Regulation pays in laissez-faire Hong Kong

PUBLISHED : Friday, 08 April, 2011, 12:00am
UPDATED : Friday, 08 April, 2011, 12:00am


Economists from Adam Smith onwards praise market forces. The reasons are well known to us in Hong Kong, a city that made its fortune from trade and enterprise. Competitive free markets enable the most efficient allocation of resources and give consumers the best value and choice of goods and services.

Yet market forces have acquired a bad name in recent years. Poor regulation - in other words, too much freedom for markets - was blamed for the financial crisis that started in 2008. An overly free market got the blame for the sale of Lehman Brothers minibonds to retail investors here in Hong Kong.

With the introduction of the minimum wage in just a few weeks, Hong Kong will launch a major intervention in one of our most flexible markets: that for labour. People who are ideologically committed to free markets are naturally critical of this measure, just as pro-labour groups welcome it. A big shift, however, was in the attitude of the government.

Why did a government -not popularly elected, and led by officials brought up on laissez-faire- accept demands for a minimum wage, and one set at a higher level than some businesses said they could afford? The answer, I am fairly sure, is pragmatism.

To see why Hong Kong has little choice but to have a minimum wage, we should look at a controversy created by the new law. A loophole over paid meal and other off-work times has given some employers an opportunity to repackage existing low pay rates to avoid having to raise wages in line with the law. Some have even identified ways to cut pay.

There might have been a time back in the sweatshop days when Hong Kong would take such an exploitative attitude for granted. But those days are over. We may not have universal suffrage, and we may have a system that appears to favour business, but the government cannot ignore public opinion.

Our business community has seen its reputation worsen in recent years. Banks and property developers have come in for special criticism, but so have employers of unskilled workers in industries like cleaning, catering and retail. To many of us in business, the treatment of our low-paid workers is not just embarrassing. It is a contributor to the growing wealth gap which could lead to a less stable society. Some of us would even say there is a moral issue here about how people in a modern society can treat their fellow humans.

Perhaps the worst working conditions of all result from outsourcing. Companies have been under great pressure to streamline and cut costs. The savings can look good, but there is another side to it: unskilled workers are left at the mercy of service providers ruthlessly undercutting each other's bids. Two months ago, businessman Michael Tien Puk-sun spent three days living as a street cleaner. He wrote in these pages of the 'cruelty and callousness' of the free market and a system in which outsourcing entities (in his case, the government) are 'creating permanent poverty'.

Before committing to a minimum wage, the government encouraged employers to pay fair wages voluntarily. It did not work, to put it mildly. The government is currently asking employers to voluntarily ignore the loophole about meal times. Can anyone see that happening? It is almost inevitable, probably sooner rather than later, that working hours will come under tighter regulation.

Some supporters of free markets may argue that economic structural problems -like property prices- are behind the growing wealth gap, and we need reform rather than regulation. They may be right, but the reform is not happening, and the growing poverty and social dislocation is. We have no choice but to put pragmatism before market forces.

Bernard Chan is a former member of the executive and legislative councils