Bubbles burst, faith tested, answers wanting

When this column urged readers last New Year's Day to make a resolution to be optimistic, it was reflecting the sentiments of the season despite deep economic gloom. Few would have boldly predicted then that stock markets would end the year back at levels last seen before the collapse of Lehman Brothers. Optimism has prevailed, thanks to unprecedented intervention by governments to halt a financial meltdown. The narrow escape from global economic depression climaxed a decade of events and change that will shape the new decade.

With the world recovering from a financial meltdown, parallels are to be found with the beginning of the first decade of the new millennium. Then, Asia was emerging from its own financial crisis and the global dotcom bubble was about to burst upon financial markets. Between then and now, the world has enjoyed a period of relative economic stability and growth.

Some may find reasons for optimism in that. But comparisons can be misleading. The financial meltdown was a systemic failure that went global. Economic stability remains dependent on worldwide government support for spending and investment to maintain growth in emerging economies and prevent a slide back into recession in developed countries. Such stimulus must be maintained until economies are once again able to stand on their own feet.

Economic malaise

The decade began with the US revelling in its economic ascendancy. The bursting of the dotcom bubble, and the exposure of giants like Enron and WorldCom as facades of creative accounting, did nothing to shake its faith in its financial system. Bankers and investors turned to housing and created another bubble, using financial instruments they did not really understand. By 2007 defaults in the subprime housing mortgage market had transmitted the first warning signs, but few anticipated the calamity that lay ahead and led to the freezing of world credit markets.

Some big American banks have repaid billions in bailout funds to the taxpayer, but many other lenders have closed, the government has committed trillions to supporting the US economy, property prices remain depressed and American household debt relative to income is still historically high. As a result of this and similar debacles in Europe and Britain, the decade has ended not only with serious debate over the merits of unfettered, Western-style free-market capitalism - a subject close to Hong Kong's heart - but with questions over the primacy of US power in the world, given its economic malaise and the rise of China and India.

Were it not for the financial meltdown and its aftermath, the rise of China as a world power, climate change and terrorism would dominate a review of the past decade and a preview of the next.

Indeed, China's growing power and influence was most in evidence at last month's world climate-change summit as a voice for recognition of the energy needs of developing countries. True, the summit will be remembered for failure to reach a commitment on combating global warming. But it was marked by an eleventh-hour meeting between Premier Wen Jiabao and US President Barack Obama that resulted in a political accord leaving the door open for future progress.

The threat of terrorism remains as real as ever, as we were reminded on Christmas Day when a Nigerian with alleged al-Qaeda links tried to detonate explosives on an American passenger jet flying from Amsterdam to Detroit. Sadly, it seems the ramifications of extremist terrorism for the world economy and security will remain with us for the next decade.

Thanks to a sound and well-regulated banking system, strong financial reserves and government support for small business and families, Hong Kong weathered the economic downturn in relative comfort. It was the third major economic test since the handover, after the East Asian financial crisis and the Sars outbreak. It remains to be seen whether the conventional wisdom that the city emerges stronger and more confident from crises still holds true.

Not much to show

Hong Kong's transformation to a Chinese international centre of finance and commerce can be measured in decades. If the seventies were the decade of getting rich, the eighties the decade of the rise of finance as industry migrated across the border, and the nineties all about the return to Chinese sovereignty, the last 10 years in some ways have been the lost decade. Our way of life has been preserved and our per capita gross domestic product has risen, but there is not much to show for it. The wealth gap has widened, with median household income having fallen between 1996 and 2006 while flats have grown more expensive; grand projects such as the West Kowloon cultural hub and the redevelopment of the former Kai Tak airport site are taking a long time to materialise; political development in pursuit of the ultimate goal of universal suffrage has stalled.

It says something about the last decade in Hong Kong that history will record that the most significant political event was the 2003 pro-democracy protest march against the government, which led to the resignation of the then chief executive, Tung Chee-hwa.

Political development is on the agenda again with a public consultation on limited changes for the 2012 elections that are supposed to pave the way for universal suffrage. Since Hong Kong does not have much to show for executive government without a popular mandate, it is to be hoped that pro-democracy forces can strike a deal for progress.