City needs to heed some free advice
Hong Kong has remained the world's freest economy for the 18th consecutive year, according to an index compiled by a conservative US think tank. The news appeared the same day as a report about Housing Society plans to restrict flat sales in its latest residential development to Hong Kong residents, to deal with concerns about a growing wealth gap and the affordability of housing. This raises the question of what the Heritage Foundation, which compiles the Index of Economic Freedom, would have to say, since property rights and freedom of investment are among 10 factors it considers. It's a fair guess it would have been critical. It remains so about the recent introduction of the minimum wage, describing it as a dent in Hong Kong's crown.
This reflects the narrowly focused and arbitrary methodology behind the index. Indeed the minimum wage - a modest HK$28 an hour to protect the city's lowest paid workers - is a case in point. The director of the foundation's centre for international trade and economics, Terry Miller, concedes that it does not appear to have had a dramatic impact on labour-market freedom.
The top ranking is to be welcomed as affirmation that we remain a business-friendly city with a low-tax regime. We should not be complacent about it, however. Economic freedom is not the same as competitiveness. Though highly competitive, the business sector generally has to deal with cartels and dominant players in markets from property to port operations to supermarkets. Officials, lawmakers and business circles are still trying to reconcile a meaningful competition law with economic freedom.
Many, including this newspaper, have expressed concerns about the social and economic implications of a widening rich-poor divide and the lack of affordable housing. The Housing Society's plan echoes a similar suggestion by chief executive candidate Leung Chun-ying. But we should be careful about going down that road lest it compromises the principles of free markets and affects the city's cherished reputation as a free economy. Part of the blame for the affordability gap lies with the way the government implements a de facto high land-value policy, through auctions of large, expensive sites in which small and medium-size developers are priced out of the market. This is a key source of government revenue and the basis of a low-tax system, but it also means developers need to recover costs through higher prices that are passed on through the rest of the economy.
As the debate continues, Hong Kong needs to seek innovative and more flexible ways of tackling the issues, including increasing both the supply of land and dividing some of it into smaller parcels so that more developers can compete.