Government procurement power can drive transformation

Budget time — this is when, almost every year, the Hong Kong government is embarrassed by just how rich it is. The surpluses recur again and again and are so large that people talk about handouts to everyone, which has happened once before in 2011 when all ID card holders received HK$6,000 each. Just handing out cash is an easy concept — referred to as “returning money to the people” — but required a lot of administration to give us the lucre.

Spending very large budget surpluses has never been easy because wise expenditure needs imagination and an ability to articulate strategies and plans.

The strategy behind Hong Kong’s public spending is a frequent source of complaint because the government can pay for expensive hardware but remains reticent to increase recurrent expenditure.

Hong Kong has spent a lot on infrastructure such as roads and bridges. It is finally also investing in improving public hospitals, but sorting out staffing remains a challenge. Pay for doctors and nurses is a recurrent expense.

Likewise, plenty of money is now going into innovation and technology but turning Hong Kong into a leading “smart” city has been much more difficult.

There are two aspects to achieving smartness — you need an enabling environment that requires smartness and smart people.

Also laws have to be updated or newly made. For example, if you want smart buildings, you need the right laws and standards to require certain upgrades. This is a complicated issue for another time. For now, let’s focus on something that should be easier to do — start with the people.

Training and paying them well is what Hong Kong should do. To be a smart, healthy, livable city requires a different mindset. We must value quality, strive for it and be willing to pay.

Many industries have problems recruiting new hires because quality is not valued and Hong Kong is not forcing transformation through paying more for services.

After the tragic accident on Feb 10, bus companies are now willing to pay drivers more and provide better working conditions. With 12.6 million passenger journeys a day on buses, trains, trams, mini-buses, taxis and ferries, Hong Kong needs to have good people to navigate these forms of public transport.

Young people are not attracted to careers as commercial drivers because these are seen as low-end, low-skill, dead-end jobs. Moreover, we need people to join the vehicle maintenance workforce because we need safe and high-performance vehicle fleets in public transport services. That industry has difficulty hiring and retaining young mechanics.

There are many other essential jobs that face the same challenges, including cleaning services, waste collection and recycling, building management and construction.

Is there anything the financial secretary can do in pondering how to spend Hong Kong’s money?

Yes. He can use the government’s procurement muscle to drive transformation. The goal has to be clearly stated — it is to drive service-level improvement. This is in effect a forward-looking economic and development policy — just the sort that is appropriate for the financial secretary to lead.

Let’s take an example to illustrate what can be done. The government tenders out many types of contracts, including construction services. The tenders should in future require bidders to perform the services directly; they cannot sub-contract to someone else to do it.

For some reason, Hong Kong has become stuck in a rut in service level by allowing multiple sub-contracting — not for specialized parts of a contract but often for the main services. As every sub-contractor takes a slice of the profit, the company that finally delivers the services operates on thin margins. Worker pay has no room to rise and there is no incentive to innovate.

Requiring direct performance is not interference in the market because the paying contracting party has the right to demand high standard of performance.

Take the cleaning and waste-collectioncum-recycling sector. There are plenty of smart, digital technologies and management methods that will never be tried if services are lowly paid. Why can’t the tender requirements include demands for transformation?

Yes, transformation contracts will cost more. Hong Kong needs to appreciate value otherwise we will not use our very significant public-sector financial capability to drive change.

Young people will understand the transformation if the companies providing such services are high quality, competitive and shown to be among the best in the world. In our extreme high-density cities, we have the conditions to give the private sector a chance to create services that are the best if the pay provides the incentive.

The financial secretary will likely have more bumper surpluses in future. He can help Hong Kong chart another way to develop top-rated services cities need, and to show young people that services to keep the city in tip-top condition are worthy of their time.