The Rise and Fall of the Sand Monopoly in Colonial Hong Kong
36 Pages Posted: 9 May 2016
Date Written: April 8, 2016
A state monopoly over a scarce natural resource under open access can arguably reduce the costs of supply by constraining rent dissipation. A monopoly over the collection and trading of sand was formed in Hong Kong by legislation in 1935 in the wake of disputes between sandmen and villagers and imminent shortages of sand. Arguably, a monopoly at this stage of Hong Kong’s development was a better alternative to merely defining rights over sand extraction in terms of the transaction costs of enforcement. During the 1950s and 1960s, when Hong Kong’s economy and construction industry began to boom, the monopoly’s existence was further justified due to the politics of China being the sole source of Hong Kong’s sand supply. However, this case study of the sand monopoly and its post-war operation as a bilateral monopoly shows that it did not protect coastal villagers, as violations of the sand law were not infrequent. The local sand supply was huge, and its abolition in 1981 was followed by a long period of falling, rather than rising, real wholesale prices of the resource. Nor was there any sign of scale economies, as claimed by the government. The policy implications of this are discussed.
“Where monopoly rests on man-made obstacles to enter into a market, there is every case for removing them.” (Hayek 1960:pp.265-266)
Keywords: Schumpeterian innovation, transaction costs, open access property, sand, state monopoly
JEL Classification: A10, B25, D42, H00, L12, L30, L72, N55
Suggested Citation: Suggested Citation