A few tough rules from a few tough people

PUBLISHED : Sunday, 01 August, 2010, 12:00am
UPDATED : Sunday, 01 August, 2010, 12:00am

There seems to be confusion in Hong Kong about the proper role of government in an open market economy. On the one hand there is the kind of ideology-driven ignorance characterised by a recent Economist article which claimed there had been a golden age of Hong Kong free-market capitalism in the 1960s and 1970s which has now been smothered by the likes of minimum wage legislation. On the other is an administration which claims to be pro-market and anti-public spending but, in practice, is extending its bureaucratic tentacles while neglecting the duties which are the main responsibility of government.

The myth of a golden age when John Cowperthwaite and Philip Haddon-Cave were financial secretary was boosted by economist Milton Friedman who frequently extolled Hong Kong as a model of capitalism. But I remember meeting Friedman and his wife, Rose, here in the late 1970s and being astonished at his naivety about how the territory actually worked. He refused to acknowledge then or later the huge interventionist role of the government in public housing - then accommodating more than 50 per cent of the population - in free health access, education and infrastructure building.

Friedman's praise for its low direct tax base ignored how its land and housing policy was not only a vast low-income subsidy but an attempt to redistribute income - and, for that, much more important than the minimum wage legislation now opposed by some employers and ideologues. The relatively low tax rate was as much the result of its lack of a need for defence spending and the benefits of a then youthful population as administrative wisdom. Hong Kong would even have had a mandatory provident fund, like one the British introduced in Singapore, but for the opposition of business represented in the Executive Council. Likewise, these interests opposed an attempt by Haddon-Cave to tax dividend income.

Meanwhile, the domestic private sector was dominated by lightly regulated monopolies like the power companies, and by a bank cartel. Hong Kong did have its dynamic sector, in manufacturing, shipping and small businesses of every kind. It still has the latter, while export-oriented services have taken the place of manufacturing.

A good minimum wage is now needed for the same reason as public housing in the 1960s - social cohesion and political calm. More social and health spending and less on physical infrastructure now compared with then is needed because of the huge change in demographics - much lower growth and a much older population.

But spending for social security, health and the environment does not mean more bureaucrats. Indeed, it should mean fewer petty regulations on food, and minimalist attempts at improving air quality like the idling ban, and strong, meaningful measures to create few but tough rules on the environment, land and other crucial issues, administered by people with backbone. It means getting out of absurd ventures like Cyberport, unnecessary ones like mortgage lending and insurance, and subjecting costly infrastructure projects like the high-speed railway and Macau bridge to analysis of their economic and social value.

It means the end of back-scratching by bureaucrats resulting in such outrages as the appointment of retirees to new jobs despite their past failings - like that of the former postmaster to the Privacy Commission. And much stricter rules for senior bureaucrats joining the private sector, where they are only valued for influence peddling.

But let business not complain about the bureaucracy when the General Chamber of Commerce has one government insider as its chairman, a government corporation boss as its deputy chairman and a former bureaucrat as chief executive. What an absurdity.

Philip Bowring is a Hong Kong-based journalist and commentator