best practice VOL 3 NO 1
Tax Increases and the Rise of Crime Cherishing Hong Kong’s Proud Tradition Lion Rock on the Competition Bill Jaywalking as a Demonstration of Individuality
A Public Policy Journal for Hong Kong
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BEST PRACTICE VOL 3 NO 1
2
From the Editor
22 Self-Regulation Versus Top-Down Regulation
3 Contributors
On Policy
Odds and Ends
4 Tax Increases and the Rise of Crime
26 Jaywalking as a Demonstration of Individuality
The smoking policy has hope go up in smoke
13 Cherishing Hong Kong’s Proud Tradition
James Lawson on the importance of entrepreneurship
14 Lion Rock on the Competition Bill
Associates discuss the ramifications
21 Canada’s Financial System: A New Global Model Mallika Narain suggests that some elements of Canada’s model are strong enough to be copied elsewhere
Jeff Levy explains the financial crisis and laws for regulating derivatives
Neville Kennard on being a good neighbor and a bad subject
27 The Obama Administration and US Foreign Policy
Jeff Levy marks the report card
30 Hong Kong and Economic Freedom
Critics say the Indexes miss the boat, but the implications of the Indexes aren’t to be ignored
EDITOR Nicole Idanna Alpert
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DESIGN & PRODUCTION Anita Chong
Best Practice Advisory Board James A. Dorn, Alec Van Gelder, Philip Stevens, Tom Palmer, Reuven Brenner, Gary Shiu, Richard Wong, Francis Lui, Shih Wing Ching, Donald J. Boudreaux
COVER ARTIST Josiah Henderson 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. The Lion Rock Institute welcomes reproduction of written material from Best Practice, but editor/author permission must first be sought. EDITORIAL OFFICE Room 1207 Kai Tak Commercial Building 317-319 Des Voeux Road Central, Hong Kong Submissions: Subscriptions: Fax:
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ARTICLE SUBMISSIONS 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 received. 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.
Editor’s Letter
A
discouraging government report released recently says that the number of daily smokers in Hong Kong has increased, while the number of legitimate cigarette sales has gone down. This suggests that, regardless of the tax on tobacco, the government’s current smoking policy isn’t working. Best Practice’s cover story, “Tax Increases and the Rise of Crime,” examines the smoking policy in Hong Kong, using other jurisdictions experiences as a helpful comparison. These days, anti-smoking groups suggest that if the Government continues to raise the tax, from 62 to 75 percent, it will be enough to get people to stop smoking. From someone who wrestles cigarettes from friends who are trying to quit, I’m not sure that continuing
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the tax will provide the assistance they need. The hope from anti-smoking groups is that people will stop smoking with greater costs, ignoring that illicit cigarettes are just a phone call away, and the fact that the 2009-10 tax increase didn’t mirror the intended effect. Raising tax merely pushes smokers to switch from legitimate to illicit products; taxing away an addiction won’t work, but education has been successful. While anti-smokers speculate that Hong Kong has a smoking problem, it behooves us to ask, “does Hong Kong have a problem with smokers?” since their rights aren’t being protected. Many people also assume that Hong Kong has a competition problem. In “Lion Rock on the Competition Bill,” the Institute’s associates’ perspectives are put forward, concluding that one cannot assume that a competition law promotes competition or consumer interests. Nevertheless, there is a widely held belief that there is something wrong with the state of competition in Hong Kong. That might well be, as the biggest monopolist is the government
itself. The government – including statutory bodies that compete with private entities – is the single largest inhibitor to competition; a large amount of complaints submitted to the Competition Policy Advisory Group, in fact, target the government. The Competition Bill would thus have no effect, given that distortions in competition are created by the government – instead, the law can only bring about increased administrative costs, mostly in legal fees. These would be borne out by consumers. The precipitous conclusion that a bill is needed leaves all of Hong Kong’s existing issues unidentified. In what is one of my favorite pieces thus far in Odds and Ends, “Jaywalking as a Demonstration of Individuality” is a light-hearted short on the adventures of crossing streets. In the Year of the Rabbit, whether crossing the street or considering increasing tax, look before you leap. Nicole Idanna Alpert Editor, Best Practice Let us know what you are thinking. Letters and submissions can be sent to best.practice@lionrockinstitute.org
Contributers The Lion Rock Institute The Lion Rock Institute is Hong Kong’s leading free market think tank. It was established in 2004 by Andrew Work, Andrew Shuen and Simon Lee. Today, the Institute works with Directors, research associates, fellows and scholars to provide better policies to the Hong Kong government. Learn more about Lion Rock at www. lionrockinstitute.org.
James Lawson James Lawson is a second year at the University of Oxford, reading Politics, Philosophy, and Economics. He is President of the Oxford Libertarian Society, Treasurerelect of the Oxford University Conservative Association and an Associate of the Adam Smith Institute.
Neville Kennard Neville Kennard, from small beginnings, expanded his family’s business into one of Australia’s biggest equipment hire and self-storage companies. Neville is semiretired, but very active. He lives part of the year overseas in Hong Kong, and is a CIS honorary fellow and Contributing Editor of Economics.org.au.
Mallika Narain Mallika Narain is a student at Columbia University, where she majors in EconomicsPolitics and minors in English. She is currently involved with a number of publications, 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.
Jeff Levy Jeff Levy is currently a student at St. Mary’s College of Maryland. Interested in Asian affairs and economics, he recently studied in Hong Kong at Lingnan University and interned at The Lion Rock Institute.
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Tax Increases and the Rise of Crime The smoking policy has hope go up in smoke
Nothing is more destructive of respect for the government and the law of the land than passing laws, which cannot be enforced. It is an open secret that the dangerous increase of crime in this country is closely connected to this. -Albert Einstein on the Volstead Act1
A
n examination of many incidences of government supply-side intervention leads to the conclusion that government attempts to completely wipe out or limit the supply of a substance have severe, albeit unintended, consequences. Often unforeseen by policymakers, such actions cause the emergence of a criminal class able to circumvent 4
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government control. This is largely because governments, by nature, are incapable of perfect law enforcement. Accordingly, as Hong Kong’s recent tobacco policy has been to increase its tax rates on cigarettes, the incentive to smuggle cigarettes has increased. As such, by undergoing a thorough historical and economic analysis of the legislation limiting various substances and developing a proper framework for understanding the incentives that underlie criminal activity, the socially optimal policies concerning a tobacco tax are discovered. Upon examining the proliferation of smuggling, policymakers have often overlooked the spillover effects resulting from criminal
activity. Correspondingly, this paper takes into consideration both the relevant constraints faced by government and the effects of legislation on the populace. As becomes evident upon examining the available evidence, to deal with smoking problems, the most desirable government response for 2011-2012 is to avoid all and any tax hikes. With the implementation of a minimum wage in May 2011 expected to cause substantial unemployment, criminal activity will thus become a far more attractive pursuit for those without work. Given the outcomes seen in past experiences and the labor market effects of the impending minimum wage, implementation of the current proposals concerning cigarette tax increases will render disastrous consequences.
Taxing our way to fix social ills In an ideal world, the government is wholly capable of eradicating every genre of crime, and the government would accordingly fix every problem faced by society, with bad habits either prohibited or taxed away. Only then would there be no reason to investigate the effect of an increase in the tobacco tax on smuggling.
ON POLICY
However, the lesson to be taken from all incidences of supplyside intervention, regardless of the substance to be controlled, is crystal-clear; whenever the government attempts to alter supply, in the absence of perfect enforcement, a class of criminals will emerge who bypass the government’s control and profit from artificially reduced competition. For instance, prices after prohibition are typically stratospherically higher, as it is impossible to stop addiction simply by administering a fiscal policy. Hong Kong has not implemented the extreme policy of banning cigarette smoking, but the economic effects are similar. The higher the tobacco tax, the greater is the incentive to smuggle cigarettes. For an open economy with a mobile population like Hong Kong, raising the tobacco tax will almost certainly bring in torrents of contraband cigarettes, as the increased number of customs seizures post the 2009 tax increase details. Apart from a basic cost-benefit analysis of a change in taxation, policymakers and law enforcement officials often overlook the longterm effects of the spillover of criminal activities caused by an expansion of a smuggler’s chain. According to Hong Kong media, ordinary citizens with little prior contact with criminal networks have been recruited to smuggle and distribute cigarettes, especially children and teenagers. It is not
unreasonable to expect that once one starts working within a smuggler network, he or she may remain in the industry. When policymakers opt for a tax policy to deal with the moral and health issues of cigarettes, they are pursuing the most bureaucratically convenient avenue. Although the tax may lessen political pressure from advocacy groups,
that time, the tobacco tax is increased, the effect on criminal activity will worsen, as more people seek employment in the black market as a means to make a living. These social and criminal considerations indicate several future consequences of an increased tax. Recent increased tobacco smuggling rates, coupled with a changing job market,
With the implementation of a minimum wage in May 2011 expected to cause substantial unemployment, criminal activity will thus become a far more attractive pursuit for those without work. policymakers must admit the reality that the government cannot regulate perfectly; resources are always scarce and resource employment must therefore be prioritized. When the Hong Kong Government raises taxes on tobacco, it must be prepared to deal with the potential negative consequences, specifically the increased incentives created for smuggling tobacco. Increased crime rates and customs seizures have accompanied past tobacco tax increases. Hong Kong’s minimum wage will also be implemented soon, and those in lower income groups are likely to be hit hardest. According to economists, many jobs will be displaced, leaving thousands unemployed. If, at
support a proposal to discard the proposed tax increase for 2011 and permanently discontinue Hong Kong’s increasing tobacco tax trend. Government officials are often under pressure from anti-tobacco advocacy to “do-something” about smoking, even though actions may often result in consequences that worsen the situation. But after reviewing the experiences of prohibiting various substances, using the Prohibition as an example, and a framework for the nature of crime, the perspective on what the Government should not do in regards to the tobacco tax is convincing, taking into account the constraints faced by the Government and how the populace would be affected. BEST PRACTICE
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The Noble Experiment Since its initial formation in 1789, the Temperance Movement promoted the idea that government actions should be taken because excessive use of alcohol damages physical and psychological health, which led to alcohol prohibitions in many jurisdictions, especially the infamous Prohibition in the United States. In the second half of the 1800s, organized movements, such as the Prohibition Party and the Woman’s Christian Temperance Union, formed with the intent of banning alcoholic drinks via the means of education and political influence. Beginning in the 1850s, the Temperance Movement gained enough momentum to give rise to various alcohol bans 6
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imposed at state and county level. Prohibition was heightened as a central political issue for state and local level politics during the period. Prohibition supporters, nicknamed the “Drys,” largely consisted of social conservatives with strong religious orientations. Tea merchants and soda fountain manufacturers joined forces with the Drys as they believed that an alcohol ban would increase consumption of their products.2 The Prohibition, also known as The Noble Experiment, was a nation-wide ban on alcoholic drinks, which began in 1919 with the Eighteenth Amendment. Almost a year later, the National Prohibition Act, informally known as the Volstead Act, extended prohibition legislation,
including specific penalties for producing intoxicating liquor. The Volstead Act, much like other acts of prohibition, allowed consumption but prohibited the sale, manufacture, and transport of alcohol, within the United States. Distilleries and breweries in Canada, Mexico and the Caribbean immediately flourished as a result. The Canadian city, Windsor, Ontario, became a major location for alcohol smuggling and gang activities. The waterways separating Windsor and Detroit developed into a channel for the smuggling of approximately 75% of the alcohol consumed in the United States during the Prohibition, as 25% of Windsor’s citizens were involved in rum-running, i.e., smuggling of alcoholic drinks on waterways.3
ON POLICY
Sarah Deer
Alcohol was smuggled across the border by people who normally were not associated with criminal activity, including families traveling with children.4 Before the 1920s, gang activities in the US were primarily confined to theft and gambling, but the Prohibition created an entirely new job market. Gang leaders like Al Capone and his enemy, Bugs Moran, made huge profits by controlling speakeasies, popular establishments that sold the newly prohibited substances. Although lucrative alcohol profits decreased after the Prohibition, gangs diversified into other illegitimate industries with much ease, including the distribution of other illegal substances and activities, such as gambling, extortion, loan-sharking, and prostitution, just to name a few. The success from bootlegging radically transformed the pattern of organized crime in the US by inducing the creation of the well-connected American Mafia. According to an estimate in 2002, the Mafia earned at least USD$50 billion per year.5 Furthermore, the Prohibition resulted in a loss of lives and many other tragedies. Contrary to the
popular belief that the Prohibition would alleviate alcoholism, this period experienced soaring rates of alcoholism, with increases over 300% commonplace.6 Many consumers, instead of practicing abstinence, began consuming lower quality alcohol supplied from the black market. Gangs figured that they could use industrial alcohol, a grain alcohol containing harmful chemicals, as a cheap substitute. They hired chemists to “denature� the alcohol in order to render it drinkable. As a reaction, the US Government attempted to discourage the practice by adding even more harmful chemicals to substances which could be used for
societal cost far worse than the initial problem of alcoholism, which affected relatively few before the onset of the policy. If the Drys of the Temperance Movement had the foresight to be aware of the negative consequences, they might have tried to use an entirely different approach.
New York’s tobacco tax Anti-tobacco lobbies promote cigarette taxes because of public health concerns and cite decreased sales of taxed cigarettes as proof of efficacy. While counterfeit cigarettes require the same raw materials to be used in the production of legal products,
Tea merchants and soda fountain manufacturers joined forces with the Drys as they believed that an alcohol ban would increase consumption of their products.2 bootlegging, including kerosene, gasoline, and acetone. However, chemists continued attempting to denature toxic alcohol because gangs offered generous compensation. People continued to consume bootlegged alcohol, and subsequently, hundreds died from poisoning.7 The Prohibition, from 1920 to 1933, temporarily decreased the consumption of alcohol of the average American. However, this well-intentioned idea to curb the alcohol supply bred crime, and at the end of the day, posed a greater
many studies have found that they are contaminated with sand, plastic, and other packaging materials. Illicit cigarettes have also been found to have higher concentrations of heavy metal and tar. These studies suggest that counterfeit cigarettes pose a greater health risk than regular cigarettes.8 If consumers are purchasing cigarettes through the black market, a low cost alternative, it is questionable why anti-tobacco lobbies continue to push for this failed method. In New York, tax hikes in BEST PRACTICE
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the early 1960s created a major profit opportunity for smugglers, thus exacerbating the illicit epidemic. It is estimated that, by 1967, a quarter of the cigarettes consumed in the New York area were bootlegged. New York City’s finance administrator labeled cigarette smuggling as the “principal stoking facility of the engine of organized crime.” Indeed, crime caused by high cigarette taxes was not confined to New York’s borders. Trucks carrying cigarettes across the country were hijacked and businesses selling cigarettes were robbed to supply New York’s black market. In 1972, the chairperson of a New York commission told Congress that retailers and other workers were “confronted almost daily with the risk and dangers of personal violence which are now inherent in their industry.”9 The government responded to the increase in smuggling by expanding police powers of search, seizure and mandatory
prison sentences. The state commission found the crackdown to be “completely ineffective and a failure.” Following the unsuccessful enforcement attempts, desperate state officials formed a special task force for the purpose of abolishing the city's cigarette excise tax. In 1973, Governor Malcolm Wilson endorsed the idea: One major incentive to organized crime is the high New York City cigarette taxes, piled on top of the state tax, which has made that city the Promised Land for cigarette bootleggers. Runaway inflation in the 1970s increased cigarette prices and decreased the impact of the fixed excise tax. The profit margin of smuggling declined by more than 40%, thus greatly reducing bootlegging and other related crimes. Lawmakers in New York, however, began raising the cigarette tax again in the 1980s, with more tax hikes followed in the 1990s.
City and state records of taxpaid cigarettes, however, show plummeting sales, despite stable smoking rates. In 2002, the Bureau of Alcohol, Tobacco and Firearms pointed out, “traditional organized crime is involved, terrorist groups are involved, and street gangs are involved.” When New York City police discovered a smuggling ring in 2005, they uncovered a multimillion-dollar flow of funds from New York City to unknown individuals in the Middle East. This distortion diverted billions of dollars from lawful businesses to criminals. The enormous potential profits from smuggling cigarettes into New York have lured numerous willing participants. To earn and protect illicit profits, criminals have engaged in a host of violent activities, including murder, kidnapping, and armed robbery. Higher tax rates create incentives for avoidance, evasion, and black market activity, similar to those incentives created by the Prohibition.
Changes in tobacco duty and duty free concession in Hong Kong since 1997
8
1997 / 1998
Duty rate is 723 per 1000 cigarette sticks
1998 / 1999
Duty rate increased to 766 per 1000 cigarette sticks, or a 5.95% increase
1999 / 2000
No change in the regime
2000 / 2001
No change in the regime
2001 / 2002
Duty rate increased to 804 per 1000 cigarette sticks, or a 4.96% increase
2002 / 2003
Duty free concessions for residents reduced to 60 from 200 cigarette sticks
2003 / 2004
No change in the regime
2004 / 2005
No change in the regime
2005 / 2006
No change in the regime
2006 / 2007
Duty free concessions for visitors reduced to 60 from 200 cigarette sticks
2007 / 2008
No change in the regime
2008 / 2009
No change in the regime
2009 / 2010 2010 / 2011
Duty rate increased to 1206 per 1000 cigarette sticks, or a 50% increase ?
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ON POLICY
Since the establishment of the Hong Kong Special Administrative Region (HKSAR), the duty rates for tobacco products have increased on three separate occasions: in 1998/1999, in 2001/2002 and in 2009/2010, with the latter marking the most drastic increase. In February 2009, the tobacco tax in Hong Kong rose 50% from HKD$0.80 per cigarette to HKD$1.20, or an extra HKD$8.00 per pack. This tax hike, like most tobacco taxes, was implemented in order to decrease smoking. According to basic economics, a tax should shift the supply curve up, thus causing a decrease in the market quantity and an increase in market price. Price elasticity measures the responsiveness of quantity demanded given a change in price. If smokers have low price elasticity, known as inelastic demand, then an increase in a cigarette tax would have a small effect on the smoking rate. “I don’t think it’ll make any difference to most people who smoke,” in the words of one smoker.10 There are doubts concerning the efficacy of a tobacco tax because for some, the price difference will have an insignificant effect. The tax would merely raise tax revenue and leave the tobacco consumption relatively unaffected. The tax may then be a fruitful revenue raising policy, but an unsuccessful way to discourage smoking. Despite the addictive quality
of cigarettes, smokers are, in fact, somewhat sensitive to price changes. Nevertheless, an elastic demand does not necessarily imply a decrease in cigarette consumption. There may be a decrease in the quantity of taxed, legitimate cigarettes due to substitutions made by smokers. A smoker could offset costs by increasing the bang for his buck per cigarette. Studies have found that smokers may inhale more of the smoke, or smoke a cigarette longer, to receive as much or more tobacco and nicotine from each cigarette. According to a study in Taiwan, participants responded to increased cigarette prices by smoking each cigarette more fully. Another study, conducted in the US, found that price changes could induce a smoker to switch to higher tar and nicotine cigarettes to offset a reduced frequency of smoking.11 Smokers in any geographical location face similar physiological addictions to cigarettes and, thus, these types of simple substitutions made by Hong Kong smokers would be unsurprising. However, substitution effects also exist in the extralegal market for cigarettes. As seen in the aforementioned cases of prohibition and taxation, an artificial alteration of the supply inevitably gives rise to a black market for goods. According to a local news report, illegal cigarettes from the Mainland are being sold for as little as HKD$6.00 a pack, a price less than the total tax of one pack (HKD$8.00).12 If the
Andy Mangold
Hong Kong’s tobacco tax
alternative is cheap and convenient enough, tobacco users could easily substitute, using illegitimate means to fill their tobacco addiction. According to a survey conducted by a contraband cigarette control concern group after the tax hike, 68% of smoking respondents said that they bought illicit cigarettes for the first time after the tax implementation. As many as 55% of those who never bought illicit cigarettes expressed that they might turn to the black market for cigarettes if the tobacco duty increases again. Only 17% of the smokers had attempted to quit.13 Individuals are joining organized crime networks to profit from the high tobacco taxes. A spokesperson of Hong Kong Customs stated that the rise in profit margins from selling illicit cigarettes might have contributed to the increase in illegal activities.14 Among those arrested in the illicit cigarette trade, the eldest person was 95-years-old, and the youngest was 11-years-old. These offenders are also the eldest and the youngest who have been arrested BEST PRACTICE
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in Hong Kong’s enforcement history. In one case, an eleven year old and his mother were arrested when carrying 820 cigarettes into Hong Kong at Sha Tau Kok. While the child was not charged for a criminal offense, his mother was fined HKD$2000. Children are being exploited for their innocence because they look less suspicious and face weaker, if any, punishments if caught. Young participants are often caught trying to smuggle cigarettes into Hong Kong across the border from mainland China.
efficient operation for the peddling of illicit cigarettes. Organized crime networks, it has been said, have been leaving promotional leaflets in public housing estate mailboxes and providing order-by-phone delivery service. In March 2009, shortly after the implementation of a tax increase, the Customs and Excise Department set up a team of fifteen staff members to manage the order-by-phone sales of illicit cigarettes. In the first nine months of operation, there were only 54 cases of successful crackdowns,
Whenever the government attempts to alter supply, in the absence of perfect enforcement, a class of criminals will emerge who bypass the government’s control and profit from artificially reduced competition. Many senior citizens that have been arrested were individuals attempting to sell illicit cigarettes. Besides the smuggling of illicit cigarettes, peddling of these goods is another area that poses challenges to law enforcement. Some newsstands, which used to carry only legitimate goods, have been approached by bootleggers to offer their clients illicit imports. Sales receipts dropped more than 30% in the first year of the tax increase, creating a more appealing environment for small business establishments to carry illicit cigarettes.15 Modern communicative technologies and a high population density have also led to a more 10
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an average of six per month.16 It is doubtful that law enforcement can successfully cope with an increasing trend brought about by further tax increases. Recent discoveries have revealed that the organized crime networks have been using Hong Kong as a central hub for international operations. In August 2009, the Customs and Excise Department had a case in which illicit cigarettes were posted as parcel from Hong Kong to the United Kingdom. Most reported cases of large quantity illicit goods entering Hong Kong involved forms of transport, especially trucks traveling between Hong Kong and Southern China. In November
2010, the Hong Kong Police Force cracked down on a storage unit for illicit cigarettes in Cheung Sha Wan and arrested a Vietnamese national. While the quantity of cigarettes uncovered was not particularly large, it is believed that the storage belongs to an international network with production bases in Guangxi and distribution centers in Hong Kong.17 It is also reported that tobacco manufacturers in Guangxi have long been a major source of supply for the Vietnamese illicit cigarette cartel and operate in other Asian locations, such as Singapore and Malaysia. The size of the illicit cigarette black market is estimated to be more than HKD$4 billion, while the revenue from the cigarettes sold in normal markets is valued around HKD$5.4 billion.18 However, the actual number of cigarette seizures involved 55 million sticks, which is an insignificant portion of the estimated size of the current black market. It is certainly relevant to explore whether an increase in the tax rate can significantly increase the already high amount of illicit cigarettes. Three months after the tax rate increase, customs officers detected 639 cases of illicit cigarettes being smuggled into Hong Kong, a 90 percent increase from the same period the previous year.19 This increase in detected smuggling cases may be due to an increase in effectiveness of the Customs Department. This explanation, however, seems
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unlikely since any large-scale improvement in customs protocols is costly and annual government expenditures in the Customs and Excise Department have remained fairly constant over this period at 2,308,147 (2008), 2,485,416 (2009) and 2,509,384 (2010).20 A dramatic increase in the number of uncovered contraband cigarettes serves as a strong indicator that more legitimate cigarettes are being substituted for bootlegged versions. Furthermore, the last large tobacco tax increase from the early 1990s failed to reduce both the number of smokers and incidences of smoking in Hong Kong.21 In fact, smoking rates actually steadily increased throughout the 1990s. Despite the lack of evidence concerning current tobacco consumption, there is overwhelming evidence that there has been a marked substitution away from taxable cigarettes, which offsets the expected effects on government revenue of a per-unit tax increase. Cigarettes are addictive, which is why an artificial alteration in the market, like the tax, cannot reduce rigid consumption levels.
1 Minimum wages reduce employment opportunities for less-skilled workers, especially those who are most directly affected by the minimum wage. 2 Higher minimum wage tends to reduce rather than to increase the earnings of the lowest-skilled individuals. 3 Minimum wages do not reduce poverty, but the effects are primarily redistributed income among low-income families. 4 Minimum wages hinder the acquisition of human capital, thus might have adverse longer-run effects on wages and earnings.22 Francis Lui Ting-ming, professor of economics at the University and Science and Technology, found that of the approximately 314,600 workers earning less than HKD$28 an hour in Hong Kong, between 50,000 and 100,000
will lose their jobs when the minimum wage legislation goes into effect. The chairwoman of the Provisional Minimum Wage Commission, Teresa Cheng Yeukwah, predicted that a minimum wage of HKD$28 per hour would turn the number of companies who currently are making profits into entities that have profit losses, affecting 0.9 per cent or 1,700 Hong Kong companies that employ approximately 70,000 workers. Given prior experiences of other nations with similar legislation, unskilled and lowskill laborers will be most affected by the new policy. According to the estimation by the Liberal Party, at least 30,000 laborers might be replaced or their job will be permanently displaced. Furthermore, a number of workers who remain employed will bring home less spendable income when they surpass the MPF mandatory level of contribution with the minimum wage rate at $28 per hour. With less income, and unemployment and inflation on the rise, Hong Kong is in a vulnerable position. If the government increases the tobacco duty in 2011, some of these John McNab
Minimum wage and the labor market
HKD$28 enforced by the second quarter of 2011. David Neumark and William Wascher, renowned scholars on the issue of minimum wage, reviewed existing studies and then put forward hypotheses valid in this situation:
Special attention should be paid to the labor circumstances in 2011, which will complicate the illicit cigarette trade. The minimum wage legislation was passed in Hong Kong in July 2010, with the statutory hourly minimum wage of BEST PRACTICE
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displaced laborers may join the illicit cigarette trade as smugglers or peddlers. When the implementation of the minimum wage affects employment, the average salaries of the lowest income class will decline. This decrease in wealth for low-income persons will likely affect the consumption pattern of cigarettes. It is probable that there will be increases in both the demand and supply of illicit cigarettes by this group.
Conclusion The high duties which have been imposed upon the importation of many different sorts of foreign goods, in order to discourage their consumption, have only served to encourage smuggling. -Adam Smith, The Wealth of Nations Professor Tai-hing Lam, a wellknown anti-tobacco advocate and the Chair Professor of the School of Public Health, The University of Hong Kong, argues that in order for the taxation to create an obvious reduction in the smoking population, the tax rate on tobacco products needs to be at least 75% of the market price.23 According to the survey conducted by The Hong Kong Census and Statistics Department from November 2009 to February 2010, smokers comprise 13% of the adult population. Compared to a similar study conducted in 2007 and 2008, there is no significant 12
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change in the percentage of smokers in Hong Kong population, even after the drastic increase in duty on tobacco products. The period in which this survey was conducted was characterized by duty paid cigarette sales suffering a drop of approximately 20%. However, because the number of smokers remained about the same and smoking incidence increased, smokers must have been increasing their consumption of the illicit supply of cigarettes. Any increase in the consumption tax creates additional incentives for illicit trade. Nevertheless, in response to calls by anti-tobacco advocacy for higher tobacco duties, the Secretary for Food and Health, Dr. York Chow, has made it explicit that the government will consider further increases in the tobacco duty subsequent to the drastic increase in Fiscal Year 2009/2010.24 Some argue that smokers drain valuable resources from public health care systems, which is a valid concern. Governments must carefully allocate scarce tax dollars. The optimal solution to the problem is, however, to design a health care system that creates an incentive for people to take preventative measures to stay healthy, rather than taxing those substances that are harmful. When people perceive that it is relatively more costly to be sick, they will generally devote more resources towards maintaining their health. A responsible government has
the obligation to make clear various policy objectives, and the intended consequences of them, before crafting its approach to solving a public policy issue. Continuing to raise the tax on tobacco is not an effective way to decrease tobacco use, as seen by the experiences previously discussed. Moreover, the government must take into account the possible spillover effects of government action for the populace of Hong Kong. There is a recognized international criminal chain operating in Hong Kong from which ordinary citizens, when in their interest to do so, are trying to profit. In May 2011, the statutory minimum wage will be implemented in Hong Kong, which economists predict will result in a significant unemployment of low-wage workers. Unemployment within this group is likely, and thus, there is a greater likelihood of the unemployed to engage in criminal activity for income. With high levels of inflation predicted to continue rising from the monetary policy of the US, should the government create an environment that makes conditions relatively more attractive for people to take part in criminal activities, it will result in an untenable problem that hurts low-income families and low-wage earners by permanently expanding a class of workers dependent on an illegitimate and dangerous labor market for their livelihood. The Lion Rock Institute
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Cherishing Hong Kong’s Proud Tradition James Lawson on the importance of entrepreneurship
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ong Kong’s rapid industrialization was spectacular. It swiftly developed from a “barren rock” to overtake Britain by per capita income in 1992, the first colony to do so. The people had an entrepreneurial drive; they wanted to better their lives. The political conditions, while not entirely laissez-faire, allowed individuals to ascend without the burden of crushing government interference. As mainland China flirted with Socialism, Hong Kong’s then financial secretary John Cowperthwaite and his successors stubbornly resisted calls to intrude. The result was an economic miracle. Worryingly, it seems that Hong Kong may start to turn its back on its legacy. People are becoming more risk-averse, and it is coming into vogue to envy the successful. The Government isn’t helping either, with ever-increasing involvement in the economy and redistribution. Hostility towards the wealthy is driven by envy, perhaps from the belief that the rich are gaming the system. Indeed, some in business may have used political links to gain unfair advantages, while imposing barriers to entry for rival
firms, in the name of the public good. Such corporatist activity – the use of government to further the ends of individual businesses, rather than the public at large – is certainly reprehensible. However, much entrepreneurial profit is derived from legitimate market activities. In such cases, the view that the rich become successful at the expense of the poor – that their success is an injustice – is particularly corrosive and misleading. It is a fallacy to assume that there is fixed wealth; that if one becomes richer, then one must be taking from the poor. There is no fixed wealth in Hong Kong – the better the political conditions and the more successful entrepreneurial activity becomes, the more wealth can be generated. Wealth is not the cause of poverty; wealth is Hong Kong’s escape from poverty. Surveys of the young ominously show signs that Hong Kong’s great entrepreneurial spirit is waning. While many students would consider starting a business once they finish school, they perceive increasing obstacles. External threats are posed by strong competition from others (some
perhaps illegitimately supported by Government), high labor costs (which will only increase once the minimum wage is implemented), Government regulation (some encouraged by existing firms to create barriers to entry) and taxes. To reinvigorate Hong Kong’s entrepreneurs will require renewed attention to its proud and dynamic heritage. This can be assisted through education, giving students confidence, reviewing harmful policies and regulation, and encouraging ambition. Anticapitalist attitudes must not take hold. The government can help, paradoxically it may seem to most, by taking a step back. By removing impediments to entrepreneurship, Hong Kong can refine its competitive edge and unleash its full potential once more. The city must protect its tradition of free enterprise and love of success. James Lawson is a student at the University of Oxford. BEST PRACTICE
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Lion Rock on the Competition Bill Associates discuss the ramifications
Hans Mahncke on the nexus between competition law and land policy in Hong Kong Whenever new legislation is proposed, the pertinent question to ask is whether there is a problem which needs fixing. Does Hong Kong have a competition problem? On the one hand policymakers, academics and members of the public have argued for competition law citing lack of competition in sectors such as supermarket retail, petrol stations, as well as market concentration in the energy, telecoms, transport and construction sectors. On the other hand, there are those who argue that Hong Kong has fared well without a comprehensive competition law and that,
in many areas of economic activity the state of competition is poor and it is reasonable and necessary for this Council to consider remedies. Before agreeing on an effective remedy, the problems afflicting competition in Hong Kong need to be studied a bit more closely. There are two main areas which need to
Of course, the biggest monopolist, arguably natural, is the Government itself. therefore, the status quo should be maintained. However, there is a widely held belief in the community that there is something seriously wrong with the state of competition in Hong Kong. Reality bears out the public’s perception: 14
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be looked at, natural monopolies and non-natural monopolies. Energy, transport and telecoms all fall under the category of natural monopolies. That is to say that the market is naturally limited to a low number of participants. Thus, to
protect consumers and businesses, government regulation is desirable in order to ensure the best service at the lowest price. But while these sectors ought to be regulated and while it can be argued that the Hong Kong Government has not done a good job in regulating these sectors, they are best addressed through sector-specific legislation, as already done in the broadcasting and telecoms sectors. Natural monopolies do not justify a crosssector competition law. Of course, the biggest monopolist, arguably natural, is the Government itself. From the Hong Kong Mortgage Corporation, the Housing Authority, the Trade Development Council to the Urban Renewal Authority and many
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more, these are all Government or quasi-Government bodies, which, as we now know, have been exempted by way of clause three of the Competition Bill. Thus, the Competition Bill will have no
account of the unique situation we face in Hong Kong where we find a handful of families operating vertically integrated cartels. These are very serious issues affecting competition which this
Vagueness and ambiguity are not problems that are unique to this Competition Bill, they are problems inherent to all competition laws effect in fixing the distortions of competition caused by these bodies. This leaves private, non-natural monopolies or oligopolies. The most common grievances one hears about relate to the property, construction, petrol, supermarket and other consumer retail sectors. While it may not be immediately apparent, there is a commonality between these sectors: the land system in Hong Kong. While the nexus between the land system and the property sector is apparent, supermarkets and consumer retail are also affected as the restrictive land system prices potential competitors and market entrants out of the market. Similarly, the close connection between property development and construction in many cases means that these sectors operate in symbiosis, restricting competition. Can a cross-sector competition law help remedy competition problems in these areas? At first sight, and from a general perspective, it could, however, such broad analysis fails to take
Council must start addressing. But, of course, the commonality amongst all of Hong Kong’s operated oligopolies is that they attained their wealth, influence and power through property and they continue to exercise them through property. All these areas, building of new apartments, construction supplies and materials, shopping malls, supermarkets, ferries, buses and utility companies are either natural monopolies or dependant on availability and affordability of property. Thus the only question which this Council should ask itself is whether the Competition Bill should, or will have any effect on breaking up existing property based cartels? Let’s look at clause 21: Abuse of market power 1 An undertaking that has a substantial degree of market power in a market must not abuse that power by engaging in conduct that has as its object or effect the prevention,
restriction or distortion of competition in Hong Kong. 2 For the purpose of subsection (1), conduct may, in particular, constitute such an abuse if it involves— (a) predatory behavior towards competitors; or (b) limiting production, markets or technical development to the prejudice of consumers. The language used here is vague and indeterminate and my reading is that it would do nothing to contain, let alone, break up the property cartel. Vagueness and ambiguity are not problems that are unique to this Competition Bill, they are problems inherent to all competition laws, which is why they are an ineffective and inappropriate means of tackling the specific problems we face in the form of the property cartel. Thus, instead of wasting time and public money on this Bill, this Council should concentrate on what is really causing the competitive distortions in Hong Kong, namely the Government measures which aid the property cartel in the form of restricting land supply, discontinuation of the home-ownership scheme, lack of transparency in the land premium system, free land for certain parties and compulsory purchase of old properties to name a few. The solution to Hong Kong’s competition problems is not this Bill, rather it is reform of the land system. So long as the land system BEST PRACTICE
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remains as feudal, ill-transparent and inequitable as it is, competition will remain limited and this Bill will not change that.
Raymond Ho on hypocritical exclusions The Bill claims to hit monopolies but has hidden costs for Small Medium Enterprises (SMEs), while leaving the legal profession to benefit. The monopolies that we see in Hong Kong often come from the Government, such as the Trade Development Council (TDC). They have some very successful exhibitions, as the TDC has the best options available in the industry, with the best time slots, location, etc., whereas private operators cannot take the same advantages. Take as another example the MTRC. The Government is the largest shareholder and it will make use of the policy by eliminating the room for survival for other transport companies. Yet another example is the VTC, with subsidized public funds given for land to 16
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build campuses, but their courses duplicate those offered in the private education sector. These examples are just the tip of the iceberg. There are numerous policies and activities such as these, all of which are monopolies, and usurp economic freedom. If the Government wants to promote a free economy, first of all, it should regulate its own policies rather than enacting a piece of legislation that adds to the burden of the SMEs without any effect to that which it first targeted. Several barristers sitting in the Chamber, I think they’ve left now, Mr. Ronny Tong, Mr. Alan Leung and Ms. Tonya Chan
do you charge for legal advice; in the future, if a shareholder and associate is sitting down for lunch, and they are accused of collusion or price setting, and they come to seek advice from you, how much will you charge them? More than 95 percent of the SMEs will find that their costs will go up because of this Bill and hurt the free economy of Hong Kong. I hope the Government will withdraw this Bill and also require all the LegCo members with a legal background to abstain from discussion.
Andrew Shuen on vested interests in the Competition Bill Allow me to introduce the topic with the endorsement of the Minimum Wage Bill; it was endorsed by 54 votes. But, even before it was implemented, the Café de Coral incident occurred. People said the restaurant used aggressive tactics to suppress the wages of the “grassroots.” We see that there are problems if a Bill is rushed in its passage, because in the end, the people that are supposed to be protected by
More than 95 percent of the SMEs will find that their costs will go up because of this Bill. [Legislators had left the room after a deputation beforehand], I don’t know whether or not they could answer this question: how much
the legislation are harmed. You will have to be very careful and thorough in vetting this legislation. You should not allow quick passage
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of flawed legislation, rather than creating a good piece of legislation after careful consideration. On May 11 2006, as reported by Apple Daily, Hong Kong is an advanced economy, and the article said that we should not lag behind economies in the West. But, we should not have the SMEs suffering. We should learn from others, and a lot of barristers stop practicing after they become parliamentary members. Shall it be the same in Hong Kong, that is, barristers should stop practicing after they become lawmakers to avoid conflict of interests? As seen from examples abroad, such as in the US and the UK, Competition Law isn’t effective in combating anticompetitive behavior, and thus, the only people who end up benefiting are the lawyers who take on litigation cases. Here, there are vast special interests. We have covered the possibility that some lawmakers aim to protect their law firm or other interests, or stand to benefit from these cases. Thus, these vested interests would undermine the credibility of the Legislative Council. Those lawmakers and barristers should make a recorded oath, and any of those involved in/directly, should make the same declaration of interest. Those involved and in the Bill’s committee should withdraw so to not benefit from the law. There is much to be gained by lawyers from the Competition Bill. Those lawyers should also withdraw from the Bills Committee. If they are truly
impartial, they will not try to benefit from the law.
Simon Lee on the many Government statutory bodies With regard to exemptions, the Government should be more careful. As legislative councillors you have the responsibility to be gatekeepers when it comes to legislation, no matter how you were elected. In this Bill, there are thick exemption procedures. Both the public and councillors should find this unreasonable, and some have mentioned so already. In the spirit of common law, we won’t make a judgement before we hear the case. Some members have said that certain organizations are suspicious and may be acting anticompetitively. But we have to look carefully. Thus, the Government should not exempt its own statutory bodies. We are talking about 500 statutory bodies, but I will focus on the following: Productivity Council, Trade Development Council, Hong Kong Science Park, Hong Kong Mortgage Insurance Company,
Hong Kong International Theme Company Ltd., Hong Kong Railway Corporations, Hospital Authority, Hong Kong Examination and Assessment Authority, Hong Kong Art Centre, Hong Kong Sports Institute, VTC, English School Foundations, Employee Retraining Board, All tertiary institutions, Hong Kong Jockey Club, Permanent Chinese Cemetery Association, Chinese Temple Association, Urban Renewal Authority, Hong Kong Airport Authority, Hong Kong Stock Exchange, RTHK, Hong Kong Post, Water Supplies Dept., Arbitration Center, and so on. First, they are statutory bodies, but engage directly in economic activities, competing with the private sector. Second, they are funded with public money, or receive support from the Government, or protection, but make use of public policy to take part in economic activities even though there are other organizations that can provide similar services in the private sector. Councillors should look closely because you shoulder the responsibility of being the
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gatekeepers. The Government shouldn’t be the authority on who can and cannot authorize exemptions. This is what should be done under the Basic Law. I hope you can consider the organizations I mentioned, and decide if they should be exempted.
Andy Yeung on Government monopolies I used to study in the UK and shop at large supermarkets for groceries. Yes, like Hong Kong, the UK has big supermarkets as well, but in the UK, there is an anti-competition law. This should give us pause, especially when talking about a competitive industry like grocery shopping. One thing that is important to note is that in Hong Kong, the
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Government monopolizes many things. If you live in these two districts, you will be familiar with the following example. After the Tseung Kwan O (TKO) line was commissioned, the Government cut many bus routes serving the area. This policy was a poor one. In Tin Shui Wai, when the West Rail was commissioned, there is a very similar story. The alignment of the West Rail is inconvenient for most passengers. It still takes a long while for them to get to the urban areas. If I take a bus, for example, I can reach Central in 45 minutes; why would people take the West Rail? The situation is worse if I travel to Tsuen Wan. Before the West Rail, it did take a long time to get to Tsuen Wan. Now, with the West Rail,
the transportation has become even more inconvenient. Don’t ask me to take the West Rail, as the terminal station is far from where I want to go. Thus, allow me to ask the Government: what kind of policy is this? If the Government wants to legislate against anti-competitive conduct, the Government must review its own policy first, as it takes the lead to monopolize. In the past, the bus companies’ arrangement was terrible. When people wanted to travel from Tin Shui Wai to the urban areas, one could not get off at Tuen Mun. The Government is living in a virtual world. I hope that the Government thinks twice. Is the Government promoting anti-competitive conduct?
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Nicole Alpert on the undefined aspects A great joke on competition law centers around a judge who rules that God is in violation of antitrust laws, and is ordered to be broken up into several less powerful deities and demigods. The judge says, “The evidence has convinced me that God has willfully thwarted competition from other deities, promoting His worship with such unfair scare tactics as threatening non-believers with eternal damnation. In the process, He has carved out for Himself an illegal ‘monotheopoly.’” The joke highlights a couple of issues about competition that we speak of today. The exemptions are pure hypocrisy. Anti-competition can best be defined as government attempts to limit market participation – and the exemptions work in the opposite direction of the said goal. To boot, the law is extremely vague. Taking a quick look at competition law in the UK – Peter Freeman came to speak on this, he mentioned how stringently the UK pursued cases, but its grocery store sector remains very similar to Hong Kong’s. After years of investigation in the UK and millions of dollars spent, they found no fundamental problem with competition in that sector and left it as it was found, with a few players holding a large share of the market. This demonstrates first and foremost that market share is not easy to define, and might not
be as problematic as it is rumored. Second, it highlights the fact that with or without competition laws, the two markets remain similar. Third, the high administrative costs and compliance costs seem to outweigh any benefit – as in this case, there’s no benefit to be had. Mr. Freeman boasted about numbers and expenses in the UKs inquisition, and yet, it was for naught. So what was the point other than to make a few lawyers and investigators some cash. We’ve heard before from within this chamber that Hong Kong needs a competition law “because other economies have it.” A law’s usefulness has really got to be identified better than that, and we should expect more from our legislators. It’s hard to compare Hong Kong’s economy, a F1 racecar, to that of a lemon. To improve it, you wouldn’t replace its engine with the third place economy’s and give it the breaks from the second. In the same vein, you wouldn’t institute a law which was ill-defined, had high administration and compliance costs, and at the same time, had no proof of effectiveness. This brings up important questions into the principle of legal security and if they are being honored. The principle of legal security requires that law must be specifically precise to enable someone to be able to foresee the consequences that a given action may entail. That has been a very fundamental principle in Hong Kong, and it would be hard to look
at this law, and say that it is easy for people to know when their conduct will be in breach. There’s a question about whether this law is really certain enough, and other jurisdictions might say, “yes, we believe that this law is and that’s why we have one,” but if I ask you individually, will you really think so? If I asked you to look at other administration’s implementation of this law you wouldn’t be able to say so, as they swing in different directions with differing political parties in office. It’s not only a bad piece of law because it’s highly vague, but it’s impossible to confine some of these complex concepts to one definition. It is an active, changing, market, therefore, there is no one size fits all. If not even the all-knowing Almighty can second guess the market correctly – as God gave us, market participants, free will – it is impossible, as much as you might like to think, that legislators or the commission can do so. Regardless of the number BEST PRACTICE
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of examples of supposed “guilty” market transgressions, it will always be uncertain whether intensive competition will be wrongly persecuted as anti-competitive behavior – and what you would lose in opportunity cost you will never know. The law as it stands is overreaching and undefined. It does not set out to do the competition clean up it advises. It does not focus on Government actions, subsidiary bodies, land policy or otherwise. Thus, this kind of law won’t serve to benefit anyone but those barristers that will take on the cases.
Dan Ryan on ignoring economists Lion Rock would strongly recommend Legislative Council members read the selection of Lion Rock articles which have been published in leading newspapers in the last five years and explain in greater detail why the proposed law in our view is both flawed in law and economics. Allow me to highlight again the key economic and legal problems with the Bill. Whether a competition law or any law makes sense in Hong Kong is an economic question, proponents of the Bill in Hong Kong claim that the economic principles underpinning the law are not in dispute. This is simply a false claim. There are numerous noble prize winning economists and friends of Hong Kong who are clearly against 20
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these types of laws. Some have suggested that these economists are somehow out of date or obscure, and that no one listens to their wisdom anymore. I will further commit you to the headline of this Newsweek column, “The Triumphant Return of Hayek.” The Hong Kong Government has never stated why these economists are wrong, nor has it stated which economist it is relying when drafting the Bill. Nor has it provided any thorough costbenefit analysis. Instead, it has been listening to lawyers. I must ask, why would you get a butcher to make you a soup? Why would you speak to a cook on how to fix your car? Why then, would you defer to lawyers on competition law when the majority could not tell you much about economics? As to whether Lion Rock is a lone, eccentric voice on this issue, I would submit a recent piece by the Wall Street Journal. It says what LRI has been arguing all along: competition laws do more harm than good: 1 The only way monopolies and cartels arise is through government protection and support of particular industries. 2 The only way to get rid of cartels and monopolies is by removing government protection and support. Once you open a market, new competitors come in automatically. It doesn’t matter how capitalized an industry
is, whether you are talking airlines or stock exchanges. The flawed economics of the proposed Competition Bill is not only wrong in principle, but any decisions it makes will rely inherently on subjective economic judgements. Everyone knows that economists disagree about all sorts of things, but apparently, according to the proponents of this Bill, any judgement the competition law regulator will make about what is economically efficient, and what requires the tramping on contractual property rights is 100 percent correct. Thus, it is a bad law. In my view, there is no way that any lawyer can accept the Bill the way it has been drafted. For instance, the law contains a general prohibition on all agreements in Hong Kong which have the object or effect of preventing, distorting, or limiting competition. But the law famously does not define the word, “competition,” nor a number of behaviors that will be prohibited. There are numerous problems with this approach legally. The Government has spent over seven years considering the Bill, but still cannot define the aspects of it. The aim of the law is not to make sure the Government’s reach is unrestrained. Hong Kong owes its success to the fact that it has been able to avoid the creeping increase of the state, which has taken root in other economies in the world. The Lion Rock Institute
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Canada’s Financial System: A New Global Model Ian Muttoo
Mallika Narain suggests that some elements of Canada’s model are strong enough to be copied elsewhere
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ith financial regulation a frequented topic of political conversation over the last couple of years, it is certainly worth considering alternative models, especially the advantages of Canada’s financial system in a global context. Canada fared better than the average nation in the aftermath of the financial crisis, and it has managed to rebound more quickly as evidenced by Canada’s real GDP growth of 6.1% in the first quarter of 2010. Because of fiscal restraints on both federal and provincial governments, Canada’s debt-to-GDP ratio was relatively low. In addition, unlike in the US, where subprime loans made up 20 percent of bank mortgage portfolios, the figure was only 7 percent in Canada. With the nation’s corporate tax rate cut to
16.5%, compared to the US federal rate of 35%, Canada has taken on a competitive edge. Canadian Finance Minister Paul Martin started cutting income taxes in the 1990s, and corporate taxes in his budget a decade later, which set the scene for Canada’s new model. Although Canada’s recent slash of the corporate tax rate isn’t unique in what is now a global trend, there are quite a few elements of the Canadian set-up that are, and could be emulated elsewhere, for example, good financial supervision and a sound regulatory framework. Canadian banks are required by their regulators to hold at least 7% Tier 1 capital and 10% total capital – well above Basel requirements. Canadian deposit-taking institutions also have geographically diverse, lowcost retail deposit bases, which offer a ready source of cheap capital and provide stability for the entire system. There is a stable residential mortgage market and conservative leverage standards under this system. Prudent insurance companies contribute to Canada’s economic stability. For insurance, a single set of financial
reporting rules holds for investor results, capital requirements and prudential reporting. From an international perspective, continuing a spirit of global cooperation in the vein of the recent G20 meetings should be encouraged. Governments should thus emphasize reforms calling for higher amounts and improved quality of regulatory capital. In terms of national regulation, regulators must have clear mandates; having a single national regulator responsible for financial institutions should be a priority. Financial institutions should increase self-regulation by improving governance policies with a concentrated focus on Board oversight of risk management policies and practices. It is only in these ways that financial institutions can choose to avoid excessive risk. The economic crisis was a shock to financial systems worldwide – and a new model of financial stability encourages a consideration of different practices to improve regulation. Mallika Narain is a student at Columbia University. BEST PRACTICE
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Self-Regulation Versus Top-Down Regulation Jeff Levy explains the financial crisis and laws for regulating derivatives
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n 14 December 2008, investment services firm Lehman Brothers filed for Chapter 11 Bankruptcy protection, the largest bankruptcy in US history. This event caused widespread international recognition that the worldwide financial crisis had began, although the bursting of the US housing bubble in 2007 is now acknowledged as the initial event in the crisis. The 2010 European sovereign debt crisis, which has now affected Greece, Ireland, Italy, Portugal, and Spain, is a continuation of this
world economy, and the incentive structure faced by participators that caused and were affected by the financial crisis, can be changed to prevent that which caused the collapse of financial institutions. There are a multitude of factors to be noted when discussing what caused the worldwide financial crisis, several of which will be described here because they relate to, and provide the necessary background for, what will be discussed hereafter. The bursting of the US housing bubble was the event that triggered the crisis,
The role that government regulation played in affecting both the housing and financial sectors is highly relevant in discovering what went wrong, as such actions created new perverse incentives. crisis. The role that government regulation played in affecting both the housing and financial sectors is highly relevant in discovering what went wrong, as such actions created new perverse incentives. As such, the hope is that the 22
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as a sudden rise in interest rates caused many borrowers to default on their mortgage payments. Downward pressure on interest rates encouraged borrowing and, as the US Federal Reserve increased the Federal Funds rate, which likely
contributed to the bursting of the US housing bubble, interest rates became relatively more expensive for homeowners. Additionally, fraudulent underwriting practices for mortgages became widespread, especially around the collapse of the US housing bubble, leading to overvaluations of mortgages and problems in determining their value after the collapse. Sub-prime lending also became rampant, as loans were extended to borrowers, because of government intervention via Fannie Mae and Freddie Mac, who would not otherwise have been able to receive loans due to a weak credit history. What has come to be termed “predatory lending,” or extending “unsound” mortgages to borrowers, was actually encouraged by the US government. Furthermore, regulations that encouraged the sale of financial innovations previously
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considered to be too risky became commonplace due to a series of legislative and bureaucratic efforts including the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), the Garn–St. Germain Depository Institutions Act of 1982, the Financial Services Modernization Act of 1999, the US Securities and Exchange Commission alteration of the net capital rule. The increasing indebtedness of US financial institutions, enabled by the easy money brought about by low interest rates, certainly worsened the resulting economic downturn. Market risk also became inaccurately assessed, as interest rates and fees were not representative of their real value due to the distortions caused by government intervention, albeit other factors, in financial markets.
Economic insights The so called natural superiority of law (legal theory) over economics (economic theory) has been touted as absolute truth by some in the wake of the turmoil of the
generalization that economists had nothing to contribute does not hold up to scrutiny, especially considering that there were a
What has come to be termed “predatory lending,” or extending “unsound” mortgages to borrowers, was actually encouraged by the US government. variety of factors that caused the crisis rather than simply improper legal structures to regulate derivatives. Pointing to a single aspect of such a complex problem as the sole cause should give pause. Unfortunately, there are many commentators, both in academia and journalism, who believe their field to hold all the answers to any social problem that could possibly be addressed. As such, the relevant work of several economists and noneconomists who did, in fact, identify problems associated with the financial crisis before the system’s collapse will be briefly noted here. Nouriel Roubini, professor of economics at New
The history of betting and when it is proper to do so is thus highly relevant because of the nature of derivatives. financial crisis. While several lawyers have discussed problems in the US financial framework that caused the crisis, the sweeping
as he correctly described how plummeting home prices would cause economic collapse. Robert Shiller, professor of economics
York University’s Stern School of Business, had nearly all of his descriptions of the current economic crisis proven accurate,
at Yale University, foresaw the rapid decline in home prices and the inability of market prices to accurately reflect the degree of risk being taken on by investors. Although the majority of these individuals are trained
economists, they all provided insights into the nature of the problem prior to the collapse actually occurring, and their work certainly warrants attention.
The role of betting Furthermore, derivatives, clearly a problem of improper valuation and excessive riskiness in the crisis, are often simply defined as trading losses in financial instruments. A more accurate and thorough description, however, is a financial instrument that derives its value from the expected future price BEST PRACTICE
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Jerry Woody
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movements of an underlying asset. In short, a derivative is, essentially, a bet in which the person who made the less accurate prediction will pay the person who made the prediction that was more accurate. Understanding this alternative form of investment, named as such because it is not an investment product in traditional investment (property, bonds, and stocks), is key in understanding how the financial system collapsed, experiencing a widespread, systemic failure. The history of betting and when it is proper to do so is thus highly relevant because of the nature of derivatives. Recreational purposes, which characterize the traditional notion of gambling, have a place in society but must not be the basis of a financial system. Similarly, insurance plays an important role in modern societies, but the 24
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notion that something such as a home would be insured more than its value, as became the case with derivatives, rightfully seems absurd. Looking at the history of betting, how it has evolved and the role it plays in modern societies
In the Roman Empire, there were bets on such missions in addition to a variety of other activities involving high levels of risk. There were also laws pertaining to betting that allowed for selfregulation rather than the current system in place in the US and other industrialized nations today. Under the aforementioned systems, there were no legal restrictions on betting, but bets were not legally binding except in the case of insurance contracts. There was, therefore, no legal obligation to uphold a bet, although a natural obligation did exist that forced compliance for most participants. This led to the emergence of betting clubs, or what is now termed futures and options exchanges. Bets are thus confined in two fundamental ways, positive for those who were part of the contract and for a society as a whole. First, only individuals who could take part became involved
The so called natural superiority of law (legal theory) over economics (economic theory) has been touted as absolute truth by some in the wake of the turmoil of the financial crisis. can help shed light on why the financial crisis occurred, a situation in which betting did, in fact, get out of control. Since the time of the ancient Babylonians, there have been bets on the success of trading missions.
rather than, as is now the case, unwilling participants who have their assets unknowingly invested by others. Second, only the location in which bets are made is relevant because all those involved choose to abide by the self-regulatory
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framework when they entered into the “club� in order to make bets. Such structures worked well for those involved and prevented losses from occurring on a grand scale, as was seen in the financial crisis, even with the emergence of speculative gambling on commercial property.
functioning system were no longer adequate, and higher levels of control were deemed necessary. There is a clear and relatively simple means of dealing with the perverse incentives created by the modern regulatory frameworks imposed by governments on financial institutions, which have become common to developed
examination of its history, is the best means that has been developed to ensure that financial systems do not serve primarily as gambling centers but rather as a means to promote productive economic activity. In looking toward the creation of a future system that will not send false price signals, or
Only individuals who could take part became involved rather than, as is now the case, unwilling participants who have their assets unknowingly invested by others.
Learning from the past Coming to the present, the US Commodities and Trading Commission drastically changed the role of betting in the US, encouraging it on interest rates and currency speculation without any self-regulation because the Commission supposedly assumed the role of regulator. The legislation that changed this is the Commodity Futures Modernization Act of 2000 (CFMA), as similar legislation was passed in the UK along with several other developed nations. It appeared that past institutions that had, up until now, done a fine job of maintaining a relatively well-
nations such as the US. A common law system should be used to deal with the problems associated with the financial crisis, as it has proven successful in the past. Basically, this entails a return to the way things were, as competing business houses have never failed, but government houses did fail when the US Congress, in effect, tried to promote a single clearing house. This job has been done well when government played a more reserved role, as clearing houses developed a self-policing force for their industry. The simple, oldfashion common law approach has worked well and, upon an
Voluntary association, whereby individuals form into cooperatives that self-regulate, has been a workable system for dealing with what is, in effect, gambling.
encourage activity that could result in a systemic failure, topdown regulation is not a viable solution. Voluntary association, whereby individuals form into cooperatives that self-regulate, has been a workable system for dealing with what is, in effect, gambling. Creating a misunderstanding of risk, government did no good in creating a system that was destined for failure once an economic downturn took place. There are several successful models to examine and properly institute in the economies of nations and the modern worldwide economy as a whole. A return to the way things were, when self-regulation was the norm, must be re-instituted if the widespread collapse of financial institution is to be prevented from occurring in the future. Jeff Levy is a student at St. Mary’s College of Maryland. BEST PRACTICE
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Odds and Ends
Jaywalking as a Demonstration of Individuality Thomas Anderson
Neville Kennard on being a good neighbor and a bad subject
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n some cultures and countries jaywalking is frowned upon, not just by the policing authorities, but by the populace. The Germans are notoriously compliant to lights and lanes in their street-crossing culture, and the Japanese too. In parts of Asia there is very little compliance, and crossing the street can be a hazardous adventure to a new-comer. If you didn’t jaywalk in Vietnam or Thailand, you would not get across, yet there seems to be an anarchic order and it all works with few casualties. Trafficwatching in these countries is an anarchist’s delight. There is not much risk or inconvenience in “Responsible Jaywalking;” these individualists take responsibility for their own safety, and don’t interfere to any noticeable degree on the flow of traffic or the convenience of drivers.
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As an advocate of Responsible Jaywalking, I see in it a healthy display of Responsible Civil Disobedience and Respect for Self Ownership. Are there rules for Responsible Jaywalking? Well, yes, anarchists can have rules too: 1 No threat to your own wellbeing, 2 No disruption, inconvenience or alarm to drivers and traffic, 3 Courtesy and good manners; and 4 Don’t get caught by the revenue-raising Jay-Cops. I like the words and idea of Henry David Thoreau, the American libertarian and non-conformist of the nineteenth century, who advocated being “a Good Neighbor
and a Bad Subject.” Compliant, subservient subjects make good cannon-fodder, voters, tax-payers and red-tape cripples. The government likes its citizens to be “good subjects.” Bad subjects in the jaywalking arena take quiet satisfaction in their responsible civil-disobedience while maintaining the “good neighbor” approach to their fellow road users. Perhaps next time a “blitz on Jay Walkers” is proclaimed, there can be an uprising of responsible and courteous jay walkers to confuse and confound the Jay Cops trying to collect revenue. It should not be too hard to confound and out-wit, out-run if necessary, the Jay-Cops; they may then go and get proper and productive jobs. Maybe a slogan is called for: “Jaywalking for Peace and Prosperity” or “Jaywalkers Do It Joyfully,” or even “Jaywalking for Life and Love.” Permission to reprint from Economics.org.au Neville Kennard is a CIS honorary fellow and Contributing Editor of Economics.org.au.
Odds and Ends
The Obama Administration and US Foreign Policy Jeff Levy marks the report card
was as he offered his analysis of the Obama administration’s engagement strategy, track record, prospects for the next two years, as well as what he deemed the most significant current challenges in US-Asia relations. The stage was set for Dr. Brown to discuss his ideas on the Obama administration and US-Asia relations with an outline of the policy picture faced by the United States. In his view, the US now looks much like the
President Obama has, however, ushered in a new era of engagement in foreign policy, at least according to his rhetoric and the view of Dr. Brown, which has led to a level of engagement higher than that of the two recent US presidents. articles in these areas and has held positions at Georgetown University and the John F. Kennedy School of Government at Harvard University. Addressing an audience of business professionals, it was striking how pro-US and unbalanced of a political scientist Dr. Brown
Great Depression domestically and, in addition, the state of the world is not as simple as what was commonly recognized as the “uni-polar� world after the collapse of the Soviet Union. However, while it has become convention for academics and journalists to
A.J. Cann
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r. Michael E. Brown is a Ph.D. in Government from Cornell University who is currently the Dean of the Elliott School of International Affairs and Professor of Political Science and International Affairs at The George Washington University in Washington DC. As an academic whose expertise is in international security, conflict and conflict resolution, and US foreign and defense policy, he has authored a host of scholarly books and
compare the current financial crisis to the Great Depression because of its severity and the resulting hardship it has caused for so many Americans, such reasoning may serve as a blanket statement that causes people to discount the fundamental differences between the two, such as their unique causes and international impacts, as well as the disparate international financial system that characterized each era. Similarly, it has, for the longest while, been in vogue to proclaim, as did Dr. Brown, that the US, the international community, or both entities, are now facing problems that are far more serious and unique than anything the world has ever witnessed. Whether there exists reason to believe that this is any more so the case than any other time since the beginning of globalization seems both highly immeasurable and subjective. BEST PRACTICE
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Odds and Ends
Nevertheless, understanding both the backdrop against which the US conducts its international relations, and the historical precedents under which it operates, are vital in assessing the US and its role in the world. The engagement strategy employed by the Obama administration is fundamentally different and, because of this, in the view of Dr. Brown, far better than that of the Bush administration. The focus on East Asia is preferable because of the rise of China, both economically and as an “aggressor,” and the situation that has arisen between North and South Korea. Although it has left Europe a bit neglected, given the limited resources that the administration can thus devote to issues involving Europe, the Obama administration has still chosen to pursue this foreign policy. The statement made by the President, that France is America’s greatest ally, is as good an indicator as any of the Administration’s attention to Europe. Europe has, however, certainly experienced a rapidly changing economic climate as of late that, perhaps, has not been given enough attention by the Obama administration due to the ramifications it may have on trade and diplomatic relations. Additionally, the tools of engagement being employed, especially with regard to diplomacy, differ in both the way in which, and the reasons behind, why they are being utilized. More diplomacy, in the mind of Dr. Brown, has been 28
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used by the Obama administration than the Bush administration. Of course, the previous administration didn’t have Wikileaks. However, diplomacy is often merely seen as the diplomatic relations that occurs between high-level government officials rather than the interactions of those relations between a broader set of officials, as should be the case if a proper evaluation is to be undertaken. In this regard, it is more difficult to judge whether the administration has differed in the quantity of such interactions, although it is certainly the case that their respective approaches have differed. Obama’s approach takes into consideration the interests of a greater quantity of nations than Bush’s, both friend and foe alike. A common narrative in the US and abroad, and voiced by Dr. Brown, is that US President George W. Bush damaged the reputation
nation, many expectations were placed on US President Barack Obama, some of which were highly unrealistic especially taking into account a rapidly changing world of international politics. President Obama has, however, ushered in a new era of engagement in foreign policy, at least according to his rhetoric and the view of Dr. Brown, which has led to a level of engagement higher than that of the two recent US presidents. Despite blunders in relationships with Israel and Pakistan, the results have primarily been positive, as views of the US in many nations throughout the world have supposedly improved. Improved perceptions of the US need not necessarily imply that the US is creating better outcomes in international politics. There are two issues that are international, or at the least regional, in scope that concern
The statement made by the President, that France is America’s greatest ally, is as good an indicator as any of the Administration’s attention to Europe. of the US in the international community with his supposedly failed policies in Afghanistan and Iraq, and “exceptionalist” approach to the role of the US in international politics. Because the US was, therefore, desperate for a leader who could restore the international reputation of the
US foreign policy in East Asia: the economic and political ascension of China and the military rise of North Korea. While China has been rapidly rising as an economic force since its “opening” in the late 1970s, China has steadily become a greater economic force, currently the world’s second largest
Odds and Ends
economy, and has lifted millions out of poverty. It is only in the last year, however, that China has expressed regional ambitions, starting to act in a hegemonic manner by asserting its claim to the South China Sea. In response, other regional powers, such as South Korea, Japan, and India, have strengthened their relationship with the US, the other dominant player in the region, in an example of balance of power politics. China has hurt its reputation among other nations by taking such aggressive actions, but this may change around, or during, the 2012 transition period in Chinese politics. Overall, in addition to being counterproductive to China, the actions taken by China, according to Dr. Brown, have led to a low point in US-China relations. In regards to the second major issue, military aggression by North Korea has led to a reaffirmation of the United State’s strong relationship with South Korea. China, long an ally of North Korea, is the only major power that supports the nation, but the
strength of the relationship may be weakening. There has, since the establishment of the military dictatorship in North Korea, been highly limited information about the politics of the nation and thus, at any time, there is a high degree of difficulty in assessing why North Korea finds it in its interest to take such hostile military actions. It remains the case, however, that North Korea does not have much other than its military prowess, and it may be in the interest of the current political leadership to assert itself militarily in order to retain its legitimacy domestically. As such, North Korea may continue to take similar actions toward its neighbor, South Korea. Nonetheless, other than North and South Korea, the two major players in this conflict are the US and China, which each face an entirely different set of circumstances and, therefore, interests. Dr. Brown did a fine job of explaining that neither wants war to break out; the US is interested in North Korea not acquiring nuclear weaponry or hurting its ally, South Korea, and China’s interests pertain to the US not remaining in the region in the long term, and North Korea not becoming a failed stated due to the refugee problems that likely persist if this were the case. Taking into account these interests must necessarily occur prior to any proper examination of the conflicts to analyze the reasons behind why each state may have taken certain actions in a given situation.
Many of the actions taken by an administration, especially in the realm of international affairs, are difficult to judge in regard to their effectiveness because their affects are, at least for the most part, yet to be seen. It is easy to say that a person has noble intentions, however, to discern whether their actions have had a positive effect, both for themselves and those other nations affected by any exchange, is a difficult matter on which to make an authoritative judgment. The vision of the Obama administration, certainly different from that of the Bush administration, will lead to a variety of approaches in solving international issues. The increase in focus on East Asia, certainly a hallmark of Obama’s foreign policy, is another change, but this may have begun due to changing circumstances. Nevertheless, Dr. Brown’s scrutiny certainly differs from many, and wasn’t an objective analysis of US foreign policy. Those report cards which seem to be more of a promotion of the US government, rather than an examination of it, doesn’t allow for scientific scrutiny to the issues at hand, but in time, history will tell a more complete story. A special thanks is extended to the AmCham office in Hong Kong for welcoming The Lion Rock Institute to cover this event. Jeff Levy is a student at St. Mary’s College of Maryland.
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Odds and Ends
Hong Kong and Economic Freedom Cave Canem
Critics say the Indexes miss the boat, but the implications of the Indexes aren’t to be ignored
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ews that Hong Kong ranks on top for the 17th year straight in the Heritage Foundation’s Index of Economic Freedom bolsters support for free market policy decisions, but it doesn’t have everyone convinced. Talk abounds that the Index isn’t a good representation of reality, and that the publication’s rankings can be bought for “a price.” The former is justifiable, and the latter, unlikely. It’s true that the rankings are subjective, and statistically, can be organized with outcomes in numerous ways. However, the Index shouldn’t be ignored or distrusted as “Western mentalities placed in an Asian world,” especially given that the Fraser 30
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Institute (not related to Heritage) also produces an independent Index for publication on economic
A few studies make the case that Heritage’s particular Index doesn’t indicate economic freedom or less government, but rather, more efficient government. Heritage uses 10 variables to produce an estimate of economic freedom. Some statisticians believe that using identifiers like fiscal freedom and government spending are weak variables to use, or cause more inaccuracy, when measuring economic freedom. Although there is some truth to this, the Index is still worth paying attention to, as any measurement of economic freedom will be subjective, but the Index might have a better measurement by focusing on
Given the unpopularity of the words “free market,” the conclusion might be as surprising as the findings that greater economic freedom also enhances environmental protection. freedom, in its Economy Freedom of the World Project. Furthermore, the two reports have similar findings, thus those doubts should be cast aside lest we lose the main point of the Index.
those variables that have a higher statistical significance. That said, the rankings today are credit-worthy, as they are based on a measured and continuous transparent ranking system.
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Fraser and Heritage’s indexes seek to prove a positive relationship between economic freedom and prosperity. Given the unpopularity of the words “free market,” the conclusion might be as surprising as the findings that greater economic freedom also enhances environmental protection. Furthermore, free economies are also better at helping the poor. The evidence exists in the data; for instance, of the 117 economies that have improved in their scores, 102 are developing economies with main goals to reduce poverty. While the income share of the poorest 10 percent of the population is similar among very free and low economic freedom countries, there’s an immense difference in their income levels: the poorest 10 percent in the most-free countries’ income is far more than income levels in the less-free quartiles. Given the relationship between quality of life and economic freedom, governments around the world should be switching tactics. The Hong Kong Government should pay less lip service to “big market, small government” and consider treading closer to a guiding line of free market policy, re-evaluating controversial policy decisions that are politically difficult to roll back. With the Financial Secretary’s budget soon to be released, the Index couldn’t have come at a better time. Hong Kong’s most effective strategy won’t throw sweeteners at problems, increase
spending or regulation (what has been the norm), but rather reform policies that restrict entrepreneurial activity and opportunities for job growth and innovation. The Index is far from an actual representation of Hong Kong’s economic freedom, as there’s no shortage of areas to improve upon in law, regulation, policy and transparency. The Government is the city’s largest landlord, with around 50 percent of the population living in public or subsidized housing. Land policy and property rights remain a weakness. The Urban Renewal Authority acts out of its own interests rather than the communities’, and the Mortgage Corporation is inclined to do the same. All the while, the Mandatory Provident Fund holds a percentage of residents’ income hostage, with inequitable fee costs and losses in potential growth. And a minimum wage, coupled with the MPF’s inefficiency, will result in significant job losses and less actual pay for minimum wage earners. Furthermore, the Government flipflops under populist pressure, most recently with the special stamp duty, all the while keeping in place building codes that encourage poor planning. When reviewing areas for improvement, Hong Kong’s rank in economic freedom looks feeble, at best, but it doesn’t mean the broader conclusions of the indexes should be ignored. Economic freedom is the road to prosperity for any society, and the goverment
should bear in mind the costs of complacency and get back on the horse. No one wants to live in a society where one’s aspirations are met with low pay, zero prospects, high taxation, and low levels of many types of freedoms. There is a clear indication in the Index of why such societies exist, and therefore maintaining a free market mentality in policy making is of the utmost importance. Each year, indexes like the Heritage Foundation’s, warn that Hong Kong could lose its top spot due to certain policies. This year, it noted that the introduction of a Competition Law may harm its ranking due to its restrictive nature, though it left out the crooked detail that massive exemptions will be given to Government monopolies. The Indexes haven’t picked up on these finer points, at least not yet. Some policies can easily be altered, but many of the controversial policies being enacted now will be hard to unwind and are a detriment to society for the long haul. Those policies that encourage entitlements will be almost impossible to revise, and can inhibit economic growth. Though problems still abound, the Index shows improvement across the board and reminds policymakers and the public, who tend to forget, of a unique path forward towards a better life. It’s a brighter future to look forward to, as long as Hong Kong picks up the pace. The Lion Rock Institute BEST PRACTICE
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Endnotes and Image References Tax Increases and the Rise of Crime 1 Albert Einstein, “My First Impression of the U.S.A,” in Ideas and Opinions (New York: Three Rivers Press, 1995), 3. 2 Michael A. Lerner, Dry Manhattan: Prohibition in New York City (New York: Harvard University Press, 2007). 3 Philip P. Mason, Rum-Running and the Roaring Twenties: Prohibition on the Michigan-Ontario Waterway (Detroit: Wayne State University Press, 1995). 4 Gerald A. Mallowell, Prohibition in Ontario (Toronto: Ontario Historical Society,1975). 5 Mob Money, CNBC (03 June 2010). 6 Deborah Blum, “The Chemist’s War,” Slate Magazine, 19 February 2010. 7 Ibid 8 HM Revenue and Customs, “HM Revenue and Customs 2006-2007 Accounts” (London, The Stationary Office, 2007). 9 Patrick Fleenor, “Cigarette Taxes Are Fueling Organized Crime,” Wall Street Journal, 7 May 2008. 10 Leslie Tang, “Hong Kong smokers undeterred by 50% tobacco tax increase” Channel News Asia, 03 Mar 2009. 11 Chung-ping Loh, “Multiple Dimensions of Cigarette Smoking and Responsiveness.” Journal of Family and Economic Issues, Volume 30, Number 2, 2009. 12 Tang, 03 Mar 2009. 13 “調查指 68﹪煙民加煙稅後首買私煙,” Headline Daily, 20 Oct 2009. 14 “探射燈：私煙勁賺長者拉車散貨,” Oriental Daily News,18 December 2009. 15 Ibid. 16 Ibid. 17 “警方大破私煙倉 算替同袍治治創 越南幫涉關員撞爆肝,” Hong Kong Daily News, 7 November 2010. 18 Ibid. 19 Joyce Woo, “Cases of illicit tobacco sales soar 90% higher,” China Daily Hong Kong Edition, 10 Apr 2009. 20 http://www.budget.gov.hk/ 21 Chan Yu-Chung, “Steep tobacco tax rises do not lead to lower rates of smoking,” South China Morning Post, 11 Mar 2009. 22 David Neumark and Willam Wascher, Minimum Wage, Cambridge, MIT Press, 2008. 23 “加煙稅煙民反升2招控煙 食衛局倡再加稅 增戒煙資助.” Hong Kong Economic Journal, 10 December 2010. 24 Ibid. 25 “Respiratory Health Effects of Passive Smoking: Lung Cancer and Other Disorders,” U.S. Environmental Protection Agency, 1992.
Photo Credits P4 P6 P7 P9 P11 P21 P22 P23 P24 P25 P26 P27 P30
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http://www.flickr.com/photos/modenadude/5081238461/lightbox/ http://www.flickr.com/photos/49956354@N04/5135789331/ Sarah Deer, http://www.flickr.com/photos/sarahdeer/2747892944 Andy Mangold, http://www.flickr.com/photos/andymangold/4280820162/ John McNab, http://www.flickr.com/photos/johnmcnab/5217572447/#/ Ian Muttoo, http://www.flickr.com/photos/imuttoo/2628589070/ Opensource.com, We’re about to find out if companies mean what’s in their mission statements Opensource.com, http://www.flickr.com/photos/opensourceway/5364009759/ Jerry Woody, http://www.flickr.com/photos/woodysworld1778/4275002941/in/photostream/ Libby Levi , http://www.flickr.com/photos/opensourceway/4404008626/ Thomas Anderson, http://www.flickr.com/photos/senoranderson/3286395660/ AJ Cann , http://www.flickr.com/photos/ajc1/3693303191/#/ Cave Canem, http://www.flickr.com/photos/bewareofdog/284783751/
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