Should Hong Kong be proud of its free economy?

August 22, 2015 08:04
The elderly, or those above 65, will account for 30 percent of Hong Kong's population in 2041. Photo: HKEJ

Hong Kong has always taken pride in being a free-market economy and in pursuing a pure free-market system.

In fact, there is no pure capitalism just as there is no pure communism. Somalia might be a perfect example of a free market, but it’s more of a free-for-all, rather than laissez-faire.

Hong Kong and the United States in late 1800s have adopted economic policies that are closest to the concept of laissez-faire. However, whether they are worth celebrating is debatable.

Markets and governments seem to be contradictory but they actually supplement each other. Markets put priority on efficiency while governments value fairness most.

They affect the market differently: markets adjust prices while governments change demand and supply deliberately.

On the one hand, markets would oppose government intervention in order to maintain an open and competitive environment. On the other hand, markets need government intervention to offset market failures.

Government intervention includes providing public services, resolving externalities and restricting monopoly to safeguard an open market.

Government functions cover decision-making, planning, organizing, commanding, coordination and managing. Decision-making is a core function of the government.

If a government is poor in decision-making and only cares about the vested interests of a “small circle” of people, it will not work well even with a highly-efficient executive team.

For example, Hong Kong has one of the world’s best hardware in healthcare. However, its public hospitals are flooded with patients with the supply hardly able to cope with the demand.

The issue is worsening due to the aging population. 

The government could resort to “individual visit schemes” in light of insufficient jobs for lower-income classes in the retail and tourism sectors.

It could require public hospitals to refuse services to non-local women who are about to give birth.

Shall they send all the patients to a certain place on the mainland once local healthcare services can no longer meet demand?

In terms of education, the city has a very low college enrollment ratio. The government has failed to provide any statistics on this matter in the Hong Kong Annual Digest of Statistics.

But based on the figures of new college students and high school graduates, the enrollment ratio slumped to less than 30 percent in 2013 from nearly 60 percent in 2010.

The ratio is unlikely to improve much given the policy adopted by many subsidized local universities. In fact, it is lagging behind that of other developed nations.

Young people have limited chances of entering college and they can’t find many opportunities after graduation. Their salary has been almost stagnant years after graduation. They see little hope in improving the quality of their lives.

Take housing policy for example. A large number of middle-class families have been left in the hands of the market.

Low-income families will feel they are lucky enough if they are granted a public rental apartment and their children find decent jobs after graduating from college.

However, as their income increases, these families will need to pay higher rents.

If the children decide to live separately, the family may have to move to a smaller flat for a smaller family.

The soaring home prices in the private market have become unaffordable for these families. Their goal of improving their living conditions has been thwarted by the existing government policy.

While the young generation are feeling helpless, the poverty confronting the elderly population is even more alarming.

The average poverty rate of the elderly was 13.3 percent in OECD countries in the mid-2000s. Countries like France, Germany and the Netherlands have lower poverty rates for the elderly population than the average poverty ratio for the entire population.

By contrast, there were nearly 300,000 old people living in poverty in Hong Kong in 2012, accounting for 32.6 percent of the total elderly population.

The government estimates that the elderly, or those above 65, will represent 30 percent of the city's total population in 2041.

The number of elderly citizens living below the poverty line is forecast to surge to 710,000 in 2039 from 260,000 in 2009.

It’s hard to imagine that such a big number of senior citizens are living in poverty after several decades of Hong Kong's reunification with China.

Systematic policy measures will have contradictory aims and restrict each other. In the financial field, policymakers have to make compromises in trying to maintain free capital flow, a steady exchange rate and an independent monetary policy.

It’s even more difficult in terms of social policies affecting different sectors and income groups.

The government will have to review its policies from time to time. Otherwise the city may soon lose its advantages if policymakers only indulge in past achievements. 

This article appeared in the Hong Kong Economic Journal on Aug. 17.

Translation by Julie Zhu

[Chinese version中文版]

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Researcher of China Business Centre of the Hong Kong Polytechnic University