THE FOCUS OF public discussion on government cost cutting is beginning to swing more to the civil service at last and civil servants, predictably, object. Let us look at it from a different perspective than the normal one of comparing pay between roughly similar jobs in the public and private sectors. We shall take the top-down approach instead of the bottom-up one. How good overall has the public sector been in comparison with the private sector in keeping its costs down in recent years? The measuring tool comes from our national accounts. We get figures for gross domestic product and its components in both dollar-of-the-day terms and in constant prices, in our case 1990 prices that strip out inflation. What we shall do here first is add up all of the public-sector contributions to GDP (consumption expenditure and public fixed capital formation) in dollar-of-the-day terms. Then we shall do the same for these figures in constant-price terms. From the difference we can calculate an inflation rate for public spending. Next, we subtract public spending from total GDP to get figures for private-sector GDP in both dollar-of-the-day and constant-price terms. This allows us to calculate an overall inflation rate for the private sector. Read that over again and you can see that it is not really as convoluted as it may first appear. In any case, the results show up in the chart. We shall take the three months to June 1997, as the base period as this was just before the handover of sovereignty to China, and the beginning of the Asian financial crisis. Adopt a figure of 100 for both public and private-sector prices in that quarter and the chart shows that public-sector prices, on average, rose to 107.4 in the third quarter this year while private-sector prices over the same period fell to 82.5. It is a very notable divergence and it says that, yes indeed, there is good evidence that the public sector has lost control of its costs over the past four years. Granted it has not happened in Hong Kong alone. I have done the same exercise with the figures for the United States, Britain and four Asian economies and the same general trend of higher public-sector inflation generally shows up. Nowhere, however, is the disparity as wide as in Hong Kong and nowhere with that same sudden divergence of public and private-sector prices from the end of 1997 onwards. So how shall we explain this? On the face of it, we have an indictment of the Tung administration here. In most countries, civil servants are directed. In our peculiar system of government they now do the directing, and it seems that this removal of an essential restraint on them has not had good effects. They may say, of course, that the divergence of public and private-sector costs coincided with falling consumer prices in Hong Kong, something most other countries have not experienced. It is true, but why should it be more than coincidence? Why should it excuse the public sector from restraint and not the private sector? There seems to be no getting around it. Physician, heal thyself. From the top-down perspective there is now a very strong case for some cost surgery on government spending. Graphic: jake11gbz
