|Democracy for Economy’s Sake
For Hong Kong, as it struggles with structural economic transformation, democratic reform is not a
nice-to-have or something we can leave to an indefinite future date. Democratic reform is essential to
Hong Kong's further economic progress.
Opinion polls suggest that the Chief Executive's Policy Address
delivered on 10 October did not meet people's expectations. The
great majority of respondents expressed themselves disappointed with
it. In some respects this appears a harsh verdict, for in economic
terms the Policy Address had much that was commendable, for example
on tourism and environmental measures; much that was unobjectionable
if not new, such as continuing effort at educational reform; and
little that was economically harmful - one exception being the
raising of mortgage interest tax relief. Why then did the address so
In hard times such as these it would be very difficult for Mr
Tung to please Hong Kong people because he was not chosen by them.
Mr Tung was thrust upon the people of Hong Kong and, whether fairly
or unfairly, many blame him for their present misfortunes. Perhaps
Hong Kong people should be more mature - since the war on terrorism
has nothing to do with him. Perhaps Mr Tung should perform better.
However, it is difficult to imagine how anyone in Mr Tung's position
- without a mandate from the people, without an programme endorsed
by them, a leader that no one, apart from a handful of individuals
in a committee, ever asked for - to bind the community together in a
common purpose. The means to do it are not there. Hong Kong has a
Government which is structurally incapable of meeting its people's
Does this structural incapacity matter to the economy? It matters
because the economy is not driven by impersonal forces but rather by
how people feel, their confidence. If people feel disillusioned with
the political leadership, this matters for the economy. Secondly,
although the Government may not be able to solve Hong Kong's
economic problems, its policies can certainly contribute to the
solution. But in Hong Kong's case, even if the Chief Executive were
to identify the best policy solutions, without popular support how
is he to sell them to the people? Thirdly, it matters because a
government constituted as Hong Kong's is will find it difficult to
push difficult economic reforms through, the reforms that Hong Kong
needs. And finally, the structure of government matters because the
problem areas where reform is most needed - the land disposal
system, housing policy, the property market - are controlled by
interests well-connected with that structure. The present structure
of government tends to entrench these problems.
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|Hong Kong has a Government which is structurally incapable of meeting its people's
The remainder of this article explores these points. But first, does
the "ministerial" system introduced in the Policy Address
provide relief? One of the problems of the present system is lack of
accountability. Senior civil servants have responsibility for policy, but
are not accountable if the policy goes wrong. Under Mr Tung's proposals,
the new "ministers" will be appointed by him and can be
dismissed by him. This is in itself an important step. It will help
separate policy-making from the implementation of policy, and reposition
the Civil Service to concentrate on the latter.
However, under this new system, it seems that accountability will stop
at the level of the new ministers. The Chief Executive does not appear to
regard himself as accountable to the people: Mr Tung dismissed calls for
his resignation, and in his address gave no proper account of his
performance over the first four years of his term. Nor is there any real
mechanism for the people, or their elected representatives, to remove him.
The disconnect between the executive branch and the people remains as wide
as ever. Given this disconnect, the appointment of private sector persons
to positions of power raises the spectre of crony capitalism. It therefore
becomes all the more urgent to restore the accountability link by having
the Chief Executive elected by universal suffrage.
If we turn to consider some of the reforms the Hong Kong economy needs,
it becomes clear that such reforms are difficult or impossible for a
government constituted like Hong Kong's to introduce.
Civil Service reform
Public spending is now over 20% of GDP, and there is a widening deficit.
It is important for public spending to be controlled. However, more than
half of public spending represents civil servants' salaries. Singapore has
set an example by cutting senior civil servants' pay. But Singapore is a
democracy. In Hong Kong, the civil servants are currently the policy
makers (and even under the "ministerial" proposals are likely to
continue to wield great power). Will civil servants advocate cutting their
own salaries? The outcome of the recently-announced pay review remains to
Cutting civil service pay is only one component of civil service
reform. Better management systems need to be introduced. Performance
targets need to be set, and the achievement of these targets better
monitored. In the long run a comprehensive restructuring of the service,
similar to that undergone in Australia and other developed societies, is
needed. Without such reform, value for money will remain elusive. But it
seems unlikely that the motive force for such reform will come from within
the Civil Service itself. Based on the experience of other countries, the
impetus must come from outside, from representatives elected by the people
with a mandate for change.
Privatisation and contracting out
Although Hong Kong has a reputation as a free market economy, in fact
large sectors are dominated by Government enterprises and operations. The
Housing Authority is the world's largest landlord. Ninety-six percent of
hospital services are provided by the Hospital Authority. The airport,
most of the MTR, the KCRC, the post, water supplies, convention centres,
vocational training and many other operations that in other countries are
carried out by the private sector are owned or operated in Hong Kong by
the state. Over the medium to long term, many of these operations and
assets should be transferred to the private sector. Without this shift, it
is more difficult for the economy to adjust to meet changing demand.
The Government has in fact endeavoured to launch a privatisation
programme. However, it has been slowed, or even stalled, by opposition
from those within the civil service, such as Housing Department staff,
whose jobs would be threatened. Again, it is difficult to expect that the
public sector would advocate a policy of transferring assets from itself
to the private sector. The motive force must come from outside, from
elected representatives of the people.
|In the 1930s US President Roosevelt championed the rights of the small man against
the power of the trusts that then dominated the US economy. How can Hong Kong's
mechanism of government produce such a leader?
Monopolies and cartels
Although Hong Kong enjoys a reputation as the world's freest economy, this
is mainly in respect of its external trade. Internally, despite reforms in
banking and telecoms, numerous monopoly and cartel arrangements remain.
Key areas1 still affected include property
(discussed below), container terminals, supermarkets, gas supply, broking
commissions (targeted to end this year), doctors' fees, lawyers' fees,
betting, fuel, asphalt, concrete, electronic payment systems.
Land and property
The Government has traditionally raised much of its revenue through the
disposal of land. Land is granted on lease, for which large premiums are
charged, and further premiums have to be paid to the Government for change
in the use of the land. This system has led to serious economic
distortions, resulting in less property being available, in more limited
locations and at a higher price, than would be desirable2.
Through this mechanism, property development has become concentrated in
the hands of a small number of property developers. Over the summer, a few
of them voiced disquiet with the Government's policy of selling Home
Ownership Scheme (HOS) flats. The Government announced almost immediately
a reversal of its policy and the suspension of HOS flat sales. This led to
complaints that Government policy is in the hands of the property
developers. Whether the complaints are valid or not, it is difficult see
how the motive force for reforming the land system will come from the
Abuse of minority shareholders by listed issuers is unfortunately not
uncommon. One of the reasons for it is that there is no effective means
for investors to seek redress themselves for inadequate or misleading
disclosure by the issuer. In the US, investors can sue under the
Securities Act, but there is no effective equivalent in Hong Kong. A
reform of the Hong Kong Companies Ordinance has been promised by the
Government for years, but is yet to appear. What is needed is a government
that will champion the rights of minorities against the controlling
shareholder, just as in the 1930s US President Roosevelt championed the
rights of the small man against the power of the trusts that then
dominated the US economy. But President Roosevelt was elected by the
people with a mandate for change. How can Hong Kong's mechanism of
government produce such a leader?
Mr Tung was surely right to emphasise the importance of the knowledge
economy to Hong Kong's future. The increased spending on education is
surely needed. However, pushing more inputs (more spending) into the
system will not necessarily result in more knowledge outputs. Knowledge
generation is not like a factory process. Government effort should go to
creating an environment favourable to knowledge creation, enabling
citizens to generate the knowledge for themselves.
Undoubtedly, making adequate educational facilities available to all,
as the Government seeks to do, is an important step. However, it is also
important to consider the educational processes, whether these stimulate
creative thinking, and develop the skills for lifelong learning and
enquiry. There also have to be spaces in society, sheltered spaces, to
facilitate knowledge creation. At present, the endeavour of Hong Kong
people is too focused on near-term economic goals. In developed overseas
countries there is a much greater array of goals - individual-related such
as culture and leisure activities leading to self-actualisation, and
community-related such as interest groups and political organisations -
that provide a knowledge-friendly ecosystem. Perhaps most important of all
is the motive force for these activities that comes from the citizen
identifying with his or her community. Such identification is strongest
where there is a democratic system and the citizen can see how his
endeavours shape the society in which he shares. In Hong Kong, there is a
disconnect between the citizen and his society. This results in a
narrowing of individual focus, and a shrinking of the spaces so critical
to the generation of knowledge.
Hong Kong's further economic development has reached a stage where
further progress will depend on the citizen participating more in the
political system. Democratic reform has become an urgent economic issue,
and can no longer be put off.
1 Hong Kong Needs a Competition Law,
D.Webb, 13 July 2001.
2 "Land tax" and high land
prices in Hong Kong, HKDF, 1 January 1996.