Wednesday, February 07, 2007

Confusing Correlation with Causality!

Consumer Council has put out a report advocating the merits of having a competition law in HK.

One of its claims:

"Enactment of a cross-sector competition law will not jeopardize Hong Kong's favourable business environment and should, instead, enhance its competitiveness."

What's the evidence? The report continues:

"This is reinforced by the fact that according to the 2006 Heritage Foundation Country Competitiveness Rankings, the US has the highest ranking in competitiveness, but is also one of the earliest economies to have a cross-sector competition law. In the Foundation's survey, Ireland, a small economy similar to Hong Kong and the United Kingdom are ranked 5 like Hong Kong, while Australia and Singapore (which has recently enacted a cross sector competition law, ranked 7. These economies are considered by the Heritage Foundation to be among the world's most market-oriented jurisdictions and they have cross-sector competition laws."

But isn't the fact that HK, without a competition law for so long, can maintain its high place in ALL of the different competitveness or free market ranking at least suggests to the Consumer Council people that, well, may be HK really does not need a competition law to boost its competitiveness?

Second, we can question the Consumer Council's claim from a different angle. HK's is able to transform itself from a barren island to an economic powerhouse without the need to have a competition law, how much marginal benefit a competition law would bring? How much such a law would cost? Is it worth it? The Consumer Council document is silent on this.

And finally, the fact that the US, Australia, Singapore and GB are advanced economies and all of them have competition law DOES NOT IMPLY that these economies derived competitiveness from having a competition law in place. All it shows is that there is a correlation between the strong economies mentioned and their having a competition law. It CERTAINLY DOES NOT SHOW that the introduction of the competition law causes economies to prosper!

The fact that advanced economies like the US or UK have competition law might very well mean that only such wealthy countries could afford such a costly piece of legislation.

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