Time to stop decline of Hong Kong

Updated: 2012-10-18 07:08

By Hong Liang(HK Edition)

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If you still can't understand the magnitude of the problem we face, perhaps a look at Venice in the mirror of the past can help. The decline of Venice in the 14th century was widely attributed to the discovery of sea routes by the maritime states of Europe, rendering Venice's position in East-West trade and the major source of its wealth irrelevant. We have heard this dreaded word a lot about Hong Kong in recent years.

Many politicians and economists have questioned Hong Kong's relevance to the Chinese mainland's economic development, especially in the Pearl River Delta region, from a low-cost manufacturing base to a much more diversified structure with an emphasis on the services sector.

In the past several years, most major mainland cities, notably Shanghai, Guangzhou and Shenzhen, have embarked on their respective spending sprees in infrastructure building. As such, land-scarce Hong Kong can no longer compete.

To be sure, Hong Kong still maintains its core advantages. These include a low and simple tax regime, clean and efficient civil service, fair and equitable legal system and cost-effective transportation and communication facilities. But the vitality, hope and self-confidence, which we found in abundance in the 1980s and early 1990s, are fast evaporating. We have become cynical and pessimistic, as our trust in the free-market principle appears to have been betrayed by the widening wealth gap and diminishing opportunities felt most keenly by the middle class.

Most disappointing is that Hong Kong appears to have lost its direction. Instead of re-engineering itself for a new role in the global economic environment, which has changed so much, Hong Kong is going down the self-destructive route as the Venetians did some 600 years ago.

In their book, "Why Nations Fail: The Origins of Power, Prosperity, and Poverty," scholars Daron Acemoglu and James A. Robinson put forward the thesis, that states fail because their governing institutions and ruling elites are "extractive" in the sense that their objective is to extract as much wealth as they can from the rest of the society. In contrast, inclusive states provide everyone assess to economic opportunity.

In an article in the New York Times, Chrystia Freeland, editor of Thomson Reuters Digital and author of "Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else," wrote that the decline of Venice can be traced to a shift to an "extractive" political system, which eventually applied to the economic system as well. The writer cited this example as a reminder to the American upper class, who, like its Venetian counterpart, is trying to lock in its privileges at the expense of social mobility.

The title of the article "The Self-Destruction of the 1 Percent" should apply to Hong Kong when the wealth gap between the very rich minority and everyone else is wider than at any time before. What's worse is that social mobility is severely constrained by an imbalanced economy that is overly dependent on escalating property prices to fuel growth. The business oligarchy, consisting of a few large property developers and banks, has been taking advantage of its disproportionately large influence on the government by blocking any proposal to minimize its strangle-hold on the supply of properties. Even minor regulatory initiatives to ensure a fairer deal for home buyers were snuffed out before they could get a hearing in the legislature.

To stop the decline of Hong Kong through the self-destruction of the 1 percent, the government must take the initiative to create opportunities for everyone to move up the social and economic ladder. It needs to introduce new legislation to check the effective monopoly of the oligarchy and diversify its income source for the building of a social safety net that can provide a greater sense of security to the 99 percent of the people.

The author is a current affairs commentator.

(HK Edition 10/18/2012 page3)