Thomas Piketty, a French economist, is making global headlines with his new book Capital in the Twenty-First Century. This book is rather timely and applicable to our situation in Hong Kong.
Piketty states that unrestrained capitalism and free markets have caused great wealth inequality. This wealth gap is created when returns on capital outpace economic growth. Wealth created in the past continues to grow at a faster rate than output and wages, causing further inequality.
In Hong Kong, this can clearly be seen in rising property prices and rents - where property developers and landlords get richer at the expense of workers' stagnant wages.
Despite the government's pro-growth policies, Hong Kong's long-term real gross domestic product growth is projected at 2.8 per cent, below the average return on capital, easily 4 per cent.
The poorest in Hong Kong are getting poorer, but those in the top income bracket are getting richer, mainly from rental income, dividends and capital gains. Roughly 10 per cent of Hong Kong residents have HK$1 million or more in investable liquid assets. In contrast 20 per cent live below the poverty line of HK$3,800 per month per person.
Piketty wrote: "The entrepreneur inevitably tends to become a rentier, more and more dominant over those who own nothing but their labour."
Therefore when capital reproduces itself faster than output, extreme inequalities are generated that weaken the foundations of democracy, causing public discontent.
Upward social mobility is difficult in Hong Kong, where elite pre-school pupils have curriculum portfolios and the rich grab more university places. Private health care and education, and home ownership, become exclusive.
A suppressed currency and inflation not from real wage increases transfer productivity gains to capital owners.
Worsening the problem is an overdependence on land sales, external trade and retail tourism, which only benefit certain groups.
Massive infrastructure expenditure by the government has basically accrued as increased land (rent) value to landlords.
The "trickle down effect" fallacy is obvious, looking at our increasingly high Gini coefficient and many "working poor".
Finally, Piketty recommends a progressive global wealth tax. Hong Kong is the perfect candidate for such a tax, as it is the epitome of unbridled capitalism, with low taxes and inequality.
Bernard E. S. Lee, Tsuen Wan