價格／人均生產

47,440 45,085 43,734 44,729 5,685 28,409 46,824 3,259 11,000 30,726

330,000 303,614 249,000 354,850 130,000 229,500 468,001 108,000 252,000 335,400

6.96 6.73 5.69 7.93 22.87 8.08 9.99 33.14 22.91 10.92

整體香港普通住宅價格以走勢計是偏高，但以供養能力角度看仍不算貴。

参巧網頁：四) 相比環球一些住宅市 h#p://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita 場，香港仍未至離譜地至 = h#p://www.globalpropertyguide.com/ 這是以不同地區之平均住宅價 h#p://www.buyusa.gov/china/en/shanghai.html 相對西方國家，香港之比例會是高，但不要忘記它們通常稅收也較高(就算供樓利息可扣稅亦不一定幫助很大)，即淨收入比例低格除以其人均生產，得出不同粗畧比例，越高通常負擔越過香港。據此，若以淨收入計，香港之負擔未必重很多。然而，相比發展中地區時，香港更顯負擔輕，如上海比香港的比例高重，相反則越輕鬆。請看以下出一倍有多。表格：五) 居屋是浪費資源 = 簡化看法就是政府不收地價售給合資格人士，但為甚麼要資助一個既非(最)窮之階層做業主？若有真值得倡導，但土地不收錢送大之董事，經理，專業人員，聯正經濟困難的，可建(出租)公屋，照護真正弱勢團體是應該的，但建居屋則表示少了一幅公屋土地(用作福利，令輪侯時間縮短) 相對西方國家，香港之比例會禮可不必，因不是人人皆想、營人士，顧問，員工及作者（或私屋土地(用來增加政府收入，日後如何動用是另話)。至於「高地價政策」，可参巧以往文章h#p://www.real-‐estate-‐ 是高，但不要忘記它們通常稅要、可或合適在香港做業主。包括鍾維傑）對任何金錢或非收也較高(就算供樓利息可扣給讀者思考：變相業主 = 有金錢損失，無論和以上內容是 tech.com/big5arFcles/hkej299.htm。稅亦不一定幫助很大)，即淨人認為香港置業率不及美加等否有關，均不負上或承擔任何置業對一般人而言是好事，也得倡導，但土地不收錢送大禮可不必，因不是人人皆想、要、可或合適在香港做業主。收入比例低過香港。據此，若高，因此要提高。然而，部份責任。以淨收入計，香港之負擔未必公屋住户一住就數十年計，且給讀者思考：變相業主 = 有人認為香港置業率不及美加等高，因此要提高。然而，部份公屋住一住就數十年計，且一些亦比重很多。然而，相比發展中一些亦比以前相對富裕，更有卓淩集團參與房地產開發，投以前相對富裕，更有人於國內／香港置業，但只要交租通常可繼續住下去，差不多有如該單位業主。據此，雖沒有正式業主名地區時，香港更顯負擔輕，如人於國內／香港置業, 但只要資及資產管理工作，和提供有份(部份可向政府購買)，但若計埋類變相業主，實質置業率未必太低。上海比香港的比例高出一倍有交租, 通常可繼續住下去，關之房地產專業服務，包括房多。差不多有如該單位業主。據地產分析，投資策略，資產組返回主頁／返回中文文章網頁此，雖沒有正式業主名份(部合管理，工程管理，設施管理五) 居屋是浪費資源 = 簡化份可向政府購買)，但若計埋及銷售策略等。項目種類包括看法就是政府不收地價售給這類變相業主，實質置業率未住宅，寫字樓，商場，工業設以上內容，包括連鎖之網站和網頁等，只供粗略參巧之用，並非可取代有關或所需的專業意見及服務。若流覽者，讀者，投資合資格人士，但為甚麼要資助必太低。施及酒店／渡假村等，而客戶者，或客!有個別專案或問題，請向有關或合適專業人士／顧問詢請教。本集團／公司／網站／網頁及有關之董事，經理，一個既非(最)窮之階層做業主則包括房地產開發商，投資機專業人員，聯營人士，顧問，員工及作者（包括鍾維傑）對任何金錢或非金錢損失，無論和以上內容是否有關，均不負上或承呢？若有真正經濟困難的，可返回主頁／返回中文文章網構，業主，機構租戶，銀行，擔任何責任。建(出租)公屋，照護真正弱勢頁金融機構，基金及有關專業人團體是應該的，但建居屋則士等。卓淩集團參與房地產開發，投資及資產管理工作，和提供有關之房地產專業服務，包括房地產分析，投資策略，資產組合管表示少了一幅公屋土地(用作以上內容，包括連鎖之網站和福利，令輪侯時間縮短)或私網頁等，只供粗略參考之用，卓淩地產分析有限公司, 二零屋土地(用來增加政府收入，並非可取代有關或所需的專業零九年, 經許可轉載。日後如何動用是另話)。至於意見及服務。若瀏覽者，讀「高地價政策」，可參考以往者，投資者，或客戶有個別專鍾維傑是卓淩地產分析有限公文章(http://www.real-estate-tech. 案或問題，請向有關或合適專司總經理。 com/big5articles/hkej299.htm.) 業人士／顧問查詢請教。本集置業對一般人而言是好事，也團／公司／網站／網頁及有關 38

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Who to Hire: the Novice or the Experienced Shih Wing-ching comments on competitive ideas in the workplace and the surprising places they develop

ong Kong would be more successful politically if policymakers were more inclined to develop original and local solutions instead of relying on policies simply adopted from other countries. Shih Wing-ching’s article on competitive ideas in the workplace illustrates the benefit of trying to solve issues with new ideas. Due to the great challenges faced by Centaline Property’s business in the Mainland, we have conducted a relatively comprehensive research on our main competitors and discovered that there is a common feature among these companies: when they hire new staff, they hire the novice rather than the veteran who has worked in other companies before. This is quite different from the common principle of recruitment. The advertisements I see in the newspapers often require specific work experience, which is why it is difficult for fresh graduates to find a job. In some developed countries, the unemployment rate of graduates aged 20-25 is over 20 percent. This situation will easily lead to youth’s discontent with society. Strength and weakness of the experienced

Most companies like to recruit the experienced because they can work instantly and the company does not need to spend resources on training. Moreover, some companies want to understand the competitors and learn from their experience by employing competitors’ former staff. The experienced are not only equipped with knowledge, but also with a network which can help them attract clients from their competitors.

then ask the company to hire the competitors’ staff by offering high wages in order to copy their competitors. However, they continue to chase after their competitors, who are hard to overtake. Besides, the new employees hired with high wages often conflict with existing employees and can break-up the group. This game is not worth the risk.

Its advantage is to keep the department on track and make a profit quickly, but the shortcoming is that their achievement is bound to the level of the competitors and it is hard to make a breakthrough. Some of my subordinates also like to use this kind of recruitment strategy. Its advantage is to keep the department on track and make a profit quickly, but the shortcoming is that their achievement is bound to the level of the competitors and it is hard to make a breakthrough. They tend to follow the old way and are reluctant to try new ideas. Hence, when their competitors develop a new operational strategy, they fail to react quickly and performance seriously falls behind. They will

The energy of the novice When I was still handling the business, I liked to recruit novices because they are like blank slates and have the potential to become a beautiful picture. On the contrary, the experienced are mostly contaminated with undesirable customs and are hard to change. Worse, they could infect the existing staff with this attitude, and in turn make the company become similar to others, without its own style VOL 2 NO 2

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Ben Tesch

Always help others, never give up on them

and advantage. Moreover, as the freshman has not been anesthetized to the situation, he will remain sensitive and express opinions about irregularities (although this depends on whether the company’s culture encourages staff to express opinions). This can help the company to identify existing problems quickly and continue making improvements. In addition, novices not only sense the bad customs of a company, but can also suggest new ideas. The experienced individual will think that the old way is acceptable and it’s not worth it to make a change. Novices, however, will think that if he uses the new ideas, the result will

progress. Therefore, I believe that our competitors can challenge us because they are more willing to hire novices. Why do I tolerate redundancy? Staff who have left my office ask if I know whether there are many redundancies in the company. They can’t turn a blind eye to this, and think that it’s unfair to them, and therefore choose to leave the company. I cannot deny that what they say is the reality, but the world is, by nature, imperfect and unfairness exists everywhere in different forms. I make my own choices. If the staff in

A young person is often willing to take risks. He doesn’t know the complexity and difficulty of things, so he has the courage to “irritate” the boss. improve. A young person is often willing to take risks. He doesn’t know the complexity and difficulty of things, so he has the courage to “irritate” the boss. If a company does not have such novices, it’s hard to 40

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question cannot adapt to the culture of our company, it’s wise to choose to quit. I will suggest working in US-funded companies, which put emphasis on talent and operational efficiency of the organization.

I treasure everyone I meet in my life, which I believe is my destiny. I have had the good fortune to become a boss, and I should follow what Lao Zi (a philosopher of ancient China and central figure in Taoism) said, “Always help others, never give up on them,” as the philosophy of human resources management. When the company can bear it, I should give my employees more chances and hope that they can gradually find a place to carry out their functions. Maybe some people will see those lacking in ability as redundant and think that they will be a burden on the company and themselves, and hence, choose to leave. But there is nothing I can do. I have also seen companies that emphasize talent. Once they encounter a person who is better than the existing employee, they immediately make a personnel replacement. But this just destroys the well-built working relationships instead. The subordinates are required to adapt to a new boss frequently, and this really harms the operational effectiveness of the company. Moreover, as the company encourages meritocracy, there is keen competition among the staff. This further leads to internal conflict and wastes the external force instead. In our company, the staff knows that I tend to keep the status quo and realize that their promotion is reliant on their destiny; therefore, they will wholeheartedly do their best in their existing position.

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However, my tolerance is not unlimited. If my company is leading the competition, redundancy is not a problem. But when my company faces threats that competitors may be catching up, “survival of the fittest” will kick in. Unintended functions of redundancy

walknboston

I discovered that there are some people who like to work under this situation, so the overall competitiveness of our company will not be worse than others. Since our market share and profit making ability is relatively competitive in the industry, why don’t we take care of the relatively disadvantaged staff? For instance, athletes will practice weight-lifting in order to extract their potential, so I will also let my company, when it’s in a good

Shih warns of collective bargaining and standardised pay, asserting that they can demotivate high-performers.

situation, keep some redundant staff so as to raise its competitiveness. From another perspective, a company that runs well with much redundancy is still a good company. When the Financial Tsunami occurred in 2008, I met a friend who worked at a big company. He complained to me that his boss asked him to reduce staff by 10% and he didn’t know how to do it because he didn’t have any redundant staff – all his workers were already working at full capacity. It’s not only hard to ask them to leave, but also hard to transfer their work to others. I am lucky that there is still some redundancy in my company; it will not affect the operations if the company needs to cut some staff. From a positive perspective, if the company keeps some redundancy in peacetime, it may have some unintended function if a crisis arrives. Some people’s talent may not be useful in normal times, but may be in difficult times. However, my tolerance is not unlimited. If my company is leading the competition, redundancy is not a problem. But when my company faces threats that competitors may be catching up, “survival of the fittest” will kick in.

Collective bargaining may not lead to salary adjustments When the end of the year comes, labor unions and employer associations will make high-profile announcements on the range of salary adjustments for the next year. Then they will argue with each other and criticize the other side’s estimation as impractical so as to fight for the greater interest of their own groups. This strategy may work when the economy is stable because when employers have the ability to raise the salary, they tend to track the mean, i.e., closely within range of other companies. This can lessen employee complaints and reduce the turnover rate. In this situation, if both the labor unions and employer associations speak loudly, it may have some influence because open speech often contributes to the formation of a subtle social consensus. However, the bargaining method of these groups is homogenous and impractical. Hence, even their members think that their suggested wage levels do not have much reference value. They would rather refer to the real cases of some large enterprises than the collective bargaining of these groups; a transaction price is always more referential than a collective bid. A consequence of collective bargaining Since the financial tsunami, the economy has not yet fully recovered and some companies are still struggling for survival. Employers do not have the same ability to raise salaries and cannot continue to VOL 2 NO 2

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Free choice of companies and individuals Undoubtedly, some companies with better conditions can afford to provide these kinds of special benefits. However, when a company is required to raise the salary

Okinawa Soba

follow the trend. Therefore, some companies’ salary adjustment range is smaller than the mainstream. They may freeze pay or even cut salaries. These employers do so because of the economic hardship rather than a willingness to exploit their employees. Labor unions’ strikes – because of the employers’ failure to meet their expectations – will only push these vulnerable companies to bankruptcy and cause unemployment. Collective bargaining can result in better conditions, but it always has a negative consequence. A standardized salary adjustment range is not suitable for both the employers and employees – the ability and effort of every employee is different, and therefore a standard range is unfair to those with better performance levels.

Novices bring fresh thinking into a company. according to collective demand, this arrangement will reduce its ability to reward those with better performance levels, discourage their motivation and, as a result, the company will become mediocre. In addition, when the salary is standardized, the company will try to weed out those with performance levels lower than the standard salary expected and thus reduce their working opportunity. I am therefore glad to see that there are different types of companies in the market. They employ staff with different wage levels and suit the different

Collective bargaining can result in better conditions, but it always has a negative consequence. A standardized salary adjustment range is not suitable for both the employers and employees – the ability and effort of every employee is different, and therefore a standard range is unfair to those with better performance levels. 42

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needs of different people. The purpose of this article is not to help employers ignore the labor unions’ demands for salary adjustments – I also criticized those employer associations’ collective action to lower wages before. My stance is to allow different companies and individuals to have the freedom to choose. Collective action will hinder both the market mechanism and an improvement in society. At am730, our salary raise did not follow the labor unions’ level – our range was even higher than theirs, by 8% on average. Translation by Lion Rock writers. Permission to reprint and translate from am730. Shih Wing-ching is an entrepreneur born in Shanghai, now living in Hong Kong, and is the chairman of Centaline and newspaper am730.

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聘新人還是熟手好施永青對行業之間競爭的獨特見解。

由

於中原地產在內地的業務受到強烈的挑戰，我們最近對主要的競爭對手做了一次較全面的調查研究。我們發現，做得最好的幾個行家都有一個共同點，就是在聘用新人時，只聘新入行的，而不喜歡聘用在行家處工作過一段時間，已有經驗的人士。這與一般人事部請人的準則很不一樣。我在報章上看到的招聘廣告，大都會列明，應徵者需有多少年的工作經驗。亦因為很多公司在請人時都有這種要求，才導致剛畢業的青年人不容易找到工作。在一些已發展的國家，二十至廿五歲的初入社會一族，失業率都超過兩成。這種情況很容易令青年人萌生對社會的不滿。老手有利有弊大部分公司喜歡聘請有經驗的人，是因為請有經驗的人，可以第一時間派去工作崗位上為公司賺錢，不用花功夫為他們先作培訓。此外，有些公司亦希望藉此了解競爭對手的情況、偷學行家的經驗。再者，有經驗的人不但有知識，還有人脈關係網，可以透過他們把行家手上的客戶也挖過來。我的下屬中，有一部分人也喜

歡使用這種招聘策略。他們的優點是很快可令自己管轄的部門上軌道，為公司賺錢。但這類人的缺失，是不容易有突破，最多做到與行家差不多。他們只曉得因循，不曉得創新。所以，每當行家發展出新的營運模式時，他們就措手不及，業績嚴重落後。他們會要求公司高薪去挖角，以抄襲行家的成功之道。但即使挖角成功，他們也是處於追趕狀態，甚少有能力反超前。此外，高薪挖角常引發與原有員工的矛

破，最多做到與行家差不多。他們只曉得因循，不曉得創新。所以，每當行家發展出新的營運模式時，他們就措手不及，業績嚴重落後。他們會要求公司高薪去挖角，以抄襲行家的成功之道。但即使挖角成功，他們也是處於追趕狀態，甚少有能力反超前。此外，高薪挖角常引發與原有員工的矛盾，導致兵變，以至散班，變成得不償失。再者，新人除了善於發現公司

我的下屬中，有一部分人也喜歡使用這種招聘策略。他們的優點是很快可令自己管轄的部門上軌道，為公司賺錢。盾，導致兵變，以至散班，變成得不償失。初生之犢不畏虎我的下屬中，有一部分人也喜歡使用這種招聘策略。他們的優點是很快可令自己管轄的部門上軌道，為公司賺錢。但這類人的缺點，是不容易有突

習以為常的不是之處外，還較有能力向公司提出一些新的建議。舊人會覺得，這一路做來都不錯，何必要自找麻煩，改來改去。新人則會覺得，如果按我的想法作點改動，成效一定更好。所謂初生之犢不畏虎，他們不知天高地厚，不知道舊人在這個環節上曾經碰過壁，才有勇氣去刺激主腦人的 VOL 2 NO 2

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思維。如果一間公司沒有新人經常這樣做，一間公司很難會不斷進步。我相信我們的對手之可以威脅我們，是因為他們比我們更樂於請新人。我為何容忍冗員有離職的同事問我，知不知道公司裡有很多冗員；他就是實在看不過眼，覺得對他們這類真正做事的人不公平，才選擇離開的。我不得不承認他說的是事實，但這個世界本身就是不完美的，不公平的事情甚麼地方都有，只是表現出來的形式不同

人看作冗員，覺得他們會拖累公司，甚至妨礙自己的工作表現，所以選擇離開。這我也沒有辦法。我也見過有些重視人才的公司，他們一遇到比現有崗位上更好的人，就立即作新的人事調配，結果反把同事間不易建立起來的工作默契輕易破壞，要下屬不斷去適應新上司，實質上破壞了公司整體的營運效益。再者，由於公司喜歡唯才是用，員工之間就會掀起才能大比併，進而爭寵搞內部鬥爭，反而消耗了公司對外的戰鬥力。在我們的公司裡，由於大

如果一間公司沒有新人經常這樣做，一間公司很難會不斷進步。吧了。我有我自己的選擇，如果他不適應我們公司的文化，選擇離開是明智的。我建議他轉往美資公司工作，他們會較注重人才與機構的運作效率。

家知道我傾向盡量不變，知道要升職只能等機緣，安天命，故只好一心一意在自己現有的崗位上去發揮自己的才能。冗員反映負重能力

常救人無棄人我是一個喜歡隨緣的人，珍惜上天替我安排的，在人生路上碰到的每一個人。我既然有幸做了老闆，便應遵照老子所說「常救人，無棄人」的教誨來用人。公司有負擔能力的時候，就給員工多一些機會，希望他們慢慢可以找到可以發揮自己功能的位置。可能有人會把一些才能不如自己的 44

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我發覺，世上一樣會有人喜歡在這種環境下工作，我們公司的整體競爭力並不因而比行家差。我們既然在市場佔有率與盈利能力方面都不輸蝕給行家，為甚麼不可以照顧一下相對處於弱勢的員工？運動員會刻意負重練習，以逼出自己的潛力，所以我也會讓我們的公司在環境好的時候，養些「冗員」，以提升公司的競爭力。

從另一個角度來看，一間冗員多的公司，正好反映它有不錯的負重能力。去年金融海嘯之後，我碰到一位在某大機構工作的朋友。他向我訴苦，他老闆要他削減10%人手，他卻無處下刀。因為他公司裡的每個人，都早已用到盡，既不可叫他們不做，亦不可把工作安排給其他人做。我慶幸我公司裡還有些「冗員」，要削走一些肥膏，應不會影響整體的運作。從積極一點的角度去看，公司裡平時養些「閒人」，危機來臨的時候，可能別有用場。有些人的才能，平時不一定有用，偏偏又會在危難時起到作用。不過，我在這方面的容忍能力並非毫無限制的。如果公司在競爭上遙遙領先，公司內有些冗員當然沒有問題。但當公司備受競爭對手威脅時，我是十分明白「天道不仁」的道理的。加薪難靠集體叫價每到年尾，勞動團體與僱主協會都會為來年的加薪幅度，高調地作出預期，並互相指責，批評對方的估計，不切實際；希望藉此為自己所代表的團體爭取更大的利益。這種做法，在經濟平穩的時候，或會有點作用。因為，當僱主有能力加薪的時候，通常就傾向「跟大圍」：即是說，其他公司大都加多少，他就加多少。這樣才能減少僱員的怨言，減少決定「跳槽」的僱員人數。

THE HONG KONG FREEWAY

在這種情況下，勞動團體與僱主協會的高調叫喊，或許還能起一定的作用。因為，公開的言論多少對社會共識的形成，產生潛移默化的作用。「曾參殺人」，只要多講幾次，連他

後遺症。單一化的加薪幅度，不但不適用於公司，亦不適合所有僱員。因為每個人的才能與努力程度都有差異，劃一的加幅，對有突出表現的員工不公平。

我建議他轉往美資公司工作，他們會較注重人才與機構的運作效率。

有工作的機會。此之所以，我樂於見到市場上有不同運作方式的公司，僱用不同水平的員工，讓不同的公司與個人都可以各適其適。寫這篇文章的目的，並非在於協助僱主可以不按勞工團體的要求加薪；我之前一樣也曾批評僱主協會企圖以集體行動進行壓薪；我主張的是，社會應讓不同的公司與個人有自由選擇的空間。集體行動會妨礙市場機制的運作，不利於社會的整體改善。

母親也會信以為真。不過，可能這類團體的叫喊方式實在太過樣板化，兼偏離實際，所以，即使是所屬成員也會覺得，他們的叫價沒有甚麼參考價值。人們寧願參照大機構的具體案例，也不參考團體的集體叫價。成交價永遠比叫價更有參考價值。

公司與個人的自由選擇

集體談判的後遺症

不過，我在這方面的容忍能力並非毫無限制的。如果公司在競爭上遙遙領先，公司內有些冗員當然沒有問題。但當公司備受競爭對手威脅時，我是十分明白「天道不仁」的道理的。

金融海嘯後，實體經濟尚未完全復原，部分甚至還在為生存而掙扎，僱主並非都有同樣的加薪能力，不可能沿用「跟大圍」的策略。因此，必然會有一批公司的加薪幅度會比「大圍」少，甚至要凍薪或減薪。需要這樣做的僱主，很多時都是礙於環境所迫，而不一定是藉金融海嘯乘機剝削僱員。勞工團體若因為有僱主加薪未達他們的指標就發動工潮，其結果只會促使這些本身已經相對虛弱的公司提前倒閉，造成更多工人的失業。以捆綁方式進行集體談判，雖然有助爭取更佳條件，但常有

當然，有條件的公司可對這類員工進行特殊照顧；但當公司需要按集體的要求劃一作全面加薪時，就會在一定的程度上削減了加薪給個別有突出表現員工的能力，令他們失去工作

的積極性；結果只會令公司走向平庸化。此外，當報酬劃一化的時候，公司亦會設法更替一些表現低於標準報酬的員工，令某些天資較弱的人更難

所以，《am730》的加薪並不參照勞工團體的要求，我們加得比他們要求的還要多，平均加了8%。鳴謝AM730給予轉載施永青是一位出生於上海的企業家，現居於香港。他是香港

中原集團及免費報紙AM730 的主席。

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An Interview with Reverend Robert A. Sirico Bevan Sabo and Ariel Goldring interview Rev. Sirico, President of the Acton Institute for the Study of Religion and Liberty

A libertarian-minded Christian must, in effect, follow two sets of standards. A good example might be the gay marriage issue. Christian doctrine, typically, is opposed to a homosexual union, but the principles of individual liberty do not leave room for a government to intervene in such a case. How does a Christian transition his personal values to his political beliefs? I must confess that I’m somewhat dissatisfied with the word “libertarian” in much the same way and for some of the same reasons that I’m dissatisfied with “capitalism” (a Marxist word to begin with). It is almost inevitably the case that when these terms are employed one gets bogged down in having to make distinctions as to why for example libertarianism does not necessarily mean libertinism, or why capitalism is not state-capitalism, etc. If by libertarian you mean the belief that the political end of man is liberty, then I am comfortable (Lord Acton having employed the phrase). Further, if the political sphere is to be shrunk to administer the proper functions of government, rather than the pervasive and invasive state apparatus that we have grown 46

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accustomed to, then in the end it means to me that the libertarian idea is a modest one – not a whole philosophy of life, an aesthetic, and epistemology or a soteriology, etc., but merely a prescription on

Catholic doctrine, especially as expressed in the writings of St. Thomas Aquinas, tells us that not every precept of the natural law needs to be or can be inscribed in legislation. We have here

“It is almost inevitably the case that when these terms are employed one gets bogged down in having to make distinctions as to why for example libertarianism does not necessarily mean libertinism, or why capitalism is not state-capitalism, etc.” governmental intervention. It helps define the limits of government visà-vis human freedom, but could not tell us what we ought to do. Christianity, on the other hand, goes beyond even a philosophy of life: it is an account of the meaning of existence and has and contains in it those moral norms, which help man to flourish according to his nature, and how the human race can establish a right relationship with its Creator through the redemption wrought by Jesus Christ, who, in the words of the late pope, “reveals man to himself.”

a rational basis for authentic tolerance, not the kind of politically correct tolerance which becomes a cloak for intolerance in the form of speech codes, or laws which force association or curtail peaceful religious expression. Real tolerance, which in the face of sharp and heartfelt disagreement, acknowledges the freedom of person to behave in a way or believe in an idea which one sees as erroneous, denigrating, even irrational, but which does not violate the mutual freedoms of others. In the case of what has come to be called “gay marriage,” I think it is

ON PHILOSOPHY

first necessary to understand that marriage is a pre-political institution. Because marriage is prior to the state, the state does not have the right to define or redefine its essence. It might create new institutions to accommodate new conditions, and would be wise to be careful about legislations that might undercut or diminish traditional institutions that have, over millennia, proven themselves vital for the well-being of society. Western Civilization at least has always known that marriage is that institution which touches upon the conjugal union of husband and wife who bring human beings into the world through their love. Because of the unique nature of this kind of union, it has seemed prudent throughout the ages for this institution to be protected by law so that the property and stability of the family and the rights of children are protected, even if the specifics of such legislation have varied at various times and in various places. From a historical point of view Western Civilization grew out of this moral understanding of society, which was largely formulated by Christian anthropology. For this reason I don’t think that a Christian need “transition his political values to his political beliefs” as much as he must derive his political beliefs from his view of the world based upon right reason and the natural law. This approach, which emerged under the Greeks but what matured and was preserved by the Church has given the world the freest, most advanced and most prosperous civilization in human history.

“The word selfishness as it is used in common parlance does not reference rational self-interest but rather a self preoccupation and disordered priority.” Capitalism requires a large degree of selfishness. Though there is certainly room for charity in a free-market system, individuals and firms must pursue their own selfish interests in order for an economy to thrive (or even succeed). How does a Christian love his neighbor as himself and still function as a capitalist? I do not share the use of the word selfishness in the way that it is employed in this question. A proper self regard is based on the belief in my own inherent dignity and this requires “self love” but not an inordinate self-love or self-preoccupation which is willing to subordinate others to my own ends, either coercively or in a manipulative manner which disregards the same dignity of others. The word selfishness as it is used in common parlance does not reference rational self-interest but rather a self preoccupation and disordered priority. From a Christian anthropological point of view the human person (who is much more than “the individual”) is a combination of his individuality and his sociality, his autonomy and relationships. From the first moment of our existence we are simultaneously autonomous (in that we are genetically distinct

from our mothers), yet in relation to her while in the womb. The whole of our existence following is a working out of this interplay of our autonomy and our social nature. A Christian’s love for his neighbor is rooted in solidarity which is the recognition of a profound connection between human beings. It is, in a sense, a recognition of myself in the other. Because all human beings share an intrinsic dignity, we “love our neighbors as we love ourselves.” Capitalism, which is only the economic extension of this anthropological truth, can be lived out from this perspective, but in order to be secure, just, and enduring, it needs to rooted in the historical development of such an anthropology. In July of last year, the Guardian reported on Pope Benedict XVI’s third encyclical, entitled Charity in Truth. For me, the following is a particularly disturbing paragraph from the article: The Pope today called for a “profoundly new way” of organizing global finance and business, calling for a new social and ethical dimension to capitalism and arguing the case for a new world political authority to help champion “the common good.”

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The idea of the “common good” goes against the spirit of individualism that is an essential part of capitalism and any proper government. Can you discuss Charity in Truth, particularly, its ramifications for those who consider themselves both Christians and capitalists? If one is going to really understand papal encyclicals one must understand the tradition and theological milieu from which they emerge and attend to the precise definitions that are given to various specific phrases or concepts. In the case of the latest encyclical Caritas in Veritate many have asked questions about what the Pope was addressing when he called for a “New World political authority.” I very much doubt your readers want from me a full exegesis of this section of the encyclical, but let me summarize by saying that this phrase is used in context with the references to subsidiarity elsewhere in the encyclical (e.g., no. 57) which is therein described as “the most effective antidote to any form of allencompassing welfare state.” Thus it is explicitly not the Pope’s intention to be calling for some kind of “super state,” but rather for a global solidarity and authority “which cannot be imposed by force” (cf., Mater et Magistra, no. 130). The encyclical also cites a number of other references it is drawing upon, all of which are noted in the critical apparatus of the encyclical itself and all of which repudiate any kind of “super global state.” 48

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The “common good” in Catholic understanding does not justify collectivism; it is in fact an antidote to it. Rather than some kind of claim of common ownership to goods, it is seen as the overall conditions in which the human person can best

there business.” I do not think that to be a substantive answer to these critical realities. Last year, Rep. Patrick Kennedy was banned from receiving communion by Bishop Thomas Tobin, because

“Part of the problem with the Randian understanding of the human person is that it is an abstraction of man and thinks of him as a being who somehow just sprung into existence “out of the mind of Zeus” as it were, i.e., it ignores the fact that people come from people, they inherit a language and a culture among other things.” flourish – that is, the total set of circumstances for the betterment of humanity, kind of like benchmarks. This definition includes the freedom of the human person and other elements I addressed previously. Part of the problem with the Randian understanding of the human person is that it is an abstraction of man and thinks of him as a being who somehow just sprung into existence “out of the mind of Zeus” as it were, i.e., it ignores the fact that people come from people, they inherit a language and a culture among other things. This abstraction makes it difficult for the strict Randian to account for social necessities like culture, prudence, children (and the “irrational” demands they make on parents) and charity, other than my observing something to the effect, “well, if people want to do that it is

of Rep. Kennedy’s pro-choice views. Is this an appropriate role for the church to play? What is the proper role of the Church in politics? The censure that Bishop Tobin issued against Congressman Kennedy was not motivated in the bishop’s mind by politics. Patrick Kennedy is a professed Catholic which one presumes is the result of a free choice that he made some time in his life to affirm his faith in the doctrine and authority of the Catholic Church. Bishop Tobin was acting in his proper function as a bishop of the Catholic Church which is to safeguard the teaching of the Church, as well as the spiritual well-being of members of his flock. Because the Congressman effectively betrayed his own profession of faith with regard to favoring the right of some to take the lives of others (which is what

ON PHILOSOPHY

abortion is) the Bishop told him that he could not present himself for Communion. This is a perfectly appropriate position. All Catholics know that they are bound by their religion to abide by the teachings of the Church on matters of faith and morals in order to be able to receive the Eucharist. The fact that this has a political effect because the Mr. Kennedy is a Congressman in a Catholic district is only secondary. (Would anyone argue that Ayn Rand could not excommunicate Nathanial Branden from the Objectivist Collective had he been a congressman in an Objectivist district?) If Patrick Kennedy decided he did not want to be Catholic he has the liberty to renounce his faith. But it is essentially Kennedy’s contradiction to say, on the one hand, “I am a Catholic” and on the other “I favor the right of abortion” – not that of Bishop Tobin. A few months back, Free Market Mojo had the opportunity to interview Dr. Yaron Brook, president of the Ayn Rand Institute. Ayn Rand was very opposed to faith, believing that man should live by reason alone. We asked Dr. Brook if it was possible for a person of faith to live by the three principle values of John Galt: reason, purpose, and self-esteem. Here is Dr. Brook’s reply: To the extent someone follows a policy of faith – of believing in some

supernatural being for which there is no evidence and whose alleged powers contradict everything we know about science—he is doing the opposite of living by reason. As a person of faith, I would very much like to give you the opportunity to respond to this line of thinking. The question of epistemology is a broad and complex one and this response must, by its nature, be brief: The mind employs reason to apprehend the truth of those things immediately available to our senses

argue for the reliability of the mind or the dignity and rights of human persons. To say that the mind is simply the result of a series of chance amalgamation of matter does not demonstrate the reliability of the mind. We apprehend the reality of things by reason, to be sure, but if this notion of epistemology descends into “scientism” it becomes an ideology, and an approach that was criticized by F. A. Hayek in The Counter Revolution of Science and refuted by Michael Polyani in Personal Knowledge. Empiricism may give us data, but it does not give us meaning.

“The mind employs reason to apprehend the truth of those things immediately available to our senses and in so doing one presumes the reliability of the mind. “ and in so doing one presumes the reliability of the mind. A first question might be to ask, how does one know the mind itself is reliable? And how does one account for that part of reality not available to the senses? This is where the evidence for transcendence enters the picture. It is my contention that we know the mind to be a reliable tool of cognition because the mind itself is designed by Intelligence. As Pope Benedict puts it, “Reason cannot emerge from non-reason.” I find it difficult to understand how people can believe that Mind can come from non-mind or that persons can emerge from non-persons and still

We also apprehend reality of things through faith, intuition, aesthetics, tradition and the like. All of these need balance, correctives, boundaries and proper definitions, but not to employ them properly or to deny their importance leaves us with a rigid and limited mode of knowing. There is a logical problem in asserting that reason can account for all of reality and at the same time say that because transcendence is beyond normative observation by the senses, it does not exist. In a certain sense we all have faith, for example in our belief that the sun will come up tomorrow, even though we do not have direct evidence for VOL 2 NO 2

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it observable to our senses; yet we order our lives according to this faith. A man has faith in the fidelity of his wife (even though this may be mistaken; faith need not be infallible to be reliable anymore than reason). These are beliefs based on certain indications of reliability. To say that to define faith as a belief in that for which no evidence exists is not a Christian definition of what faith is. The New Testament defines faith as “the assurance of things hoped for, the evidence of things not seen.” (Hebrews 13:1) The state has a limited responsibility with regard to keeping its members from harming themselves. The discernment of what the boundaries of those things are has to be sorted out based on the principles both of truth and of human dignity. To say for instance that man has the right to obliterate his mind through the abuse of drugs and/ or alcohol does not itself address the question of that man’s freely undertaken responsibilities toward his family for instance. In the Summa St. Thomas Aquinas certainly makes a distinction between the prescripts of the natural law and the implementation of those prescripts in the form of positive law. And I think that it is very wise for the legislature to be extremely modest in what it attempts to prescribe both because it is impossible merely by law to make men moral, but also we must remember that the legislator himself is a flawed human being and to place in the hands of politicians and bureaucrats the responsibility to make other people’s lives moral 50

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is a very precarious endeavor. So in general I would say that we should allow for the maximum amount of liberty as is consistent with the general stability and good of society and be prepared to engage the prudential discussions about when and where and how under what circumstances of these come liberties or restrictions should be implemented. We discussed the gay marriage issue above, but I’d like to move on to other issues that involve both morality and politics. Gay marriage does not harm those involved. It may, in the opinion of some, be immoral, but no physical harm is done to the marriage partners. But there are some “immoral” practices that do cause physical harm to those involved. This is the case with illegal drugs. What responsibility does society have to its members to keep them from harming themselves? I am not at all sure that immorality does not harm people, because, as I have argued previously, the totality of the person is not physical. If you believe that what is moral or immoral is based on subjectivism, rather than the objective truth of the conditions necessary for human flourishing, then you could make the distinctions your question implies. The violation of authentic (i.e., objective, true) morality does harm people, even if that harm is not physical. Aside from the fact that adultery and divorce violate the contractual obligations established in marriage where the spouses vowed

to be truth “until death do us part,” does anyone think that an unfaithful husband’s acts of infidelity don’t harm his children? Likewise, there is ample evidence indicating that pornography does both moral, psychic harm. The question of what actions are so harmful that they must always be banned and which should be tolerated is not resolved simply by resort to “no physical harm.” I find much more useful the principle of subsidiarity in helping us as a free people to address the respective response of government, civil society, families, etc. Unfortunately, so many of these other institutions, largely intermediary and voluntary, have been so weakened by the contemporary presumption that the government is the resource of first resort. Here I identify with a wise question posed by Alexis de Tocqueville: “How is it possible that society should escape destruction if the moral tie is not strengthened in proportion as the political tie is weakened?” We would like to thank Reverend Sirico for his time and wish him well in his future pursuits. Bevan Sabo and Ariel Goldring, founders of www.freemarketmojo. com.

GLOBAL PERSPECTIVE POLICY ANALYSIS

The Antitrust Terrible 10: Why the Most Reviled “Anti-Competitive” Business Practices Can Benefit Consumers in the New Economy Clyde Wayne Crews Jr. makes the case that coercive monopoly power stems from government protectionism – from the restriction of entry or the banning of competition

“Given the long history of antitrust law and its contempt for true market rivalry, perhaps the most effective pro-consumer program would be to consider federal enforcement of the antitrust laws to be a per se restraint of trade.” Thomas W. Hazlett1

ven in a digital information age, seemingly everyone believes that antitrust law protects consumers and has an important role to play in policing high-tech markets. But is this popular view really true? Part of the impulse for more than two decades of deregulation in the transportation, communications, banking, and electricity sectors has been a willingness on the part of policymakers to rethink the presumption that regulation of economic affairs benefits consumers. Policymakers have recognized that economic regulations transfer wealth, which means that in the political swirl surrounding their creation and maintenance, they inevitably attract political entrepreneurs who seek entry or price regulation that will give

them an edge on the competition. Consumers get harmed in the process. That healthy touch of skepticism has also contributed to restraint in the regulation of the technology sector. Since antitrust is a form of economic regulation, it is similarly vulnerable to exploitation both by firms hoping to hobble competition and by a public and private legal infrastructure that lives comfortably off the industry created by enforcement of antitrust laws. Thus, a skeptical interpretation of the history of antitrust enforcement, up to and including recent

campaigns targeting Microsoft, Intel, the AOL-Time Warner merger, and the rejected WorldCom-Sprint merger is that antitrust advances the well-being of political entrepreneurs rather than consumers. Antitrust enforcement, like any economic regulation, often increases price and decreases output by destroying misunderstood or disregarded efficiencies. Those outcomes are the opposite of those allegedly pursued by enforcers. Yet, although the legitimacy of economic regulation is often questioned, antitrust enjoys almost universal support. Antitrust advocates compare real-world VOL 2 NO 2

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markets with the theoretical world of what economists call “perfect competition,” in which there are large numbers of buyers and sellers for each product. In this scenario, if a seller raised his prices, consumers would simply switch to a competing brand. Under notions of perfect competition, strategic rivalry, size, and a commitment to winning – the hallmarks of ordinary competition – can become unlawful behavior whenever the enforcement-minded decide, since all firms have at least some market power. Successful companies have no way of knowing if and when their business practices will be targeted. As stated so simply by R. W. Grant in Tom Smith and His Incredible Bread Machine, if a firm’s prices are higher than everyone else’s, that implies monopoly power; if everyone’s prices are the same, collusion may be alleged; prices “too low” can signify cutthroat competition and predatory pricing.2 Too high, too low, or the same: each scenario can be targeted by antitrust enforcers. Under these circumstances, flying under the radar can become important. Typical critiques of antitrust

Competition Law: Skewered Justice? palatable, criticism stems from the rejection of property rights inherent in antitrust. Ungrounded in a concept of capitalism that includes property rights and wealth creation, antitrust advocates regard the economic pie as largely fixed and imagine that one firm can grab too much of the social output. In defiance of basic notions of property rights, antitrust regulation regards conditions imposed on the sale or distribution of one’s own goods, as in the Microsoft browser and

Antitrust regulation regards conditions imposed on the sale or distribution of one’s own goods, as in the Microsoft browser and Intel chip-specification cases, as a potential exercise of force against competitors. regulation target its inefficiency or unintended effects. A more fundamental, albeit politically less 52

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Intel chip-specification cases, as a potential exercise of force against competitors and consumers. In

this manner antitrust law is based on a misunderstanding of the very nature of markets and their grounding in private ownership and control. Consumers are not threatened by firms that achieve dominance through internal growth or aggressive competition. In fact, driving out one’s competitors is the name of the game in business, and such “restraint of trade” is essential to consumer welfare. No matter how large a company, the capital markets and the rest of the economy arrayed against it are bigger and can appropriately discipline it. Indeed, market conditions can never be frozen – the marketplace is an arena in which seemingly impervious standards (like mainframe computers and vinyl records) are routinely toppled. Economists, documenting that decades of antitrust enforcement and business regulation in general have failed to benefit the consumer, have noted the pro-competitive elements

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of a number of practices typically eyed suspiciously by antitrust regulation. But if these practices are actually efficient, that implies that enforcement creates inefficiencies and harm. Policymakers cannot seem to manage the industrial policy scheme called antitrust to consumer advantage, and that invites rejection of the conventional view of antitrust as public interest law. Although antitrust supporters tend to agree with Adam Smith that self-interest rules in the marketplace, they embrace a contradictory view of human nature with respect to government officials engaged in “protecting competition.” Public servants are assumed to lack the capacity for self-serving behavior, the existence of which those very people take for granted in the private sector. But skeptics do not share this view. Instead they ask whose wealth is increased by the enforcement of antitrust laws, and they conclude that it is not that of consumers. To be sure, there does exist such a thing as coercive monopoly power. It stems from government protectionism – from the restriction of entry or the banning of competition.3 AT&T once enjoyed protection from competition, just as electric power companies and the US Postal Service do in some of their services today. Breaking up government-granted monopolies – that is, abolishing exclusive legal franchises, tariffs, quotas, and excessive licensing restrictions would be an antitrust activity worthy of the name. Although certain business practices have historically been

regarded as anti-competitive and harmful to consumers, there may in fact be pro-consumer justifications behind a number of such practices.

to monopolize shall be deemed guilty of a felony.”5 The 1914 Clayton Act created a list of practices that could entail anti-competitive effects

To be sure, there does exist such a thing as coercive monopoly power. It stems from government protectionism – from the restriction of entry or the banning of competition. Alternative interpretations of several of those frowned-upon practices, presented on the following pages, conclude that the quashing of those behaviors only serves to transfer wealth from some producers to others, or even from consumers to producers. In that sense, antitrust enforcement may function as one of today’s least obvious forms of special interest pleading. But better, more economically astute antitrust enforcers are not the answer: the problem lies with the fundamental rejection of property rights and contracts inherent in antitrust law and its flawed view of markets and human interaction. Antitrust is anti-consumer. 1: Restraint of Trade and Monopolization The stated intent of antitrust law is to police restraint of trade and monopolization. The Sherman Act of 1890 makes illegal “every contract, combination, or conspiracy in restraint of trade”4 and declares that “every person who shall monopolize, or attempt to monopolize or conspire

under certain conditions, including tying arrangements, exclusive dealing, mergers, and interlocking boards of directors.6 But the notion that restraint of trade characterizes the marketplace at all is suspect. Markets represent the social incarnation of voluntary trade. Take the signature “golden age” or “smokestack” antitrust case as an example: As Isabel Paterson wrote in The God of the Machine: “Standard Oil did not restrain trade; it went out to the ends of the earth to make a market. Can the corporations be said to have ‘restrained trade’ when the trade they cater to had no existence until they produced and sold the goods?”7 Yet similar claims are directed against Microsoft, which caters to a personal computer industry that it largely popularized; at AOL Time Warner’s Instant Messenger service, which it indeed dominates but also happens to have created; and at cable broadband providers, who allegedly restrict access to the highspeed Internet services that were made available by these very providers. In the economists’ model of VOL 2 NO 2

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The corporations do not need saving (except from antitrust laws). perfect competition, the world is inhabited by identical sellers offering their goods at identical prices. But nearly all sellers have some control over the pricing of their own goods and how much they produce, just as consumers decide whether or not to buy. Since monopoly is defined by consumer harm caused by lower output and higher prices, the trusts that spurred passage of the Sherman Act should at the very least have exhibited these features. But they didn’t. “Output [of industries dominated by trusts] expanded more rapidly than Gross National Product during the 10 years preceding the Sherman Act,” according to economist Thomas DiLorenzo.8 The only exceptions were the match and castor oil industries. As output rose, prices generally fell dramatically across major industries as well. If the trusts were actually raising rather than lowering prices, that would have created cover for rivals to raise prices, 54

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too, giving them little incentive to lodge the complaints that led to the antitrust laws in the first place. But hauling one’s competitor into court or appealing to legislators when that rival’s prices are falling and sales are increasing is consistent with an alternative interpretation of antitrust: that antitrust law helps higher-cost

competitors was surely rampant, but consumers gained unprecedented material comforts at ever-falling prices. In the most dramatic modern case, Microsoft was accused of attempting to maintain a monopoly by bundling a Web browser with its dominant Windows operating system, which runs most personal computers.9 Yet the charge of monopolization is dubious not just because trustbusters are overly suspicious of aggressive business practices and dismissive of property rights. Trustbusters in this case narrowly and arbitrarily defined the market as single-user desktop machines with Intel processors – which eliminated all of Microsoft’s chief competitors, such as Apple, Sun, and handheld computers, from the market definition.10 Despite charges of monopoly and restraint of competition, the reality is that during the Microsoft debate, the market remained wide open for competitors since most American

But firms that join forces to create a large market share may also generate cost efficiencies that outweigh any decline in their output. Moreover, the combination may be necessary to establish a platform from which to launch new output or lines of business. competitors’ efforts to hobble their more efficient cousins. Thus even examples from the golden age lack the reality of consumer abuse. “Abuse” of

households lacked computers altogether. Even today fewer than 45 percent of Americans have Internet access at home,11 leaving the rest available to competitors. A

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“misbehaving” Microsoft invites retaliation from consumers, computer makers, and chipmakers, all of whom enjoy market power and options galore themselves. And it seems clear that computing and Internet access options will only increase in the future, since many of the devices expected to access tomorrow’s Web, like phones, TVs, and handheld computing devices, aren’t desktop computers at all. Nonetheless, extreme remedies, including the order to break up Microsoft and proposals in some states to break up local Bells,12 show just how far some people are willing to go toward imposing a top-down view of competition on the technology sector. This boldness on the part of central planners foreshadows antitrust adventures that will target tomorrow’s “monopolies,” which now stand aside and cheer. Technology companies should beware the flawed idea that “restraint of trade” is a valid concept as applied to the disposal of one’s own property. To be sure, increasing the sales of one’s own products (assuming constant market size) may “restrain the trade” of a competitor – but that is precisely the goal of competitive free enterprise. Antitrust, however, operates on the perverse principles that “no business is entitled to its property if that property can be redeployed so as to expand output” and that business has “no right in principle to dispose of its property as it sees fit, but only a conditional freedom so long as it helps maximize some social utility function.”13 On that premise, “monopolies” can be conjured by

enforcers in any business arena they choose. 2: Horizontal Mergers There is far more to competition than the number of competitors in an industry, or industry concentration. When firms merge, the number of competitors in a particular line of business does decline at least temporarily. But firms that join forces to create a large market share may also generate

demonstrated that a merger leading to market power has two components: the oft-noted restriction of output, which leads to societal “deadweight losses,” and the cost savings from efficiencies that may outweigh those deadweight losses.16 Consider Figure 1, where consumers pay $1 for Q1 in output. Assume all competitive firms’ costs are also $1, so total industry profits are zero. If a merger raises price to $2 and decreases quantity sold to Q2,

Technology companies should beware the flawed idea that “restraint of trade” is a valid concept as applied to the disposal of one’s own property cost efficiencies that outweigh any decline in their output. Moreover, the combination may be necessary to establish a platform from which to launch new output or lines of business. As the late economist Murray Rothbard noted, talk of mergers “substantially lessening competition” is meaningless; competition is a process, not a quantity.14 Current merger guidelines do take dynamic efficiency effects into account, particularly when those effects cannot be achieved except by merging.15 Yet challenges to and conditions on mergers are still widespread. Aggressive policing and micromanagement of technology mergers is particularly troublesome since this industry is characterized by an ease of entry exceeding that of the smokestack era. Economist Oliver Williamson

consumers would be willing to pay additionally the amount represented by triangle A – the amount under the demand curve but between the old and new price – for the lost output. But if costs meanwhile fall to $C, and those new savings, represented by the rectangle B, exceed the value of the lost A, the merger makes society better off. And with lower costs, new firms may now have a profit incentive to enter the market, too. Although merger guidelines do entertain the possibility of benefits to society, what enforcers call “merger to monopoly” is detested. Even if a merger doesn’t make society better off, one must ask a more fundamental question: whose output is restricted by a merger? In a market economy, producers are free to associate and are not forced to part with their goods on unfavorable VOL 2 NO 2

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terms. Those fundamental property rights – albeit at odds with antitrust philosophy – do not conflict with social welfare but are essential to it. Consumer benefits require the dynamism that both rivalry and strategic combinations deliver. As noted with respect to the Microsoft case, trustbusters can narrowly define markets in such a way as to magnify the allegedly

happen overnight, the merger of Staples and Office Depot was halted as well, depriving the economy and consumers of the competitive responses of retail giants such as Wal-Mart, and depriving unserved localities of superstores that the merger’s profitability might have made feasible.18 Because antitrust regulation can hobble the competition,

In a market economy, producers are free to associate and are not forced to part with their goods on unfavorable terms. negative consequences of a merger. The mergers of Coca-Cola–Dr Pepper and PepsiCo-Seven Up were attacked during the 1980s under the arbitrary premise that one need distinguish between “carbonated soft drinks” and “soft drinks” for the purpose of determining whether monopoly power exists.17 And in 1997, on the basis of a static perception that prices would rise or competitive entry might not

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policymakers should be suspicious of objections that come from the direct competitors of merging firms. Such protests can be a tip-off of a merger’s efficiency rather than its anti-competitive effects. A merger expected by competitors to generate higher consumer prices – which is what a monopoly allegedly does, after all – would benefit those competitors: they could sell more at existing or even higher prices while

undercutting the new monopoly. To be sure, not all mergers work or make sense. More than 4,900 merger filings were made in the year 2000,19 and it’s likely that many of those won’t work out. The conglomerate wave of the late 1960s was later taken apart, as was the effort by American Express in the 1980s to venture into several new business areas.20 Regardless of those risks, market experimentation and trial and error in business arrangements and combinations are vital market processes. Federal Reserve chairman Alan Greenspan warned of the perils of adventuresome merger enforcement in high-technology markets, telling the Senate Judiciary Committee, “I would feel very uncomfortable if we inhibited various different types of mergers or acquisitions on the basis of some presumed projection as to how markets would evolve . . . history is strewn with people making projections that have turned out to be grossly inaccurate.” He added that there “ought to be a higher degree of humility.”21 Of course, whereas government ought not to inhibit mergers, it shouldn’t promote them artificially either. For example, where sharing information across firms is forbidden in a misplaced effort to fight “collusion,” antitrust regulations can inadvertently foster mergers where a tight research and development alliance would have sufficed. Despite Greenspan’s warnings against second-guessing markets, Joel Klein, former assistant attorney general of the Justice Department’s Antitrust Division, had this to

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to look over the company’s shoulder for the coming five years to make sure these mandates are carried out.24 Wringing out onerous consent decrees places burdens on market processes, injecting the government into an industry as a potentially permanent, unwanted “partner.” In this environment, potential mergers may be chilled and never pursued, or unnecessary concessions may generate less-efficient mergers. The market and shareholders should decide the appropriateness of mergers and structure deals accordingly. 3: Collusion: Price Fixing and Market Division

say: “We reject categorically the notion that markets will selfcorrect and we should sit back and watch.”22 Although the vast majority of today’s mergers do go through, antitrust authorities are increasingly extracting concessions from merging companies, often targeting particular high-visibility

of the merger.23 In the AOL-Time Warner merger, for example, the company was not only forced to share access to both its Instant Messenger service and its cable lines (which will reduce investment by rival firms who otherwise would have needed to negotiate for access or investigate ways of developing

Collusion is nearly indistinguishable operationally from forming a partnership, entering a contract, or the very act of forming a company in the first place. mergers and prying into the firms’ operations well beyond the time

their own infrastructure), but a special overseer has been appointed

Collusion or price fixing between competitors enjoys little tolerance even from those who are otherwise antitrust skeptics. Price fixing, it is argued, involves no integration of productive capacity as do mergers, therefore nothing is lost by forbidding the practice.25 Price fixing is seen as merely a conspiracy to transfer wealth away from consumers. Such collusion is treated as per se illegal and subject to criminal as well as civil penalties. On the other hand, it’s been said that a “conspiracy” is cooperation by those one doesn’t like; otherwise, it’s just a plan. Except for the preexistence of the companies involved, collusion is nearly indistinguishable operationally from forming a partnership, entering a contract, or the very act of forming a company in the first place.26 Firms emerge precisely so that they can commandeer proprietary resources VOL 2 NO 2

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unilaterally, instead of having to contract and bid in the open marketplace for every needed input. These “islands of nonmarket control” are a central element of modern market production.27 As a partial merger rather than a total integration, colluding “eliminates competition” far less than does merging, for those who speak that language – yet mergers are legal and collusion is not. Markets are dynamic: In the same way that coordination between individuals has obvious benefits, so does coordination across firms. Restrictive combinations of various kinds are efforts by businesses to coordinate and cooperate, to adjust to uncertainties, to cope with imperfect information, and to minimize transaction costs, all to achieve certain business ends. Accordingly, that which is disparagingly called “collusion” could represent an attempt to deal with economies of scale, substantial fixed costs, or market oscillations that hamper business planning. Collusion and market division may be not only efficient but increasingly essential in a modern global economy that creates and commands vast resources. As economist George Bittlingmayer explains, “Restrictions on competition may have an efficiency defense, and a prohibition of cartel arrangements may entail costs as well as benefits.”28 Efforts to relax antitrust laws for the purpose of promoting interfirm research and development recognize the need to allow resource pooling and avoid needless duplication. 58

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Both cooperation and competition are legitimate features in a market economy that respects the property rights of producers, although enforcers would be hardpressed to admit as much. Ignoring the potential benefits of cooperation on price or of market division in a complex market economy can harm customers by generating perverse antitrust policy. As economist and lawyer Fred McChesney has noted, there is no shortage of bizarre examples. Take the 1969 United States v. Container Corp. case, which imposed liability for a “collusive” exchange of price information that resulted in “stabilizing prices downward.”29 Likewise, in the 1972 case United States v. Topco Associates, the Supreme Court overturned a lower court finding that the Topco grocery cooperative association’s horizontal division of territories to prevent overlap in Topco brands was reasonable and pro-competitive. The Court found a per se violation, despite Topco’s argument that such restrictions helped it compete with larger chains and were needed to hold the association together. If consumer welfare is the goal, policy should not force firms to part with their own products for unattractive prices or on unfavorable terms. When testing and expanding markets, it is appropriate for any firm to seek agreements concerning the goods that it created, owns, or both, just as it is appropriate for a consumer to exercise a right not to buy goods from a particular producer. This guiding principle derives from the tenet that no one can be compelled to produce

products in the first place, but once one does, one should not lose rights to determine conditions on which the products are sold. Even if price collusion were the result of deliberate anti-consumer mischief, we would be better off allowing markets, rather than regulators, to take their course. When all is said and done, the instability of inefficient cartel arrangements serves as a built-in insurance policy for consumers. Price is only one of many variables that can be altered independently or agreed upon by firms. Even if price agreements are made and enforced (which is rare enough in itself), colluders can “cheat” by competing on the basis of alternative features such as quality, delivery or service, warranties, or other add-ons. That tendency to undermine agreements, to seek a bit of competitive advantage, renders inefficient arrangements unstable and sets in motion their destruction (unless government enforces the cartel). Competitive entry by rivals not party to a pricing agreement also disciplines colluders: If prices are too high or territories underserved, in they come. Finally, it is worth noting that genuine problems involving price fixing and overcharging occur most readily when the government, which lacks the motivation to save money, is the buyer. 4: Predatory Pricing The aim of every competitor is to eliminate rivals and gain as many customers as possible. “Predatory pricing” is a poor way of achieving

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this goal. Predatory pricing refers to the act of pricing below cost with intent to monopolize. A firm employs predatory pricing, it is argued, to drive rivals out of business, snatch their customers, and amass an increasingly larger market share. Then the predator happily begins charging monopoly prices. The predator, according to that theory,

dollar must be recouped in the future in order to break even.30 And the public would likely grow weary of a company whose product took wide price swings. The Supreme Court’s critical 1986 decision in Matsushita Electric Industrial Corp. v. Zenith Radio Corp. noted the implausibility of successful predatory pricing schemes–especially when they required coordinated action among

“Today it would be embarrassing to encounter this argument [that predatory pricing is a monopolizing device] in professional discourse.” need only stand vigil: as aspiring rivals surface, the now-monopolist merely cuts price again and drives out the upstart, after which prices again rise. The problem with that theory is that the monopolist wannabe would need to charge below-cost prices nearly all the time – ultimately bankrupting himself. Predation hurts the predator more than his rivals because, to capture the rivals’ market, the predator must expand output and bear losses by pricing below cost and must service the additional demand that the new low price creates. But the targeted rivals can merely cut back on sales. Even if the predator drove out rivals, once he began monopoly pricing, new entrants would force a new round of losses. Another critical problem for a predator is that the immediate losses sustained must be exceeded by discounted future revenues. That is, for every dollar lost, more than a

predators - given such factors as losses suffered by both the predator and the target, the entrance of new rivals, and the difficult logistics of actually securing and maintaining a monopoly later to cover losses. (Usually trustbusters worry that colluders will charge too much–here the worry is that they will charge too little!) As Nobel economist George Stigler put it, “Today it would be embarrassing to encounter this argument [that predatory pricing is a

monopolizing device] in professional discourse.”31 Enforcing laws against predatory pricing requires that courts or bureaucrats determine what counts as a genuine predatory price, rather than simply a low one. Such second-guessing of the marketplace subjects business to the shifting winds of antitrust fashion and changing administrations. Ordinary marketing practices, like loss leaders, introductory pricing, or Microsoft-style software giveaways, can be construed as “predatory” and their practitioners threatened by adventuresome enforcers. Economists Donald Boudreaux and Andrew Kleit have offered important insights into the ways markets automatically police predatory pricing without invoking antitrust law and all its attendant baggage. Predators don’t operate in a vacuum. Any predator’s behavior would be noticed by its upstream suppliers and downstream business customers who would stand to lose from the predator’s successful monopolization.32 For example, should a retailer become a successful predator and reduce

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output, its suppliers lose sales. These suppliers can discipline retailers by taking their business to other retailers. Meanwhile, the departure of the low-cost suppliers raises the predator’s costs, further decreasing the opportunity for predatory success. Predators’ tactics can also be turned against them by capital markets. Predators invite rivals and speculators to form endless numbers of small companies for the sole purpose of slashing the product’s price and forcing the predator to match it, while shorting the predator’s stock – thereby turning the tables on the predator.33 Ultimately, it would take the outlawing of new entrants for a predatory pricing effort to succeed. The predatory pricing fiction allows competitors of efficient firms to substitute competition in the courtroom for competition in the marketplace, since filing lawsuits in anticipation of treble damage awards is easier than lowering price to match the “predator’s” price or improving product quality. Such routine abuses of antitrust are far more likely to occur than is successful predatory pricing. Boudreaux and Kleit propose that we deny standing to competitors altogether in predatory pricing cases, eliminating their ability to use antitrust to thwart competition instead of cutting prices or improving quality.34 At the very least, competitors should bear the burden of proving that consumers, not they themselves, are harmed. The goal of business is to “harm” competitors and put them out of business. It is consumers who benefit from that rivalry. 60

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5: Price Discrimination The Robinson-Patman Act, a 1936 amendment to the Clayton Act’s catalog of prohibited business practices, was designed to protect small business by limiting the ability to charge similar buyers different prices at the same time. It was enacted during a public outcry against the Great Atlantic & Pacific Tea Company (which might be thought of as the WalMart of its time), which tended to displace mom-and-pop grocers. But artificially protecting small business does not equate with protecting consumers. Price discrimination is most commonly criticized when small retailers are unable to obtain the same volume discounts from suppliers that larger competitors receive. Small sellers, can, however, form associations to secure such

protects competitors rather than competition.36 Robinson-Patman could be a key test case for pursuing reform of antitrust regulation – after which the lessons learned could be applied to other areas of antitrust where sufficient skepticism has yet to creep in. Yet while the federal government now exercises restraint, successful price discrimination cases brought by competitors are nonetheless a prominent part of the landscape, given such examples as the Supreme Court finding that Texaco violated Robinson-Patman in Texaco Inc. v. Hasbrouck (1990) by offering discriminatory preferential discounts to some distributors (“a price discrimination . . . is merely a price difference”).37 Private cases proceed at a considerable clip. The American Booksellers Association and a number of other independent booksellers filed, in 1998, antitrust

The goal of business is to “harm” competitors and put them out of business. It is consumers who benefit from that rivalry. volume discounts–and they do. (It can of course be harder for them to do so – one reason for which they may merge.) IGA, for example, is one of the larger retail food trade groups, and some retailers, such as True Value hardware stores, own their own wholesaler.35 Even federal government enforcers tend to regard Robinson– Patman as a holdover from the mom -and-pop versus chain store era that

lawsuits against the superstores Borders and Barnes & Noble for receiving volume discounts, favorable terms, and promotion treatment from publishers.38 The ABA had already secured a favorable settlement against publishers in 1995. But, to qualify for volume discounts in the first place, what must large firms do? The big chains must sell far more, which requires lower prices, better hours, a better

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shopping environment, and better service and selection – all of which benefit consumers. Book purchases have increased during the rise of the superstores, and consumers have embraced them. (They have also embraced Amazon, which has been a serious threat to the allegedly dangerous chains.) The bookstore suit led one commentator to warn: “Consider what a general restriction of volume

them would lead to a cutback on overall discounts. When successful, such lawsuits injure consumers by keeping prices charged by large retailers higher than they would otherwise be. Vibrant price competition and selective discounts should not be outlawed any more than competition on the basis of quality or other factors. As Robert Bork has noted, enforcement against price

Vibrant price competition and selective discounts should not be outlawed any more than competition on the basis of quality or other factors. discounts would mean for you. What would it do to the prices you pay at Costco or Sam’s Club, Home Base, or Home Depot, and every other discount store you frequent?”39 The idea that the market doesn’t police itself against egregious attempts at price discrimination and requires government intervention is not credible. Publishers themselves have incentives to police any monopoly aspirations of book superstores, since the successful displacement of independent sellers leading to monopoly power on the part of the chains would hurt them by reducing wholesale purchases. When major stores like Borders and Barnes & Noble are diverted by trial preparations, consumers are presented a shining example of how antitrust protects competitors rather than competition. Forced provision of discounts to the ABA members when it is not economical to offer

discrimination is neither workable nor desirable. Rather, markets depend on a seller’s “altering a price here and there, testing responses. ...The evanescent discriminations of competitive markets are the sellers’ antennae. This adjustment to shifting costs and demand is socially desirable.”40 It also happens to be the right of a seller, properly speaking. 6. Manufacturer Price Restraints on Retailers Vertical price restraints refer to contractual agreements between manufacturers and retailers not to charge prices below some minimum or above some maximum. Typically, an agreed-upon price will be higher than the price in the absence of such vertical contracts, which concerns antitrust enforcers. Opponents of vertical price fixing generally cite a concern that

manufacturers will impose price restraints to facilitate policing of a cartel created out of retailers: since policing retail prices is easy, there is little difficulty detecting cheaters on the cartel agreement. Others worry that retailers themselves may impose price restraints on reluctant manufacturers in an effort to form a cartel. But, if quantity rises, or if quality and services improve, vertical restraints may very well enhance efficiency. Indeed, price caps imposed on retailers from upstream intuitively seem benign and pro-consumer since they limit what can be charged. Yet even this form of price setting had been considered per se unlawful until the unanimous 1997 Supreme Court ruling in State Oil Co. v. Khan,41 which declared price ceilings imposed on retailers subject to evaluation under the rule of reason, which, while an important step forward, basically means, “take your chances, we’ll tell you later.” Explicit agreements on minimum prices will still trigger per se illegality, recently evidenced in such episodes as the 1991 Federal Trade Commission consent decrees requiring Kreepy Krauly, a maker of swimming pool cleaners,42 and video game maker Nintendo43 to halt retail price agreements with dealers. Concessions made in 1995 with Reebok/Rockport44 and Onkyo provide additional examples.45 However, less-direct maneuvers by manufacturers, such as distributing lists of recommended retail prices or announcing consumer price preferences at the outset and then VOL 2 NO 2

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retaining retailers on that basis, will not be likely to trigger liability.46 As so often is the case with antitrust, one must walk on eggshells. The FTC recently brought a case against record distributors for a “Minimum Advertised Pricing”47 program. The music companies argued that the program protected music-only retailers from being undercut by stores like Best Buy, which could use CDs as loss leaders to get customers in the store. In exchange for adhering to the MAP, major retailers received advertising support. The competitive, pro-consumer defense of a minimum price requirement imposed by a manufacturer on a retailer (such as the MAP) helps ensure that all retailers’ returns are high enough to maintain the manufacturer’s preferences for customer service on the product – but not so high that customers are driven away. Minimum resale price maintenance helps overcome a predicament that otherwise could damage a market. In other cases, where retailers sell

discounter who offers no similar services. Free rides for discounters can be avoided if a manufacturer can “police” retailers’ behavior, setting the minimum price at which any of them – whether full-service or discounter – may sell. Manufacturers can specify price levels that give retailers a high enough margin to finance productspecific services that customers require. Manufacturers need not even observe retailers’ behavior very carefully with resale price maintenance, because the profit margin created will be sufficient to entice retailers to compete – as best they can – on nonprice features like service. Retail price agreements make partners out of retailers, encouraging them to act in the best interests of both manufacturers and consumers. A presumption of legality or at least an explicit rule of reason should be applied to minimum price agreements. Besides, the option of a manufacturer forming its own distribution system or merging with

Manufacturers can specify price levels that give retailers a high enough margin to finance product-specific services that customers require. a complex product, there is a risk that no-frills competitors could take a “free ride” on the back of the full-service retailer. Customers could receive the services – such as demonstrations of audio equipment in costly sound rooms – and then purchase the product from a 62

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a retailer to ensure product control is even more “anticompetitive,” borrowing the antitrust advocates’ language, than resale price maintenance. Again, poor policy that threatens rational market behavior can lead to inefficient mergers or other ill-considered responses.

7: Exclusive Dealing Exclusive dealing arrangements are those under which a seller agrees to sell only the products of a particular manufacturer and not deal in competitors’ goods. A variant is a seller’s contracting to purchase all of the output of a supplier. Such exclusive contracts are prohibited by the Clayton Act and the Federal Trade Commission Act where they may lessen competition. An objection to exclusive dealerships stems from the worry that shutting out competing sellers or buyers may be anti-competitive. Another concern is that small retailers may be forced into exclusive arrangements, which they would prefer to avoid, at the behest of powerful manufacturers. But Robert Bork pointed out the fallacy in the latter argument. If a local store is the only seller of the manufacturer’s product, it enjoys the “monopoly” and is in the better bargaining position.48 Particularly if the retailer is the sole seller, the retailer has alternative suppliers to which to turn – but the manufacturer has no alternative retail establishments to which to turn. Arranging an exclusive dealership with a retailer creates efficiencies that warrant recognition. The idea behind exclusivity is to secure special effort on behalf of a product by the retailer, which implies that the retailer will receive something of value – low wholesale prices, for example – in return. An exclusive deal between a manufacturer and a retailer does not harm competition since others remain free to offer better deals

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and secure their own exclusive dealerships with the retailer. Contracts are often renegotiated, and any dissatisfied retailer can refuse to renew an inefficient exclusive dealership contract. Making retailers better off means making consumers better off, through, for example, lower prices and superior retailing services. Exclusive dealing may provide a retailer with specialized knowledge about a product and a greater ability and incentive to explain its operation to customers or to service it. In addition, the exclusive arrangement assures the seller that he and his customers will have an unbroken supply of inventory for the duration of the contract. Since there are generally more vendors than one competing for the allegiance of any one retailer, a manufacturer who secures exclusive arrangements must offer some added value. The retailer’s job is to balance the disadvantages of spurning other manufacturers with the incentives offered by the seller under such an arrangement.49 And if circumstances were to reveal that a manufacturer has secured unfavorable exclusive dealing arrangements among several retailers, those retailers could band together to demand relief. For example, computer makers, if truly disgruntled, could work in concert to alter contracts with Microsoft that they regard as disadvantageous. The problem here, though, is that such coordinated market activity is itself likely to trigger an antitrust complaint, even though it merely represents a market response to another’s behavior.

Despite its recognition of genuine business justifications for exclusive dealing, the 1949 Supreme Court case Standard Oil of California v. United States found Standard

monopolization would lead to reduced wholesale purchases of raw materials. As stated earlier, suppliers themselves would keep this kind of activity in check.

The idea behind exclusivity is to secure special effort on behalf of a product by the retailer, which implies that the retailer will receive something of value – low wholesale prices, for example – in return. in violation of the Clayton Act’s prohibitions on exclusive dealing that may “lessen competition.”50 On the other hand, the Court in the 1961 Tampa Electric Co. v. Nashville Coal Co. case found requirements contracts acceptable.51 Again, businesspeople must tread carefully. For a manufacturer, markets can exhibit significant volatility, which is one justification for locking in exclusive supply agreements with providers of raw materials. Agreements can also be important for business planning, hedging against inflation, or ensuring an uninterrupted supply of raw material. From the standpoint of the supplier of raw materials, a deal with a sole producer could reduce expenses associated with seeking multiple buyers, allow the planning and spreading out of production on the basis of delivery date agreements, and help hedge against potential price declines. Excess charges to final consumers would not go unnoticed by suppliers if they were truly monopolistic, because successful

8: Tying or Bundling Tie-in sales are those in which a customer who purchases product A from a firm with market power is required to purchase product B as a condition of the sale. Antitrust proponents charge that such actions unjustifiably extend an existing monopoly into a new product when that new market could otherwise have been competitive. Microsoft’s bundling of its Internet Explorer Web browser with its Windows operating system is probably the best-known example.52 A classic example is the case of International Business Machines v. the United States, in which IBM was found in violation for requiring users of its machines to also use IBM’s punch cards.53 The error in the tie-in logic is the failure to recognize that monopoly profit, assuming it exists, can be collected only once. If IBM or Microsoft exploited all of its monopoly power from its primary, “monopolized” product, and consumers regarded the tied VOL 2 NO 2

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good as worthless, consumers would pay only the price for the monopoly good and no more. Any higher price charged for good B, if the consumer regards it as worthless, is really only regarded as a part of the price of A rather than an addition to it. To ignore this is to commit “double counting of monopoly power.”54 Another problem with the idea that tying harms consumers is the difficulty of knowing when one product becomes two. Every product possesses more than one characteristic or consists of some bundle of products, making every sale a “tie-in” sale: drills come with bits, cars come with engines, televisions come with remote controls, and cable television packages come with channels that no one wants. “The automobile dealer

photocopier replacement parts to purchases of its copier repair services. But these tying or bundling arrangements can perform important economic functions. In the cases of IBM’s punch cards, Microsoft’s Internet Explorer, and Kodak’s copier services, bundling may have helped ensure the primary product’s longevity, functionality, integration, and perceived quality by discouraging the purchaser’s experimentation with complementary products offered by rivals. In this manner, tie-ins can help a seller avoid warranty expenses and product complaints. In fact, some warranty provisions may be available precisely because of the quality control that tying can allow. Aggressive enforcement of tying

Bundling may have helped ensure the primary product’s longevity, functionality, integration, and perceived quality by discouraging the purchaser’s experimentation with complementary products offered by rivals. who refuses to sell only the chassis or the grocer who declines to subdivide a can of pears,” as Bork put it, “are engaged in tying.”55 The Microsoft case, as well as the 1992 case of Eastman Kodak Co. v. Image Technical Services, Inc.,56 reopened the door to unnecessary suspicion of bundling. In Kodak, the Supreme Court found that Kodak engaged in monopolizing behavior by unlawfully tying the sale of its 64

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measures can be unfair to small or innovative firms, since tie-in sales can function as a marketing technique to induce customers to try something new. Tie-ins can also help small firms that lack the financial wherewithal of larger rivals to avoid duplicating selling and administrative expenses across their products, thereby getting more bang for the buck. Such duplication of effort, especially if products are

inherently related, can be an unfair burden on smaller firms. Tying can allow any seller to take advantage of the scale economies generated by the reduced selling and administrative expenses that result from spreading costs across more than one product. Tie-ins also may help reduce the costs of ensuring customer satisfaction with products that are related in some manner to the tied item.57 Although Robert Bork ended up as a critic of Microsoft’s business practices and came under fire for doing so,58 it is he who properly characterized the tying issue: “There is no viable theory of a means by which tying arrangements injure competition, and there are several obvious ways in which they benefit both seller and consumer.”59 9: Strategic Predatory Behavior Efforts to induce one’s rivals to suffer increased costs (or decreased revenues) are sometimes regarded by enforcers as forms of predatory behavior. So-called predatory pricing allegedly lowers price and thus the revenue and profits of rivals. But rivals’ profits can also be reduced by other strategic behavior, known as “nonprice predation.”60 Altering advertising intensity and altering product quality are examples. Another strategy is exclusive dealing arrangements that seek to shut out competitors. Manipulating rivals’ profitability can clearly be accomplished through a number of avenues, and is the very essence of business since in typical markets these “crimes” are

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indistinguishable from ordinary, healthy, competitive rivalry. Theorists have undermined the justification for much antitrust activism. But more recently, the quite ordinary competitive market behavior of causing one’s rivals to face higher costs has spawned a veritable academic industry devoted to identifying competitive strategies as means of “monopolization.” But this approach seemingly amounts to old wine in new bottles. Unfortunately, antitrust regulators rarely atone for the punishment of conduct that is later recognized as beneficial or benign, and they will likely not express regret for their misrepresentations of today’s alleged “evils.” The very act of competing aggressively can itself become a crime under theories of strategic predation. At best, a firm’s guilt depends on an enforcer’s opinion that its successful efforts to serve the market – and, hence, to force rivals to work harder – has a “dangerous probability of success” in creating a monopoly.61 But the entire purpose of competition is to oust or supplant less-efficient rivals, leaving the leastcost producers in place. However, low price is not the only competitive feature of products: quality and other features are also manipulated to serve consumers. Consumer welfare depends on that market process, and the search for appropriate levels of these features must be regarded as part of the market’s discovery process rather than treated with suspicion. Moreover, as Donald Boudreaux illustrates: “All methods of raising rivals’ costs depend on the ability

of a predator to secure contracts that exclude its rivals. Such a result requires that the predator’s rivals and its suppliers remain ignorant about its intentions.”62 Competitive markets routinely remedy that kind of ignorance. Clearly, the alleged predator is never the only one capable of strategizing in a “predatory” manner. Self-interest and business survival will always involve working to outmaneuver any potential predator

standards requiring coal-burning utilities to install sulfur scrubbers regardless of the sulfur content of the coal burned were implemented at the needless expense of low-sulfur plants.63 This technique works in the antitrust arena as well and truly qualifies as “strategic predatory behavior.” Bringing an antitrust suit against more-efficient rivals is itself one of the most effective ways of raising rivals’ costs, as evidenced by a healthy and prosperous antitrust

Bringing an antitrust suit against moreefficient rivals is itself one of the most effective ways of raising rivals’ costs. rather than remaining oblivious to its intentions. All market participants should be equally free to act in their own self-interest, as well as to mobilize capital markets and partners against a renegade firm’s efforts to monopolize. Of course their joint efforts may themselves face antitrust scrutiny, meaning that antitrust law can actually stand in the way of the market’s ability to police predatory elements. Cooperation with other businesses – even competitors – can be an essential tool in offsetting another firm’s efforts at monopolization. But cooperation in self-defense can itself be a crime under antitrust law. There is, however, one form of nonprice predatory behavior that genuinely is anti-consumer and antimarket: the seeking of government regulations that impose excessive burdens on rivals. That is nothing new. For example, Clean Air Act

bar. If a “predator,” that is, a lowcost producer, can be forced to keep prices high – either through fear of triggering an antitrust claim or by a court decision branding it a predator – then less-efficient competitors are protected. These efforts obviously differ in kind from competition that is confined to the marketplace. 10: Exploiting Technological Lock-In The term “network effects” refers to the phenomenon peculiar to certain goods that gain value with a greater number of users. Telephones or fax machines, for example, are useless if only one individual possesses one. But such machines become increasingly valuable as ownership spreads.64 Some people worry that this value-in-adoption mechanism can lead to inefficient products becoming locked in, either inadvertently or by scheming VOL 2 NO 2

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manufacturers, merely because a lot of people happen to use them or because someone got a head start. Microsoft’s Windows operating system and AOL’s Instant Messenger are prominent examples. In recent statements on merger policy, the FTC has indicated its intention to “apply heightened scrutiny to the assessment of competitive conduct” within markets exhibiting network effects, the premise being that inefficient products can become locked in.65 Judge Jackson in his findings of fact claimed that Microsoft worked to sustain an “applications barrier to entry,” which is a variant of network effect.66 The FTC, as well as the Justice Department’s Antitrust Division, clearly believe they are qualified to substitute their choices for market outcomes and to successfully arbitrate among technological paths. Yet there is no example in the marketplace of network effects leading to the lock-in of an inferior technology, absent a governmentally established franchise. The victory of the QWERTY typewriter keyboard layout is universally presented as an example of bad technology winning out over superior alternatives. But tests of competing keyboards in the early days of the typewriter proved QWERTY to be inferior to none, and the story of lock-in of inferior technology to be just a myth.67 Even today, if competing key layouts were truly ergonomically superior, large companies could switch to save money. Such switching of keyboard layouts can be done instantly on all of today’s computers. But people 66

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don’t bother. Other examples of network externalities leading to lock-in are equally flawed. Betamax videotape was not inferior to the VHS: both used the same underlying technology, and they had a patentsharing agreement.68 Both, however, were superior to the “locked-in” reelto-reel systems they replaced. For typical office word processing and spreadsheet functions, the higher expense of Macintosh computers in relation to Windows/DOS machines has been hard to justify, particularly given that Apple requires reliance on one vendor for both the hardware and the operating system. Both types of computer, however, are superior to the “locked-in” slide rules, calculators, and mainframes they replaced. A world of “inefficient lock-in” would be one without compact disks and players, because everyone would already own vinyl records. Cars couldn’t emerge since there would be no gas stations. Color television broadcasting would never emerge because most homes would own black-and-white sets. Theories of path dependence don’t appreciate the fact that undesirable or inefficient “lock-in” presents a strong profit incentive for entrepreneurs to deliver a new standard. Indeed such incentives are a driver of technological innovation. For starters, entrepreneurs can offer rebates to those who trade in the old technology. Yet even if permanent, inefficient lock-in really existed, we should not substitute the politically motivated choices of government for the choices of millions of consumers.

Governmentally imposed commandments in the technological marketplace, binding on all, would be the ultimate lock-in. Conclusion Antitrust law has long been perceived as taming the excesses of capitalism and the free market and thereby protecting consumers. But the law’s creation and enforcement are rife with tales of its transformation into a tool for regulatory excess. Indeed, many of the practices disparaged by antitrust regulation and targeted by enforcers are in fact good for both competition and consumers – albeit bad for competitors. Particularly in the new information economy, conventional thinking regarding smokestack era antitrust law and the allegedly harmful practices it targets must be challenged. Antitrust, in the final analysis, is now and has always been just another form of inefficient economic regulation. Clyde Wayne Crews Jr. is an adjunct scholar with the Cato Institute and Vice President for Policy and Director of Technology Studies at the Competitive Enterprise Institute. © Cato Institute. All Rights Reserved. Reprinted with permission.

AROUND THE WORLD

“欢迎来到美国馆” Welcome to the United States Pavilion Judy Shing interviews Frank Lavin on the Shanghai Expo

There are Hollywood productions inside the pavilion. Can you tell us a bit more about that? A movie will involve the audience in a way a static display won’t. You’ll bring people along. Movies allow you to have a narrative and different themes. For example, the main movie, The Garden, is a quintessential de Tocqueville message because the story is about a young girl, a twelve-year-old American, who is in an urban environment and [it] turns out her apartment faces a junk yard on the corner. She wants to turn it into a garden or a park and she runs across a lot of indifference from her neighbors and her friends. Basically, there is nobody to help. But through perseverance and working with friends, she eventually succeeds. The point is that it is not a government-directed program, it wasn’t a political party directed program. It was done through voluntary cooperation where people are responsible for their own lives and their own environment and they take the initiative to make something happen. And it can be an uneven

MeiGuoGuan

What is the message behind your book The USA Pavilion: Rising to the Challenge? The point of the book is to capture the themes of the USA Pavilion. The book does not have an independent theme, but in a book we can go into more detail because the building itself is designed for the fairgoer, that is a 老百姓, “man on the street,” type of audience. Whereas the book is for a segment that might be more educated, [and] is mainly photographic so it’s a great gift or souvenir item. So it has a sort of sentimental value as well and some education value. The key point of the pavilion is to help the fairgoer, typically Chinese, to understand America a little better, American culture, American society. Remember the average fairgoer spends about 30 minutes in any given pavilion. So you only have somebody’s attention for 30 minutes, and in addition education levels can vary dramatically. You need a presentation that connects with that kind of audience, and it also has to be entertaining. You can have a range from six year olds to grannies.

The main sign of the USA Pavilion process because some people will agree and some people won’t but you can in the end enjoy some success if you stick with it. So it is very much of that de Tocqueville message about how to create a healthy society, which has aspects of voluntary cooperation and allows people to come together for projects of mutual interest and mutual advantage. But it’s done on the basis of self-initiative and voluntarism. This means that VOL 2 NO 2

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it will be enduring, but it requires somebody to be the spark plug to get out there, knock on doors and cajole. So that is the main story, it’s done in a Hollywood movie format rather than a classroom explanation of what the de Tocqueville message was.

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How do you think the book will help readers understand US-China relations? I believe the Expo really plays a

big part in connecting these two countries. I saw some interesting figures over the weekend. China and Hong Kong visitors to the US last year was over 640,000. But ten times that number will go through the USA pavilion. So for ten times as many people in China, the USA Pavilion is America. A trip to the US is still outside the reach of most people in China. But the pavilion is accessible and we are trying to show to friends in China a bit about how American society operates. Can you have order in a society that is open architecture? Does a high degree of mobility mean that there is chaos or too much ambition? And what we are able to convey is that [the] US is a highly functional and very successful society, with many positive attributes. You have lived in Asia for much of the past 20 years. What do you think is one of the more exciting parts of Shanghai compared to 2030 years ago? thedeadparrot

What is the main message the USA Pavilion is trying to convey? If you take that, we’d say, look, one of the core elements of American or how American society works is open architecture; it’s an open society where everyone can live life as they choose and there are still problems to be dealt with but people do so on the basis of civic organization, so open society is a core message. Another message is, this is in the first movie, sort of subtle – the first movie, first scene is called the Overture. One of the main running themes of the Overture is different Americans from all walks of life trying to say, “欢迎来到美国馆” [Welcome to the United States Pavilion] and some people would get it right away and some people won’t. Everyone’s sort of laughing. But there are a few interesting points when you say, ‘what’s that all about?’ What are you really trying to convey? One is that there is an enormous amount of diversity in America. They are all American, but they come from many different walks of life, demographically, quite different races, religions, occupations, socioeconomic status. So it’s a nation that is very multicultural. That comes through dramatically. But the other element is that you’re saying something about yourself if

you can laugh at yourself. I think to Americans, and we hope to Chinese guests, this is a sign of maturity and self-confidence. We don’t mind trying something new, like speaking a foreign language even if we are going to get it wrong. Now we are going to laugh at our mistakes and try again. So the ability to fail and experiment and try again and keep good humor throughout is also quintessentially American. It means you have a healthy society because you have a society that is geared towards experimentation, and there are people who are always going to try something new and it’s okay if you don’t get it right. Just keep trying. And some people never really get it right, [but] most people are able to say it in their hearts even if they are not always able to fully articulate.

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Shanghai now is on the move. Shanghai enjoys one of the highest growth rates of any city in China and it’s probably the most cosmopolitan city in China if you don’t count Hong Kong. Like any great port city, Shanghai is the polity that connects

Everyone would agree that Shanghai has improved dramatically. But some people argue that problems such as corruption, political transparency, air pollution are being neglected. All these issues are very real. When people see the Expo, they question why this event is getting all the attention while all the other problems seem to fade into the background.

that city. Something that we hold to in the US very strongly is that good ideas can happen anywhere. Somebody you’ve never met can be a successful partner for you in your business venture or someone with whom you would strike up a

“So it is very much of that de Tocqueville message about how to create a healthy society, which has aspects of voluntary cooperation and allows people to come together for projects of mutual interest and mutual advantage.” friendship, or with whom you can collaborate on cleaning up your neighborhood. You have to have an open view of humanity and what kind of world we live in. I think you see that in cosmopolitan cities like Shanghai.

MeiGuoGuan

China to the world and the world to China. You have to have people in Shanghai who are comfortable with different languages, cultures and business practices, who are welcoming to people around the world. That’s a fantastic strength of

National Day Ceremony at the USA Pavilion

In all societies and all economies there is good news and bad news. You are right that we talk about the very impressive good news in Shanghai or China. It doesn’t mean the bad news isn’t there. But let me say a word in defense. Nobody, I think, has ever argued that high economic growth solves all your problems. But what I would argue is that if we have high economic growth we now have the tools to tackle some of these other problems. We can now tackle pollution, we can tackle illiteracy, we can tackle other problems. If you don’t have economic growth, you will lack the tools. I think China has the right approach, which is to get the economy performing. You need high rates of growth, you need to pull people out of poverty and into the middle class and then we can tackle some of these other issues. So I think they are sequencing it in the right way. So, you think this is a first step for China? It’s a step, I think it’s the right step. I would say the advent of good news VOL 2 NO 2

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China has been growing at a double digit rate ever since the late 1990s. What do you think the impact of that is for the US and for the rest of the world? I think there are long-term implications for the US and for other countries. In general positive, but perhaps over the long run also some potential points of friction. The positive point is that the great attribute of market economics is that the wealthier you become, the greater the chance that I’ll also become wealthier. A poor neighbor is not helpful, a prosperous neighbor is helpful. So, for example, the US will be selling about a hundred billion dollars worth of goods and services into Greater China this year. The US will also be purchasing and sourcing a lot from China, which is disconcerting to some people in the US, but I never view imports in themselves as an economic loss. There are substantial advantages in importing, so trade and investment relationship with China is helpful to the US economy and Americans enjoy better quality of life because of 70

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涉外山頂人™

does not mean the disappearance of bad news. But it means that you’ve got the best good news to bad news ratio in China for quite some time, maybe in all of history. So the bad news is still there but now China has the tools, it has an educative workforce, it has university population, it has a national budget surplus that they can deploy for infrastructure issues, health issues and so forth. So 慢慢来 [one step at a time].

China’s prosperity. Can you talk a little bit about the friction you mentioned earlier? There is trade friction because from an American perspective we view some serious trade issue[s] with China – some aspects of the market remain closed, there are intellectual property and currency issues. There is trade friction at various points. Also, right now the political relationship is generally positive. But we have to work to make sure it is positive as China defines its role in the world. We’ll see where that goes in the next few decades, but there could be friction points there as well. LRI: How do you think Hong Kong can aid China in its relations with the rest of the world? I think Hong Kong has historically played a very positive role because Hong Kong is this quintessentially merchant town that helps remind

all parties in transactions that trade is win-win and that if everybody plays by the rules then everybody can benefit. And Hong Kong has a very open economy in itself, and it’s a message to China that the more open your economy is, the more prosperous you can become. To what extent is the Shanghai Expo a success or a failure? It’s always hard to measure the longterm effect of these phenomena. However, when you bring millions of people to this kind of environment and you expose them to the way different countries operate, I think it’s enormously healthy for China. I think it’s just one more building block in China’s efforts to try to understand the world. I don’t think you can necessarily give it a score or a rating or a grade. I wouldn’t be surprised if 20 years from now, you are working in some business project

AROUND THE WORLD

As you can see in China, operating the Expo is not very easy when it comes to red tape and other issues. Did you encounter any problems of that nature? I give them high marks for overall organization and management. They have a certain process that they respect and at times it can be challenging, but overall our relationship with the Expo is very positive. They did a good job. It is tough to work with 240 different exhibitors and countries and come up with rules for everybody. We had to work with them closely to have the

\!/_PeacePlusOne

in Paris talking to somebody from the Chinese delegation who tells you – I came from a very modest family background and my dad took me to the Expo, and I went to the French pavilion, and I started reading about France and took French at school, and now I’m now working on this project with France and China.

Chinese visitors at the USA Pavilion. Yes, because that is really the point of the Expo. It’s not trade negotiations. It’s not a strategic economic dialogue, we are not here to solve the bilateral issues. It’s a friendly chat. Somebody’s coming to your house, and you are just telling visitors a bit about your background. That is not a bad way to start a relationship. Remember, most of the

“You need high rates of growth, you need to pull people out of poverty and into the middle class and then we can tackle some of these other issues.” book [The USA Pavilion: Rising to the Challenge] brought in and there was a lot of discussion about whether the Chinese authorities would allow printed material to be distributed, but there wasn’t any problem. Coming back to your book: You do highlight some of the issues, but not political ones.

people visiting have never visited the US. I hope everybody in China gets a chance to see the USA pavilion and I encourage every American to get to the Chinese pavilion. Just understand a little bit about Chinese history and background and I think you leave with respect. I know there are college students at

the Expo. So how do you think that would trigger dialogue? We have about 160 American volunteers, student ambassadors there. They are all tested to be bilingual, so these are students who have already decided that they want to be serious about China [and] that they have some China orientation. A group of them are ethnically Chinese and have family backgrounds in China, but a lot of them don’t have any. They’ve just started studying it and they fell in love with China, and they want to pursue it because that is their passion and their calling. We thank Frank Lavin, volunteer Chairman of the Steering Committee for the USA Pavilion, for his time. Judy Shing is a student at Georgetown University.

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BOOK REVIEW

Gregory Clark’s A Farewell to Alms Does natural selection favor the rise of capitalist economies?

Reviewed by Judy Shing

hy are some parts of the world so rich and others so poor? Why did the Industrial Revolution – and the unprecedented economic growth that came with it – occur in 18th century England, and not at some other time, or in some other place? Why didn’t industrialization make the whole world rich – and did it make large parts of the world even poorer? Gregory Clark, an economic historian at the University of California, Davis, poses a provocative theory about why the Industrial Revolution occurred. He believes that this amazing transition happened because of a change in the nature of the human population. His explanation for why the Industrial Revolution took place in some countries and not others is highly perceptive. Clark carefully employs Malthus’ argument: each time new technology increased the efficiency of production a little, the population grew, the extra mouths ate up the surplus, and the average income fell back to its previous level. This tendency of the population to grow faster than the food supply kept most people at a subsistence level. Clark therefore claims that this Malthusian trap governed the English economy from 1200 until the Industrial Revolution and has, in his view, constrained humankind. Clark’s deterministic thesis – forces of natural selection had changed the nature of the population – is an important piece of the missing puzzle in explaining the Industrial Revolution in Britain. He further adds that the rich had more surviving children as generations passed. This created a reorientation of the social order because, as the poor failed to reproduce, the descendents

of the rich took-up their positions in society. As a result, these people were less violent, more literate and more productive. As the progeny of the wealthy pervaded society, their behaviors that were conducive to wealthmaking could spread with them. This was the turning point for Britain as it was able to break out of the Malthusian trap. He points out that another significant change in behavior was an increase in people’s preference for savings rather than instant consumption. His book also highlights the constant upward trend in production efficiency, which first emerged in the English economy. Clark believes that it was through this significant surge in the rate of productivity growth that England’s escape from the Malthusian trap was made possible. By the mid-19th century, the efficiency of the English economy was clearly growing at an unprecedented pace. Clark emphasizes that this improvement in efficiency was based on knowledge creation, rather than the accumulation of physical capital or the exploitation of natural resources, and seemed to imply the rapid worldwide spread of the techniques and industries of the Industrial Revolution. Clark informs his readers that “the gap between material living standards in the richest and poorest economies of the world is now more than 50:1, while in the 1800s it was probably at most 4:1.” There is no agreed account of why the divergence occurred, some people attribute a failure of political and social institutions to the reason why the disadvantaged remain disadvantaged. Clark, however, underlines the fact that the proposed medicine of institutional reform “has failed to cure the VOL 2 NO 2

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patient.” In this quantitative and detailed book, Clark seemingly rejects the Institutional Development Theory: “Despite the dominant role that institutions and institutional

Clark believes that it was through this significant surge in the rate of productivity growth that England’s escape from the Malthusian trap was made possible. analysis have played in economics and economic history since the time of Adam Smith,” he writes, “institutions play at best a minor role in the story of the Industrial Revolution told here, and in the account of economic

performance since then.” He tells us that “economists, and the institutions they inhabit, such as the World Bank and the International Monetary Fund, have adopted a false picture of pre-industrial societies, and of the eventual causes of modern growth.” Clark argues that the reason the Industrial Revolution did not occur first in much larger populations of China or Japan was because the wealthier classes, such as the samurai or the Qing Dynasty, did not produce as many offspring. This resulted in a lack of downward social mobility, and thus, wealth did not pervade these societies. Clark started this journey of searching for an answer for the Industrial Revolution twelve years ago, and we are to carry on with his research today. Therefore, A Farewell to Alms is a must-read for anyone who wants more insight into why the world is the way it is. Judy Shing is a student at Georgetown University.

James R. Fichter’s So Great a Proffit An Evocative Portrait of Anglo-American Trade in Asia

Reviewed by Mallika Narain

t is not often that we have access to works of nonfiction that are at once comprehensive and attentiongrabbing, original and well-researched. But James R. Fichter pulls off this massive task with his academic So Great a Proffit, an in-depth look at the growth of free trade in the East Indies during the 18th and 19th centuries. This is a delicate orchestration of hard facts and anecdotal evidence on Fichter’s part, as the author juxtaposes the imperialist (and therefore monopolist)

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ambitions of the British East India Company against those of the more mercenary American capitalists who sailed to India and modern-day China in search of easy fortunes. Fichter’s book depicts the complex web of relationships linking the British, Americans, and “East Indians,” but the history that he writes is one stripped of pretenses steered by unsubstantiated patriotism and imperialism, and instead illustrates the prevalence of self-interest as

BOOK REVIEW

a guiding factor in historical events – raising questions about historical materialism being a most effective interpretive tool for this period of colonial history. Hand in hand with the case study of Western and Eastern trade, Fichter’s book is – more intriguingly, perhaps - the story of the American underdog finding ways around an established hegemony through entrepreneurial methods in trade. That is, in the narrative Fichter demonstrates how new, efficient capitalist methods managed to overwhelm the aging East India Company’s bureaucratic monopoly and caused them to reevaluate the very structure of expansion and governance they adhered to for centuries. It is easy to spot the critical historian in Fichter’s writing – he sets up some major causal claims and executes them convincingly: that the operation of the American economy was absolutely shaped by the success of free trade in the East Indies, and that it was the efficiency of free trade that undermined the British monopoly in Asia – in short, that the American East India trade made concrete what had previously been Smithian economic abstraction. Unhindered trade to the East Indies could be profitable, innovative, and constantly responsive to changing needs in both East and West. A large part of American profits derived from the re-export trade that they capitalized on, as well as from their alleged neutrality in the series of wars following the French Revolution. The implication for the reader, versed in traditional Western accounts of history, is that the Americans drastically shook up the norms of the British Empire merely decades after the Revolution of 1776, and they did so purely economically – and fairly inadvertently. As Fichter explains the trade in India and China in detail, he depicts how the economic and legal environment responded to and facilitated free trade not immediately, but gradually, and often rather shortsightedly. The Company’s sloppy attempts to crack down on British free marketers by charging them high freight rates and expanding red tape on private merchants’ activities, for example, merely alienated these merchants and created a niche for American private enterprise. The Jay Treaty and subsequent tariff impositions on American traders, which exemplified British fear of the political ramifications

that accompanied banning Americans from their East Indian ports, similarly served to ingrain free trade in the international climate of the time. At the same time as these developments in the East’s law unfolded, Fichter portrays the re-imagining of American, and to a lesser

In the narrative Fichter demonstrates how new, efficient capitalist methods managed to overwhelm the aging East India Company’s bureaucratic monopoly and caused them to reevaluate the very structure of expansion and governance they adhered to for centuries. extent British, social structures as a result. In some of the most informative portions of the text, the reader is treated to an extensive look at the rise of American merchant millionaires, like John Jacob Astor, who built up their wealth through the Asian trade, and who re-concentrated their capital away from plantation owners in the South. For history buffs and laypeople alike, So Great a Proffit is absolutely a wonderful must-read. It forces us to confront the prominence of trade and economics in lucrative past relationships between “East” and “West.” But despite the originality of his critical statements, Fichter fails to question the traditional paradigms of East and West – although he does seem to posit the American method as an alternative to the Oriental-Colonialist relationship, albeit one that promoted damaging vices like smuggling, opium use, and gun sales. His writing is most likely intentionally limited in perspective, but perhaps not wisely so – rarely do we get a glimpse of the ramifications of the East Indies trade on its namesake. This is a shame, since the most fascinating descriptions arguably appear in precisely those sections that capitalize on the actions of “native” East Indians: on the opium trade, which explains the way the drug penetrated Chinese society and befuddled local government; or in the machinations of Anglo-Indian entrepreneurs in India VOL 2 NO 2

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itself, who innovated heavily in order to get their goods across the Atlantic. In emphasizing the West, Fichter is limiting his book’s immediate relevance to revolutionaryperiod historians and committed mercantile-geeks, and in a period where China’s star is rapidly rising in the realm of international trade, the topic seems outdated and unable to offer the reader insights that actively pertain to the future of Asian economies. To turn an

academic work into a history lesson that we can grasp, reinvent, and utilize in contemporary policy, Fichter might concentrate on a less mainstream narrative in future works, and it would be something his audience would be keen to read. Mallika Narain is a Columbia University student.

Edwin S. Rockefeller’s The Antitrust Religion Competition Law Undermines Competition and the Rule of Law

Reviewed by Bill Stacey

hen a leading practitioner of a school of law argues that his entire field “is becoming a relic, an anachronism, the irrelevant debris of past political demagoguery” it is worth taking notice. When that field of law is a model of competition policy that seems to be a tide rising through the world and that now washes the shores of Hong Kong, we should check our premises. In The Antitrust Religion, Edwin S. Rockefeller argues that competition policy has become a religion with little substantive content in law or economics, but powerful interests that underpin and sustain its propagation. The Law A lawyer in private practice who was Chair of the Antitrust section of the American Bar Association, a senior member of Federal Trade Commission (FTC) and who has published widely on Antitrust Law, Rockefeller is well placed to inform debate about how Competition Law works in practice.

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On the core concepts of the legal approach to competition policy – “substantial lessening of competition,” market power, price fixing and monopolies and mergers – he offers powerful critique. He argues that these basic concepts are open-ended, difficult to comply with, subject to shifting meanings over time, inconsistent with economics and ultimately undermine the rule of law. It is this inconsistency with the rule of law that most riles Rockefeller. He argues that the ambiguity of competition laws “allow arbitrary decisions disguised as findings of fact.” Importantly he finds that “market efficiency requires no government interference on its behalf. Fairness does. Antitrust allows the decision maker freedom to intervene on the side of fairness when he wishes to do so.” Rockefeller is saying that the statutes provide not for systematic application of principles of justice, but for arbitrary interference in markets to achieve outcomes that are different to and inferior from real dynamic competitive processes.

BOOK REVIEW

The Economics This is not a book heavy on economics. Indeed, many economists are seen as contributors to the pernicious structure of existing competition law. Rockefeller states that “the Chicago school’s efforts to make antitrust law a branch of applied economics have resulted in the retention of concentration as a central element of antitrust.” He points out the inconsistency between the uncertainty and hypothesis testing that is inherent in good economic analysis and the necessities of clear legal judgments of guilt or innocence on issues. He is critical of “textbook models of perfect competition and monopoly” that have inspired a lot of the competition policy framework. Market definition is a particularly problematic issue in competition law. Markets do not have clear boundaries and entrepreneurs are constantly seeking to redefine markets. Notoriously, proposals to break-up IBM took so long to deal with that the purported “monopoly” disappeared. Rockefeller reiterated that open markets and contestability are all that are needed for competitive pressures to work towards consumer benefits. Rockefeller goes through the history of the Standard Oil trust and shows that its decline was underway well before the famous break-up under the Sherman Act. The Antitrust Religion far from exhausts the economic critique of competition policy. A longer work (but less readable) might have spent more time on the negative impacts from particular cases on changes in industry structure. It could have shown how Antitrust Law has often entrenched existing management and constrained competition. The increasing international trend to use competition law as a protectionist measure against foreign companies deserves more research. The welfare costs of administering Competition Law are also considerable. A sympathetic review (Ky P. Ewing, Jr., The Antitrust Source, April 2008) reported that “the worldwide gross receipts of the antitrust community of lawyers, economists, and government officials in the more than 100 countries that now have such regimes totals at least $20 billion annually (and that does not count the cost to the businesses involved).” Rockefeller does not dwell on the fact that the markets with the least competition are usually those with the most

involvement from government and the most regulation. Competition needs a supportive policy environment, but competition law does little to contribute to this. The Politics The subjectivity of Competition Law concepts means that they are very vulnerable to manipulation by political interests and lobbies. There have been dramatic shifts in competition law internationally driven by changes in people administering the law rather than explicit changes in policy or legislation. Competition Law reduces the transparency of policy making and creates new avenues for vested interests to challenge market outcomes. If there is one thing that Rockefeller fears more than the antitrust edifice, it is the FTC process and extra-legal mechanisms that have used antitrust law to undermine competitive processes. Creating bureaucratic mechanisms to review market outcomes inevitably leads to meddling and interference. The Implications for Hong Kong Rockefeller is focused on the US. However the implications for the debate in Hong Kong are clear. Hong Kong’s proposals are simply to adopt standard international concepts in competition law. These concepts are open-ended and flexible. Indeed, the government is trying to maximize flexibility with administrative discretion about exemptions and an undefined stance on review of mergers. Proposals would come accompanied with an institutional imperative to review industries across Hong Kong that would inevitably interfere with market outcomes. The Hong Kong proposals go further to undermine competition by specifically excluding the role of government in markets from review. The Hong Kong government says, “We value competition as a cornerstone of Hong Kong’s economic success.” If this is the case they should revisit international experience that shows Competition Law too often undermines competition. Bill Stacey is the Chairman of The Lion Rock Institute.

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Minimizing the Damage of the Minimum Wage Judy Shing and Mallika Narain on the law’s impact

Despite the fact that she would be directly impacted by it, when Ms. Weng was asked about Hong Kong’s Minimum Wage Legislation, she didn’t seem to know what was being asked. Ms. Weng moved to Hong Kong from Shun De (顺德), China when she was ten. At 25 years-old, she works as a receptionist for a commercial building on the Island. She works 12 hours a day, from 7:30am to 7:30pm, and 6 days a week; public holidays are not in her dictionary. She gets paid HK$7,000 a month, which calculates to HK$24 per hour, less HK$2.91 than Donald Tsang’s suggested wage level. Ms.Weng lives with her sister, brother-in-law and their 5-monthold baby in a one-room apartment with a rent of HK$4,700 a month. Is she happy? She shrugged and said that life was uncomfortable. Will Hong Kong’s first Minimum Wage Legislation make Ms. Weng’s life better or worse? Minimum wage is known to do more harm than good, as it hurts the majority of people it is intended to help. Consider the typical unskilled worker – a convenience store staff or a cleaner. He or she, like Ms. Weng, works 40 or more hours a week to support a relatively basic way of life

– one which is seriously contingent on a steady, daily or weekly flow of income. The repercussions of unemployment are immense for this individual – with a low level of education and little to no savings, his or her options are limited, while the need to support a family and pay rent places a further economic toll. The newly legislated Minimum Wage is the result of viewing an easy solution to inequality through rose-tinted glasses; the truth is, it is sure to cause unemployment. Before the Law was legislated, reports emerged that businesses were already sacking long-time service workers. As economic theory dictates and experience has reinforced,

implementing a minimum wage results in unemployment, cutbacks in working hours, and frozen wages. For individuals like Ms. Weng, the impact of the Minimum Wage will very much become a reality, and, indeed, she is only one of a potential multitude of unskilled lowerwage earners whose employment opportunities will be affected in the legislation’s wake. It is a wonder, then, that Hong Kong legislators are in support of a proposition that will be the veritable death knell of these laborers’ job prospects. Little do unionists, workers and youths, like those who protested for a $33 minimum wage, understand how dire their own employment VOL 2 NO 2

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situation will be in the wake of the Law. Setting a wage level, albeit out of good intentions, does not necessarily raise the income of low-wage earners, or shorten the inequality gap. In this case, Hong Kong, with a high unemployment rate for youths and a low unemployment rate overall, will see an increase in the aforementioned and in the latter, abetted by an equally undesirable wave of transformation in business culture. When a company is forced to raise its workers’ pay to conform with the Minimum Wage Law, it can either accept the higher costs and lower profits, increase the price of its products, transferring the financial burden to the consumers and increasing the cost of living, or cut

back on the number of employees to compensate for the costs. With employers looking to cut costs in every way imaginable, we may see self-busing become the norm in Hong Kong’s plentiful food courts, cleaners forced to work twice as hard to compensate for laid-off coworkers, and the extinction of motivational tools and other compensation. What choice, then, do we leave the newly unemployed with other than to turn to Hong Kong’s Comprehensive Social Security Assistance (CSSA) Scheme in earnest? Minimum Wage, after all, will annihilate people’s livelihoods, and mass layoffs of the kind incited by Minimum Wage will no doubt cause a surge in applications for CSSA, and in turn, in government

expenditures. With the recent court ruling on right of abode for CSSA, the government must already contend with the costs of funding expanded coverage; how will it find a way to accommodate those people that minimum wage legislation inevitably leaves jobless? This leads to the most troubling question – how can legislators put people out of work? We thank Ms. Weng for her time and wish her all the best in her future endeavors. Mallika Narain is a student at Columbia University and Judy Shing is a student at Georgetown University.

Lion Rock at Legco Andrew Shuen on the future operation of the Radio Television Hong Kong (RTHK) and the new RTHK Charter.

he Lion Rock Institute is disappointed with the Government’s position. The Institute believes the Government should not be involved in media organizations. It should not subsidize media organizations. Lion Rock is against RTHK’s continuing existence because it is believed that its historical mission is already accomplished – it was established 80 years ago when there was very little technical means for people to express

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their views – and we now have the internet. Today, many people want to support RTHK, saying that without it, there would be no freedom of expression. I find that insulting, as I am personally involved in three media organizations. On behalf of those who work in the media, I have heard the views of those people – such as Mr. Yam, who likes to attend City Forum – and very often one side represented is

politically incorrect. For instance, in the case of the minimum wage debate, the Liberal party was on the podium along with Lion Rock. Is there some kind of prejudice here? The Government should not support media organizations. Now, the Government is subsidizing a board of advisors to oversee RTHK, and Lion Rock believes this to be very dangerous, indeed. It’s dangerous for the Government to be involved in the media. In

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the long run, we can’t ensure its independence. I am thankful that RTHK has served the community for so many years. I believe that RTHK should digitize their archives for the free use of the public, especially news clippings for young people. Also, it is worth adding that what applies in other countries [responding to previous comments] may not work in Hong Kong. Look at the US, they are not doing very well in many regards, so why copy from them? Peter Wong on the Motor Vehicle Idling (Fixed Penalty) Legislation: I urge commercial vehicle drivers and professional drivers to take heed. This bill should not have been introduced. In Hong Kong, our environmental awareness is such that we need to legislate in order to strike against the desire to be a motorist. If that is the case, then I’m afraid

you must decree a ban, because the Environmental Protection Department (EPD) has claimed that the act of driving itself is anti-

summer than in the winter because in the summer, the southerly winds blow. I believe that what we are dealing with here is less than 1%

“The major source of pollution in Hong Kong is not vehicle idling – so what kind of a bill is this?” human. We should start with a very serious look at our environment. Only 1% of pollution in Hong Kong comes from vehicles on the road. The major source of pollution in Hong Kong is the power companies, and the power companies want to improve upon it. But why is the EPD standing in the way and not encouraging the power companies to do so? You may notice that in Hong Kong there are many days of blue sky, particularly in the summer. There are many more blue skies in

of emissions. The major source of pollution in Hong Kong is not vehicle idling – so what kind of a bill is this? I want you to know: we are motorists and we share the same concern as the professional drivers. I believe private car drivers like me will behave like professional drivers, and if you force them to switch off the engine, it would not stop them, instead they would just circle the block.

The Hype over the Expo Judy Shing questions the media coverage of the Expo

he 2010 Shanghai Expo is impressive as it is the first time a developing country has hosted the event. China spent $58 million dollars staging this mega-event; news agencies claim that the country has invested more effort and money into the event than it did for the Beijing Olympics. A whopping 70 million

visitors – almost all of them Chinese – are expected to visit pavilions and exhibitions, staged by more than 240 countries and organizations from around the world. Is this all to showcase China’s new rising status as a global power? People are aware of China’s growing influence and its “soft power.”

But are we convinced? Can the Expo be just another achievement the Chinese government hides behind? What about the real issues that should be grabbing our attention – the harsh living standards, deteriorating air quality, and exorbitant corruption, to mention a few. The media’s focus on VOL 2 NO 2

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the scale of the exhibition is not to be blamed, but to be reconsidered and re-contextualized. “Better City, Better Life” is the theme of the Expo, yet life in Shanghai has not improved much. Ms. Jia, a local restaurant owner, has a place in “The Cool Docks” on Zhongshan Nan Road (中山南路). Despite the restaurant’s good location and its authentic Shanghai dim-sum, she says that business has been difficult. When asked whether the Expo helped her business, Ms. Jia shrugged and said that it is hard to turn a profit. She pays her workers RMB$1,000 a month. It’s not exactly the ideal situation for migrant workers who come to Shanghai hoping to make a living. Various reports claim that China surpassed the United States as the world’s largest emitter of carbon dioxide, emitting 6,200 million tons in comparison with America’s 5,800 million. China’s battle against the worsening air pollution may be a losing one. A World Health Organization (WHO) report estimates that diseases triggered by

indoor and outdoor air pollution kill 656,000 Chinese citizens each year, and polluted drinking water kills another 95,600. China’s State Environmental Protection Agency engineered the removal of the

used as kickbacks and bribes, or simply stolen, is exactly the kind of thing that needs reporting. Minxin Pei, director of the China Program at the Carnegie Endowment, argues that the root of rampant corruption

The country needs to take drastic measures when it comes to improving living standards, air quality, environment, and government accountability. statistics because the government feared the figures could trigger social unrest. These haunting figures demand more attention from not only the Chinese but also the rest of the world. My guess is that the Expo is not going to help much with the air quality. What about the Chinese government’s commitment to transparency and best practice? We don’t hear a lot about government corruption in the news these days. A country where roughly 10 percent of government spending, contracts and transactions is estimated to be

lies in partial economic reforms, lax enforcement efforts, and reluctance by the Communist Party to adopt political reforms. Dmitry Medvedev said that “often efforts toward fighting corruption are limited to energetically signing papers.” Let us hope that this is not the case for China. We should not cast the first stone, but we should also not allow all this Expo media hype to cloud our judgment. The Expo is a strategic stepping stone for China to reach a certain global order. However, it shouldn’t be painted as the most important goal for the country. The country needs to take drastic measures when it comes to improving living standards, air quality, environment, and government accountability. Life hasn’t been easy for the Chinese, and I doubt the Expo is making it any easier. Judy Shing is a Georgetown University student.

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Hawking Hong Kong According to Bill Stacey, variety is the spice of life

he people of Hong Kong have a strong demand for the convenience, value and flavors offered by hawkers. Reviving hawking will provide dignified alternatives for those who will lose their low-paying jobs once minimum wage is enforced. Hong Kong is famous for its markets. The most visible form of these for visitors is the street markets around Kowloon and the edges of Central. The markets are an exciting and vibrant reminder of Hong Kong’s origins as a trading city. They assault the senses with colors, smells, noise and activity. The rhythm of the markets from their slow early morning start to their late night energy measures the pulse of the city. Yet street markets and the noble trade of hawking your goods in the street are dying as a matter of deliberate government policy. For 40 years, the government has adopted a “hawker control” policy. New licenses are not issued. Buybacks of existing licenses continue. Controls are strict. Illegal hawking is stopped. Itinerant food vending is a particular focus. Hawkers are moved into “public markets” with mixed success, but disappear from our streets. Fixed hawking stalls are boxed in ever decreasing “hawker bazaars” that are

some of Hong Kong’s most popular tourist attractions. Despite these restrictions, and an incredible 191 squads of “Hawker Control Teams,” there were an estimated 2,061 unlicensed hawkers in 2008 and 21,801 prosecutions. This record itself shows strong demand from the people of Hong Kong for the convenience, value and flavors offered by hawkers. There was once a well-meaning reason for this assault on small business. Hygiene, traffic, convenience and crime provided that weak rationale. However, today’s Hong Kong is a different place. Reviving hawking can re-invigorate commerce in the city. Imagine moribund public spaces like the Central Ferry Terminals with dozens of food vendors on the paths offering nourishment for passing travelers and commuters. Hawkers would restore the character of the city. They would help to restore

Hong Kong to its status as a food paradise, which has faded as other cities in South East Asia have done more to preserve street food. Hong Kong is often criticized for high costs of doing business, particularly the costs of real estate. Hawking offers low capital intensity opportunities for entrepreneurs. It allows them to test retail concepts that can become the large chains of tomorrow. Many of today’s largest fortunes in Hong Kong began with street side trading. With a new minimum wage increasing unemployment, permitting hawking will provide dignified alternatives for those who will otherwise lose lower paid jobs. Under current highly restrictive laws, hawkers are limited to employing assistants and have to be sole traders. Families are limited to one license. There is a big employment creation opportunity. By liberalizing hawking, the

However, the main reason to revive hawking is that the people of Hong Kong, through their patronage of both legal and illegal vendors and despite forty years of suppression, show that they want these shopping and eating choices. VOL 2 NO 2

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government can save money on “hawker control,” social security and license buy-back schemes. However, the main reason to revive hawking is that the people of Hong Kong, through their patronage of both legal and illegal vendors and despite forty years of suppression, show that they want these shopping and eating choices. It is hard for government to change a 40 year-old policy. Why not start small with a trial of itinerant hawkers on the newly constructed waterfront? This would not impact

any existing residents or shops. There are no hygiene issues that could not be solved with ingenuity. If this small trial proves popular, it could be expanded to the estates of the new territories and revive small-scale business in villages. Hong Kong’s government wants to be seen as facilitating business. Reforming dated hawking laws could be just a start to a thorough review of the obstacles to commerce in our city. This is not just an economic issue. The freedom to trade is amongst our most cherished values

and if people don’t like hawker food, they don’t need to buy it. Reviving hawking in Hong Kong would be pro-competition law worth having. Permission to reprint from Next Magazine. Bill Stacey is in his 10th year as a resident of Hong Kong and is Chairman of The Lion Rock Institute.

A Free Marketeer’s Battle Simon Lee admits the battle on minimum wage is lost, but the war has not ended

nion organizer Lee Cheukyan called the passage of the minimum wage legislation a historic moment: “goodbye to unfettered capitalism,” he said. Only idealists, who know little about the way society works, see fixing wages by law a victory for the workers. By restricting labor to compete against other factors of production, minimum wage legislation is going to change the way business operates. Instead of hiring part-time cashiers, there will be more self-service check-out counters. Eateries will use disposable utensils rather than having the dishes washed. There are countless ways for the businesses to adapt, but for the workers who are displaced the

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experience will be painful. The Economist wrote that it is the “End of an Experiment.” I abhor the choice of words. The past fifty years of prosperity and freedom were real

successfully resisted the passage of Minimum Wage Legislation in Hong Kong, it would come back again later. Now, however, we have the opportunity to show the world

We need to make a loud and clear case that the statutory Minimum Wage does not only displace workers, but it brings along social problems beyond imagination. achievements we are all proud of. Hong Kong alone stood against the tide of post-war interventionism that the rest of the world followed. I insist this is only the beginning of an end. As a free marketeer, I am always optimistic. If we had

how reason triumphs in the end by repealing the Minimum Wage. The return to normalcy will not come without hard work. We need to make a loud and clear case that the statutory Minimum Wage does not only displace workers, but it

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brings along social problems beyond imagination. Young workers with little career experiences remain jobless for an extended period of time, which can be a key element of social unrest. Women who used to earn extra income for the family by working part-time will be made dependent on their spouses, hence increasing the likelihood of domestic disputes. New immigrants without a job will also find it more difficult to integrate into the community. The above issues are real problems as a result of Minimum Wage Legislation. Unless we can point out the causal relationship, these will become the pretext for our

Legislative Council Functional Constituencies told the story of how minimum wage will close down businesses, I knew the strategic high ground was lost. When they conceded, under tremendous pressure from the socialists, that the debate should focus on setting an optimal level of statutory minimum wage so that its damage would be minimized, the battle was lost. On the horizon, the legislation on Competition Law will be another major battlefield. The corporatists from functional constituencies are citing the high cost of compliance as a reason for why they do not favor such legislation. Does it smell like failure to you?

Statists, however, are surprisingly apt at coming up with spin. They leverage rising home prices as the symptoms of a grand scheme of capitalist collusion to exploit common people. socialist politicians to push for more interventions, and eventually we will be trapped in a two-front war, and exhaust our energy in the fight. We have to learn from lessons, too. When a friend from Malaysia, Wan Saiful Wan Jan, Chief Executive of IDEAS, asked how the battle on minimum wage was lost, I concluded that: “Socialists want to screw capitalists at all costs, including the livelihood of workers. If you say minimum wage would increase the cost of doing business, you are actually encouraging them.” When the corporatists of the

Arguably, this fight will be even tougher than the minimum wage. It is not difficult for the hard working people of Hong Kong to understand why minimum wage will hurt the ones they care about. Competition Law is, by definition, extremely technical and most Hong Kong citizens will choose to be rationally ignorant about it. Statists, however, are surprisingly apt at coming up with spin. They leverage rising home prices as the symptoms of a grand scheme of capitalist collusion to exploit common people. By sticking to this

classical Marxian worldview, they appeal to the masses who do not own property. At the end of the day, they are masters of class struggle. On the surface, Competition Law levels the business landscape for everyone. But, does it? To win this battle, we must demonstrate to the public without the use of any technical jargon and without assumption of the audience’s understanding of economics or law. This legislation will favor more cartels and market manipulations. Can we? Each successive battle on policy issues is part of the greater war of ideas. Since the beginning of the twentieth century, there has been an ongoing war of ideologies amongst statism of various flavors, and, on the other side of the spectrum, sitting lonely, the free marketeers. Yet, it is us the free marketeers who win. We win not only with words and speeches, but through real achievements. When people see how much better off they are now than in the past because of their own hard work instead of having bureaucrats muddling with their lives, they are less inclined to rely on the government. At the end of the day, it is hope that gives us the best antidote to the death wish of socialism. We must remain optimistic. Simon Lee is a columnist in Hong Kong and co-founder of The Lion Rock Institute.

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Endnotes and Image References

Positive Impacts of the Pre-Primary Education Voucher Scheme 1. 2. 3. 4. 5. 6. 7.

See http://chsc.edb.hkedcity.net/kindergarten/ “The Role of Government in Education,” Milton Friedman, Economics and the Public Interest, ed. Robert A. Solo, 1955. “Affordability, accessibility, and accountability - perceived impacts of PEVS,” by Hui Li, Jessie Ming Sin Wong, Christine Wang. See http://www.info.gov.hk/gia/general/200710/31/P200710310165.htm Poll finds big support for kindergarten voucher scheme, SCMP, January 25, 2008. Subsidy hurts poor families, says researcher; Plan drives up preschool prices, SCMP, August 27, 2008. Cash boost to help cushion tuition pain, The Standard, June 23, 2009.

The Home Ownership Scheme 1.

http://www.jchs.harvard.edu/publications/homeownership/liho01-12.pdf

Figure 1

Who to Hire: the Novice or the Experienced

2. 3.

10. 11. 12. 13. 14. 15.

16.

http://www.buyusa.gov/china/en/shanghai.html http://www.globalpropertyguide.com/ http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita

Shih Wing-ching, “Who to hire: the Novice or the Experienced?” AM730, C Viewpoint. 21 January 2010. Shih Wing-ching, “Why Do I Tolerate Redundancy?” AM730, C Viewpoint. 14 December 2009. Shih Wing-ching, “Collective bargaining may not lead to salary adjustments,” AM730, C Viewpoint. 11 December 2009.

17. 18. 19.

20. 21.

聘新人還是熟手好 1. 2. 3.

施永青, 『聘新人還是熟手好』, AM730, C觀點. 2010年1月21日. 施永青,. 『我為何容忍冗員』, AM730, C觀點. 2009年12月14日. 施永青,. 『加薪難靠集體叫價』, AM730, C觀點. 2009年12月11日.

The Antitrust Terrible 10: Why the Most Reviled “AntiCompetitive” Business Practices Can Benefit Consumers in the New Economy 1. 2. 3. 4. 5. 6. 7.

Thomas W. Hazlett, “Is Antitrust Anti-competitive?” Harvard Journal of Law and Public Policy277 (Spring 1986): 336. R.W. Grant, Tom Smith and His Incredible Bread Machine (Manhattan Beach, Calif.: Quandary House, 1964), pp. 34–35. See, for example, Yale Brozen, Is Government the Source of Monopoly? And Other Essays, Cato Institute Paper no. 9, 1980. Sherman Act, 15 U.S.C., sec. 1. Sherman Act, sec. 2. Clayton Act, 15 U.S.C., sec. 12 et al. Isabel Paterson, The God of the Machine (New Brunswick: Transaction Publishers, 1943; reprinted, 1999), p. 172.

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22. 23.

24.

25. 26. 27. 28. 29.

30. 31. 32.

Thomas J. DiLorenzo, “The Antitrust Economist’s Paradox,” Austrian Economics Newsletter, Summer 1991, p. 2. See also Thomas J. DiLorenzo, “The Origins of Antitrust: An Interest Group Perspective,” International Review of Law and Economics5 (June 1985): 73–90. For an analysis of the Microsoft case, see Robert A. Levy, “Microsoft Redux: Anatomy of a Baseless Lawsuit,” Cato Institute Policy Analysis no. 352, September, 1999, http://cato.org/pubs/pas/pa-352es.html. See Alan Reynolds, “The Monopoly Myth,” Wall Street Journal,April 9, 1999, p. A12. From data cited in David Lieberman, “Tolls Stack Up on Info Superhighway,” USA Today, April 3, 2001. See, for example, Peter S. Goodman, “Local Phone Giants Fight to Stay Whole,” Washington Post,March 22, 2001, p. E1. Fred Smith, “Why Not Abolish Antitrust?” Regulation, January/February 1983, p. 25. Murray Rothbard, Power and Market: Government and the Economy (Kansas City, Mo.: Sheed Andrews and McMeel, Inc., 1970), p. 61. U.S. Department of Justice and Federal Trade Commission, 1992 Horizontal Merger Guidelines (with April 8, 1997, revisions to sec. 4, “Efficiencies”); see sec. 0.2, “Overview,” http://www.ftc.gov/bc/docs/horizmer.htm. See Oliver E. Williamson, “Economics as an Antitrust Defense: The Welfare Tradeoffs,” American Economic Review 58 (March 1968): 18–36. See also Robert H. Bork, “The Consumer Welfare Model,” chap. 5 in The Antitrust Paradox: A Policy at War with Itself (New York: Free Press, 1978; reprinted, 1993). See D. T. Armentano, “Drawing the Line on Mergers: An Action Bordering on the Incoherent,” New York Times, July 27, 1986, p. C2. See Fred L. Smith Jr., “The Case for Reforming the Antitrust Regulations (If Repeal Is Not an Option),” Harvard Journal of Law & Public Policy 23, no. 1 (2000): 101–36. Molly S. Boast, acting director, Bureau of Competition, Federal Trade Commission, Prepared remarks before the American Bar Association, antitrust section, Washington, Spring 2001, http://www.ftc.gov/speeches/other/ boastmollys.htm. Noted in Chris Zook, “Amazon’s Core Problem,” Wall Street Journal, April 2, 2001, p. A22. Alan Greenspan, Testimony cited in John R. Wilke, “Greenspan Questions Antitrust Efforts: U.S. Handling of Mergers Worries Fed Chairman; Microsoft Is in the Air,” Wall Street Journal,June 17, 1998, p. A2. Quoted in Ibid. See John R. Wilke and Bryan Gruley, “Merger Monitors: Acquisitions Can Mean Long-Lasting Scrutiny by Antitrust Agencies,” Wall Street Journal, March 4, 1997, p. A1. Federal Trade Commission, “FTC Appoints Monitor Trustee in AOL/Time Warner Matter,” Press release, February 26, 2001, http://www.ftc.gov/opa/2001/02/montrust. htm. Bork, p. 269. See Rothbard, p. 61. See Ronald H. Coase, “The Nature of the Firm,” Economica4 (1937): 386–405. George Bittlingmayer, “The Economic Problem of Fixed Costs and What Legal Research Can Contribute,” Law and Social Inquiry 14, no. 4 (Fall 1989): 739. See Fred S. McChesney, “Be True to Your School: Chicago’s Contradictory Views of Antitrust and Regulation,” in The Causes and Consequences of Antitrust: The PublicChoice Perspective,ed. Fred S. McChesney and William F. Shughart II (Chicago: University of Chicago Press, 1995), pp. 323–40. As noted in John Wenders, “Predation’s Problems (Continued),” CEI UpDate,December 1998, p. 3. George J. Stigler, The Economist as Preacher and Other Essays (Chicago: University of Chicago Press, 1982), p. 52. Donald J. Boudreaux and Andrew N. Kleit, How the Market Self-Polices against

33.

34.

35. 36. 37. 38.

39. 40. 41. 42.

43.

44. 45. 46. 47. 48. 49. 50. 51. 52.

53. 54. 55. 56. 57. 58. 59. 60.

61. 62.

Predatory Pricing, (Washington: Competitive Enterprise Institute, June 1996). See George Reisman, Capitalisim: A Complete and Integrated Understanding of the Nature and Value of Human Economic Life (Ottawa, Ill.: Jameson Books, 1998), p. 400. Donald J. Boudreaux and Andrew N. Kleit, Cleaning Hands in Predation Cases: A Modest Proposal to Improve Predatory-Pricing Suits (Washington: Competitive Enterprise Institute, October 1996). Examples are from Robert E. Weigand, “Is It Time to Retire Robinson-Patman?” Wall Street Journal, June 20, 1986, p. A18. John H. Shenefield and Irwin M. Stelzer, The Antitrust Laws: A Primer, 2d ed. (Washington: American Enterprise Institute, 1996), p. 78. Texaco Inc. v. Hasbrouck, et. al., 496 U.S. 543 (1990), www.lexis.com. See, for example, Nick Gillespie, “Don’t Throw the Book at Superstores,” Wall Street Journal, April 23, 1998,p. A18; and Jim Milliot, “Indies File More Lawsuits against Chains, Publishers: Taylors Sues B&N and 17 Publishers While African-American Booksellers Take on Borders and B&N,” Publishers Weekly, January 4, 1999, p. 18. Gary M. Galles, “Small Book Stores’ Suit Seeks to Cut Chains’ Advantage,” Daily News of Los Angeles, April 6, 1998, p. N15. See Bork, p. 388. State Oil v. Khan,522 U.S. 3 (1997). The January 10, 1991, press release announcing the consent decree can be found at http://www.ftc.gov/opa/predawn/F93/kk-usa.txt, and the February 14, 1992, release announcing final approval may be found at http://www.ftc.gov/opa/predawn/F93/ kreepy-2.txt. Press release available on the Federal Trade Commission’s website at http://www.ftc. gov/opa/predawn/F93/nintendo.txt and press release announcing final approval of the consent decree at http://www.ftc.gov/opa/predawn/F93/nintendo-3.txt. http://www.ftc.gov/opa/1995/9505/reebok.htm, and final approval at http://www. ftc.gov/opa/1995/9507/reebok2.htm. http://www.ftc.gov/opa/1995/9507/onkyo.htm. Shenefield and Stelzer, p. 70. Complaint in the Matter of Capitol Records, Inc. d.b.a. “EMI Music Distribution” et. al. Docket No. C-3975, Federal Trade Commission, August 30, 2000. Bork, p. 307. Ibid. Standard Oil Company of California et al. v. United States, 337 U.S. 293 (1949). Tampa Electric Co. v. Nashville Coal Co. et al., 365 U.S. 320 (1961). For an overview of the Microsoft case and explanation of reasons for removing prohibitions on tying, see Robert A. Levy, “Microsoft and the Browser Wars: Fit to Be Tied,” Cato Policy Analysis no. 296, February 19, 1998, http://www.cato.org/ pubs/pas/pa-296es.html. International Business Machines Corp. v. the United States., 298 U.S. 131 (1936). Bork, p. 373. Ibid., p. 379. Eastman Kodak Co. v. Image Technical Services, Inc.,504 U.S. 451 (1992). See, for example, Bork, p. 379. See Michael Kinsley, “Book Bork, Browser Bork,” Slate,December 10, 1998, http:// slate.msn.com/Readme/98-12-10/Readme.asp. Bork, p. 372. See Steven C. Salop and David T. Scheffman, “Raising Rivals’ Costs,” AEA Papers and Proceedings 73, no. 2 (May 1983): 267–71. A recent popular treatment is “The Economics of Antitrust: The Trustbusters’ New Tools,” The Economist, May 2, 1998, pp. 62–64. Salop and Scheffman, p. 270. Donald J. Boudreaux, “Turning Back the Antitrust Clock: Nonprice Predation in Theory and Practice,” Regulation, Fall 1990, p. 49.

63. 64.

65. 66.

67. 68.

Robert Crandall, “Why is the Cost of Environmental Regulation So High?” Center for the study of American Business Policy Study no.110, February 1992. See Michael L. Katz and Carl Shapiro, “Systems Competition and Network Effects,” Journal of Economic Perspectives 8, no. 2 (Spring 1994): 93–115; and Steve Lohr, “Business Often Goes to the Swift, Not the Best,” New York Times, August 6, 1995, p. E3. “FTC Staff Proposes Reforms for Agency’s Competition Policy,” Bureau of National Affairs Antitrust & Trade Regulation Report 70, no. 1765 (June 6, 1996): 646. United States of America v. Microsoft Corporation,U.S. District Court for the District of Columbia, civil action no. 98-1232, Findings of Fact, November 5, 1999, http:// www.usdoj.gov/atr/cases/f3800/msjudgex.htm. See also Richard McKenzie, “Microsoft’s ‘Applications Barrier to Entry’: The Missing 70,000 Programs,” Cato Institute Policy Analysis no. 380, August 31, 2000, http://cato.org/pubs/pas/pa380es.html. Stan Liebowitz and Stephen E. Margolis, “The Fable of the Keys,” Journal of Law and Economics 33 (April 1990): 1–25. Stan Liebowitz and Stephen E. Margolis, “Policy and Path Dependence: From QWERTY to Windows 95,” Regulation 18,no. 3 (1995): 37.

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