Tuesday, December 10, 2013, 09:30
Free market fails in fair distribution
By Hong Liang

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 service-based economy has obliterated the automatic adjustment mechanism on which the non-intervention 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?

The author is a senior editor with China Daily.