Free mar­ket fails in fair dis­tri­bu­tion

China Daily (Hong Kong) - - HK COMMENT - HONG LIANG The au­thor is a se­nior ed­i­tor with China Daily. jamesle­ung@chi­

In his widely watched speech last week on in­equal­ity, United States Pres­i­dent Barack Obama said the “break­down” of the dream of eco­nomic up­ward mo­bil­ity had widened the in­come gap in Amer­ica. The Pres­i­dent said this was the “defin­ing chal­lenge of our time”.

Pledg­ing to de­vote his re­main­ing three years in of­fice to ad­dress th­ese is­sues, Obama said: “The ba­sic bar­gain at the heart of our econ­omy has frayed.” He said this was a big­ger con­cern than the bud­get deficit which has been the main fo­cus in Wash­ing­ton for a long time.

He might as well have been ad­dress­ing Hong Kong where the peo­ple are fac­ing, per­haps, even more re­stric­tions on up­ward mo­bil­ity and starker in­come dis­par­i­ties with­out any mean­ing­ful form of so­cial se­cu­rity. Of course, the Hong Kong SAR gov­ern­ment is aware of the prob­lem. In­come dis­par­ity has been a ma­jor source of pub­lic dis­con­tent for years. But the gov­ern­ment has never made a com­mit­ment to ad­dress­ing the is­sue.

When pressed, gov­ern­ment of­fi­cials, at all lev­els, cite the free-mar­ket prin­ci­ple which they ar­gue rules out a role for the gov­ern­ment in in­come dis­tri­bu­tion. The busi­ness sec­tor, as ex­pected, have re­fused even to ac­cept the ex­is­tence of the prob­lem. Those who do, ar­gue the widen­ing wealth gap is merely a man­i­fes­ta­tion of free-mar­ket forces.

Such in­sen­si­tiv­ity was shame­fully demon­strated in the fierce, though ul­ti­mately fu­tile, ob­jec­tions to the in­tro­duc­tion of the min­i­mum wage. Com­plain­ing about the lat­est in­crease in wages, fu­elled by the short­age of work­ers, par­tic­u­larly, in the con­struc­tion, re­tail and cater­ing sec­tors, Hong Kong em­ploy­ers have been push­ing the gov­ern­ment to re­lax re­stric­tions on im­port­ing work­ers.

The gov­ern­ment has al­ways prided it­self as the fa­cil­i­ta­tor of eco­nomic growth. Its main re­spon­si­bil­ity is to main­tain an en­vi­ron­ment in which pri­vate-sec­tor busi­nesses can thrive. There is, of course, noth­ing wrong with this pol­icy, which is widely seen to have worked well for Hong Kong in past decades.

But this gov­ern­ment ap­pears to have for­got­ten it is the fa­cil­i­ta­tor not only for busi­ness own­ers. It also has the re­spon­si­bil­ity for the well-be­ing of the rest of the pop­u­la­tion.

The thor­ough trans­for­ma­tion to a ser­vice­based econ­omy has oblit­er­ated the au­to­matic ad­just­ment mech­a­nism on which the non­in­ter­ven­tion eco­nomic pol­icy was based. In the past when man­u­fac­tur­ing was the main­stay of the Hong Kong econ­omy, a busi­ness boom would in­vari­ably lead to an in­crease in de­mand for work­ers, which would, in turn, push up wages.

Ris­ing costs would un­der­mine Hong Kong’s com­pet­i­tive­ness, lead­ing to a down cy­cle when wages would fall to re­flect di­min­ish­ing de­mand. All the gov­ern­ment needed to do was to “fa­cil­i­tate” em­ploy­ers by ad­just­ing its spend­ing in tan­dem with the eco­nomic cy­cles to avoid crowd­ing out the pri­vate sec­tor.

In a ser­vice-based econ­omy such as Hong Kong, which is de­pen­dent mainly on fi­nance and prop­erty to fuel growth, eco­nomic cy­cles are hav­ing lit­tle ef­fect on the ma­jor­ity of work­ers, other than those in con­struc­tion and, to a lesser ex­tent, re­tail and cater­ing. For in­stance, the surge in prop­erty prices in re­cent years that has brought great wealth to de­vel­op­ers but hasn’t trans­lated into a gen­eral in­crease in fam­ily in­comes.

Nei­ther gov­ern­ment of­fi­cials nor the econ­o­mists in academia who are en­joy­ing all the perks that come with their jobs at tax pay­ers’ ex­pense have failed to come up with any idea to re­build the Hong Kong dream. Nat­u­rally, pub­lic re­spect for the gov­ern­ment and academia is fall­ing more and more. But do they care?

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