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  • Dec 28, 2014
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My Take
PUBLISHED : Monday, 14 January, 2013, 12:00am
UPDATED : Monday, 14 January, 2013, 3:31am

'Freest economy' costs far more than it's worth

Newspapers give you the latest news but often not the context. Over two days in different sections of the paper last week, we carried stories about the failure of wage rises to meet price increases in the last decade; Hong Kong again being named the world's freest economy; and property tycoon Li Ka-shing continuing his reign as the city's richest man. I would argue they are different aspects of the same story, the root of which tells us something disturbing about our society and economy.

There is a saying that for a few to get rich, the rest must stay poor. Now I am not blaming Li for being responsible for poverty in the city. But a strong case can be, and has been made that our social-economic system has disproportionately favoured a handful of property tycoons and select property conglomerates over many years at enormous social costs.

We all know these costs when we try to rent or buy a flat. The government's high land premiums and low-tax regime make sure of that. The tycoons also have business tentacles affecting most walks of life. Another cost, perhaps even more insidious, is our enormous wealth gap.

One reason Hong Kong is so beloved of top business bosses - for whom it is a fabulous place to make money - is that the private sector and the government have worked to keep wages down. How low? The median wage has risen less than 10 per cent over the past decade, while prices have shot up by more than 30 per cent, not counting skyrocketing property prices, according to a Chinese University economist's estimate.

For those at the top, the "freest economy" accolade from diehard right-wing think tanks like the US Heritage Foundation and the Canadian Fraser Institute is well-deserved.

For those at the bottom or even the middle, it looks more and more like exploitation and crony capitalism. So those annual think tanks' reports are becoming more and more of a sick joke. For years they have given an ideological cover to the government - not anymore.

Leung Chun-ying is the first chief executive to take on the tycoons and has shown commitment to alleviate housing problems and poverty. For these reasons alone, he deserves a fighting chance in his job.


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This article is now closed to comments

To say that the conglomerates enjoy the low median wages of Hong Kong seems inaccurate as employees working for these conglomerates surely do not recieve low wages. A more accurate assessment is that these companies enjoy Hong Kong's low income and profit tax rate. The social cost of being a "free economy" stems from the low tax rate since the main source of funding social programs are through taxes.
There are quite a few inconsistencies in the SCMP report quoted by Mr. Lo in this column:
“The median wage has risen less than 10 per cent over the past decade, while prices have shot up by more than 30 per cent, not counting skyrocketing property prices, according to a Chinese University economist's estimate.”
I was baffled by the contradictions in that report. Official 10% wage increase has already been adjusted by CPI or GDP deflator." What it means is that there is an increase in real income, the 30% inflation notwithstanding.
The rest of the numbers simply say that some items in a basket of goods used to index prices have outrun inflation. Thus food prices are higher than inflation. Generally food and fuel prices are volatile. Economists exclude them with yet another less volatile price index.
The increase in median price of homes is not included in the price index. In GDP income accounting, it is the rental price that goes into the basket of goods. In calculating the weight for housing component in CPI, a market rental is attributed to homes lived in by owners. Thus purchasing prices of homes in current period won’t find their way into the CPI. This is reasonable because we don't buy a home too often, yet we all live in flats either owned or rented. The real and attributed rentals are counted as income from an existing housing stock.
Housing price double in 4 years is scary. But it has been incorrectly sensationalized in this report.


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