To think clearly, our officials should stand on their heads

Like the trams, financial chief John Tsang and his advisers' thought processes run along same old lines; they should apply inverse thinking

PUBLISHED : Monday, 20 January, 2014, 12:15am
UPDATED : Monday, 20 January, 2014, 12:43pm

Hong Kong's government officials and their advisers have problems with thinking.

Like the antiquated trams that trundle through the streets of Hong Kong island, their thought processes run only along the same old lines. They appear incapable of taking a new direction.

This inflexibility of mind severely constrains their problem-solving abilities.

In particular, our officials seem unable to apply the basic principles of inverse thinking.

In a nutshell, inverse thinking suggests that if you cannot solve a problem satisfactorily, then you are probably asking the wrong questions.

Instead, try pretending that your problem is actually the solution, and then work out what question you should have been asking in the first place.

It's hardly a new idea. More than 100 years ago seismologists Emil Wiechert and Gustav Herglotz used inverse thinking to determine the structure of the earth's centre 6,300 kilometres down, even though the deepest borehole of the day reached just 2km below the surface.

Inversion is a powerful technique … it is one our officials seem never to have heard of

Inversion is an immensely powerful technique, but as recent reports make clear, it is one our officials seem never to have heard of.

Earlier this month, the South China Morning Post reported a warning from Financial Secretary John Tsang Chun-wah that the cost of caring for the elderly could run down the city's fiscal reserves unless the government increases its revenues, presumably by raising taxes.

Tsang might believe that to be a sound line of reasoning, leading to an inescapable conclusion.

But anyone with a flexible habit of mind will have immediately inverted his warning to deduce that by running down its fiscal reserves, Hong Kong can care for its elderly without raising taxes.

Last Friday, we got another illustration of the rigidity of official thinking, when one of Tsang's advisers said that the government's lump sum revenues from land sales should be firmly ring-fenced, otherwise they might be frittered away on the city's everyday spending.

"We shouldn't use one-off revenue to pay for recurrent expenses," he argued. "It's not going to be sustainable."

The problem as the government sees it is that capital revenues from land sales and land premium payments are volatile. Therefore they are unsuitable for funding operational spending, and must be set aside and used only for capital projects, such as the new bridge to Zhuhai. If the government needs to fund increased day-to-day spending, it should increase tax revenues.

However, a quick inversion puts the matter in a completely different light, and suggests an altogether more helpful solution.

If the government's problem is that its land income comes in the form of volatile lumps of capital, then the solution is not to ring-fence them in order to fund ever more expensive and unnecessary capital projects.

Instead, the sensible answer would be to convert volatile one-off gains from land sales into regular and predictable cash flows which could then be used to help fund the government's recurring spending commitments.

That means the government should stop demanding up-front lump sums from developers in favour of spreading its land income over the entire lifetime of property projects.

Rather than levying a one-off land premium, the government could charge leaseholders an annual ground rent for the duration of their lease.

That way, instead of sucking money out of the economy to lock away as capital reserves, the government would secure a steady revenue stream immune to swings in the economic cycle, which is just what it needs to fund the welfare obligations Tsang is so worried about.

A simple inversion is all that is needed. But alas, by always asking the wrong questions, our officials ensure they inevitably reach the wrong answers.