Why can’t the poor have a say?

By Daniel Monteiro

Chief Executive Leung Chun-ying's comments that universal suffrage would lead to policymaking dominated by the poor angered many as they saw him catering only to rich tycoons. Our economics blogger takes a look at what Leung meant.

By Daniel Monteiro |

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Hong Kong Chief Executive Leung Chun-ying made waves recently when he stated that universal suffrage would lead to policymaking dominated by the poor. “If it’s entirely a numbers game and numeric representation, then obviously you’d be talking to the half of the people in Hong Kong who earn less than US$1,800 a month,” Leung said.

These comments angered protesters who see Leung catering only to the needs of the rich tycoons that dominate utilities, supermarkets, real estate and other huge industries. Protesters argue universal suffrage would force politicians to deliver on reform, helping to level the playing field.

Leung is afraid that universal suffrage will lead to “populism”, where some politicians will try to appeal to the poor by giving out pensions, tax breaks, healthcare, insurance, unemployment support, minimum wages, and more. This can lead to slow, inefficient reform, because even though it would benefit voters immediately, it may cost too much for Hong Kong later on.

The economic downside is that the funds for these social benefits come from taxing richer workers to fund lavish spending on the poor. So, the rich have less incentive to work, reducing investment, consumption and thus growth. Sometimes the benefits from populist policies can be so high that the poor do not need to work – a problem known as the welfare trap.

Leung believes Beijing would ensure policies dealt with those problems sustainably. But the government has been slow to tackle big problems of inequality, high costs of living, equal opportunities and competition.

Protesters say voters are rational enough to think long-term and avoid populism.

Populism has caused problems in the European countries hit hardest by the recession: Greece, Portugal, Spain and Italy. During the recession, they had to pay more benefits since there were more poor people, which quickly added to national debt.

In India, the Common Man Party promised lower gas and water prices. Yet, studies advise against subsidies because they are costly, and the suppliers become more inefficient and dependent. This was proven true in India when the government offered fuel, food, and fertilizer subsidies costing 3 per cent of the GDP. This reduced prices temporarily, but failed to inspire lower costs for any of these commodities.

Indonesia, the United States, the Philippines and many other Asian countries are expanding government healthcare because of their ageing populations. It can easily be argued that these welfare reforms are too generous or inefficient to be sustainable.

The protesters, of course, have their own argument on how economic reforms will reduce inequality. Here's what they believe needs to be done.