(Next Magazine, 2015/8/20, A002, Second Opinion, Bill Stacey)

Learn from Singapore

If you have the wrong diagnosis you prescribe the wrong medicine and put at risk the health of the patient. That is the problem with our Chief Executive, Mr. CY Leung’s recent aim to address Hong Kong’s illnesses by abandoning the “positive non-intervention” policies that he claims are outdated. He prescribes a dose of “appropriately proactive government”.

Perhaps we can agree on the symptoms. As recently as 2003, Hong Kong’s per capita GDP in US dollar terms was the same as that of Singapore. Singapore now leads Hong Kong by 41% on the same measure. Mr. Leung also used the example of South Korea, which on the same measure, has closed the gap in per capita income by 10%, and is now 29% below Hong Kong.

Both of these countries have had some great successes. In addition to rising incomes, the built environment has been transformed and Korea has indeed become an icon of style and culture, whilst Samsung has become a global brand.Are these transformations the result of the government’s guiding hand? Arguably these once carefully managed economies owe their recent success by becoming more like Hong Kong – more open and more market driven.From 2003-2103, Singapore embarked on a shift in economic strategy. According to the IMF, Singapore government spending as a proportion of GDP dropped to an average of 14.7% (compared to 18.7% for Hong Kong), well below the 21% average of the prior decade.

Singapore has deregulated many industries, eliminated much of its industry support, opened the economy, sold down government stakes in key businesses and encouraged immigration from around the world. The result was a flowering of smaller businesses, growth in financial services as a regional private banking center, and partial retreat from technology-focused manufacturing that was driven by an industry policy that had made Singapore hyper cyclical.

Ironically, just as Singapore was reducing the role of government, Hong Kong has added special programs and targets for focus industries, developed science parks and offered an ever-expanding suite of subsidies for the arts and culture. New bureaus and a cultural center are not a departure for Hong Kong, but a continuation of the trend to a more proactive administrative state over at least the pre-handover era.

Mr. Leung highlighted culture as an area where, to match Korea, government needed to lead. Now I am no expert, but would wager that K-pop sensation Psy’s Gangnam style owes precious little to bureaucratic planning. Agonizing soap operas that capture the imagination of half the population across Asia draw on deep shared cultural traditions, not plans and government initiatives. Korea owes its cultural renaissance to a spirit of rebellion that emerged against once austere governments and also to the entrepreneurs of the entertainment industry.

Samsung has prospered in highly competitive global markets despite government efforts to constrain the chaebol conglomerates. The technological edge to match an Apple and best a Sony comes from being close to customers not administrators in bureaus of the state.It is perverse to blame Hong Kong’s ailments on non-intervention, when many of our largest problems are rooted in a massive public housing program that has led private developers to focus on the luxury end of the market, a government program of land release that is administered to drive up prices, a planning process that hinders redevelopment; a compulsory retirement program that is expensive and inadequate; and white elephant public projects that have a habit of going over budget.

The legacy of positive non-intervention remains in the simple rules for establishing companies, limited licencing requirements, efficiency in the administration of many daily matters, the rule of law, low taxes and no tariffs. Our ruler is evidently frustrated that his administrators have failed to deliver on his grandest plans and the people do not appreciate his foresight. Positive non-intervention is an easy target to blame for administrative failures. The alternative would be to acknowledge that the grand plans are wrong and it is best to leave people to their own devices.

Bill Stacey