Government intervention lacking key human dimension

PUBLISHED : Sunday, 29 November, 1998, 12:00am
UPDATED : Sunday, 29 November, 1998, 12:00am

THE Heritage Foundation, a right-wing think tank, releases its annual Economic Freedom Index on Tuesday. This year's report should make some interesting reading.

The foundation wages an ideological campaign in the name of the free market.

'Only when they increase the economic freedom of their citizens and unleash the phenomenal power of the free market will the poor countries of the world begin to achieve true prosperity and economic growth. Anything short of this is not only economically unwise, but inhumane.' It argues for a strict definition of freedom to be applied to economies: 'Absence of government coercion or constraint on the production, distribution, or consumption of goods and services'.

Hong Kong, lauded as the bastion of true capitalism, has consistently scored top marks in the survey. In this year of Government intervention - first to dramatically increase housing supply and then, backtracking, to bolster property prices, and with its moves towards establishment of the Mandatory Provident Fund (mandatory, you understand) - it is likely the foundation will pucker its libertarian lips in distaste.

Leaving aside such aberrant Government behaviour, to what extent is Hong Kong's economy free? By the foundation's own admission, 'countries that have the most economic freedom also have higher rates of economic growth and are more prosperous than those having less economic freedom'.

Well, Hong Kong is certainly prosperous, having a gross domestic product per capita greater than that of most European countries. But it also has a great skewing of wealth; outside of Singapore - another favourite of the foundation - the most skewed in the developed world.

Does this work to the benefit of privileged cartels and cliques? One businessman who has been based in Hong Kong has plenty to say on the subject, and it is telling that he would do so only on condition of anonymity.

He claims Hong Kong's economy 'remains one of the most rigged in Asia and you see it now increasingly'.

'It is not 'bad China' coming in, it is a bunch of locals who know that they've got a good deal and they're going to keep it as long as they can,' he says.

At the end of the day, it is the consumer who picks up the bill.

'It is telling that we have an Independent Commission Against Corruption but no competition law, and there's never going to be one. It is pervasive. It starts at the property market through to the doctors' cartel and the solicitors' racket.' Take high property prices. With the Government artificially holding up the value of land, flat prices are not being allowed to adjust freely.

The effect of this on the ordinary people of Hong Kong is akin to an extra level of taxation - in the difference between the price paid in rent for a typical flat and what you might pay in London, Sydney or Vancouver.

Richard Ho Yan-ki, dean of the faculty of business at City University and a libertarian camp hawk, has a solution to this.

'Whether you like it or not, Hong Kong's budget depends very much on the land sales.' If people cannot afford to live in Hong Kong, then they should move to the mainland, he says.

Not much comfort to the Hong Kong people. But, as Mr Ho says, this is China now, after all.

Leaving aside the inability to afford property, there is another negative effect of high property prices on the quality of life of Hong Kong people.

Tao Ho - a prominent, respected and often outspoken architect and designer - says the present system works against the interests of Hong Kong people.

There are two forces at work, Mr Tao says. One is the system of town planning and the other the dynamic impact of the Hong Kong people themselves. These forces work in opposition to each other.

The Government has, he maintains, inherited an outmoded and static form of planning primarily concerned with raising revenue.

By exacting a high premium, the Government is essentially forcing developers to exploit the land to its utmost potential.

Land has become a commodity and urban planning reduced to gaining maximum potential from the land area.

Proper planning, he says, should be three-dimensional.

It is a 'networking of usage, transportation and natural surroundings' - rather than the existing system where plots are developed in isolation.

Even with that kind of rigidity, Hong Kong's people have been able to develop a vibrant city culture, bursting from their confines into the streets.

Why, Mr Tao asks, do we have no street cafes and bars like other big cities? 'The planning policy exercised by the Government is not in keeping with the dynamic nature of the people,' he says.

'Young people coming to buy small apartments have to work for 40 or 50 years to pay for them. More than half a life just to buy a little flat.

'Because of the high land price, we are selling floor area. Not selling a good, three-dimensional environment.' When you make an economy dependent on the property sector, no wonder things go a bit bananas.

It is not in just the property market that vested interests appear to work to the detriment of Hong Kong's people.

Lack of competition or anti-competitive practices in a number of areas leads to higher prices and poor service for consumers - in the supermarkets, in banks, in record and book shops, in wine prices, in public phones, in banking services and in electricity prices.

With no legal framework to protect against this, it is unlikely that things will change much. Consumer activism is almost non-existent and the Government is little inclined to take the field on their behalf. Of course, were it to do so, the Heritage Foundation would cry blue murder.