Stalemate

Hong Kong chief executive C.Y. Leung did not step down on the deadline protesters set. The protesters, for their part, did not occupy government building as the deadline passed and as they earlier threatened to do.

This will be a protracted affair.

Leung is not accountable to the people of Hong Kong. He is accountable to Beijing, which has taken a hard line towards the street protests in its “special administrative region.”

The People’s Daily editorial last Wednesday says it all. The paper is considered to be the authoritative mouthpiece of the Chinese Communist Party. The editorial warned the protestors of legal accountabilities for their “illegal” acts as well as unimaginable consequences should the protests continue.

The wording of that editorial closely echoes the warning issued by Beijing authorities against the student protesters occupying Tiananmen Square in 1989. Shortly after issuing a similar warning, Beijing brought in tanks to crush the demonstration.

The sheer brutality of the army drew universal condemnation. It did achieve its goal, however, in postponing democratization in Chinese society for two decades and running.

For those who rule China, order is the most important thing — especially as it ensures the Party’s hegemony. But without explicitly conceding anything to the pro-democracy protestors, the Party over the last two decades liberalized the economic space in a manner unimaginable during the eighties. It was in part a concession in exchange for continuing despotic rule.

In is unlikely Beijing will send hundreds of tanks across the border from Guangdong to crush the Hong Kong protests in the same way it crushed the Tiananmen demonstrations nearly a quarter of a century ago. Hong Kong is a different place and this is a different time.

Democratic opinion in Hong Kong is highly condensed and intimately intertwined with the global mainstream. Since Beijing could not crush the Hong Kong protests with the decisiveness (and extreme brutality) it did in Tiananmen, the territory will continue with its rebellious ways for years to come.

In which case, it will be a continuing source of anxiety for the despots in Beijing. Hong Kong will continue to be a hospitable ecosystem for the virus Beijing wants to exterminate: the virus of democratization.

In order to retard this virus, Beijing must take two steps back for every step forward it makes in conserving oriental despotism. It is Beijing, eventually that cannot withstand the onslaught of modern sensibility.

Anti-market

Rep. Eleandro Madrona recently filed HB 5013 that seeks to set a minimum price for tobacco products. The purpose of the proposed measure, its author says, is to prevent manufacturers from selling their products too cheaply to the detriment of the youth.

That seems to be a commendable consideration. The measure, however is also a dangerous one since it involves political stipulation of price instead of allowing price to be determined by market forces. It is an anti-market measure.

It is a basic tenet of economics that price is the point at which buyer and seller agree to transact. Any policy that gets in the way of market determination of prices skews the production and exchange of goods, raises the costs of regulations and actually encourages traders and buyers to go underground.

There are many examples of the distortions caused by administratively dictating prices. When price controls are imposed, for instance, there will be a tendency for shortage since traders facing their own rising costs will avoid selling at politically dictated prices. If we try to dictate the price of oil products, no one will import the vital commodity if doing so results in loss.

In the case of the so-called “sin taxes,” for instance, the sharp increase in excise taxes produced a dangerous undertow: the sharp increase of smuggled counterfeit cigarettes. Being unregulated, the counterfeit cigarettes pose even greater danger to consumers. They are cheap but poisonous.

In addition, the imposition of minimum prices for tobacco products does not address the core problem of tax evasion. Minimum prices will simply allow smugglers of counterfeit products or retailers getting deep-discounts from manufacturers to make larger profits.

Imposing minimum prices will be an administrative nightmare for enforcers. It will require policing 700,000 retail outlets to ensure compliance with the stipulated minimum prices. That is simply impossible.

Manufacturers can simply skirt around the stipulated minimum prices by turning rogue. They will trade in the black market to meet demand, avoiding not only the mandated selling prices but taxes as well. The cigarette black market will balloon.

There are more easily administered procedures that are currently being attempted to curb the scourge of deep-discounting, rogue trading and tax evasion that could make the Madrona bill irrelevant.

The BIR, for instance, is returning to the tax-paid stamps attached to every pack of cigarettes to ensure everything that goes to market paid the appropriate taxes. This was a reliable system when it was used before.

In addition, the BIR is currently contemplating installing CCTV on the premises of manufacturers to monitor stamp application and illicit withdrawal of cigarette stock. That might sound like an extreme Big-Brother-is-Watching sort of solution. It is, however, is more easily administered than policing 700,000 cigarette retail outlets.

We should exhaust all possible administrative solutions before applying something so distorting of the market as stipulating minimum prices. The solution contemplated by the Madrona bill is impossible to administer. The only thing it will certainly achieve is to grow the black market.

We know from experience that the black market is impervious to any regulation. It cannot be documented, much less policed.