Paragon of free markets is riddled with monopolies

VIEW FROM HONG KONG

One of the most abiding myths about Hong Kong is that its economy is a bastion of laissez-faire virtues. Milton Friedman, the high priest of monetarism, famously said: "To see how the free market really works, Hong Kong is the place to go."

Dr Friedman is clearly not a regular visitor, for if he was he would discover that the colony is riddled with monopolies, restrictive practises and price fixing agreements that are anything but in the spirit of a free market.

In many areas Hong Kong lags behind countries that are still dismantling their lumbering state monopolies. Take telecommunications, for example. While nearly every other government has allowed competition in the supply of telephone networks, the colony remains a haven for the monopoly controlled by Cable and Wireless plc. The company only this year had to relinquish its sole control over the domestic network while retaining the far more profitable international network monopoly until 2006.

All other utilities are under monopoly or restricted competition controls. Electricity is exclusively supplied by two companies under government licence. Profits are guaranteed and consumers, rather than shareholders, in effect pay for the financing of new projects. There is also a monopoly for the supply of town gas. Water supply comes from a government-controlled utility, and the post office has a near total monopoly over the postal service, although there is limited scope for domestic deliveries by courier companies.

The web of monopoly practises in the field of transportation are awesome. Tight control over flying rights has given Cathay Pacific, a subsidiary of the Swire Pacific group, de facto flag-carrier status. Two attempts at rival operations were quickly subsumed. Aircraft maintenance is controlled by another monopoly that has Swire as the big partner.

Taxis, buses and the extensive minibus network are all tightly licensed. The mass transit and railway systems are run by government corporations. All ferry services, an important undertaking in a territory containing numerous islands, are controlled by a company under the aegis of the Wharf group. With trade as the lifeblood of the colony, the government has ensured that all but one of the container terminals are run by a single company under government franchise. The company is part of the group controlled by tycoon Li Ka-shing, which also holds one of the electricity supply franchises.

Even driving instruction is the subject of a monopoly, with just one company given the right to run a driving school. Although individual instructors are allowed to operate, pupils of the licensed school receive priority in the queue for driving tests.

Hong Kong enjoys a relatively free media, but the broadcast media are heavily restricted by licensing arrangements that currently permit two television stations and one cable broadcaster. Radio broadcasting is dominated by a public broadcaster, under direct government control, unlike the BBC. Two other radio operators have licences.

Restrictive and anti-competitive practises also abound. Lawyers run the colony's most tightly controlled club, squeezing out those with non- Commonwealth qualifications, despite Hong Kong's claim to be an international trade centre. The lawyers have also managed to retain practically all the anti-competitive and high-cost practises reluctantly relinquished by their British colleagues. Little wonder that visiting barristers from Britain refer to Hong Kong as "Treasure Island".

The banks enjoy a deposit- rate fixing cartel, which has recently come under fire and been timorously relaxed for interest rates on deposits exceeding a month.

However, the newspaper price-fixing cartel remains more or less intact, as does the practise by oil companies of never competing on price.

Hong Kong is famous for its restaurants and other eating places, yet the web of regulations governing any place selling cooked food causes the owners of practically every newlyopened outlet to land up in court. It it is nearly impossible to quickly obtain all the correct licences and approvals.

One common indicator of free-market activity is the percentage of home ownership. In Britain over 60 per cent of the population are owner-occupiers; in Hong Kong it is around 45 per cent, with about 52 per living in public housing.

Ninety per cent of the hospital beds in Hong Kong are supplied by government- run hospitals, 87 per cent of primary schools are government-run and 75 per cent of secondary schools (a relatively low number) are state-controlled.

The motive for the provision of state services, particularly in the housing field, was to keep wages down, although this is rarely admitted. Whether the motive was noble or not, the plain fact is that Hong Kong's working class, who have yet to feel the security of a realistic system of pensions or unemployment pay, enjoy relatively high disposable income because housing, health care and schooling are provided at heavily subsidised prices. The high levels of regulation and the cosy arrangements for privately run monopolies are a product of the colonial system of government, often referred to as a benevolent dictatorship.

The official government line is that it pursues a policy of "positive non-interventionism". In some areas, notably the absence of foreign-exchange controls, employment laws, the absence of capital gains tax, and freedom of movement, the policy has some meaning.

Yet, when most of the rest of the world has moved away from state controls, the heavy influence of the government in social and economic life is becoming an anachronism, albeit one that is well-disguised.

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