(This essay was published in South China Morning Post on 3 June 2015.)
A recent commentary in the Apple Daily (28 May) by Mr. Simon Leepiqued my curiosity about a set of reports by the Consumer Council comparing food prices across wet markets in Hong Kong. The council surveyed the same basket of 26 food items at 52 markets. The latest survey I was able to obtain online was for October 2010.
An analysis of the figures answers a number of questions concerning differences between retail shopping markets that are privately or publicly owned.
The Food and Environmental Hygiene Department (FEHD) operates publicly owned wet markets, which charge less rent than privately run markets, often by a considerable margin. There are many reasons for this, but the critical one is that a public authority seeks to accommodate the interests of a diverse set of stakeholders and is unable or unwilling to realize the full value of the assets under its management.
The argument often used in defense of such a practice is that some of the benefits of lower rents are eventually passed onto consumers through, for example, lower prices.
Economists doubt this actually happens because there is no compelling reason for shopkeepers to pass on the benefits to their customers. The FEHD does not appear to select tenants based on the propensity for charity towards customers. If society truly wishes to help wet market customers then providing subsidized food coupons is a much better solution.
The October 2010 data showed a 17.5% difference in food prices between the most expensive and least expensive wet markets. While some of the price variation may reflect unidentified differences in the quality of the food products sold, 8 of the top 10 wet markets setting the highest food prices were operated by the FEHD, while 6 of the bottom 10 wet markets offering the lowest food prices were privately owned.
On average, food prices set by FEHD wet markets were 2% higher than privately-owned wet markets – prima facie evidence that shopkeepers do not pass on their subsidies to customers.
These facts also suggest that shopkeepers in the FEHD wet markets likely make higher profits than those in privately owned markets, which may explain why tenants in publicly owned premises strongly oppose privatization efforts, such as the creation of the Link Real Estate Investment Trust to privatize over 100 public shopping centers.
Similar economic factors may be at work in care homes for the elderly. Private homes do not receive a rental subsidy from the government, but those operated by non-profit NGOs get cheaper premises.
The issue recently came under the spotlight following the 26 May report in Ming Pao that residents in a Tai Po elderly care home were left exposed on a podium before their showers.
There has been public outrage and demands that the government revoke the home’s operating license and regulate private elderly homes more vigorously.
But monitoring by government authorities alone is seldom adequate because it is a prohibitively expensive task. The press by contrast has huge incentives to monitor elderly homes and all individuals and institutions for scandals because it makes news, although it is only interested in violations or underperformance of a gross nature.
Would the provision of more subsidized spaces improve the quality of care? This is not so obvious. The example of wet markets indicates that the benefits of cheaper premises are not passed onto customers. Why would private elderly care home operators be any different?
The problem in elderly care is not merely weak monitoring, but a lack of affordability. Elderly care requires space, but it requires labor services even more. The reported scandal looked more like a labor saving operation to economize on staff resources. Family members of the residents are likely aware of the problems but have few other options for their elderly.
More innovative solutions have to be found to deal with the growing problem of elderly care as our society continues to age. One answer could be a greater effort to mobilize public-spirited sympathy and charity within our society.
I suspect private charity would be more forthcoming if better monitoring services were available for social services. The media cannot do all the monitoring and there is room to outsource this role. Teams of stock analysts research the performance and, increasingly, the governance of publicly listed companies. Investors are willing to pay for such information. Government could learn from such best practices in business, especially as the demand for elderly care continues to grow in Hong Kong and worldwide.