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  • Dec 20, 2014
  • Updated: 11:23pm
BusinessEconomy
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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This article is now closed to comments

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.
53626772-0afc-4cb0-b92a-35000a320969
Good points but don't forget that New York, London and Tokyo are inside an "homogeneous system". The "one country, two systems" way, in my opinion, is an instable way: HK and Mainland China are TOO different.
I don't live in HK, I go there every 2 months (I'm a partner in an HK based Company) and I LOVE HK. I think I can see how the things are going on with an external point of view and what I see is a City with incredible potentials trapped in a wooly system.
bpoon1pc
This is a great article to put Hong Kong problem supported by numbers. Our #1 problem is lack of capable talents, we can see that from different fields such as politics, business, education or technology sectors. We feels bad when we compare with Singapore, we feels the worst when we compare Hong Kong with Swiss which also has around 7 million people but able to maintain top tier global roles in various sector such as Finance, business, high-end industrial products, education and even World Sport such as World cup and tennis! Hong Kong has been wasting 20-years for political endless discussion with no concerte progress while our talents have been diluted to the dangerous inflection points. Why? If current situation continues, we will then need to compare ourselves with Malaysia,Thailand then with Phillippines and then with Indonesia? Do we want this to happen? If not, all of us need to wake up and do something to help. Focusing on the three index and find solution to improve them are the first good step.
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.
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?
53626772-0afc-4cb0-b92a-35000a320969
Singapore is an independent Country. Hong Kong is a special administrative region. THAT's the problem. Fifty years run quickly.
kongshan2047
The root of the problem is our immigration policy. Firstly, the majority of Singapore's immigrants are university graduates or above. In contrast, the majority of our immigrants have education level of secondary or below. Secondly, Singapore does a lot better in retaining incoming talents. For example, those who are highly educated are entitled to apply for PR after working in Singapore for a year. Whereas here in HK, the 7 yr requirement applies across the board.
The policy on family reunion also needs a major overhaul. Currently, a mainland spouse is permitted to come to HK after four years of marriage to an HK resident regardless of his/her skills, education level or the HK spouse's financial ability. Firstly, if the mainland spouse has the skills or is highly educated, then why does he/she need to wait for four years? Secondly, why isn't the HK spouse financial ability taken into account? The HK spouse must be able to prove that he/she has the ability to provide for his/her incoming spouse in HK "beyond a subsistence level". And if the HK spouse can show that he/she earns a monthly income of say HK$40,000 or above, then there is no reason why the mainland spouse cannot come to HK immediately after marriage.
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.
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.

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