Posted:  Nov. 18, 2013


Review:   Poverty in the Midst of  Affluence: How Hong Kong Mismanaged Its  Prosperity,   by Leo F. Goodstadt,  Hong Kong University Press, 2013.


After years of argument and agitation, and one year into his new administration, Hong Kong’s trouble-plagued Chief Executive Leung Chun-ying has finally begun fulfilling one of the few pre-election pledges that attracted some pro-democracy activists to his candidacy.  For the first time in its history, the city now has an officially recognized poverty line with the statistics to prove it.  Some 1.3 million of Hong Kong’s total seven million citizens, 19.6%,  are living below the poverty line … drawn at 50% of the median household income.  The sum is HK$3,600 per month for a single person, HK$7,700 for two, and HK$14,300 for a four-person household.*   A critical independent report focusing on living standards, or what incomes can buy, estimated the actual number to  be 1.47 million.**

Definitions are the easy part although officials delayed drafting them for years.  The real challenge is what to do about it and officials are already reducing expectations.  Chief Secretary Carrie Lam said the government was not planning to base any policies on the new standard, including adjustments to Hong Kong’s bare-bones minimum wage rate.  This too was just recently introduced after years of agitation, resistance,  and official procrastination.   She also said to wait until Leung Chun-ying’s annual policy address in January for hints about the government’s poverty alleviation proposals.

Leo Goodstadt’s latest book has arrived just in time to catch the oncoming wave of debate and recrimination that is sure to follow the Chief Executive’s January announcements …  especially since they already seem set to disappoint as Goodstadt himself anticipates.  An economist by training, deputy-editor for many years of the late Far Eastern Economic Review, TV host, and head of the last colonial administration’s Central Policy Unit think tank from its inception in 1989 until the end of British rule in 1997, Goodstadt has written several books on Hong Kong’s many economic miracles both before and after Britain’s departure.  This is the first to focus exclusively on the social costs of that record and although his purpose is not to prescribe solutions, he does not hesitate to apportion blame, which is the next best thing.

Goodstadt’s arguments are calculated to provoke the powers-that-be, both here and  in Beijing, because he is a man of the colonial past who presumes to fault Hong Kong’s new post-1997 leaders for its growing problems of poverty and inequality that statistics record.  A politically incorrect thing to do, although there is plenty of blame to go around and he shares it out between past and present, tracing fault lines back to the bedrock foundations of Hong Kong’s conservative political economy and even the last 1990s British administration he served.   But he is more direct than that.  He is also angry.

The author blames specifically what he calls the “government-business nexus” carried forward from the past, at Beijing’s insistence, and now sanctified by the articles and authority of  Hong Kong’s post-1997 Basic Law constitution. Thus written in stone and embedded in unrepresentative governing institutions designed to favor economic elites and pro-Beijing loyalists, the “business model” mentality … fiscal balance, low taxation, small government, big market …  has continued to dominate budgets and policies.

He also notes the changing trade rules that first curbed Hong Kong’s ability to exploit international markets, and then after 2003 its outsourced mainland production lines as well.  Hence “Hong Kong itself became the main market for exploitation” without adequate protection from the government for the residential property market, the labor force, or retail consumers (p. 66).

It follows that the old logic rigidly carried over from the colonial past has not adapted to modern realities … thereby exacerbating the local equivalent of the global growing wealth gap.   Income inequality has continued to increase while wages have stagnated and the prices of everything continue to rise with housing the most egregious example.

On the international measure of household income disparity, Hong Kong now has the dubious distinction of ranking first among the developed economies (p. 73).   In real life terms, the income of the group having the highest 10 % per capita household income increased by 64.7%  between 1997 and 2012; the income of the group having the lowest 10% per capita household income dropped by 22% (p. 8).

Nor do the social consequences stand alone since they are inevitably compounded here by political fears over Hong Kong’s transitional one-country, two-systems link with China.   The angst of Hong Kong’s  “1980s generation” that has fueled so many protests in recent years is one result.  They are the best educated generation (free universal elementary schooling was not introduced here until the early 1970s), but also the first generation to confront the reality of stagnating economic prospects.  No wonder the current Chief Executive has been so frequent a target of their wrath over both political and livelihood issues.   No wonder he only exacerbates their anger with his constant politically tone-deaf refrain:  look north, he says, embrace economic integration, the mainland is where growth and prospects lie.


It didn’t need to be this way, Goodstadt argues, in chapter after chapter of closely argued recrimination.  Keynsian he may be but balanced budgets and prudent financing are not the enemy.  His argument is only that since Hong Kong has ample reserves and surpluses have continued to accumulate, contemporary social needs that could have been addressed are instead still being allowed to multiply.  With enlightened leadership, Hong Kong’s wealth (the fruit of frugal administrations past) could easily be allocated to more socially beneficial effect with margins to spare.

The story begins with Hong Kong’s first post-1997 administration led by shipping magnate heir Tung Chee-hwa.  Goodstadt  is unforgiving in his analysis of  Tung’s response to the 1997-98 Asian financial crisis arguing that he ignored Hong Kong’s uniquely advantaged financial situation (the reserves), the historic resilience of its economy (repeated blows and revivals), and the diligence of its labor force (long hours, low pay).

The result was cold-turkey austerity programs and misguided privatization campaigns, promising short-term pain for long-term economic health, leading to a recession that need not have required a decade and more for recovery. Agitation for government assistance to compensate those hardest hit by the downturn was resisted on traditional conservative grounds, namely, that it would make Hong Kong’s minimum-standard welfare benefits unsustainable and encourage the dreaded “culture of dependency.”

Goodstadt is most eloquent and angry over Hong Kong’s housing crisis.  This is rooted in the post-1949 refugee generation that graduated from squatter huts and squalid tenements, to government-built resettlement blocks, and on to low-cost housing during the last years of colonial rule.  Tung Chee-hwa initially promised to promote the production of 85,000 new private housing units a year so that everyone could aspire to own a home of their own.  But he soon abandoned his promise as the recession took hold and property prices plummeted.  The developers were not alone in raising a hue-and-cry.  Homeowners and speculators alike saw their investments rapidly sink underwater.  He went on to suspend the sale of land sites for new housing (a government monopoly here), and then did one better by suspending public home ownership schemes as well …  all direct antecedents of  Hong Kong’s current developers’ market and unaffordable-housing crisis.

MORE OF THE SAME:  Donald Tsang Yam-kuen

         Eventually even Beijing had to admit that Tung was a liability and removed him in 2005, midway through his second term of office, although social policies were evidently not the reason.  The same business-model management continued under his successor.  Public opinion initially registered high hopes for Donald Tsang, a ranking civil servant schooled in all the old familiar traditions.  But colonial servants owed deference above all to their sovereign and Tsang quickly mastered his new Beijing-drafted script.  In one of his early public statements he said it was important to distinguish between “close relations and others” meaning pro-Beijing loyalists versus the others.  By the end of his tenure he was accepting favors from tycoons and even Hong Kong’s storied Independent Commission Against Corruption had learned to emulate mainland-style banqueting and gift-giving and cross-border junketeering  …  all at public expense.

More important in Goodstadt’s telling was Tsang’s enthusiasm first as Financial Secretary under Tung, and then as Tung’s successor, for shrinking the public sector as a matter of principle and with particular reference to housing.   Idealized private enterprise did not move in as postulated to pick up the shortfall, making inevitable long-term housing shortages and the skyrocketing prices that are plaguing the community today.

Supply of new public housing fell:  from 38,900 new units per year between 1997 and 2002, to 14,600 units between 2007 and 2012.  During those same years, the annual supply of private sector units fell from 21,900 to 9,900 (p. 90).  The infrastructure for public-housing production was so thoroughly dismantled that the current Chief Executive’s campaign promise … to pick up where his mentor Tung Chee-hwa left off with his aborted housing plans  …   will take at least until 2018 to register significant results.

The colonial government did not focus on health, education, and welfare until after the late 1960s leftist riots inspired by Mao Zedong’s mass-movement radicalism across the border.  That episode reinforced the general public’s endemic  fear of Beijing and its communist leaders.  But the episode is also remembered as a turning point in the government’s focus on living and working conditions … even if the not inconsiderable reforms undertaken during the last three decades of British rule were, in Goodstadt’s words, “too little, too late.”

He records with regret post-1997 rollbacks of pre-1997 progress in all three areas as business-model logic reasserted itself.  This was inspired by ever-present fears of Eastern-style socialism or what was left of it, and Western-style welfare-state entitlements, but was promoted with a mean-spirited rationale that demeaned the undeserving poor.  Donald Tsang said the wealth gap could not be eradicated and that for government to use its own resources to help those in need was like ‘pouring sand into the sea to reclaim land.’


          Goodstadt reinforces his message with a pessimistic commentary on the cost to social services of Hong Kong’s “peculiar” political situation, a polite way of referring to the political vacuum responsible for today’s “absence of advocates.”  But he moves too quickly over the complexities … as if impatient at the added obstacles they are creating for his main concerns.

Along with social welfare, the  British also belatedly concerned themselves with Hong Kong’s unique status as their only colony that had never been allowed any form of elected representation in government.  Once this change was finally introduced, in the early 1980s, a political spectrum inevitably formed.  It was based on the long-standing but untapped inclinations of the public:  a minority, pro-Beijing loyalists and patriotic to a fault; versus the majority, descendants of Hong Kong’s migrant population and fearful of a revolution that had sent them in waves across the border after every radical campaign for 30 years.  Today’s pan-democrats represent the latter inclination.  Their adversaries are pro-Beijing loyalists and conservative anti-democrats.

Goodstadt says the impact on social policy was subtle.  It was not.  It appeared immediately, in the mid-1980s, as soon as liberals like Democratic Party founder Martin Lee began making the case for democratic elections as the only way to safeguard the autonomy Beijing was promising …  by rooting that promise in Hong Kong voters themselves.  The tycoons, seeing themselves as the creators and guardians of Hong Kong’s wealth, immediately raised their colors.  They still see democratic elections as a slippery slope leading nowhere but downward to British-style welfare-state bankruptcy.  They quickly established common cause with Beijing to keep Hong Kong “prosperous and stable” by keeping democracy at bay.

This tension, between democracy and prosperity, has created and maintained one of the cleavages in Hong Kong’s democracy movement as those with working class concerns split from or never joined the Democratic Party.  Goodstadt fails to mention their struggle to establish the pro-democracy Confederation of  Trade Unions (CTU) and most recently the Labor Party …  and their long-standing agitation to overcome the business lobby’s perennial resistance to a minimum wage, finally introduced  two years ago.  Agitation now continues  for standard working hours and upward adjustment of the minimum wage.

Pan-democrats, of course, were not alone in needing to appeal to middle-class constituencies once elections were established.  Goodstadt also laments the abrogation of its natural responsibilities by the pro-Beijing Federation of Trade Unions (FTU), Hong Kong’s largest and oldest labor organization.  But this accommodation began long before the advent of elections.  After some early 1950’s adventures and except for that later 1960s episode, the FTU not only kept to itself but also helped the government keep peace on the labor front.

Yet the FTU also did what it could from the early 1950s onward to make up for the colonial government’s failings:  with “patriotic” schools for workers’ children, clinics, canteens, social entertainments, and solidarity.  Today the  FTU together with its partner, the main pro-Beijing political party, is doing the exact same thing.  They are providing social services on their own initiative to constituents from fully-staffed offices in all of  Hong Kong’s districts.  This is the secret of  loyalist ballot box success allowing them, as of the last 2011 local election, to dominate all 18 District Councils.

Goodstadt’s main concern, however, is not with advocates or lobbyists or improvised substitutes.  His target is government policy and while he did not set out to prescribe solutions, in the end, of course, he could not resist.  The defining feature of poverty in Hong Kong today, he writes, is that it cannot be blamed on any of the usual suspects:  economic recession, currency collapse, trade protectionism, loss of competitiveness, or social strife.  Hence he sees no reason other than the stubborn resistance of the “government-business nexus” for Hong Kong not to begin reversing the “pernicious” policies that have caused the community increased financial and physical distress.  Especially, “the insistence that the social services should adopt private sector models could end and be replaced by a return to a commitment to supply services and facilities on the basis of what the vulnerable need rather than on what they could afford to pay for.”

* Official Announcement by the Chief Secretary for Administration, Carrie Lam,  Sept. 28,    2013  (   Exchange rate:  HK$7.80 : US$1.

**  Living Standards Survey, City University of Hong Kong and the University of Bristol, UK, in South China Morning Post, Nov. 2, 2013.;


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