• Sat
  • Oct 18, 2014
  • Updated: 7:49pm

Workers' stagnant wages highlight wider rich-poor gap in Hong Kong

PUBLISHED : Sunday, 04 May, 2014, 4:15am
UPDATED : Sunday, 04 May, 2014, 4:15am

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


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This article is now closed to comments

But has high taxes in Piketty's native France led to better social mobility? Everyone who has been to Paris know very well about the "Banlieue" which is a slump in Paris. The majority of the population there are ethnic minorities from France's former colonies and these people have been trapped in poverty cycle for generations. There was also a riot in that place back in 2005 where the inhabitants set fire and vandalised properties to express their discontent. If the French social model works so well, why was their country in flame? Also, if you ever happen to be in London, you will find that there is a very large French community and these people have come to London because of far greater opportunities in London than Paris. Many financial experts in London are actually French. Former French President Jacques Chirac once mocked that London only provide low paid menial jobs for the majority of its population and that is not a model which France should learn from. Yet ironically, many of those who work in London's fast food chains are French youth. Wonder why?
I believe England has higher taxes and also has more government redistributive measures than HK. UK is and was generally doing better than France to begin with; they are also not trapped in the Common currency - EURO.
French youths work in UK for a higher currency returns- Pounds. Just like many from HK now work in China for the higher RMB.
The slumps in Paris are mostly from immigrants. In UK immigrants are also the problem.
I don't fully agree with the French style overly high taxes, nor HK's style winner take all capitalist attitude; perhaps somewhere in between.
But I think here in HK we should consider seriously whether it makes sense to listen to some economist who comes from a country that almost never had a budget surplus for the past 20 years despite such high taxes. Whereas in HK, we have had budget surpluses for over 80% of the time in the past 20 years despite low taxes. And yet at the same time we can still afford to provide subsidized public healthcare and education for our local residents.
As long as the economy can absorb increasing amounts of capital without a substantial fall in the rate of return, inequality will persist. The author virtually concedes that this is good for the economy as a whole, but not so good for equity within the economy.
I think our HK government should focus on livelihood issues as a means of redistribution. Keeping taxes low to keep HK competitive is ok if public services are available for all.
However, I really wonder how our economy could diversify itself from the narrow band of so called 4 pillars industry. Building a 3rd runway and a silly bridge to Zhuhai is not going to bridge the rich poor gap. This massive expenditure could even make inequality worst as this letter writer wrote.


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