(This essay was published in Hong Kong Economic Journal on 23 April 2014)


In last week’s essay, I argued that the lack of any substantive progress in opening up popular representation in the selection of the Chief Executive and the elections of legislators through the functional constituencies has unleashed social forces that are worsening the prospect of making progress in a “gradual and orderly” manner as intended by the Basic Law. This has come about as more people gravitate towards polarized positions on a one-dimensional spectrum with pro-Beijing and pro-democracy supporters pivoting towards opposite ends of the pole.


This is unfortunate and must be avoided. It cannot be in the long-term interest of the majority of the people of Hong Kong and cannot therefore be what they want. So why is it happening? And can it be rectified?


In a pluralistic society like Hong Kong, people hold a variety of opinions about highly diverse subjects. Their individual positions on many different issues appear as a diffuse scatter plot on a multi-dimensional public policy space. In such a scenario polarization should rarely occur because individual positions on any one of the many dimensions in this space will vary enormously. One may take a left-wing position on social policy, a right-wing position on economic policy, a centrist position on environmental policy, and so on. There is no reason why everyone would opt for exclusively left-wing or right-wing positions on all these dimensions.


Moreover, within all the policy areas there would be many sub-divisions allowing for even greater variation in the combinations of positions a person could adopt. Extremism and therefore polarization should be unlikely in a pluralistic society. Democracy works best when society is not polarized for then the majority can support a broad centrist position and avoid outlying positions that society as a whole does not endorse.


This scenario allows individuals to be free to have their own beliefs, while respecting and appreciating those of others. It also allows them to be free to pursue their own interests as long as these do not interfere with the interests of others. Society is then imbued with a political culture of tolerance and not strife and mutual persecution. Only then can majoritarian democracy function properly.


But without plurality and mutual respect, polarization may take place. As I outline below, there are three conditions that lead to polarization and these are all evident in Hong Kong.


First: Interest Polarization


Interest polarization in society is the initiating condition for potential domestic conflict and strife. Thirty years ago there were hardly any social indicators that suggested Hong Kong society would become rapidly polarized. A dominant upwardly mobile middle class with centrist political views was the bedrock that gave Beijing sufficient confidence to promise Hong Kong a democratic system of government based on universal suffrage – a commitment that Britain had repeatedly dodged for more than a century of rule. What could have changed to create polarization in such a short span of time?


Between 1981 and 2001, the share of households that were homeowners increased from 28% to 51%. Households that became homeowners during this period benefitted enormously from the general appreciation of property values that resulted as the global economy became more integrated. The opening of China, India, the former Soviet Union and the Eastern Bloc countries dramatically increased the labor-to-capital ratio in the world economy, which precipitated a huge appreciation of capital values all over the world. In Hong Kong this manifested itself most prominently in rising property values.


The homeownership rate has not increased by much since reaching 51% in 2001. In 2011, only 52% of households were homeowners; the other 48% were tenants. This is not surprising since property values have now escalated to levels well beyond the reach of almost all typical tenant households. Median household income in 2001 was $18,700 and rose to a mere $22,000 in 2013. Home prices, meanwhile, have climbed to the region of $8,000 per square foot. One would need to save 50% of one’s income for 30 years to amass enough for a down payment, assuming  property values do not appreciate faster than income during that period.


Most people without property today will be much less likely to be able to own in future, and even then it will very often be only with assistance from their parents. This is a very depressing prospect for many “have-nots” because it locks them out of a chance of living in a decent home and, more importantly, of the opportunity to benefit from capital appreciation. Society has therefore become more or less permanently divided into “haves” and “have-nots” as a consequence of rising property values over the past three decades. Without a wholesale public housing policy overhaul, such divisions will not be self-correcting (see the research by Werning and Farhi, 2007).


Second: Government Policy Impasse


An economic division between “haves” and “have-nots” alone does not have to lead to political polarization as such. The tying of economic concerns to political demands for democratization is neither necessary nor inevitable. But the failure to address the all-important housing issue of the “have-nots” is a sign of a larger policy failure: the inability of government to take policy decisions and actions when confronted with public frustration.


This is a product of our political administrative structure. The executive leadership has little support in the legislature. Within the legislature, interests are totally divided as the majority of legislators are returned by minority interests. Government policy decisions are repeatedly held hostage to the fragmenting and shifting coalitions of minorities within the legislature. Legislators themselves respond to the sudden whims of too many disparate, organized special political interests in the public arena. And they are not immune to seeding such opposition to harass government and others in the legislature. In day to day politics, strategic policy making has been sacrificed in favor of a medley of populist agenda items of the day.


The government administrative machinery that was trained to be thorough, methodical, and consultative in preparing and implementing policies is now perceived to be bureaucratic and rule-bound – a slow-moving, unimaginative machine. In an era when politics is fluid and policy directions may change faster than they can be implemented, the administration naturally becomes a bulwark against change. Political decisions that change course rapidly are naturally perceived by the administration to be ill-conceived. The failure to embrace them in full may, in retrospect, become an astute decision. But this will not prevent the administration from being seen as an enemy of progress. The frustration of politicians and the public is fuelled even further and everyone accuses everyone else.


Third: Convergent Interpretation


Interest polarization and government policy impasse have fuelled public political frustration because they have made it very difficult to get things done. Political leaders in government, particularly the Chief Executives, have been accused of failing to change this sad state of affairs. Others blame the situation on the political arrangements that Hong Kong is saddled with. The failure to agree on how to change the present political arrangement is obviously the most important problem we face today.


Why, then, has political reform stalled? Neither Beijing’s nor Hong Kong’s interests are served by the failure to make progress. Beijing would be proud to be able to show the world that a democratic system of government emerged in Hong Kong after the restoration of sovereignty after 1997. The people of Hong Kong, faced with interest polarization and government policy impasse, would welcome political reform to address their predicament.


Few groups benefit from the lack of political reform. Worse, we are now reaching a convergent interpretation of the cause of this failure. On the one hand, the anti-establishment side accuses Beijing of reneging on its commitment to introduce democracy in Hong Kong, and, on the other hand, Beijing sees the anti-establishment side as wanting to introduce democracy for the sole purpose of resisting Beijing and its influence in Hong Kong.


The convergent interpretation of each other’s purpose is most unfortunate and genuinely deadly for the future of Hong Kong. As an international economy and open civil society, it can ill afford to be mired in constant domestic political impasse and disagreement with its sovereign. The anti-establishment side’s accusation of foot-dragging by Beijing on political reform may not be without an element of truth, including, its susceptibility to being persuaded by established interests, but still it takes two to tango.


Tolerance is the Key


The bitter irony of this situation will not be lost on Beijing, which as a benign sovereign is denied due credit for at least having committed to introducing democracy in the Basic Law.


Why has Hong Kong come to this ironical and puzzling denouement? Who should be blamed for this outcome?


The anti-establishment side argues that Beijing is reneging on its promise to grant Hong Kong political democracy. Beijing’s tight control of the Nomination Committee is paraded as evidence of their intention to screen candidates for the Chief Executive election, and of the denial of “genuine democracy” in Hong Kong. The anti-establishment side instead wants to open up the nomination process by bringing in an element of direct citizens’ nomination for Chief Executive – which Beijing argues would sideline the Nomination Committee.


The anti-establishment side logically sees a sinister purpose in preserving the present nomination method for Chief Executive candidacy, which is that of  preserving the interests of the establishment. The public is increasingly convinced of this interpretation. But who are the establishment? And for that matter, who are the anti-establishment?


Surely the establishment side is not only Beijing – it cannot embody this group alone. But who else is part of it? The 50% of the population who are the “haves” in society? The majority of the members of the original Selection Committee and in the Legislative Council? Or is it a smaller group of core established interests that have benefitted from the political status quo over the past 20 odd years?


On the anti-establishment side, are these the 50% of the population who are the “have-nots” in society? The one-sixth minority on the original Selection Committee and the one-third minority in the Legislative Council? Or are they also a smaller core, this time of anti-establishment radicals, who have both accidentally and opportunistically benefitted from the political polarization of the past two decades?


The anti-establishment side loudly blames Beijing. Beijing loudly blames the anti-establishment side. Megaphone diplomacy may have its political purposes, but it has not resolved political disputes. One should not dignify loud political posturing by calling it political brinksmanship, for this would imbue it with a meaning it does not even possess.


The public has become frustrated with the continued policy impasse in government and interest polarization in society. All of this has been fueled by the political status quo. Nevertheless the polarizing political narratives advanced by both sides should not be presumed to represent the division and polarization of society into two opposite political camps. But if the Nomination Committee is not open to greater political representation, the only available narrative in Hong Kong politics will be that of convergent interpretation, which would only spell disaster for building democracy here.


The recent charade of events before the meetings in Shanghai between the two sides is another manifestation of convergent interpretation. The interest of the vast majority of the public will not be served when small core groups from either the establishment or anti-establishment sides hijack either the government in Beijing or the people of Hong Kong. They are in fact hijacking the future of Hong Kong. Beijing should extricate itself from this negative-sum game where there can be no winners.


Introducing greater popular representation into the Nominating Committee based on universal suffrage “in the light of the actual situation in the HKSAR and in accordance with the principle of gradual and orderly progress” should precipitate a step-by-step change of the political status quo to allow majoritarian democracy to thrive in Hong Kong. If no progress is made, then public frustration will boil over and set the ground for populist despotism to rear its head as it did after the French Revolution, and in Germany and Japan during the two World Wars.


The development of majoritarian democracy in Hong Kong is both a moral issue and a practical collective issue of grave consequence. Politicians on both sides have spun a narrative urging the public to action based on first principles without considering that the consequences could be both politically and morally hazardous. None of us are able to see the future clearly, but this should not be an excuse for not making the effort. Politicians who ignore the potential consequences of their actions commit the ultimate irresponsible act. On matters of grave importance any proposed action should be required to pass two moral tests, not just one: whether it is intrinsically right and whether its consequences are acceptable. It should not come down to a test that only provides a convenient narrative for the politicians concerned.




Ivan Werning and Emmanuel Farhi, “Inequality and Social Discounting,” The Journal of Political Economy, June 2007


Eighteenth essay in the series on Rekindling Hong Kong’s Magic

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