(This essay was published in Hong Kong Economic Journal on 19 November 2014.)


The views of some of the student leaders of the occupation movement and the pan-democrat politicians in Hong Kong are quite similar to the political and economic critiques heard in rich developed nations.


For example, the rallying call of the Occupy Wall Street movement was “us the 99% versus them the 1%.” The protesters bemoaned the sinking of the middle-income classes and lambasted the rising economic inequality that has divided American society. They and their sympatizers deplored rising inequality, the growth of government-business cronyism, and the inability of the political system to arrest these developments and correct them.


Similar views have been aired in Hong Kong by many pan-democrats, the occupation movement and growing numbers of their sympathizers. They place the blame for Hong Kong’s rising economic inequality and growing government-business cronyism on the slow progress of democratic political reforms and the absence of genuine universal suffrage. At the very minimum, they believe a more democratic political system will be better able to tackle these social ailments.


It is not difficult to understand why similar critiques of society have emerged in both Hong Kong and the U.S. In the U.S., although labor productivity has continued to rise over time since the end of World War II, real median household income growth began to lag behind in the 1970s (see Figure 1). A similar phenomenon has been seen in Hong Kong, where real median household incomes have been almost stagnant since the late 1980s and early 1990s but labor productivity has still trended upwards (see Figure 2).



This is also a similar happening in most other rich developed nations. When real medium household income growth lags behind labor productivity growth over long periods of time, societies will experience rising economic inequality and sinking middle income classes.


This is an important development and it has multiple causes. To varying degrees, these causes are present in all developed societies. First, technological change, especially that related to information technology, has created a growing demand for highly skilled manpower. This has led to rising wage gaps between the more educated and lesser educated workers.


Second, investments in education have lagged behind the rising demand for skilled manpower in the past half-century, exacerbating a shortage of skilled manpower.


Third, highly regulated schooling systems and the unionization of the teaching profession have stunted incentives to innovate in our schooling sector, making learning less effective, especially for underprivileged students because they have less access to alternative learnng opportunities.


Hong Kong has been able to delay the onset of lagging real median household incomes due in part to its increased investment in tertiary education in the 1980s and the huge expansion of economic opportunities created by the opening of China during that period. But there has been barely any growth in tertiary education investment since the 1990s and the provision of universal education up to the end of secondary school has yet to take place.


Fourth, rising divorce rates and the growing incidence of broken families have negatively impacted the learning and work habits of children. The problem is particularly acute as divorce rates are much higher among low-income families. The disadvantages of low-income classes are exacerbated by problems of substance abuse in nations where this abuse is severe among underprivileged youths, and by higher dropout rates from high school and college, which impacts on employment opportunities. Upward mobility and economic inequality become more than a single-generation problem.


Hong Kong, too, has been suffering from rapidly rising divorce rates especially since the 1990s. It currently has one of the top ten divorce rates in the world. The situation is particularly severe among low-income classes living in public housing estates. The negative effects of broken families on economic inequality, upward social mobility, and sinking middle-income classes are manifesting.


Fifth, high-income families invest heavily in their children at very early ages, enhancing their cognitive skills, inculcating disciplined learning and work habits, and building up their health to augment their advantages for a lifetime of competition (see Doepke and Zilibotti, 2014).


Sixth, the rich income-classes are able to further strengthen their advantages because they can invest in financial and physical assets that preserve their wealth and enhance their value. Prime properties, antiques and artworks are particularly noteworthy because they are in limited supply globally and their values have appreciated the most. French economist Thomas Piketty’s work has shown that almost all the increase in capital values relative to income in the rich developed nations has been due to rising housing capital values.


Property prices in Hong Kong have also risen enormously, particularly in the 1980s and 1990s up to the Asian financial crisis. This exacerbated the inequality in wealth. Half the older generation benefitted from increasing property values, but half did not. The prospects and fortunes of the next generation were hugely affected as a consequence. Property prices have rebounded spectacularly in this century and housing now tops the list of public concerns. This is not a problem of housing as shelter, but housing as a form of wealth and a store of value for hard earned savings.


Seventh, politics in the rich and developed nations have not alleviated these problems, which are the result of complex and inter-related causes and not easily targetted by any single policy measure. Unfortunately, the time-horizons of politicians in democratic societies are often too short to formulate and implement significant policies. Most contemporary societies in the West are also configured to make state governing institutions weak rather than strong.


This legacy has resulted in failure and ineffectiveness on the part of the governance systems of these rich developed nations. They are unable to arrest rising inequality, halt growing government-business cronyism, overcome the tyranny of minorities, and end political gridlock. Political life has become fragmented and policy decision-making is paralyzed. Society is beset with growing distrust and remains in the grip of numerous well-organized narrow special interests that are not limited to business interests alone.


Politicians in these nations are held in low esteem. An increasing number of scholars and intellectuals in the West are reexamining their own political democracies in search of a fix to their condition. They remain committed to liberal democracy as a political ideal, but they also accept that as a practical political arrangement, their democratic systems have deep flaws.


The search for a renewed understanding of the principles of equality and fairness and the implications for a workable democratic political system have become among today’s most urgent intellectual and political tasks.


John Micklethwait and Adrain Woolridge’s The Fourth Revolution: The Global Race to Reinvent the State describes this effort. Francis Fukuyama’s Political Order and Political Decay analyzes the challenge. Raghuram Rajan and Luigi Zingales’s Saving Capitalism from the Capitalists proposes political and policy reforms to revive a genuine market solution. Pierre Rosanvallon’s The Society of Equals proposes an egalitarian answer for closed nations in a global world. The list of studies is endless.


Hong Kong differs from the U.S. and other rich developed nations in one fundamental way. Those societies have democracy that needs repairing, but Hong Kong does not yet have democracy. If American, European and Japanese style democracies have not resolved the social ailments of their societies, then why would having a similar democracy in Hong Kong be able to solve the same ailments here?


In the discussions about Hong Kong’s democratic political reforms, it is important to ask what kind of political institutions should be developed. Which institutions could simultaneously aid society’s ailments and advance democratic reforms? On this matter, no nation can be our guide, but every nation has valuable lessons to teach us. Hong Kong’s ailments are the same as those in the West. They are the problems of a rich developed society.


Some participants in the occupation movement and some pan-democrat politicians blame our social ailments on the unfinished state of our democratic political reforms. This is not a convincing argument. Democracies elsewhere have not been able to resolve the same ailments. Hong Kong’s social problems need more than just a political solution.


Hong Kong currently is saddled with a political system that is unable to build political consensus for effective policy making. It produces political leaders who lack sufficient legitimacy to govern effectively and push forward political reforms. But this is also a problem in the political democracies of the West and Japan.


The observations I have made so far are not an indictment of the moral principles of equality and fairness upon which democratic political systems are founded. They are not a criticism of liberal democracy either. The superiority of democracy is not questioned or challenged, but as a political arrangement for safeguarding and promoting competing public interests, there is certainly much room for improvement, especially when society has so many urgent social ailments.


Winston Churchill famously said in 1947, “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” Churchill thus defends democracy as a political arrangement against the alternatives because, despite its many flaws, it performs better than any other political system out there. This is not simply a matter of equality and fairness.


Churchill was of course summing up past performance, not predicting the future. Democracy was without doubt a better political system after the defeat of fascism in World War II. It became triumphant after the fall of the Berlin Wall and the collapse of Soviet communism. But democracy is not working well in the West and Japan today.


In the 20th Century the states in the West had to be strong to defend liberty against the threats of fascism and communism. It has since become weakened and delegitimized by the rise of the tyranny of narrow specialized minority interests and is now financially insolvent. Whether it will be able to rise again to heal the the social ailments of society remains to be seen.


Churchill’s startling observation that democracy is the worst form of government should not be ignored. If Hong Kong is to have any chance of introducing democracy, it must urgently end political gridlock and address society’s present social ailments. These ailments are already enormous. Further delay will make them even more expensive to resolve in future, assuming it is not too late to do so.


If we fail to end political gridlock, then Hong Kong will not arrive at democracy through compromise and rational discourse. Democracy will not be attained through peaceful means. Unfortunately for Hong Kong even violence will not bring democracy; it can only bring tyranny.




Matthias Doepke and Fabrizio Zilibotti, “Tiger Moms and Helicopter Parents: The Economics of Parenting Style,” VOXEU, 11 October 2014.


Building Blocks for a Narrative on Hong Kong’s Democratic Political Development (Part VI)

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