Has Hong Kong Been Built or Destroyed by Capitalism?

In recent years, Hong Kong has been recognised as a global financial centre, the gateway to China, and a well-established free market. But unfortunately, these successes built on capitalism have come with a hidden cost, leaving Hong Kong with unintended consequences – issues that often go overlooked. Beyond the towering skyscrapers and vibrant skylines, several questions come to light: why is Hong Kong in the middle of a housing crisis? Why are there protests? Why is there such a large wealth gap and a lack of welfare for citizens in need? These are all the unintended consequences of capitalism and a free-market economy, and this article will investigate whether capitalism is more of a help or a hindrance to Hong Kong, answering the question: what can we and the government do to help?

For 25 consecutive years, the Heritage Foundation has ranked Hong Kong as the world’s freest and most capitalistic economy with the highest economic freedom score of 90.2. What does that mean? The Merriam-Webster definition of capitalism is: “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” Hong Kong has been commended for its economic resilience, high-quality rule of law, low tolerance for corruption, a high degree of government transparency, efficient regulatory framework and openness to global commerce. Just by observing the growth of the stock market, GDP, and per capita GDP over the last 20 years, it is evident that HK’s economy has improved exponentially as a result of capitalism. This economic and political system in which trade and industry in HK are controlled by the private sector rather than the government has allowed HK to make significant advancements in its economy. As seen by the freedom of capital, free capital markets and the vibrant stock exchange, the numbers prove that capitalism has helped our city.

However, there are pros and cons to every economic system. The downside of a capitalist and a free-market approach is that it tends to create a competitive environment based on the survival of the fittest. In a free-market economy, certain members of society will not be able to work, along with others who are unemployed because their skills are not marketable. Because wealth in these economies is not distributed equally, they will be left behind by the economy at large and, without any income, fall into poverty. Recently, Hong Kong has fallen victim to these exact issues, facing consequences such as housing and land shortages, an increasing wealth gap, and the lack of support for smaller businesses and blue-collar workers. Furthermore, Hong Kong has the world’s longest working hours and the highest rents. Wages have not managed to keep up with rent, which has increased by nearly a quarter over the past six years. Housing prices have also more than tripled over the past decade. Hence, many would attribute these social issues to capitalism.

Richard D. Wolff, a well-known American Marxist economist claims that capitalism is unstable, unequal and undemocratic, and the recent events in HK seem to prove his point. Capitalism vs. Socialism has been a long-standing debate for decades, where socialism in the Merriam-Webster dictionary is the theory of “advocating collective or governmental ownership and administration of the means of production and distribution of goods.” However, it is commonly misunderstood that socialism is paired with communism, while capitalism is paired with democracy. However, this classification is debatable. Can you have democratic socialism or communist capitalism? I believe that capitalism and socialism define ways of allocating resources, while communism and democracy define ways of selecting a government, and therefore any fixed pairing of these two groups of concepts is superficial. So does HK have a government selection problem or a resource allocation problem? I believe the greater problem to focus on is resource allocation.

Firstly, what is the extent of Hong Kong’s housing problem? Hong Kong has been suffering from this persistent land shortage because 7.3 million people are forced to live in a space roughly half the area of Tokyo. “In Hong Kong, residence rights, one of the fundamental human rights, is being ignored,” says Gordon Chick at the Hong Kong Society for Community Organization. On Hong Kong Island, midsize homes are priced at more than HK$200,000 per square meter. Average housing prices are 19 times local residents’ annual income, while estimated repayments of mortgage loans account for 70% of income. These housing issues for a large number of Hong Kong’s population are causing expanding income gaps amongst the city. Why is all this happening? The answer is capitalism, the government, and the business industry. While real estate in Hong Kong accounts for nearly 20% of its gross domestic product, the combined market capitalization of the top four local real estate companies has increased by some $4.52 billion over the past year. Huge real estate companies such as Link REIT have long been buying out land from the market and raising rent prices to unreasonable values, much to the small business owners’ frustration and dismay. Government policies that favor property developers make it even worse. The government makes money off sales of land to property developers, so it paces sales to maximize revenue and favors luxury developments over affordable housing. Continuously rising property prices have shored up the Hong Kong economy and brought prosperity to the city. Though it may seem as though Hong Kong’s economy has flourished because of the rising housing prices, what many don’t realise is that the lower-class citizens have been suffering at the hands of these big property developers and business owners. Housing is a societal resource that needs to be efficiently allocated. Therefore, the lack of affordable housing in our city is a good indication of allocative inefficiency as a whole, seeing how Hong Kong can no longer conceal its flaws of solely relying on capitalism.

All this begs the question, how bad is Hong Kong’s wealth gap problem? Recently, Hong Kong’s wealth gap has been reaching historic highs, with the richest household now earning about 44 times what the poorest family can scrape together, despite small government efforts to alleviate poverty. The difference between a society’s rich and poor is often measured using the Gini coefficient – an index of how evenly income is distributed on a scale from zero to one. Last year, the figure for Hong Kong was 0.539, with zero indicating equality. This result was the highest in 45 years and the second-highest in the world right behind New York City. Despite this, the wealth gap is actually widening at a slightly slower pace compared to the rise between 2006 and 2011, and this is thanks to the government’s increased efforts to help the impoverished, with an over 40 per cent increase in welfare spending on public housing and medical benefits to the poor. These initiatives and policies are making a difference, which is why the government should continue to consider more socialist policies to support the low-income families that suffer from HK’s wealth increase. Chua Hoi-wai, head of the Hong Kong Council of Social Service, called on the government to reconsider a universal pension scheme. “Low-income elderly people are the most vulnerable group in Hong Kong, given the lack of retirement protection,” he said. “A universal pension scheme will effectively prevent the wealth gap from further widening.” Various organisations are urging the current government administration to tackle the problem by introducing rent allowance, reviewing the minimum wage policy and setting poverty reduction targets. These socialist approaches will help make significant strides towards minimising the wealth gap and creating a better Hong Kong for our community.

Housing and the ever-increasing wealth gap is evidently the root of many frustrations among Hong Kong citizens. Recently, Hong Kong has been greatly affected by huge protests. Anger over the growing power of mainland China in everyday life has fueled the protests, as has the desire of residents to choose their own leaders. But beneath that political anger lurks an undercurrent of deep anxiety over their own economic fortunes — and fears that it will only get worse. Kenneth Leung, a 55-year-old college-educated protester shared the views of the protestors and stated that “We thought maybe if you get a better education, you can have a better income, but in Hong Kong, over the last two decades, people may be able to get a college education, but they are not making more money.” Kenneth Leung works 12 hours a day, six days a week, and only makes $30 an hour. He is also one of the 210,000 Hong Kong residents living in one of the city’s thousands of illegally subdivided apartments. The protests have proven to be another example of the consequences of capitalism and the wealth gap because generally citizens near the bottom of the wealth gap feel motivated to protest in hopes of trying to fix their dire living and working conditions. The protesters say the Chinese government is undermining their independence and that the leaders it chooses for Hong Kong work for Beijing, property developers and big companies instead of the people. “Many young people see there is little way out economically and politically, and it is the background of their desperation and anger at the status quo,” said Ho-fung Hung, a political-economy professor at Johns Hopkins University. These frustrations are channelled into the need for democracy. By fighting for democracy, they hope that they can select a government that is more socialistic and therefore address the wealth gap and various other injustices for the less privileged. Many of the protesters say direct elections would give them a greater say in these crucial economic matters. With all things considered, it is evident that a more socialist government capable of giving the people what they want may actually help to alleviate the protests.

So what is the solution? Hong Kong’s current laissez faire government does not attract the best talent set for aggressive policies, so for HK to have better socialist policies that can counterbalance the negatives of capitalism, it needs a stronger government that is more involved in all aspects of HK. An example of this approach being successful would be to take a look at Singapore’s government. This prosperous country has a bigger government that has more control over businessnesses, consistent social welfare, effective policies, a well-recognised government housing program, and most importantly, they attract high calibre talent and dedicate them to nationwide initiatives such as the urban renewal authority and the world famous Singapore water desalination project. Therefore, if HK attracted better talent, set more policies, and took more control of the economy, the HK government will achieve a more socialistic society that can counterbalance the negative effects of capitalism. Capitalism may have built HK, but it has also destroyed HK, and only well-implemented socialism will save it. We should implement more socialist approaches while maintaining the benefits of capitalism. This ensures a better allocation of resources that benefit everyone in society, and not just the elite. With this, HK will be able to implement socialism while preserving the benefits of capitalism, bringing us one step closer to a city without protests or communities of people living and working in unfair conditions. HK should strive towards a better government that can groom more capable talent with a vision to create a better future for our city. It’s long been known throughout HK’s history that the most talented people go into the private sector in order to earn more, but perhaps it is time for young and talented people with new ideas and creativity to help by making a change inside the government, setting policies that will design a future that is drastically different from what we have today. I wonder what that future would look like? I imagine a future where everybody has a comfortable place to live, a future where even the less fortunate parts of society can still do well despite the wealth gap, and most importantly, a future where the government can implement policies where capitalism and socialism can coexist together within a harmonious society.