The Lion Rock Institute’s Response to the Hong Kong Chief Executive Policy Address and Agenda 2009-10

 

October 14, 2009

 

The right direction: big market, small government

The Chief Executive’s plan to move Hong Kong forward is less hostile to market ideas than almost any other country in the world – and for that Hong Kong will succeed.

 

The Lion Rock Institute lauds the Chief Executives efforts to maintain a “big market, small government” in Hong Kong. Indeed, it is this approach that has made Hong Kong so successful. The commitment to not fund a social welfare state through “an overhaul [of] our tax system and increase [in] tax rates” (c. 123 Policy Address) is worthy of praise.

 

When compared to other jurisdictions’ policy responses to the financial crisis – those who have raised taxes, clamped down on markets, and created huge deficits – Hong Kong’s Chief Executive conveys he understands the benefits of “big market, small government” and has made Hong Kong the bastion for sound policy in the wake of the financial tsunami.

 

In general, Lion Rock commends the Chief Executive’s Policy Agenda and Address, but does have some reservations. Some policies put forward, listed below, have inherent problems that need further attention:

 

Six Pillar Industries

 

The Lion Rock Institute fears the Six Pillar Industries will prove to be problematic. To encourage the economy is a good thing generally, but like so many policies, the devil is in the details as to how the government may best support. It must be done in a way that separates government from business. The Government must identify what barriers exist, and then remove them. Typically, it isn’t a good idea for a government to promote any industry. Lion Rock does support the government providing support through low tax, transparent processes, and open markets, but inherently there is a risk in doing more as the six pillars intends. When government intervenes in the market, public money is used to pick winners and losers in business. There are also unseen negative effects or “unintended consequences” of favouring some industries over others. The governments Six Pillar Industries is not compatible with the principle of “big market, small government.” (More at “Big market, Small government” needs definition” below.)

 

Land system

 

Lion Rock welcomes moves to improve the use of land, i.e., re-designating industrial property for commercial use, etc., but such measures only scratch at the surface of a much bigger problem. These are encouraging signs, but the only viable solution has got to be a fundamental reform of the land system with a view to lowering prices by making land more accessible, auctions more regular and bridging the huge gulf between public housing rents and open market rents. Giving preferential access to land to a chosen few as suggested by the Chief Executive (c. 20-25 Policy Address) is not “optimising land use” or allowing sustainable economic growth.

 

While Lion Rock welcomes “the sale of the remaining surplus Home Ownership Scheme flats” (p. 23 Policy Agenda), a more comprehensive plan for privatisation of public housing is required. While it is beneficial to make more land available, relying on the MTRC to quicken “the pace of bringing readily available residential sites to the market” (c. 5 Policy Address) is short-sighted and again demonstrates the existence of collusion between government and private business. The only way forward is to comprehensively reform the land system to allow for greater participation.

 

Minimum Wage Bill and Competition Law

 

Minimum Wage and Competition Law are only cursorily mentioned. From recent discussions, Lion Rock takes this to mean that the government has recognized the pitfalls associated with these schemes, they are no longer top priorities and is reconsidering these policies. The government should consider better policies to resolve the same problems.

 

The Chief Executive mentions competition many times but the law only once. The Policy Address states that “Competition is fierce in Hong Kong” (c. 88 Policy Address) and that Hong Kong does not fear competition (c. 126 Policy Address) – a good indicator that the government views competition to be natural and healthy for Hong Kong’s growth.

 

It is Lion Rock’s hope that the Minimum Wage Bill will not be passed because of its disastrous effect of decreasing job opportunities for the most vulnerable. It is also Lion Rock’s hope the government will not pass the Competition Law as the law introduced doesn’t actually provide solutions for the competition problems that Hong Kong has, such as land issues and natural monopolies.

 

“Big market, Small government” needs definition

 

It is commendable to follow the success of “big markets, small government,” but this principle that the Chief Executive has regularly used in his policy addresses needs further definition. This slogan, “big market, small government,” seems to differ from the model derived from Sir John Cowperthwaite, “positive non-interventionism.” Where there is a divide between the business sector and the government under the principle of positive non-interventionism as previously applied, the current principle of “big market, small government” does not seem to delineate as strongly between the two. This is further suggested by the phrase “The Age of Co-operation” (c. 125 Policy Address) which the Chief Executive invokes to try to dispel the idea that co-operation between government and private business is, in fact, cronyism.

 

Some collaboration exists with reason, but the government must focus their efforts on: not impeding markets, nor picking winners or losers, and ensuring markets operate transparently for all players. The government does not represent themselves as “small” in regards to the Six Pillar Industries. Here, it is big government picking winners and losers, and does represent collusion to the disadvantage of others in the industry that are not picked for cooperation. This may fail the cronyism litmus test.

 

Conclusion

 

In general, Lion Rock supports the Chief Executive’s intentions to move Hong Kong forward using “big market, small government” solutions. We commend him on Hong Kong’s position after the financial crisis, especially when compared to other jurisdictions.

 

While the Chief Executive is moving Hong Kong in the right direction by not drastically changing our environment, he must further consider committing to better policy for Hong Kong. This translates to truly following the principle of small government, which would be removing the Six Pillar Industries approach, reforming the land system, and committing to private sector solutions on education and health. University vouchers should also be considered.

 

Lion Rock’s next fall issue of Best Practice,* “Moving Hong Kong Forward,” advises the direction for Hong Kong on policy issues such as Minimum Wage, Competition Law, HKMC, and financial regulations. The Lion Rock Institute looks forward to engaging with the government on moving Hong Kong forward and thanks the Chief Executive for his service to Hong Kong.

 

 

 

Related Publications:

*Best Practice, Vol. 1 No. 2 2009

Published by The Lion Rock Institute

http://issuu.com/underthelionrock/docs/teaser_best_practice_vol_1_no_2