Signs of renewed "anti-rich" sentiment have emerged in the city. People are accusing bankers and property developers of wheedling money out of the poor.

The city's wealth gap is not new, but it probably would not be such a problem if the economy had not slowed down last year. But as long as the economy keeps on rolling, everyone will be happy as they make more money.

To address anger over income disparity, the best we can do in Hong Kong is to sustain economic growth and make the pie larger so that everyone can take home a larger share. Another solution that could work would be to find a way to boost people's wage-earning ability.

Recent economic research has revealed that only two types of jobs can be found in a mature economy: 1) those which require sophisticated and specific skills such as bankers and writers, and 2) low-skill jobs such as waiters and waitresses. Mid-level jobs, however, are most likely to be filled by computers or other high-tech gadgets.

The wealth gap is not uncommon in most western societies. The gap tends to narrow and competitiveness is enhanced once the population's overall skill level improves. This is achievable through better education.

We need to provide welfare to the under-privileged, but not by handing out money. Instead, we have to endow the disadvantaged with better skills in order to survive strong competition from low-cost markets, including India and the mainland.

Education gives people a chance as well as hope to become - or remain - socially mobile. As long as people are able to aim for better things, their strong negative feelings towards the rich will fade.

However, to improve education, transformational changes are needed. It is of little avail to simply get more high-school graduates to enter universities. Quality education must be provided early in life so that children - rich and poor alike - will have an equally good start.

Aside from education, we need to provide a stable environment for the poor so that they are able to concentrate on investing in their human capital. One is healthcare, in which Hong Kong is not doing badly. The other is accommodation, which is truly a disgrace.

The government would be most helpful if it brought more residential flats to the market that those with low skills and low pay could afford to rent or buy. As Hong Kong is one of the most expensive places to live in the world, housing is always the first thing weighing on the minds of city dwellers.

The government has failed to hit the nail on the head in its attempt to solve the housing problem. The real problem is a shortage of supply. If the government simply borrows money from one and lends it to another so that the latter can afford a house with the borrowed money, it misses the key issue and leaves unsolved the imbalance between housing supply and demand.

If people are unable to afford a house on their own, the government will be adding insult to injury by extending easier loans to help them afford one. People will regret having received government support when they are toiling for the rest of their life to repay the loans.

The government can also choose to help by putting in place welfare policies financed with taxpayers' money. Such a policy would give those unable to afford a house a "free ride". But in this case, life is not made better for all. For the majority who can buy a house with their own money or are hoping to do so through their hard work, life only becomes worse with more taxes to pay.

Welfare policies may be well-meant. However, be it loans or "free rides", they only make matters worse by making the short supply even shorter. We have seen this happen in 1997 when the previous housing bubble crashed.

Compared with creating welfare schemes, the government may as well reintroduce the "Home Ownership Scheme" and build more houses to better balance supply and demand, or at least to keep the imbalance from being stretched further. Building more homes makes society richer because we simply have more and bigger flats to live in. In contrast, paper wealth from rising housing prices does not make a society richer - it merely makes the rich richer and the poor poorer. And in the long run the rich become poorer as society gradually loses its competitiveness.

The author, a former investment banker, is currently the associate director of MBA programs at the Chinese University of Hong Kong. The opinions expressed here are entirely his own.

(HK Edition 10/29/2010 page2)