Hong Kong needs to fix these eight things to reverse inequality
Li Ka-shing’s suggestion to up corporate taxes should be heralded as an invitation to explore wider social remedies in the battle against widening inequality
Whether you look to British upheavals over leaving Europe, or Donald Trump’s ugly redefinition of US politics, or volatile, xenophobic, political movements sprouting all around us, including Hong Kong, the root causes of the dreadful debasement of democratic politics across the world have become glaringly clear: close to a decade of economic hardship after the 2008 crash; and inequality more extreme than we have seen in our lifetimes.
But as consensus has emerged about the corrosive impacts of widening inequality, remarkably little has been proposed to redress this trend, either worldwide, or here in Hong Kong. It is to the credit of Li Ka-shing that he has bitten this bullet, with acknowledgement of the problem, and some piecemeal suggestions on what might be done. More of our elites must do the same.
In truth, Li Ka-shing’s suggestion that companies should pay a bit more tax is almost comically inadequate as a response to the inequality firestorm ablaze across the rich world’s middle classes. But at least he is admitting the significant corrosive impact of inequality, and has opened the Pandora’s box on debate.
Branko Milanovic in his recent book Global Inequality lays bare some of the data that sit at the heart of this firestorm: the richest 5 per cent across the world have captured almost 45 per cent of the economic gains achieved in the three decades since 1988, and the top 1 per cent have captured almost half of that. From 145 billionaires worldwide in 1987, there are around 1,426 today, with an aggregate wealth of US$5.4 trillion – about 2 per cent of the world’s total wealth.
At a more personal level, the gap is clearly seen in the difference between average chief executive salaries, and those of the median worker in companies around the world. For the S&P Top 500 companies in the US, the CEO on average earned 335 times more than the median employee – compared with 42 times more in 1980. At Boeing, CEO Jim McNerney earned US$15.7 million last year – almost 200 times the average employee salary of US$79,000. At Citigroup, the CEO earned US$9.6 million – 132 times the average employee salary of US$73,000.
After almost a decade of economic hardship, during which time many employees have seen barely any salary rises, and widespread job uncertainty, and felt what Milanovic calls “the great middle class squeeze”, such handsome salaries have become the focus of anger and jealousy towards an elite that has appeared not to share in the post 2008 hardships.
And Hong Kong has not been spared, being clearly one of the most unequal economies in the world. Hong Kong’s 10 richest men earn the equivalent of one-third of Hong Kong’s GDP (compared with 3 per cent in the US and the UK, and less than 2 per cent in China). Hong Kong has historically been tolerant of such wealth disparities, but that tolerance has been sapped since the Asian Financial Crash in 1998. During this long and challenging two decades, a large part of Hong Kong’s families have felt nothing but uncertain employment prospects, sagging incomes, and no prospect of improvement in sight. The eccentric quantitative easing policies worldwide, which have brought interest rates to historic lows, have aggravated resentments by lifting asset markets – in particular property prices – into the unreachable stratosphere.
But what, then, must be done? As I already said, Li Kashing’s suggestion for a small lift in corporate taxes is spitting in the wind – and misses the most powerful forces behind political and social resentments. First and foremost, the problem must be addressed holistically, rather than with ad hoc measures, but beyond that here are what I think are eight key areas where action is needed:
· Economic growth: it goes without saying that strong economic growth would calm many frayed nerves. Policies focused on sustainably stimulating our economies need urgent attention. This is particularly urgent in Hong Kong, where growth is spluttering close to zero, and where retail sales are crumbling.
· Access to homes: this is not just about prices, though these are pivotal. Nor necessarily is it about ownership versus rental (I and my brothers and sisters grew up happily in a British council house, never troubled by the fact that my mum and dad did not own our house). For me, more than anything else, it is about ensuring that Hong Kong families have a place to live that they can call a home. And frankly, a 200- or even 500-sq ft box can never make a true home. It is a crime that Hong Kong’s regulators have not forced on developers minimum standards based on an idea of a home. Singapore has achieved this. We have not. And we are paying a high price.
· Access to education: a good education is the best possible passport to future economic well-being, and a powerful equaliser. All Hong Kong families should have access to affordable, high quality education - lifelong.
· Health and wellness services: Hong Kong people need not just affordable access to health care, but speedy access – in particular to services that help keep them well, rather than just help them when they are sick.
· Social and cultural amenities: my sense is that Hong Kong has done well here, with excellent and widely available sports and cultural facilities (put on one side frustration at the delays in West Kowloon).
· Tackling egregious wealth: there is a good case for more significant death duties. And for substantial taxes on blatant or discretionary luxury spending. And for extra duties on second homes.
· Redistributive policies: these are for Hong Kong perhaps the most ideologically challenging, but worldwide there is a careful examination of what redistributive policies can work most effectively.
· Elite domination of politics: the blatantly self-serving antics of the Liberal Party, empowered by an electoral college system that concentrates extraordinary political power in the hands of a small elite group, is an embarrassment to us all. If the naïve, sophomoric populism of emergent political groups – particular among our young – is to be channelled and directed constructively, this elite problem needs urgent attention.
Meanwhile, let us thank Li Ka-shing for opening the debate, and move on.
David Dodwell is Executive Director of the Hong Kong-APEC Trade Policy Group