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  • Jul 31, 2014
  • Updated: 12:33pm
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HUMAN CAPITAL

Hong Kong needs to invest in human capital urgently

In order to sustain its productivity growth, HK needs to put more resources in nurturing talent

PUBLISHED : Tuesday, 17 June, 2014, 11:51am
UPDATED : Wednesday, 18 June, 2014, 7:44am

Singapore and Hong Kong are well known for their growth miracles. They have taken different approaches - in Singapore, interventionist; in Hong Kong, non-interventionist.

As we build more subsidised housing, our economic growth rate becomes lower

They have also adopted different policies on human capital investment, with repercussions for their future. In Hong Kong's case, the situation is worrying.

First, let us look at per capita real growth rates of gross domestic product since 1960. As it turns out, Singapore's growth rates have been higher than Hong Kong's. From 1960 to 2011, Hong Kong's GDP grew at 4.7 per cent, an average 0.56 percentage point slower than Singapore's.

About half the difference can be accounted for by the fact that the market values of government-subsidised housing units in Hong Kong are not adequately reflected in GDP figures because they cannot be traded on the open market, unlike those of Singapore's Housing & Development Board.

So as we build more subsidised housing, our economic growth rate becomes lower because valuable land resources are taken out of the market and turned into non-tradeable assets.

But there is another important difference: human capital.

Hong Kong's population growth has declined over time, while Singapore's has risen. From 1960 to 2011, Hong Kong's rate was 1.63 per cent per year on average, compared with Singapore's 2.28 per cent.

From 1960-70, employment in Hong Kong grew an amazing 9.16 per cent per year on average. But in the absence of a proactive immigration policy and with an ageing population, employment growth has been progressively falling off. By 2000-11, the annual growth rate had slumped to 0.83 per cent.

But it is not just on numbers that the two cities differ. The quality of their human capital has also shifted. The average years of schooling for Hongkongers above 15 years old declined slightly in 1990-2000.

Singapore has adopted an immigration policy to recruit highly skilled workers from abroad so as to help sustain employment growth. It has also expanded post-secondary education far more aggressively than Hong Kong.

There is clear evidence that in the 1980s and 1990s, Singapore's human capital index (defined as average years of schooling of the adult population multiplied by the rate of return to schooling) rose much faster than Hong Kong's as a result of these policies.

In the 1980s, Hong Kong lost some talent because of uncertainties about 1997. Opportunities for higher education were then expanded, partly in response to the outflow.

But replenishing a lost talent pool takes many years. The expansion of post-secondary education did not gain traction until after 2000, by which time there was a dilution effect from the inflow of less-skilled immigrants from the mainland.

Another way of comparing Hong Kong and Singapore is total factor productivity, which measures the productivity of all inputs, including capital and labour, used in production.

Hong Kong's total factor productivity estimates are higher than Singapore's, but the differences have narrowed considerably over time. In 1970-80, the difference was 12.7 per cent; by 2000-11 it had dropped to only 4.4 per cent.

The obvious explanation for this is Hong Kong's slow growth in employment and human capital relative to that of Singapore.

When combined with the growth rate declines in population, employment and average years of schooling, it is evident that the critical mass of human capital talent necessary for sustaining productivity growth in Hong Kong has been lowered.

Singapore, in contrast, has experienced robust growth in numbers and quality, thanks to its immigration policy and sustained investments in education.

In the Gobi desert, there is no life. If you practised free-market policies there for a century, there would still be nothing there. To build a modern economy, you must invest in human capital. Hong Kong has no time to lose.

Richard Wong Yue-chim is Philip Wong Kennedy Wong Professor in Political Economy at the University of Hong Kong

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17

This article is now closed to comments

sydmel
Comparison between HK & Singapore again. Some of the comments put it right HK has very high degree of autonomy, at least as it appears to be. But behind the veil of one country two systems, there are areas in which HK really does not have control as an independent country like Singapore would have. Immigration policy is an example. HK's major source of immigrants is the mainland. Since 1997 after the handover HK had received about a million of migrants from the mainland, pushing the total total population above 7 millions, despite tens of thousands of locals chose not to have offspring or at almost have two kids. Many of these new migrants are immidiate family members of HK local residents. For family reunion reason, HK cannot unilaterally stop those new migrants from coming without mainland's support. And even the mainland wants to limit such output into HK, they would not do so because it is against the traditional Chinese family value. As imagined many of these new comers would have not been equipped with education and skill in demand, HK labour productivity is set to decline for sure. Singapore is always used as an bad example to highlight the pligths of HK.
scmp04
Personally, I really think Hong Kong is a more preferable place than Singapore. Thats just a personal view. However, I have to hand it to the Singapore government who has been extremely proactive and far reaching in the areas of finance, biotech, attracting human talent, building the Singapore brand name, etc etc etc.......where the HK govt has been lost in a daze - fortunate to have had the cross borders flows from Big Brother.
virokick
Singapore is more interventionist as it's government can only survive and thrive if it delivers.
The PAP although suppresses opposition and dissent - it delivers ; housing , healthcare and education.
Whatever way or economic measurement we use- pump whatever resources into education / human capital , but if a country cannot provide affordable housing , solve the huge uneven distribution of wealth ; than even if you educate every citizen to a PHD in the Gobi dessert - but if they can't afford their own homes - there's only sand.
asiaseen
Two big differences not mentioned in this article; first, most of the grunt work in Singapore is done by immigrant labour and when their usefulness is finished, they are booted out. Second, permanent residence in Singapore is only granted for 5 years. If you lose your job, no renewal. If you don't have a re-entry permit, no entry. You're not professional, skilled or self-employed, no PR. So, far from investing in human capital to the extent implied, Singapore is actually poaching from other countries.
kongshan2047
If you are highly educated say if you have a PhD and provided you have worked in Singapore for one year then you are entitled to apply for PR. I have never heard of it just being granted for 5 years. Given the fact that Singapore does not allow dual nationality, I know of manyy cases where foreigners just hold PR status and do not intend to apply for citizenship. But they are made well aware of the different entitlements between PR and citizen.
JC
exactly friend. asiaseen can only see his belly button. In fact, you don't even need a PhD or degree to be a PR, especially if you have got some critical in-demand technical skills. In fact, a fair number of Hongkongers moved to Singapore in the 1980s and 1990s via this route - became PRs and then citizens. In fact, some general degree holders even have difficulty getting PRs these days, compared to those with skills but no degree, following the tightening of immigration
JC
that said asiaseen, so that you can sleep well tonight, HK's 2013 HDI is slightly higher than Singapore's. 3rd in Asia after Japan and South Korea, compared to 4th for the Lion City. Just goes to show there is more to developing human capital than meets the eye when it comes to growing the economy. I am afraid HK needs to invest more in harnessing technology to boost productivity as well. How about ordering more robots modelled on creative thinkers like you to address its low birth rates and ageing population?
JC
I am afraid you need to get your facts straight. All global cities attract talent from all over the world - New York, London, Singapore, and of course Hong Kong as well. Perhaps you should speak to the recruitment agencies and check with them the many who want to work in Singapore. The comment that Singapore is actually poaching from other countries is gratuitous to say the least. Second, Singapore has every right to dictate terms for inbound immigration. Like all countries, it hasevery right to be selective, especially given its size. It is true that most of the grunt work in Singapore are done by migrant labour on a work pass, no different from maids in HK who will never have a chance of PRship. Some of these migrant labour have in fact progressed from manual labourers to become supervisors. In fact, some of have even become citizens. The majority however, return home when their work contracts and work pass expire. They know that from the onset. With the money they make in Singapore compared to back home, they can afford to buy land and buy better homes for their families. Booted out? You have got to be kidding. Only those who cause trouble will get booted out. But some of those who work hard and progress, have stayed for years. I am also not exactly sure where you got the info that there is a fixed tenure to PR status in Singapore. Out of thin air? In any case, how is migrant labour doing grunt work and the T&Cs of PRship in Singapore relevant to the article?
JC
Agree with the author, but not just investing in human capital through education but across all realms of liveability - from housing to healthcare to environment to transport and so forth. However have to disagree with the often rehashed stereotype that Singapore is interventionist and HK is not. All government intervene in the economy and society. The difference is in the degree. HK has a slew of public services, from housing to healthcare, no different from the Lion City. That said, the Singapore government is undoubtedly more interventionist and proactive
wailamtmhk
A comparison: Public housing flat size in Singapore averages slightly less than 1000 sq ft while flats in HK are all generally less than 400 sq feet. Flat ownership is encouraged in Singapore and citizens can apply a set portion of their MPF retirement savings to make the necessary initial down payment. There are no "land premium" fees. It is estimated that around 80% of all Singapore people living in public housing own their flats.What advantages to purchase public housing are offered to HK people?

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