Diversity and Occasional Anarchy

Diversity and Occasional Anarchy: On Deep Economic and Social Contradictions in Hong Kong

Yue Chim Richard Wong
Copyright Date: 2013
Pages: 240
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  • Book Info
    Diversity and Occasional Anarchy
    Book Description:

    The world economic landscape has experienced seismic changes in the fifteen years after restoration of sovereignty over Hong Kong from Britain to China. Fortunately the Hong Kong economy has remained steadfast and is still making progress, but public confidence in the governance of the SAR government has declined, and economic and social dissatisfaction have flared. Where should Hong Kong go from here in the face of all kinds of contradictions? Economist Yue Chim Richard Wong provides an analysis of the origins of these contradictions and shares his insights on these issues. All those concerned about Hong Kong’s future should not miss this collection of essays.

    eISBN: 978-988-8180-34-9
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Illustrations
    (pp. ix-xii)
  4. Foreword
    (pp. xiii-xiv)
    Tung Chee Hwa

    Richard Wong’s scholarship, perspective, and concern for Hong Kong are all manifested in this collection of essays. He examines Hong Kong’s changing economic role after the opening up of China. In this new role, “dual integration” is the key. On one hand, Hong Kong must preserve its celebrated and cherished seamless integration with the world economy. On the other hand, Hong Kong has to enhance its reintegration with the rising Chinese economy.

    Wong’s central thesis is that dual integration is the root cause of what Premier Wen Jiabao described as Hong Kong’s “deep contradictions.” He believes that supporting China’s continued...

  5. Foreword
    (pp. xv-xvi)
    Gary S. Becker

    Since the communist revolution in 1949, Hong Kong’s economy has been greatly affected by what was happening in mainland China. During the Korean War, the Cultural Revolution, and other periods until the late 1970s, Hong Kong was essentially cut off from the Mainland, so that its economy had to depend mainly on its trade with the West and Japan. As a result, it became a major exporter of textiles and other manufactured goods, and an important tourist attraction.

    With the opening up of China to the world economy that started with agricultural reforms in the late 1970s, Hong Kong’s role...

  6. Foreword
    (pp. xvii-xviii)
    Liu Pak-wai

    Among contemporary Hong Kong economists who have a broad perspective and deep understanding of Hong Kong economic issues, no one surpasses Professor Y. C. Richard Wong. Professor Wong studied economics at the Department of Economics of the University of Chicago and carried on that department’s tradition of rigorous theoretical reasoning, positive analysis, and empirical testing. He has a particular interest in economic history and political economy, as well as a broad exposure to the humanities. Over the years prior to and after the changeover of the sovereignty of Hong Kong, he actively participated in various consultative committees of the Hong...

  7. Preface
    (pp. xix-xxii)
    Yue Chim Richard Wong
  8. Part I Introduction

    • 1 The Panama Syndrome and the Origins of Deep Contradictions
      (pp. 3-24)

      When Premier Wen Jiabao met with Hong Kong SAR Chief Executive Tsang Yam-kuen in Beijing in 2005, he diagnosed Hong Kong as having deep contradictions that needed to be addressed. But what are these contradictions? Premier Wen did not offer any specifics, although in a 2010 press conference he elaborated on challenges and solutions that relate to the contradictions.

      Premier Wen laid out five issues that Hong Kong needed to address: “First, how to build on existing advantages and continue to maintain and develop Hong Kong’s position as a financial center, shipping center, and trade center. Second, how to take...

    • 2 Contradictions in the Policy Environment
      (pp. 25-32)

      The annual budget speech is the most authoritative statement of the government’s economic policy framework. Our administration has stated its commitment to a limited government and to allowing markets to guide economic activities. This commitment was reaffirmed in the budget delivered on February 23, 2011 by Financial Secretary John Tsang.

      All activities—whether business-or non-business-related—require decisions that satisfy multiple demands with limited resources. From this perspective, every decision incurs an opportunity cost, including those choices related to social, health, education, housing, and environmental issues. They are all economic in nature as they are subject to the laws of scarcity...

    • 3 Growing as a Part of China: A Historical Perspective
      (pp. 33-48)

      The historical development of Hong Kong has, in my opinion, always been defined by its relationship with the Chinese Mainland. The changing permeability of the “border” between Hong Kong and the Mainland symbolizes the changing dynamics of the relationship. This fundamental factor has shaped Hong Kong’s development for over 2,000 years and especially the recent past. It prescribes the conditions and sets forth the dynamics that, in their totality, determine the choices people in the territory face in political, economic, and social affairs. This historical context is important for putting into perspective the nature of the British contribution to Hong...

  9. Part II Starting Points:: Monetary Policy, Population Policy, and Economic Change

    • 4 External Shocks and Price Stability under the Linked Rate
      (pp. 51-58)

      For most of its monetary history, Hong Kong has issued its own currency under a currency board system backed 100% by a highly liquid international currency. Until June 1972, the HK dollar was fixed against the UK sterling and since October 1983 it has been fixed against the US dollar. During the interim period, it was initially linked to the US dollar but from November 1974 to October 1983 it was floated.

      Figure 4.1 shows the fluctuations in the value of the HK dollar against both the UK sterling (on the left axis) and the US dollar (on the right...

    • 5 Why the Present Budget Policy Is Still the Most Sensible
      (pp. 59-66)

      Since the time of John Cowperthwaite, financial secretary from 1961 to 1971, Hong Kong’s basic economic policy framework has been a commitment to a limited government. This still shapes our budgetary policy. In his first speech as financial secretary, Cowperthwaite revealed his world view, and some would say his wisdom. He stated: “In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster.”

      Cowperthwaite’s policies attracted...

    • 6 Looming Population Challenges
      (pp. 67-76)

      Hong Kong has inherited conflicting legacies from John Cowperthwaite and Philip Haddon-Cave’s economic policy framework and Governor Murray MacLehose’s socio-political policy framework. The former emphasizes individual responsibility and freedom, limited government, and a competitive free market. The latter justifies promoting social responsibility and stability, an interventionist government, and a social welfare state.

      Many people in Hong Kong extol the virtues of MacLehose’s socio-political legacy. Unfortunately, this antiquated British-style welfare state is ill-suited to help us meet the challenges of the next few decades. Given that, the welfare state is already an integral part of Hong Kong’s social and political landscape,...

    • 7 Economic Competition and Structural Change
      (pp. 77-84)

      The industrial composition of Hong Kong’s economy has undergone a very rapid structural change over the past three decades. Between 1980/81 and 2010/11, the share of service sector employment in Hong Kong grew from 47.1% to 87.5%, while the share of manufacturing employment fell from 41.3% to 4.0% (see Table 7.1). In terms of their shares in real GDP, the service sector grew from 74.2% to 92.6%, while the manufacturing sector fell from 17.1% to 1.8% (see Table 7.1). When measured in nominal GDP terms, the change is even steeper—the service sector grew from 68.3% to 92.9%, and the...

  10. Part III Conditions Affecting Growth and Innovation

    • 8 Global Economic Integration and the Distribution of Housing Wealth
      (pp. 87-94)

      Harvard Professor Dani Rodrik has for many years presented an important argument on the inescapable trilemma of the world economy, which he calls an “impossibility theorem.” According to him, global economic integration, national sovereignty, and democracy are mutually incompatible choices in ordering the world economy. It is only possible to combine any two of the three choices, but not all three together at the same time. Although his idea is quite simple, it helps us to think clearly using bold concepts to configure a complex reality. Making this reality work without undue stress requires what Rodrik advises are nuanced approaches....

    • 9 Diversity and Occasional Anarchy: The Key to a Great City
      (pp. 95-102)

      Jane Jacobs (1916–2006) was a writer, thinker, and activist. I first became aware of her work in a mathematical economics class taught by Robert E. Lucas Jr. at the University of Chicago in 1975. Jacobs’ field observations of economic life in the big cities were briefly mentioned as illustrations for Lucas’ highly abstract paper, “On the Size Distribution of Business Firms.” Little did I realize, and I am not even sure that Lucas himself realized then, that her ideas would inspire and form an important part of the story of the new economic growth theory a decade later.


    • 10 Cities, Human Capital, and Economic Development
      (pp. 103-112)

      Understanding economic development is the Holy Grail of all economic studies. No theory has yet explained the rise of real incomes per capita in Britain by a factor of about 16 from the eighteenth century to the present and, in contrast, the remarkable increase in China by a factor of 6 within a span of just 30 years. If China continues at this rate, then it will have achieved in 50 years what took Britain 200 years to accomplish. And if we can understand the mechanisms for this development, then maybe it can be duplicated elsewhere, in countries still on...

    • 11 On the Creative and Innovative Economy
      (pp. 113-120)

      Like most people, I believe Hong Kong’s long-term economic growth depends critically on the creativity and innovation of its people. But is there a role for the government to promote policies and build institutions to foster creativity and innovation? This essay presents the intellectual case for selective intervention toward that end. It proposes a general approach that might have the highest chance of economic success in the Hong Kong context.

      Positive non-interventionism has long been the guiding principle in managing Hong Kong’s economic affairs, so naturally there is some hesitation about a new positive interventionist role. It is not easy...

  11. Part IV Politics and Regulation

    • 12 Core Values, Functional Constituencies, and the Democratic Principle
      (pp. 123-130)

      Two related issues surfaced in the 2012 public debates for the post of chief executive of the Hong Kong Special Administrative Region. One was whether functional constituencies in the legislature should be abolished as being incompatible with the democratic principle of equal political rights. The other, larger issue related to the commitment to uphold the core values that Hong Kong people subscribe to.

      These core values concern inalienable, fundamental human rights, including freedom and the rule of law. Human rights are conceived as universal (applicable everywhere) and egalitarian (the same for everyone). Freedom embraces economic freedoms, civic freedoms, and political...

    • 13 Simple Ideas in Political Economy
      (pp. 131-138)

      Universal suffrage exists in almost all democratic societies, providing every adult with equal political rights at the ballot box. These societies invariably have market economies. The distribution of income among working adults is always dispersed and typically skewed to the right-hand side. This is because the income of individuals at the lower end is bounded below at zero, but the income of high-income individuals can be unbounded and many times above the median level. It would seem logical that by virtue of the tyranny of the majority vote, such societies would adopt income redistribution policies to transfer resources from the...

    • 14 Taxation, Regulation, and the Rational Politician
      (pp. 139-146)

      In all societies, governments intervene to control and influence market decisions and their outcomes. Governments usually intervene in two ways: taxation and regulation. Economists believe the burden of regulation on society is much greater than taxation because the economic inefficiencies are much greater.

      Regulations effectively take private resources from one group to pay another. This can give rise to a problem that is particularly acute in Hong Kong in which politicians use regulation to advance the interests that support them or that they represent. Hong Kong’s Basic Law does not permit legislators to propose bills that would have budgetary consequences....

    • 15 Why Is Housing So Expensive?
      (pp. 147-154)

      There are many voices in Hong Kong proclaiming unanimously that the city is in the middle of an affordability crisis in housing. Another set of voices proclaims that Hong Kong has a poverty problem. The latter is sometimes described as a gaping inequality between the haves and the have-nots. Poverty of course makes housing unaffordable, but this is a result of poverty, not its cause. The best remedies for poverty are very often either a direct income supplement or an indirect subsidy to provide education and training—not a solution focused on housing.

      But to come back to the question...

  12. Part V Contradictions in Quality of Life Issues

    • 16 Education for Equality and Growth
      (pp. 157-166)

      Income inequality in Hong Kong has risen over the last three decades, as it has in the US, the UK, and many other advanced economies. The question is, why? Understanding the causes and implications of this is important because it can show us what needs to be done to reduce inequality and alleviate poverty in our society.

      Income inequality can be studied from three different perspectives.

      First is the normative perspective. Many thinkers believe that the distribution of income should not be too unequal in a just society. The branch of economics that studies this subject is known as welfare...

    • 17 On Public Health Care Finances
      (pp. 167-174)

      In this essay I discuss the cost of financing public health care in Hong Kong assuming the present health care system remains largely unchanged. I will make some simple projections of the public cost involved, interpret the results, and discuss the consequences.

      Public health care services have declined and I believe the main reason has been the low supply of health care professionals, mainly doctors and nurses. If Hong Kong fails to increase the supply of doctors and nurses, then the cost of attracting and retaining them into the public sector will certainly rise, and this will add further burden...

    • 18 Mandatory Provident Fund Needs Reform
      (pp. 175-180)

      Hong Kong’s Mandatory Provident Fund (MPF) has achieved an annual return of 5.1% since its establishment in 2000. Inflation during this decade averaged 0.37% annually. The annual return was therefore only 4.7% after inflation. These are poor results and the public knows it all too well. An early change to an individual portable MPF scheme would improve yields for all. It would help the neediest, who save less and depend more on a better performing MPF.

      In redeeming the MPF, we would have less populist demand for a social retirement benefits scheme that would transfer money from the rich to...

    • 19 Can We Afford Old Age Social Security?
      (pp. 181-188)

      Before 1997, the last British Governor Chris Patten proposed to introduce a pay-as-you-go social pension scheme. The proposal was withdrawn due to widespread opposition, including that from economists who pointed out that such a scheme was fiscally unsustainable and its redistributive provisions would have perverse work incentive effects. In its place, the Mandatory Provident Fund scheme was introduced.

      Advocates of universal social pensions and welfare support for the retired elderly in Hong Kong continue to demand our government to adopt schemes similar to those in Europe and the US. The ageing population, the alleged spread of poverty among the elderly,...

    • 20 Economic Consequences of Universal Old Age Social Pensions
      (pp. 189-196)

      In my previous essay, I calculated the long-term costs of various means-tested old age social security support programs proposed by Mr. Leung Chun Ying, Mr. Henry Tang, and Professor Chow Wing-sun. I compared their proposals against the present arrangement that combines two programs: the Comprehensive Social Security Old Age Assistance Scheme (CSSA) and the Social Security Old Age Allowance (SSA). The three proposed programs are means tested rather than universal social pension schemes. In this essay, I provide estimates of what it would cost in the long term to have a universal social pension scheme that gives each individual over...

  13. Part VI Resolving a Critical Deep Contradiction

    • 21 How Can We Get out of the Housing Quandary?
      (pp. 199-208)

      In these final two essays, I will analyze housing and domestic property in Hong Kong. This area best illustrates one of the deep contradictions between the policies of Cowperthwaite–Haddon-Cave and MacLehose, and their legacies.

      Public pressure on government to reintroduce the Home Ownership Scheme (HOS) reappeared when negative interest rates and rising home prices in the private market reignited concern among middle-income households that their aspirations for homeownership were being frustrated. As a result, the government asked the Hong Kong Housing Society (HS) to develop 5,000 flats under the “My Home Purchase Plan” in 2010, making them available to...

    • 22 Why Reforming Subsidized Housing Makes Sense
      (pp. 209-216)

      In my previous essay, I suggested resetting the unpaid discounted premium on flats under the Home Ownership Scheme (HOS) and Tenants Purchase Scheme (TPS) at the original sale price, when they were first sold by the Housing Authority. I also proposed presetting the selling price five years down the road for “My Home Purchase Plan” flats at the prevailing market price when the flats are first rented to the eligible tenant by the Housing Society. In this essay, I will explain the context and reasons for my proposal.

      Hong Kong has been fortunate enough to benefit from reforms in underdeveloped...

  14. About the Author
    (pp. 217-218)