Indifference to Hong Kong’s extraordinary wealth divide evident in civil service pay dispute

Hong Kong appears to be in a class of its own when it comes to the extremes of wealth and poverty
Although not in the ‘billionaire excess’ category, civil servants have nevertheless largely cruised through the pandemic, while working families have suffered stagnant wages, furloughs and pay cuts

David Dodwell

Published: 9:15am, 18 Jul 2022

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It is not just the arrival of our top-up consumption vouchers that has me thinking about poverty, inequality and how challenges are going to be shared as we head towards a perfect economic storm created by the pandemic, the Ukraine war, inflation, global warming and a looming recession.

Alongside the consumption vouchers, which will come and go quickly as I splash out on a dehumidifier for my sweltering home, there have been more significant reasons to pause for thought. On one hand, there is the controversy over pay increases for our civil servants and, on the other, Bill Gates saying he plans to slide out of the world’s billionaires list as he gives away “virtually all” his US$113 billion fortune to charity.

This toxic juxtaposition of extreme poverty and extreme wealth is perhaps nowhere more clear than in Hong Kong. Inequality expert Thomas Piketty says the city “really is in a class of its own”, which provides “a bedrock of economic and social conditions that have nurtured the development of social unrest”.

And Hong Kong really does seem to be unrivalled. As Piketty pointed out in a paper in June last year, our concentration of billionaire wealth is distinctive, perhaps unique.

We had 11 billionaire families for every million people in 2017, compared with just 5.3 in Switzerland, 4.5 in Singapore and a modest 2.3 in the United States. Piketty says the net wealth of these families was equivalent to around 85 per cent of Hong Kong’s GDP, while the level for every other country besides Georgia was less than 30 per cent.

While the controversy over the civil service pay review might not be in the “billionaire excess” category, it is significant as a vivid illustration of our leadership’s – and perhaps our entire community’s – indifference to our extraordinary wealth divide.

I am flabbergasted that leaders failed to anticipate a backlash to proposed pay rises at a time when most working families have suffered flatlining household income for the past two decades. After two years of stifling pandemic measures, these people have lost jobs, been furloughed or seen their working hours and monthly earnings cut.

I am even more aghast that they planned to give senior civil servants pay rises that would have been almost four times that of their lowest-paid staff. Almost no one seems to have done the maths to see what this would have meant. A policy secretary eligible for the proposed 7.26 per cent pay rise would have seen their average monthly salary jump by almost as much as an entry-grade civil servant’s entire salary.

The final compromise of a flat 2.5 per cent rise was politically a little more sensitive, but it still left our handsomely paid policy secretaries with a HK$6,675 (US$850) monthly pay rise compared with HK$550 for entry-level employees. Doubtless they will feel it comes in handy on top of the consumption vouchers, especially backdated to the start of the financial year.

Those trying to justify the rises have argued they are well deserved and hard-earned after two years without pay increases. They seem to be unaware of the incomparable severity of economic hardships weathered through the pandemic by counterparts and companies in the private sector.

While civil servants have cruised through the pandemic years with assured salaries and guaranteed pensions, Transvision’s Consumer Pulse Survey showed that 66 per cent of people polled in the private sector saw stagnant or falling income. Fifteen per cent were put on furlough, 18 per cent were offered reduced hours, 21 per cent saw forced pay cuts and 27 per cent said they could no longer pay all their bills or loans.

It is noteworthy that, up to her leaving office, former chief executive Carrie Lam Cheng Yuet-ngor was earning HK$5.21 million a year. That is almost 23 times more than the average for a company secretary, who earns HK$228,000 a year at a Hong Kong firm.

While this difference might seem extreme, it is worth noting that the average CEO at an S&P 500 company reportedly earns around 300 times the salary of their average employee. Whether such huge divides can be justified all comes down to whether those at the top deliver value for their extravagant salaries. I will leave it to the readers to answer that.

04:50

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While it seems clear that Hong Kong’s extremes of wealth and poverty have gone largely uncommented on and unaddressed in recent decades, it is open to question whether this can continue. As Piketty said, it could well be this extreme divide that provided a bedrock for the political conflict that came to a crescendo in the second half of 2019.

Even more important, the perfect economic storm that approaches is going to create grave economic and political challenges over how the pain will be shared, in particular for those already on the edge of poverty. After decades of stagnating income and two years of severe pandemic dislocation, the stresses of inflation and recession point to acute economic hardship for many people and rising resentment against those more fortunate.

In that context, many of the world’s billionaires would do well to take note of Gates’ plans to give away most of his wealth to charity, as well as of Warren Buffett, who has said he will pool most of his fortune with the Bill & Belinda Gates Foundation when he dies. The likes of Jeff Bezos, Elon Musk and Richard Branson, who are throwing whimsical billions into space, might want to pay attention. What else are they going to do with their wealth, anyway?

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view