Economic ranking no cause for complacency
For 12 years in a row, Hong Kong has been ranked the freest economy in the world by the US-based think-tank the Heritage Foundation. The top ranking is the best affirmation that we remain a business-friendly city and a low-tax regime that allows people to keep the bulk of their earnings and manage them freely.
The top ranking has come as welcome relief for officials who were taken aback by the World Economic Forum's assessment of the city's competitiveness. In a report released in October, the WEF said Hong Kong's position on its competitiveness index had dropped to 28, compared with 21 the previous year. Officials have since complained that the fall might have been caused by the survey's methodological lapses rather than any deterioration in our business environment.
Although economic freedom is not the same as competitiveness, the Heritage Foundation's description of Hong Kong as the 'poster economy for economic freedom around the world' is the best vindication of our premier status.
However, we must not be deluded by our stellar performance in ranking exercises into believing that our economy is as free as it is billed. In the health and housing sectors, for example, direct government involvement remains substantial. The overwhelming dominance of the Hospital Authority has skewed the development of the private medical-care market. Patient queues at highly subsidised public hospitals are getting longer and their budgets are a heavy burden on the public purse. As they are so cheap, there is only room for private hospitals catering for the very well-off. The Housing Authority has rightly stopped building flats for subsidised sale. Yet, it is still Hong Kong's largest landlord with 650,000 rental flats for low-income households. As a result, quality private housing at the lower end of the market is largely underdeveloped.
As a free port, Hong Kong has long exposed itself to international competition. But our highly competitive businesses are not necessarily able to keep costs low by getting the best deals from local cartels that have cornered their respective markets. From property to port operations, to supermarkets and meat supply, the big chains and franchised operators are able to exploit their might to dictate terms to captive consumers and squeeze smaller players. The government has agreed to consider introducing a competition law. But it will be some years before anti-competitive practices in the non-tradeable sectors of our economy are curbed.
The government's change of heart over competition law was the result of political pressure from an increasingly vocal legislature. However, the same body is also pushing the government in a direction that may limit economic freedoms, with calls for a minimum wage and a cap on working hours.
The economic arguments against the two ideas are well known - they will make labour markets less flexible and might even increase unemployment. Yet, in the light of widening wealth gaps, the social arguments for them are appealing. As the debate continues, Hong Kong should take heed of overseas experiences and try to develop innovative ways of addressing the issues without compromising the principles of free markets.
Arguably, Hong Kong already has a minimum wage regime in the form of a social security safety net for the unemployed and low-income earners. Welfare dependency is not something to be encouraged. But rather than legislating a wage floor, which might hurt more than help unskilled workers, a twin strategy of tying welfare to work might be a better option. Instead of capping working hours by legislation, a campaign to reduce working hours, such as by promoting a five-day working week, might be more desirable. They would be solutions that would not unduly tamper with the forces of supply and demand.
Maintaining our free markets, including plugging their pitfalls, is a constant challenge.
