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How The Spectator, and Milton Friedman, misconstrue Hong Kong

This article can also be read at Asia Times

It’s my understanding from meeting people who know him that the English journalist James Delingpole is a decent, thoughtful sort of fellow, despite being way further to the right than seems entirely compatible with possession of a full set of marbles. Personally, even when he is being wrong-headed, I rather enjoy his writing – for its honesty, its freewheeling chutzpah, its soft-pedalled erudition.

It was fairly obvious, though, from reading his September 24 column in Britain’s Spectator magazine, that he must have spent most of his recent visit to Hong Kong in the pub. Starting off with an anecdote about taxis is usually a giveaway sign that you’ve neglected to do any homework whatsoever. His piece descends from there into a Cook’s Tour of free-market phantasmagoria.

Milton Friedman spent his twilight years evangelizing about Hong Kong and how its economic success proved the irreproachability of pure free-market capitalism. Delingpole merely picks up the baton. Hong Kong’s laissez-faire, “red-in-tooth-and-claw” environment and its low taxes lead him to realise “how incorrigibly, nauseatingly socialistic most western nations are.” The only basis he provides for this realisation is that his step-son has a better job in Hong Kong than he could land in London, despite – I’m reading between the lines – not being especially bright.

The main problem with this narrative about Hong Kong’s development is that it was only partially true when Friedman was espousing it and it is even less so now. Sure, Hong Kong has very low marginal tax rates and, at around 18 percent, low state spending relative to GDP. Moreover, it consistently scores high on indexes measuring ease of doing business. These indicators can be misleading, though: Hong Kong, while spending nothing on defense, is far more statist than outsiders generally perceive.

For decades, the Hong Kong government has offered advanced social welfare services along vaguely European lines. It provides an excellent public health care system and funds education and social security. In public transport and utilities, it grants monopoly franchises and holds equity in them. And it imposes strict rent controls for the roughly 30 percent of Hongkongers who live in public housing, thereby indirectly subsiding labor.

There’s plenty of indirect taxation too. Exorbitant real estate prices have caused spiralling inequality but they also keep government revenues high even as income taxes remain flat and low. How this works is that the government owns all the land in the territory (capitalism, James?) and drip feeds it on lease to a small handful of developers, who in turn control the supply of housing to keep the market inflated for buyers and renters.

Without help from their families, households with two above-average earners can just about save for a deposit to buy a home – provided they don’t eat out much or go on holiday for a few years. (If they want to have children, their careers, mercifully, needn’t be interrupted: childcare is provided by an army of imported female workers from the Philippines and Indonesia who earn a pittance and have next to no rights.)

For those a rung below, there’s no chance. In the first quarter of this year, the average wage in Hong Kong decreased to HK$15,500 (US$2,000) a month. At the same time, a survey classified Hong Kong homes as being the “least affordable” anywhere, ever, with average flat prices surging to 19 times gross annual median income.

One might argue that it’s not the government’s job in a laissez-faire system to fix this problem, but the point is that the government’s role skews the market already and it’s not in favour of the vast majority of Hong Kong people, however hard-working and entrepreneurial they might be. Indeed, there is a case to be made that Hong Kong’s mantra of “positive non-interventionism” has never been more than a soundbite anyway.

In the banking sector alone, the history of Hong Kong since the 1950s onwards is one of repeated bailouts, government rescues and regulatory capture by HSBC and Standard Chartered to stop outside banks gaining licences. So much for Friedman’s notion of free and open markets. Interest rates were set by a cartel until 2001.

The reality of Hong Kong is that it has institutionalised cartels and monopolies in almost every sector of life. Those in political office work hand in hand with the same same business elites who make up a large part of the committees who appoint them. There are some 300,000 SMEs in the city and yet its economy is dominated by a handful of conglomerates. According to a Wall Street Journal report in 2013, the six biggest “take in at least 23 cents of every dollar that residents spend, controlling Hong Kong’s biggest mobile-phone network, its electrical system, its bus system, the vast majority of the buildings making up its iconic skyline, plus two-thirds of its private housing market and 90% of its supermarket sales.”

There’s no doubt that the ingenuity of the private sector helped Hong Kong to grow its per-capita income from 28 percent of Britain’s in 1960 to being almost on a level pegging with the United States by that measure today. But so too did government spending on the poor, the fact that Hong Kong is an entrepot economy and the surplus value it has attained from attracting global companies to make it their home.

As for Mr Delingpole, I get it: you need somewhere to hold up as a paragon of the ‘virtue of selfishness‘, because the “socialism” being foisted on Britain by its Conservative government is crap. But if you see it in Hong Kong, you’re mistaken.


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Hong Kong’s poor need equal opportunities

This article appeared in the South China Morning Post

One hears a lot of about “the grass roots” in Hong Kong. It’s a phrase that seems to carry a more specific meaning here than I have encountered elsewhere, having come out from Scotland some 18 months ago.

Whereas in Britain and the US it intimates more generally the ordinary rank and file, or the population base at large, in Hong Kong “the grass roots” also tends to serve as a rather euphemistic term for the poor. We are told that grass roots people feel neglected, or that they are being effectively papuerised by inflation, or that they do not trust Chief Executive Leung Chun-ying to deliver on his pledges to help them.

There is one problem with the metaphor, however: real grass roots find it easy to break through the sod and grow. If they have the strength to seek their days in the sun, then so it shall be. By comparison, many of Hong Kong’s poor can legitimately be described as being downtrodden.

Much has been made recently of inequality in Hong Kong. As indicated by the city’s Gini co-efficient, a statistical measure of income disparity, we are living in one of the most unequal societies in the world. But it would be a mistake to unhesitatingly conflate, as many do, these two problems: stalled social mobility (the thwarted seedbeds) and a yawning gap between rich and poor.

To seriously confront the latter would require large-scale redistribution of wealth, which seems an unlikely course for any government here to take. There is more than a whiff of crony capitalism in Hong Kong, but it remains one of the world’s freest market economies: increasing the tax burden significantly on wealth creators would be to curtail much of the activity that stems from that.

It is always worth stressing, furthermore, that a more equal society is not necessarily a better one. “Solitary, poor, nasty, brutish and short” is how Thomas Hobbes described life in mankind’s “natural” state – relative equality tends to prevail in primitive societies as there is little scope for accumulating wealth. There is therefore less economic activity, less innovation and less incentive to create employment – things which benefit everyone.

How to ensure this is so is the challenge faced by governments: even the right accepts the state has a responsibility to help the poor. But where the right may be correct to insist that income disparity is necessary, the solution to ensuring inequality works for the benefit of society as a whole is perhaps the most sensible idea to come from the left.

It was the great liberal 20th Century American political philosopher John Rawls who outlined it best. Arguing for the free market and social inequality, he nevertheless insists in his A Theory of Justice on equality of opportunity: “Those who have the same level of talent and ability and the same willingness to use these gifts should have the same prospects of success regardless of … the class into which they are born and develop until the age of reason.”

To be born poor in Hong Kong is to have one’s prospects of success seriously blunted. Partly this is because the strivers who are given the chance to better themselves in one generation have a tendency the world over to pull up the ladder behind them on subsequent generations. It is also, however, a matter of public policy.

During his election campaign, Leung promised to focus on livelihood issues affecting the poor. Some of these he will no doubt follow up on; others he will not. But in a city whose coffers are directly swelled by booming asset prices – which themselves create new haves and have nots – and which has a grievous track record of billions spent on unnecessary infrastructure projects, the fact that people are forced to live in cage homes is nothing short of scandalous.

No doubt the isolation and immiseration of swathes of what used to be the working classes in rich societies is a global phenomenon and one related to deindustrialisation, which in Hong Kong happened in the space of a generation. Economic circumstances will stall social mobility, but this is when government spending – on housing, on education subsidies, on underwriting small business loans – is at its most useful.

For all the protest and agitation in Hong Kong in recent weeks and months, the conditions for class warfare thankfully do not yet exist. But for the “grass roots”, a bit of Rawlsianism would not go amiss. The city can afford it.


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Working-class heroes

All of a sudden the taxi driver has been overcome by a fit of the giggles. Is it the fare? We’ve barely moved in about 20 minutes and the meter has nudged its way up from ridiculously cheap to merely cheap. It is not the fare.

“London, Hong Kong, it’s the same,” he says finally, pointing over at the massed divisions of demonstrators snaking along Hennessey Road in the opposite direction to us. “People don’t like government, make protest. It’s same.”

Okay. Yeah, I nod. Protest. Government. London. But wait – London? Nobody’s smashing windows or setting about police vans. In fact, it’s all rather peaceable. I mean, whoever heard of an angry mob carrying parasols? Maybe the anarchists are late. No trouble, I say. No violence. Unfortunately for our conversation, no understand. Well it was fun while it lasted.

But still, I’m right. This march – they’ve been held every year on July 1 since the British split for home in 1997 – appears to stir up all the animus of a Hare Krishna rally. The government has been trying to do away with by-elections and so this is the biggest turnout since 2004. But still, not even the chanting’s aggressive. And what do they want? Well, universal suffrage would be a start. “One person, one vote” is the shibboleth. In May, incidentally, the Brits were asked whether in future they wanted two votes in general elections, or something to that effect, and declined. Instead they’ve been out marching against cuts in government spending that so far don’t appear to be cuts at all, the erosion of middle class entitlements and suchlike.

I’d seen groups of protestors gathering earlier on. Hawkers sold t-shirts emblazoned with pro-democracy slogans and – the very latest in radical chic – Guy Fawkes masks; volunteers handed out pamphlets and placards and John Lennon’s Working Class Hero blared from a loudspeaker. And it struck me that if the self-pitying jeremiads of a dead hippy were to be the democratic movement’s rallying call, then the Chinese Communist Party needn’t worry all that much.

It is often claimed, indeed, that there will be no great clamour for democracy on mainland China whilst the government is delivering nine per cent growth year on year. Growth, however, may not necessarily preclude anti-government sentiment if it is accompanied by a widening of the gap between the rich and the rest. And this, probably more than the desire for greater democracy, is what explains the 218,000 turnout in Hong Kong last week. As much as they have compounded the miseries of the poor, rising rents and living costs are squeezing the middle classes. The rentier class rules. The picture is not, in fact, so very different from that of London after all.

Later on, there were also a few arrests: 228 to be exact. But one shouldn’t jump to conclusions. The offending parties were, for the most part, demonstrators who refused to go home. There is so little in the way of crime in Hong Kong that its bobbies occasionally feel the need of something to do.