Government Is Not The Solution
Next Magazine (Second opinion A002, 2012.4.5)
“Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” — JM Keynes
Critics of the outgoing administration in Hong Kong are uniform in their complaints. The wealth gap, cost of housing, quality of education, healthcare and pollution are said to be Hong Kong’s primary ailments. Not surprisingly, CY Leung as the incoming Chief Executive reiterates these as his priorities. He seems a practical man.
Leung has long proposed that government should spend more time and taxpayer money on “livelihood” issues. However, so far his thoughts on policy seem conventional, proposing more money to expand Hong Kong’s western style welfare pillars. Yet western welfare states offer little for Hong Kong by the way of a model. He should look elsewhere, and the heritage of a more dynamic time in Hong Kong is a good place to start.
Public spending grew by 70% in the five years since the western financial crisis began, so Hong Kong’s aspiring entrepreneurs do not suffer from a lack of stimulus; they instead face a real burden of petty bureaucracy that makes entrepreneurial innovations in the “livelihood” issues of housing, education and healthcare even more difficult.There are good precedents for a reformist agenda that addresses the constituencies that Leung wants to identify with. “Labour” governments in New Zealand and Australia from the 1980’s reformed government by reducing regulation, scaling back government, privatisation, free trade and restoring incentives to work. Inheriting weak economies and budgets, these governments introduced reforms that provided impetus for renewed growth and stronger incomes across the population.
A similar agenda is needed in Hong Kong. What would a free enterprise reformist agenda targeting the “grass roots” in Hong Kong look like?Small businesses don’t need more subsidies and government guaranteed finance (as promised by Leung). They are held back by increasingly onerous licensing requirements, MPF, minimum wages, other hiring costs, statistical gathering exercises, increased fear of litigation from potential competition laws and more financial regulation. Commercial businesses face competition from government bodies with statutory support (say TDC or the Hong Kong Mortgage Corp) or “social enterprises” that gain privileged support from taxpayers’ funds. As Leung has pointed out, there is indeed much that can be improved in the property market. However, this is not about containing the power of large developers, nor does expanding public and HOS housing offer a solution. It is much more about improving property rights, allowing competition and reducing the often arcane restrictions on land use.
Hong Kong already has more public housing than most countries and the government, by way of the MTR, is one of the biggest private housing developers. This dampens the demand for and profitability of low cost housing development. It makes it harder for people to get on the ladder of owning and upgrading their own homes. It creates “poverty traps” that reduce incentives to build higher incomes.
Truly radical reform would look to sell public housing to occupants at a nominal cost and pull government back from its role as the largest landlord in the SAR. The privatization of LINK has successfully increased the amenity and value of once publicly run low-grade commercial premises. Imagine what could be achieved with a well thought out scheme to let public tenants acquire, improve and alienate their current properties. This would create a market for much lower cost housing that would dramatically improve the livelihood of public housing tenants and access to housing.Similar ideas in education and health care hold promise. There are opportunities for Leung to leave his mark as a reformer. However, if all he does is spend more of the people’s money on pet “livelihood” projects he is almost certain to disappoint.
Bill Stacey is in his 10th year as a resident of Hong Kong and is Chairman of the Lion Rock Institute.