Intervention begets inequality

(Next Magazine, 2016/4/7, A002, Second Opinion, Bill Stacey)

Intervention begets inequality

Our Chief Executive’s Policy Address trumpeted the news that our poverty rate has plummeted to 14.3%, the lowest since 2009, and credited this to his government’s success in closing the inequality gap.

This gap is as vivid as our spectacular topography. Those who live on the Peak literally live in the clouds above mortals below. Instead of being a problem that warrants government action, for generations this has been a driver of our aspirations. Eurasian entrepreneur Sir Robert Hotung showed us, by rising in station, one could pierce racial barriers to live on the Peak.We are a city that respects choices. Not every billionaire prefers to live on the Peak as Sir Robert did; Mr. Li Ka-shing doesn’t. Rich and poor might have their differences, but we all appreciate the same milk tea, noodles and Yum Cha. There has been none of the envy that in other cities defaces luxury motor vehicles or paints the walls of unobtainable villas as a statement against wealth.Yet times and the debate are changing. In the popular media and from the lips of politicians we are told that inequality is the great problem of our age. We are told that we are the most unequal city on the planet and that this is an affront to decency. We are not alone in this debate. Globally a dire economy has led to similar concerns.

Inequality rising is not always a bad thing. It can be a mark of success. When we attract the scion of a wealthy European family to establish business in the “Far East”, the immigration of one makes us less equal. When one of our entrepreneurs lists his company on the NASDAQ and becomes an overnight billionaire, no one in Hong Kong is worse off, and yet the arithmetic of equality has made us less equal. When the resident daughter of a mainland developer lists the family’s shares on the HKEx, this imposes no cost to us, but the same arithmetic renders us less equal.More prosaically, when a long married woman seeks independence and strikes out on her own by divorcing her husband, the number of our households increases, thus widening the gap of inequality, but none of us is made worse off.Such arithmetic tells us nothing useful about our society. Changes in measured equality can happen for both good and bad reasons. Inequality may be a symptom of other problems. It is high in tin-pot dictatorships where cronies of the ruler gain wealth at the expense of the population. These places are characterized by high taxation, arbitrary laws, extensive licensing of privileged business monopolies, generous government contracts and grants of scare resources like land or mineral rights for cronies. These societies leave little room for entrepreneurs like Sir Robert and Mr. Li, as they would be outmanoeuvred by opaque rules and have their innovations coopted by the politically powerful.

What is rightly feared in Hong Kong is that inequality is a symptom of the emergence of a new class of such cronies who prosper by being close to the government. This fear is not irrational. It is hard to see the due process in the granting of television licenses. Government policy is chipping away at the independence of once largely private businesses like public transport and running stock exchanges.The government now runs conventions, offers berths for luxury cruise liners and seems to have abandoned any idea to privatize government-owned businesses like the airport and tunnels. It is tightening control of our utilities, prescribing not just their rate of return, but also what fuels to use, and astonishingly, from whom to buy those fuels.These intrusive interventions constrain and crowd out opportunities for private businesses. Even well meaning ideas like the trial of food trucks are bound in such a plethora of rules and so limited in scale and scope that real entrepreneurial opportunities are stifled. An intellectually coherent agenda to promote equality should not focus on meaningless arithmetic, but on eliminating the obstacles to opportunity that government has created.

Bill Stacey

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