HK's wrong start makes British privatisation model hard to copy
THE WRITTEN WORD is my forte. The spoken word can be my weakness. I made a speech to the British Chamber of Commerce last Friday about private sector participation in Hong Kong's economy and I do not think I did it well.
Time to try again, this time in print. The British chamber takes a particular interest in privatisation because it has been a pronounced theme of the British economy in recent years and many members would like to duplicate it in Hong Kong.
The difficulty for them is that they are dealing with Hong Kong, not Britain. The concept of privatisation is a good one and Hong Kong is ready for it but the government partner is not, at least not yet in the sense that crucial sectors such as transport and water have been privatised in Britain.
This is not to say that privatisations do not work in Hong Kong. Our long-privatised power supply has generally served us well, we have introduced full free market reforms to telecommunications and the Cross-Harbour Tunnel was a private sector participation success story.
But we are increasingly going about it the wrong way. In the first place, the underlying purpose of privatisation is not to raise money for government but to introduce market-driven efficiencies to public sector corporations. That was the idea behind rail and water in Britain.
Yet, our government is doing it mostly to generate fiscal revenue or to hide fiscal expenditure while keeping the supposedly privatised corporations under such tight control that those benefits of greater efficiency are unlikely to arise. MTR Corp, for instance, does not really have the fare autonomy it was promised when its shares were listed on the stock exchange.
The MTR also exemplifies another failing of the way our government does things. In financial terms, it is a property company that runs a loss-making railway on the side. Privatisation for us too often means making grants of public land to hide poor operating margins that private investors would not otherwise find palatable.
One reason our government does it is to evade the Legislative Council. Legco must approve expenditure but this covers only expenditure of money. Legco's permission is not required if the government pays instead with our most valuable form of public treasure, property rights. Payment this way has the added attraction of not being treated as expenditure, thus giving our leaders the appearance of fiscal responsibility.
But, if you privatise anything, you want private sector partners who know what they are doing. Privatise with property grants and you do indeed get that. You get property developers, pity about the other purposes you might have had.
Thus, at the West Kowloon Reclamation, billed to us as a big cultural initiative but paid for with property, our range of private partners has already been limited to five developers alone.
And because we really do not have more than those five, thanks to our peculiar land-use policies (I would need a book to go properly into these), we are unlikely to get as good a price as we might have had for that public land. There is no thriving market in property rights any longer. It has become much too narrow.
Thus, the direction we have taken with privatisations in recent years is one of the wrong game, the wrong assets, the wrong partners, the wrong way of paying and the wrong reasons for doing it.
But, as several members of the chamber pointed out, what should stop Hong Kong from changing its ways and doing it better in the future?
The answer is that there is nothing to stop it on the private sector side of the equation. The fault lies on the public sector side and there, unfortunately, it is deep-seated because of the way the public sector is constituted.
We have a system in which only the official opposition, or what passes for it, is elected by the public at large and the government itself answerable only to Beijing. It knows it has no real mandate from its own public and, thus, inevitably takes the easy way out to avoid public outcry that could draw too much attention to the highly unusual nature of the system or reach the ears of Beijing.
The easy way out means privatisations done as an easy way to raise revenue and hide expenditure and property to make it all look sweet because that is the easy way too. It may be an inefficient and creaky way of doing things, but, as long as it does not crash, and it will not, the policy secretaries all keep their jobs, safe in the knowledge that no voters can turf them out.
We can get nothing else under the present system. It was not set up to take bold measures but to keep Hong Kong quiet and stir no trouble for Beijing.
And that is why what is done in Britain is no guide to what can be done in Hong Kong.
The British government has the mandate of the ballot box. The Hong Kong government does not and without it, does not have the courage or inducement to do things differently.