(This essay was published in Hong Kong Economic Journal on 8 May 2013)


In previous essays, I considered the efforts of government to introduce deep reforms in the publicly funded social sector in order to meet the growing demand for social services. These attempts were not successful, which meant the difficulties faced by some disadvantaged groups in society were not adequately alleviated and some even worsened. Examples of deep reforms that were contemplated and then implemented in a watered-down form include the school sector reforms, the associate degrees scheme, self-funded universities, the Tenant Purchase Scheme, subsidies for voluntary health care insurance, vouchers for kindergarten education and for elderly healthcare services, etc.


The government had tried to enhance social services through reform, rather than simply increase funding, on the premise of finding productivity gains and tapping private resources. The implicit policy rationale was to preserve as far as possible the balance between the economic and social policy agendas. These policy agendas are the institutionalized legacies of Financial Secretaries Cowperthwaite and Haddon-Cave on the one hand and Governor MacLehose on the other hand.


Partial Reforms and Public Discontent


The real policy dilemma for Hong Kong is that the required expansion of social services in the decades ahead is expected to be so enormous that continuing the MacLehose approach will lead to growing conflict with the economic policy agenda. Economic liberty continues to be perceived by many to be critical to Hong Kong’s economic growth along with support of other civic freedoms. The chosen reforms in the social sector implicitly reflected such policy thinking.


A central policy feature of both the Tung and Tsang administrations was to keep the economic and social policy balance more or less intact. This approach continues to shape government thinking and to inform policy choices. It reflects a political consensus that worked for many decades. To a considerable degree this consensus thinking was written into the Basic Law, a document primarily concerned with preserving Hong Kong’s way of life as it was at the end of the 20th century.


Against such a background, some of the government’s contemplated reforms in the social sector could be seen as quite innovative. It would be wrong to conclude senior policy making circles had too much inertia and lacked imagination. The reform initiatives might not have been appreciated or accepted, but it would be unfair to say the government did not try. Unfortunately the initiatives failed to garner sufficient political support to overcome resistance from social service providers and within some quarters of the administration.


Perhaps if the government had been more willing to tilt the balance of resources towards the social sector then the call for institutional change might have been more palatable to these groups. This also would have required government to articulate the case for change and explain why the changes were necessitated by new circumstances. This of course did not happen.


Over time the unmet demand for social services has metamorphosed into growing political dissatisfaction within society. Our transitional political system has been efficient at allowing frustration and fragmentation to surface, but much less effective in producing solutions and resolving disagreements.


Legislative Intransigence and a Political System in Transition


There are several factors behind this state of affairs. First, the external shocks that Hong Kong was exposed to with the opening of China and deep economic globalization were exceptionally severe. They demanded major policy responses within the social sector. Second, important demographic changes in the population have put additional demands on a broad range of social services. Third, the political aspirations of the people of Hong Kong have changed in the past 30 years as a consequence of the restoration of sovereignty to China. Fourth, the political system has been unable to aggregate public views, meaning the administration is unable to secure public support for proposed social policy agenda changes. And fifth, certain features of the political system in transition have enabled political divisions and slow progress in social policy reforms to erode some of the government’s political authority and legitimacy.


The last two factors are important because they magnify the effects of the first three. The broad features of our political system in transition have many arrangements that encourage the expression of views and interests but do not provide means for aggregating them into workable solutions. For example, our legislature is given the power to vote against budget proposals put forward by the administration, but it is not allowed to put forward its own proposals if they contain budgetary implications. This arrangement, expressed in the Basic Law, reflects an underlying fear that the legislature would be inclined to act irresponsibly in an increasingly open and democratic political system.


The intention of some of the provisions in the Basic Law was clearly to prevent the legislature from shifting the balance in favor of the social policy agenda and against the economic policy agenda. One of the key responsibilities of the executive-led government was to preserve the existing policy balance.


The flip side of this arrangement was that it encouraged the legislature to advance exaggerated and extravagant demands. First, since legislators could not put forward bills with budget implications, they became unconstrained in their demands in order to stay ahead of the political competition and be popular with their constituency. They placed the administration permanently on the defensive for not doing enough.


Second, legislators began channeling their efforts into bills that regulated economic activity but did not have direct tax implications, for example, the minimum wage. This was actually a worse form of economic intervention and more distorting than taxation. In the long run, we know from economic theory that regulations impose an economic burden on society even higher than equivalent tax measures that achieve the same objectives.


Special Interests and Failed Consensus


Regulations are a favorite with legislators because they help them build narrow and specific constituencies. Measures that generate broad diffused benefits for large segments of society produce applause not votes. Targeted regulations are better at generating tangible political gains for candidates seeking election or re-election to legislative offices. Our legislature has few incentives to act responsibly on proposals with budgetary implications and, as a consequence, is especially prone to catering to narrow views and specific interests.


Another example of an arrangement conducive to political fragmentation is the adoption of proportional representation. The original intention was to ensure that a plurality of candidates representing different interests would be elected. Some believe meant to secure seats for so-called pro-establishment interests competing in a popularly elected legislature. This practice has produced legislatures with a broad plurality of narrow views and special interests, and it has had many consequences.


First, the legislature has become highly fragmented and less able to represent the public’s interest, thus compromising its ability to aggregate public views. The burden of this role has fallen heavily to the executive-led government, which is overwhelmingly composed of non-elected and arguably non-political civil servants headed by a Chief Executive who has to sever his relationship with political parties once in office.


Some allege that the government’s lack of popular legitimacy has contributed to its inability to rally public support behind its policies and initiatives. They say a Chief Executive elected through popular elections under universal suffrage would not have to face such a problem. However, I doubt this alone would be sufficient to bring about better governance for reconstituting policy consensus. A fragmented legislature littered with narrow views and special interests will continue to be intransigent and fail to aggregate public views. Paralysis over major policy decisions will continue.


Under the best of circumstances we could have a government that looks like the European Parliament in Brussels: unrepresentative, isolated, issuing regulations and instructions, and frustrated with its own inability to make a difference. Under the worst of circumstances we could elect a Hugo Chávez – a populist dictator elected by a frustrated public in a divided and fragmented society, who did great damage to the Venezuelan economy and undermined the possibility of creating open and more inclusive institutions. Although I believe this worst case scenario is highly unlikely to occur in Hong Kong, a best case scenario is not a pleasant prospect either.


The chances of returning a non-fragmented legislature would improve if electoral reforms were introduced to reduce the size of electoral districts for local geographical constituencies and eliminate proportional representation. Political opinions in the legislature would still be divided but they would be more likely to gravitate towards major clusters and focus on negotiating the terms of trade-offs between economic and social policy agendas. Such a political system would be more able to work with an executive-led government to achieve compromises and build consensus.


Divergence of Establishment and Populists


A third feature of our present political arrangement is legislative representation through functional constituencies. The main criticism levied against functional constituencies is that they violate the democratic principle of equal political rights and equal moral rights. I previously wrote an article on the possible role and purpose of functional constituencies in advancing economic and social development and how they could become consistent with democratic values (see Core Values, Functional Constituencies and the Democratic Principle, 4 April 2012).


Functional constituencies were introduced in the legislature to allay the fear that a more open political system would shift the balance between the economic and social policy agendas. Some segments in Hong Kong firmly believe the old economic policy agenda preserved economic liberty, which is one of Hong Kong’s pillars together with the rule of law and freedoms such as freedom of speech and of beliefs. To dismiss functional constituencies as solely a measure to protect vested economic interests is incomplete. It fails to appreciate the full dimensions of the value of past policies and their current relevance.


The growing demand for social services is a real policy concern. It spans education, health, housing and welfare, and covers chronic and acute conditions. The policy legacies from the colonial era are now inadequate for addressing these issues and it is necessary to reconfigure the old balance to make it fit for present purposes. A new social compact realigning the many different stakeholders in society has to be negotiated.


Several government administrations both before and after 1997 have failed to form a new economic and social consensus, although there have been commendable attempts to reform the social sector along economic principles. At the same time, the critics and opponents of the administration, represented most prominently by the pan-democrats, have failed to put forward a new social compact other than advancing populist support for all social causes, which only confirms the original fears over shifting balances. They have not even been able to rally their own fragmented constituents behind a coherent social policy agenda. The pan-democrats have found common cause on political grounds only, which is limited to supporting the speedy adoption of dual elections through universal suffrage as a democratic value on moral grounds. So neither the government nor its critics have been able to aggregate the fragmented voices and interests in society.


New Order Must Bring Value


We face in Hong Kong (1) a changing economic and social order, (2) a political system in transition, and (3) a Basic Law intended to preserve a way of life premised on a disappearing economic and social order. We have a government that has tried to introduce policies in response to the emerging economic and social order, but has failed to explain to the public why these are required. It has also so far failed to aggregate fragmented views and build consensus.


In retrospect, these failures should not be too surprising. After all the government is primarily a civil service with an administrative role. It is not a political organization. Historically its main political role has been limited to balancing the economic and social policy agendas of society, similar to that of a caretaker or night watchman.  It is not accustomed to acting as a political institution that mobilizes public support for ambitious developmental goals or revolutionary missions. Such ambitions are the bread and butter of independent states, not a colonial government living on “borrowed time, borrowed place”. It is obvious this approach has to change, and we are witnessing the teething pains of this process in government.


While the economic and social changes of the past three decades have not been earth shaking, they still require more than gentle rebalancing and fine-tuning. It is important to note that these changes are ongoing because the conditions that produced them are still unfolding. Is democracy the answer to our economic and social woes?


Whether a democratic system can deliver is an important consideration in determining its usefulness as a political arrangement. Any political system will have to be judged on how well diverse public interests are aggregated into a set of choices that key stakeholders find acceptable. The transition from the colonial past to “one-country two-systems” is not merely a political transition. It must also embrace a social and economic transition brought about by China’s opening, deep economic globalization, and Hong Kong’s own demographic changes.


Those who believe the answer is democracy must put in more effort to show how it can work with a new economic and social order. The increasing political fragmentation among the government’s critics does not inspire confidence that they will be able to come up with a workable political arrangement. Perhaps they too, like government, are experiencing teething pains.


Future Depends on Successful Aggregation of Preference


Democracy is not just an end.  It has to be a means too!


It must prevent growing political fragmentation and division and successfully bring together diverse views and interests. So far this has not happened. The opening of political access and the introduction of proportional representation have taken us in the opposite direction. Society is more openly fragmented and divided than before. Steps must be taken to reverse this development. Existing electoral arrangements should be reformed. If a democratic political system cannot aggregate the public’s views then it cannot succeed as a political means for making collective choices.


Democracy as an end upholds equal political rights as the moral right of every individual. This moral dimension has turned out to be the primary factor binding together the critics and opponents of the government and connecting them with larger segments of the public. As a moral argument, it appeals to those who are appalled by the corruption they see across the border, troubled by the uncertainties of the economic and social changes happening in their own society, and generally anxious as to whether growing integration with the Mainland will compromise the way of life they treasure. Bashing the Mainland has become a moral rallying call. This may appeal to some, but it fails to address what needs to be addressed.


The moral dimensions of democracy and the rule of law emerged in an era desperately wanting to shake off the yoke of arbitrary sovereigns, who claimed political, economic and social privileges for themselves based on the divine right of kings. Democracy and the rule of law became the moral alternative to monarchy and were instrumental in the repudiation of the moral authority of non-democratic regimes. They appealed to people engaged in a political movement to alter their underprivileged position in societies subjected to arbitrary sovereigns.


The universal moral appeal of equal political rights need not be disputed, but these historical circumstances of people wanting to overthrow arbitrary monarchies do not characterize the political aspirations of most people in Hong Kong today.


For this reason, while the obsession with the moral dimensions of democracy may be good politics for government critics trying to build a common political platform, it does not really address how a democratic political system can be designed that builds political consensus so Hong Kong people can weather the challenges of a new emerging economic and social order. Perhaps the latter task is just too difficult even for the critics.


However, these critics represent many different segments of the social sector and should not be dismissed. Rather, the point should be made that it will be difficult to build a common ground for society if democracy is viewed primarily in moral terms. Abraham Lincoln in abolishing slavery appreciated the many different and delicate balances he had to navigate; he was cautious to avoid extending equal rights to slaves immediately in order to balance the competing interests and achieve his goal (see my essays on the subject on 21 March, 28 March and 3 April, 2013).


Has Hong Kong lost its magic? The old magic kept the economic and social policy agendas delicately balanced through deft political fine-tuning. The new order has tried but we have not found the magic in a political system that is still in transition.



(End of Series)

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