Govt needs to ex­plain ben­e­fit of proac­tive fis­cal pol­icy

China Daily (Hong Kong) - - COMMENT -

Apro­tege of for­mer fi­nan­cial sec­re­tary Sir Philip Had­don-Cave, who laid the foun­da­tion of Hong Kong’s non-in­ter­ven­tion eco­nomic pol­icy, Joseph Yam Chi-kwong has come out of re­tire­ment to take cen­ter stage in the “re­vi­sion­ist” move­ment ini­ti­ated by the new Chief Ex­ec­u­tive Car­rie Lam Cheng Yuet­ngor.

With a long ca­reer as a se­nior fi­nan­cial of­fi­cial and the Hong Kong Mone­tary Author­ity’s (HKMA) first chief ex­ec­u­tive, Yam is seen to be em­i­nently qual­i­fied to lend in­tel­lec­tual cre­dence to the move­ment that could sig­nal a sea change in the govern­ment’s eco­nomic pol­icy.

Yam’s con­ver­sion to the new think­ing is nei­ther abrupt nor op­por­tunis­tic. In one of the many ar­ti­cles he wrote when he was at the HKMA, Yam noted that hav­ing too many fis­cal re­serves was not nec­es­sar­ily a good thing. His fans at that time thought he was com­ment­ing on the Chi­nese main­land. But the point he made in that highly aca­demic es­say also holds true for to­day’s Hong Kong, which has fis­cal re­serves amount­ing to more than $122 bil­lion.

In re­cent years, more and more politi­cians and economists have crit­i­cized the Hong Kong govern­ment for its “miserly” ap­proach to eco­nomic man­age­ment. Yam, of course, is fully aware of the guid­ing prin­ci­ple of the bud­getary dis­ci­pline im­posed on suc­ces­sive fi­nan­cial sec­re­taries in past years.

Yam and oth­ers are not push­ing for any­thing like a wel­fare state, which every busi­ness per­son in Hong Kong ab­hors. In his first pub­lished ar­ti­cle he wrote af­ter a long hia­tus, Yam ar­gues that it is not only ac­cept­able, but nec­es­sary, for the govern­ment to spend more in driv­ing eco­nomic growth, even at the risk of run­ning a bud­get deficit.

“In­deed, with Hong Kong ex­pe­ri­enc­ing his­tor­i­cally slow eco­nomic growth rates in the past decade and a strong de­sire of every­body to in­vest in the fu­ture of Hong Kong and build a more dy­namic econ­omy, the (con­tra­dic­tory) fis­cal stance on the econ­omy af­ter a decade of fis­cal sur­pluses seems in­ap­pro­pri­ate, if not ir­re­spon­si­ble,” he wrote.

Hong Kong’s GDP is ex­pected to grow 3 per­cent this year, com­pared with an av­er­age of about 5.3 per­cent in re­cent years.

The new eco­nomic think­ing of the govern­ment is fo­cused more on a much-dis­cussed pro­posal for a govern­ment-led in­vest­ment in the tech­nol­ogy in­dus­try to di­ver­sify the lo­cal eco­nomic base, which has be­come overly de­pen­dent on fi­nance and prop­erty. This im­bal­ance has, in turn, widened the so­cially desta­bi­liz­ing in­come gap be­tween the mi­nor­ity rich and rest of the pop­u­la­tion.

What’s more, Hong Kong is seen to lag woe­fully be­hind its re­gional ri­vals in in­no­va­tion and cre­ativ­ity, re­sult­ing in the in­abil­ity to move up the value-added lad­der while its tra­di­tional strength as a re­gional trade and lo­gis­tics hub is rapidly eroded by ris­ing com­pe­ti­tion from neigh­bor­ing cities.

Non-in­ter­ven­tion­ists be­lieve the anom­alies in eco­nomic de­vel­op­ment will, in time, be smoothed out by pri­vate-sec­tor busi­nesses ini­tia­tives. Their think­ing dic­tates that the govern­ment should do less dur­ing a slow­down in eco­nomic growth to avoid com­pet­ing for la­bor and fi­nan­cial re­sources with the pri­vate sec­tor.

Yam now brands such fis­cal pol­icy as “ir­re­spon­si­ble”; he has taken the view of the lib­eral economists ar­gu­ing for eco­nomic stim­u­lus from the govern­ment to boost growth. In the past sev­eral years, in­creased govern­ment ex­pen­di­ture on in­fra­struc­ture has helped main­tain a growth rate that is con­sis­tently above the av­er­age among de­vel­oped economies.

But the pro­posal to sub­si­dize the high­tech in­dus­try through di­rect sub­si­dies, land grants and tax in­cen­tives will be a hard sell be­cause it goes di­rectly against the ba­sic tenet of a free-mar­ket econ­omy, which in­sists on a level play­ing field for all busi­nesses. So­cially, the pro­posal will be an even harder sell by the govern­ment, which has re­jected uni­ver­sal pen­sion for cost rea­sons.

To be sure, eco­nomic di­ver­si­fi­ca­tion can cre­ate more well-pay­ing jobs and bet­ter op­por­tu­ni­ties for ad­vance­ment for young work­ers. But the Hong Kong pop­u­la­tion is rapidly ag­ing and hard­ship many work­ers will have to en­dure af­ter re­tire­ment is real and im­me­di­ate.

Non-in­ter­ven­tion­ism may have out­lived its use­ful­ness be­cause it can no longer meet the de­mands of Hong Kong peo­ple. But Yam and oth­ers will need to con­vince the pub­lic that greater govern­ment in­ter­ven­tion to boost growth can ben­e­fit them rather than fur­ther widen the in­come gap.

The au­thor is a vet­eran cur­rent affairs com­men­ta­tor.

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