Reform of Government - towards an Agenda

Rising popular dissatisfaction with the Hong Kong Government cannot be dismissed as a temporary phenomenon; it reflects deep structural instability in the system. It is therefore important that an agenda for reform is developed and public debate on it encouraged. Major progress on reform is likely to depend on changes to the constitution.

Articles in earlier issues of this newsletter⁽¹⁾ have set out some of the shortcomings of the present Government structure. This article attempts to set out the issues more systematically in the form of an agenda that may serve as a basis for deeper public discussion.

The first eighteen months of the SAR's life have been a catalogue of disasters. However, there has been one side benefit. Masked by years of prosperity, and by the dynamism of Hong Kong's last Governor, the basic inadequacy of the Government's structure has now been exposed.

Hong Kong is essentially entering the twenty-first century with a form of Government rooted in the nineteenth - a colonial administration. This colonial inheritance would present challenge enough. However, Hong Kong's case is worse because the constitution that it has, the Basic Law, is not a fixed point of reference but actually mandates change in ways that are likely to deepen the present contradictions. Thus constitutional reform is likely to rank high on any agenda to deal with Hong Kong's malaise of Government.

The remainder of this article presents a possible agenda for reform. Some tentative answers are put forward, but the main purpose of the article is to identify the key questions, or areas for discussion.

 

Mandate for constitution

Normally, the constitution of a political entity, for example the United States of America, is developed by representatives of the people as part of the act of founding that entity. However, Hong Kong's constitution, the Basic Law, was developed by appointees of one sovereign power with the concurrence of the other. The Basic Law enjoys no mandate from the people of Hong Kong, nor did the people subsequently ratify their decision by any means such as a referendum. In fact, no mechanism for such ratification exists.

As long as there remains no mechanism for the people of Hong Kong to endorse their constitution, such constitution will lack validity. This is true of the Basic Law now, and would also be true of any reformed version of it or any constitution that might replace it, however well-intentioned. To establish a solid basis for a future constitution of Hong Kong, therefore, it will be essential to develop the mechanism for popular endorsement. Consideration should be given to developing a constitutional convocation⁽²⁾, as employed in Australia's recent debate over whether to become a republic.

 

Constitution

Hong Kong's constitution, the Basic law, appears to have been designed mainly as a policy document with the purpose of distinguishing and protecting the policies of the Hong Kong system against China's very different system. This approach no doubt had its merits, in that effort was needed to protect Hong Kong's system. However, policies not infrequently require fine tuning, or even changing; indeed, the ongoing business of Government is to do just that. So in many years, the Basic Law hampers the Government going about its legitimate business. For example, it is difficult to see how the Government's current budget deficit can be reconciled with the requirement of Article 107 to keep expenditure within the limits of revenues.

Nor does the Basic Law seem sufficient to provide an effective separation of the two systems. Its wording is loose and capable of differing interpretations at many critical points. The actions of the Hong Kong Government in submitting, for example, to the mainland China view of jurisdiction in the recent "Big Spender" case, give cause for concern. And while the Basic Law does lay down procedures for determining whether or not an action breaches its principles, in practice the machinery for making such determinations is weak. The Hong Kong courts have little tradition of adjudicating on constitutional questions, and have proved reluctant to depart from the Hong Kong Government's view. And the final arbiter, the Standing Committee of the National People's Congress (NPC), is not a court and cannot be expected to make judgements on purely legal grounds.

Thirdly, while the Basic Law has "too much" on policy, it has "not enough" on the normal stuff of a constitution - the intsitutions of Government, their functions and relationships, and their relationship to the people⁽³⁾. This deficiency needs to be made good.

Fourthly, the Basic Law mandates further development of the governmental system, but is unclear how this is to be done, for example, how the ultimate aim of general election for the Chief Executive and the Legislature is to be achieved. Until this question is settled, Hong Kong faces a period, perhaps a long period, of instability.

Fifthly, the development trends that are evident from the Basic Law tend to exacerbate contradictions rather than resolving them. For example, the social and economic policies set out in the Basic Law tend to be of a conservative and business-orientated nature; yet the long term trend is to greater democratisation. The increasing mandate enjoyed by Legco is at variance with its limited powers. The Chief Executive has the power to initiate legislation but no means to assure that Legco will accept it. There are a number of stress points in the structure that are likely to come under increasing pressure as the system develops.

 

Separation of powers

There is a formal separation between the executive, legislative and judicial branches of government. However, there are concerns regarding the impartiality of the public prosecution process, for example, in the Government's refusal to prosecute well-connected parties apparently in breach of the law.

 

Head of executive branch

The Chief Executive has no mandate from the people of Hong Kong, and yet has much more power than the Legislature whose mandate from the people is set to grow under the Basic Law. Worse than this, the Chief Executive is selected by a small circle - itself elected by a committee appointed by China - and owes some allegiance to this group.

 

Cabinet

There is no formal cabinet. The task of making policy and publicly defending and promoting policy is left largely to civil servants who are tenured and so suffer little or no consequence for poor policy decisions. Civil servants are also able to evade public responsibility for the policies by reverting to their role as executors rather than deciders of policy. Executive Councillors do not constitute a cabinet either. They have a behind-the-scenes advisory role, in which their power is largely divorced from responsibility. The ranking of Executive Councillors in the Basic Law is lower that of Policy Secretaries (i.e. senior civil servants): changes in the latter have to be reported to the NPC while changes in the former do not. Exco has a long colonial pedigree, but it seems that if it did not exist, it would not have to be invented.

 

Policy-making

As stated above, the making of policy lacks political mandate, and there is a tendency to avoid change - witness the lack of initiatives in the Chief Executive's 1998 Policy Address. Policy is made by civil servants, who are usually generalists without longstanding expertise in their area. This embodies the amateurism of the British colonial era - with possibly some input from Confucian bureaucratic traditions - but appears increasingly inadequate to handle the complexities of the modern world. Moreover, too often the civil servants develop policy directly from raw data, rather than selecting policy options from analysis and studies done by academics, think tanks and lobby groups as in many developed countries⁽⁴⁾.

There is a channel for tapping expert opinion in the development of policy: the Advisory Committees. However, these committees are appointed by the Government and tend to represent a fairly narrow section of interests - more often those of the producer rather than of the consumer. They are no substitute for the self-developed interest and lobby groups of many developed societies. Moreover, given the number of committees - more than 350 - and the Government's preference for tame appointees, the individuals appointed to these committees often have too little time to make a useful contribution.

The Basic Law imposes great restrictions on the introduction of private member's bills, thus blocking a potential source of policy innovation.

 

Efficiency and structure of bureaucracy

The structure of the Bureaux and departments includes conflicts of interest. For example, the Financial Secretary has power over not only the raising of revenues and approval of expenditure, but also many of the major spending departments. The Environment Branch is located in Planning, Environment and Lands, even though the objectives of planning and lands often conflict with those of the environment. At a different level, the many functions of the Monetary Authority conflict with one another.

Sporadic efforts have been made over the years to improve the efficiency of Government and obtain value for money. Some of these efforts, such as the performance pledges and culture of customer service, the work of the Audit Department, and the recently launched Business and Services Promotion Unit, have been fruitful. However, many of the prerequisites for a modern and effective civil service are lacking.

One weakness is the staffing of key positions by generalist Administrative Officers rather than persons with relevant professional experience and expertise. This weakness is exacerbated by the rapidity with which AOs are moved from one policy area to another totally unrelated to the first⁽⁵⁾. Consideration should be given to hiring more experts from the private sector, and to developing expertise internally within specific functions. Another weakness is in incentives. It is rare for poor performers to be fired. It also appears likely that many civil servants are now overpaid compared with their private sector counterparts.

A third weakness is the lack of a proper system of accounting for Government. The preparation of the annual budget on a cash basis provides an incomplete and misleading picture of the actual resources employed and consumed by Government. Full accrual accounting is needed to give a true picture of the Government's assets and liabilities, and the flow of resources through Government. Hong Kong should learn from the Government of New Zealand, where full accrual accounting has been practiced since the start of the decade. In the absence of proper accrual accounting, including costing of non-purchased resources like land and internally-supplied services, it can be dangerous to attempt to set Government operations on a commercial basis, as in the case of the various trading funds.

A fourth weakness is the basis of funding of Government. The revenue base has become too narrow, as exposed during the current recession. Perhaps more seriously, the effects of Government revenue-raising on the broader economy and society are deleterious. The Government's reliance on property-related revenues and its desire to maximise those revenues by restricting the release of land was a major contributor to the property bubble and hence to the current recession. The Government must move to less economically damaging methods of raising revenue, probably through taxing consumption through some form of goods and sales tax.

 

Legislative branch

The legislature is has only one-third directly-elected seats, which is at variance with the aspiration of the people. Movement towards full direct elections should progress as soon as possible.

The requirement of the Basic Law for decisions of Legco to be passed by the directly-elected and other members separately is proving unworkable. Because of this rule Legco has proved unable to function, for example, its failure to express a view on the Policy Address.

 

Local Government

The local government structure inherited by the SAR was in many respects unsatisfactory. Formed originally to undertake very limited functions of public hygiene and recreation, the two councils had been allocated disproportionate revenues (thanks to the effect of the property boom on rates) and had swollen to absorb them without restructuring and adopting adequate management processes. The two-tier structure of district boards and councils was also inefficient.

However, the Government's cure - to abolish the two councils, and absorb most of their functions in the central government - is worse than the disease. In developed societies local government performs an important role. Moreover, the people of Hong Kong want local government.

The Foundation has therefore proposed that Hong Kong expand rather than reduce the role of local government⁽⁶⁾. A small number of Area Councils should be formed and given real powers in areas like health, social welfare and public housing, similar to those enjoyed by their counterparts in democratic societies. Not only would this empower the citizen and give him a stake in his local community, but it would introduce healthy competition between regional providers of services, which would result in higher standards all round.

 

Boundary of Government

Although the Hong Kong Government on paper is relatively small, in practice the Government's influence is much more extensive and this is detrimental to society and the economy. There is a need to determine the proper boundary of Government.

Government-owned entities and operations carry out too large a share of the economic activity. The Hong Kong Government should learn from developed and Asian countries and privatise its "state-owned" industries, such as the KCRC, the MTRC, the Airport Authority, the Housing Authority, the Hospital Authority, and should also privatise or contract out the various government operations such as water supply and management of Government property. The shareholdings recently acquired by the Government as a result of its market intervention should be disposed of immediately. Land should not be owned by the Government and should be privatised by the granting of freehold as soon as possible.

Even where Government does not own economic operations, it heavily influences outcomes via subsidies - e.g. to the subvented welfare sector, vocational training and to the school sector - and mandates monopolies and restrictive agreements in areas such as banking, rice supply, gambling, etc. Health, education and property-related services such as public housing, which are likely to be major areas of potential growth in the future, are dominated by Government or Government-influenced providers, leaving little prospect of capturing growth opportunities. The Government must relinquish control over these sectors and promote initiative by competing providers of service.

Finally, the Government has tried to extend its reach even beyond this already very wide scope by applying pressure on private and supposedly independent bodies to comply with its short term policy objectives. Employers are being encouraged not to fire staff, or to do so as quietly as possible.

There is "double charging" for services provided by the Government: fees and charges in addition to direct and indirect taxation. If services can be charged for on a full cost-recovery basis, it is likely they need not be provided by Government at all but could be hived off to the private sector.

There should be a review of the nature of services to be provided by the Government. Core policy and administrative functions and the provision of public goods (security, justice), should be provided by the core civil service. Other public services (regulation) should be provided by independent agencies operating under their own charter to specific performance criteria. Everything else should be privatised.

 

Policy committee, HKDF

 

(1) Hong Kong's leadership crisis, Issue 4, February 1998; Tied down by the system, CK Lau, Issue 5, April 1998

(2) As proposed by Christine Loh

(3) Role of the Chief Executive & Exco and the Civil Service, Professor Yash Ghai, Seminar on Government in Evolution, 1 March 1998

(4) Hong Kong's policy research level should be raised, HKEJ, 4 March 1998

(5) It's time for civil service review, Joseph Cheng, SCMP, 2 August 1998

(6) Restructuring the system of Goverment, HKDF Newsletter Issue 7, August 1998