The economic structure of Hong Kong administrative law: efficiency and legality of government decision-making since China's resumption of sovereignty.

• Published date: 22 March 2013
• Author: Ip, Eric C.
• Date: 22 March 2013

ABSTRACT

In contemporary Hong Kong, China's first special administrative region, administrative law has become ever more influential over government decision-making, notwithstanding the semi-authoritarian political framework oft he territory. Contrary to existing scholarship, this Article argues that neither rule-of-law concerns nor misguided judicial adventures satisfactorily explain the evolution of administrative law in this former British colony. Administrative law doctrines are better understood as decisional devices developed to promote "administrative efficiency," achieved through the reduction of agency costs inflicted by administrative agencies due to imperfect compliance with statutory goals on their political principal--the Hong Kong Legislative Council--to the optimal point where further reduction would yield no benefit to the latter, and the de facto imposition of minimal Kaldor-Hicks efficiency requirements on agency policy outcomes when substantive statutory goals are ambiguous. This Article conjectures that, given the absence of any enabling administrative procedure act, judges' desire for popular legitimacy and reputation, fear of legislative reversals, and practical needs to conserve their scarce resources explain the underlying design of these doctrines.

I. INTRODUCTION

The Hong Kong Special Administrative Region ("Hong Kong SAR") was established on July 1, 1997 pursuant to the Sino-British Joint Declaration of 1984, (1) a binding international treaty registered with the United Nations forged between two veto-wielding Permanent Members of the Security Council-the People's Republic of China and the United Kingdom. Since then, the ability of the territory's Westernized legal, market, and political institutions to thrive under Chinese sovereignty has attracted the attention of governments, businesses, and international organizations with interests in East Asia and beyond. (2) Of particular interest is whether the imported common law's traditional constraints over government decision-making can still be rigorously enforced after the withdrawal of British rule. Formally, the Hong Kong Basic Law, (3) enacted in accord with the Joint Declaration, precluded the applicability of more than 99% of all mainland Chinese laws over the SAR, (4) and conserved much of the former colony's separate identity, including its capitalist economy, multi-party legislature, common law judiciary, and the civil rights of residents, including the right "to institute legal proceedings in the courts against the acts of the executive authorities and their personnel." (5) China's own rapid economic growth has benefited and should continue to benefit immensely from the continuation of Hong Kong's world class legal and economic arrangements. (6) But a rule-of-law oasis on the Chinese periphery might become the tail that wags the dog, (7) and thus, may not always be perceived as desirable by the Party-state. (8)

Undoubtedly due to the magnitude of China's social and economic transformation since 1978, mainland administrative law has taken a very different approach from that of Hung Kong's. (9) Administrative law, instead of constituting a genuine constraint on administrative discretion, has served primarily as an instrument for retroactive and prospective legal legitimization of the decisions of powerful bureaucrats charged with implementing China's massive market reforms. (10) Nonetheless, the Chinese government continued to treat judicial review with great caution. (11) This concern has been reflected in the myriad administrative law statutes enacted by the National People's Congress (12) which feature relatively few clear provisions sanctioning illegal agency conduct by judicial means. (13) Bureaucratic bodies, often acting against the express letter of the law, have benefitted substantially from the development of mainland China's administrative law regime in the past twenty years. (14)

By contrast, administrative law has become ever more influential in Hong Kong after the transfer of sovereignty, notwithstanding the persistence of "authoritarian" (15) and "autocratic" (16) politics. Often tackling divisive political issues, (17) judicial review of administrative action has been described as economically, socially, and politically consequential, (18) due to its encroachment on such policy domains as aviation, (19) censorship, (20) educational policy, (21) environmental policy, (22) financial regulation,23 public health, (24) immigration, (25) land policy, (26) professional licensing, (27) pharmacy, (28) privatization, (29) public housing, (30) reclamation, (31) social welfare, (32) telecommunications, (33) transportation, (34) and so on. Local jurists of Hong Kong administrative law conventionally treat considerations of justice, (35) fairness, (36) individual rights, (37) transparency, (38) and redress of power abuses (39) as determinants of its development. Conversely, mainland Chinese scholars who keep an eye on the SAR typically characterize judicial review of administrative action as a politicized weapon targeting the executive, (40) an inefficient constraint on public policy, (41) and the vehicle of a judicial ambition that seeks to undermine government authority and usurp control over social development. (42)

In contrast to these two polarized schools of thought, this Article argues that Hong Kong's administrative law doctrines emanating from judicial review are not exclusively premised on rule-of-law values or undue judicial and social activism. Judges crafted these doctrines as if they were reacting to inefficiencies caused by the expansion of the administrative state and incongruence between legislative and bureaucratic interests. Judge-made administrative law is thus better understood as a set of decisional devices developed to promote the reduction of agency costs imposed by public administrators on their political principal--the Hong Kong Legislative Council--to the optimal point where further reduction would yield no benefit to the latter. (43) Hence, there arises a positive theory of Hong Kong administrative law that leaves to normative theorists questions regarding the merits and desirableness of the various doctrines. (44)

The Article is organized as follows. Part II lays out the ideal concept of administrative efficiency deployed herein, discussing it in the context of Hong Kong public administration. Part III demonstrates how the structure of post-1997 administrative law coheres with this ideal of administrative efficiency, discussing several conjectures that may explain the underlying design of these doctrines. Part IV concludes with a summary of findings.

II. EFFICIENCY IN THE HONG KONG ADMINISTRATIVE STATE

This Article's argument draws heavily on two traditions in the economic analysis of law: the economic theory of common law, (45) which theorizes that judge-made law may be understood as a pricing mechanism which tends to produce efficient outcomes, and the positive political theory, which posits that inter-branch strategic games underlie the causal nexus between procedural rules and policy outcomes. (46) This article shows that Hong Kong administrative law doctrines are consistent with the goals of "administrative efficiency" in at least two ways. First, they promote optimal compliance of administrative agencies with statutes, which express the preferences of their political principal, the Legislative Council. (47) Second, when the Legislative Council has not unequivocally specified its preferences (e.g., when substantive statutory goals are ambiguous), they compel agencies' adherence to the minimal requirements of Kaldor-Hicks efficiency, which ensure beneficiaries of administrative policies can in principle compensate those who have been injured by those policies and remain better off nonetheless. (48)

This section analyzes the concept of efficiency in the context of the Hong Kong administrative state using the generalized principal-agent model. It is assumed that rulers, regardless of their omnipotence, have limited material capacity to implement public policy choices. (49) Implementation requires a chain of command by which rulers delegate to agents with instructions. (50) Despite its relative political weakness vis-a-vis the Chief Executive, (51) the Legislative Council, as Hong Kong's principal lawmaking organ, has been constitutionally empowered to hold the Executive Authorities to account; (52) simultaneously, the Executive Authorities must duly implement its enactments. (53) In the context of administrative law, the relationship between the Legislative Council and the Executive Authorities is parallel to principal-agent relations in private corporations: (54) the Legislative Council is analogous to a board of directions, exercising broad oversight over managers (the Chief Executive and his cabinet), but unable to pay close attention to the daily activities of subordinate employees (administrative agencies). (55) The Legislative Council enacts bills proposed by the Chief Executive (and fine-tuned by legislators) into statutes, and delegates their implementation to administrative officials, who also have considerable decision-making discretion. Such delegation to the modern administrative state is commonly justified by the argument that administrators have more expertise and experience than politicians, e.g., more accurate information about the comparative impacts of different implementation choices. (56) However, the generalized principal-agent model holds that, as information asymmetry intensifies, agents have incentives to pursue courses of action inconsistent with the original terms of delegation set by the principals. (57) With better information about the effects of their acts than the principals, agents can make choices with impunity that benefit themselves at the expense of their principals. (58) This is the problem of "agency cost."

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