“If you want to see capitalism in action, go to Hong Kong.” Such were the words of Milton Friedman, who heralded the East Asian metropolis as a paragon of the free market. On one hand, with sky-rocketing inequality and a government which prioritises business interests above all else, I may agree. But, as a city hosting tycoons who collaborate with the administration in economical monopolisation, one can question whether Hong Kong is truly as neoliberal as it claims to be.
Hong Kong’s market economy has been long-vaunted – by both PR China and the United Kingdom. It ranks number one on the Index of Economic Freedom from 1995 to 2019. Hong Kong only descended one place this year due to recent political turmoil. Frequently deemed a tax haven, the city has no tax on dividends, capital gains, inheritance tax, offshore income, or flat property.
This encourages business and investment: over the past century, the city has become a global financial center. Home to the second highest number of billionaires in the world, behind New York City, its rapid economic growth since the British occupation may attest to the power of the free market in generating exorbitant wealth and prosperity. Hong Kong’s magnificent harbour, of its famed skyline containing the towering business district, may captivate even the most disillusioned.
The Tale of Trickle-Down Economics
Between 1961 and 1977, Hong Kong’s GDP snowballed by a multiple of 180. Market fundamentalised praised this triumph – and justifiably so. Yet, away from the shimmering skyscrapers, such policies have bred severe inequality. This has stoked anger and political unrest for the past year. Hong Kong has a GINI coefficient (the measure of inequality) highest in 45 years, greater than most other major developed economies including the US. But, a belief in the laissez-faire approach and the ability of an unfettered market to bring wealth to all frames the government’s policy-making (or lack thereof). The executive do not impose regulations nor raise taxes, for fear of hindering growth.
The tales of trickle-down economics, the myth that “a rising tide will lift all boats”, are powerful and long standing. Still they remain tales and myths. The rich are getting richer, to the expense of those below. Stagnating, and even decreasing, wages confront university graduates. One study shows that graduates earn less than they would have 30 years ago. Elderly care is in a state of disrepute and needs dire funding. Applicants wait up to three years for allocation to a care home. Many die while still on the list. Neoliberal economics are clearly amiss from Hong Kong.
A House That Inequality Built
But nothing spearheads the social inequities of Hong Kong quite more than that of housing. Another number one ranking that the city has enjoyed for a decade now is for the world’s least affordable housing market (although this is a feat less championed by politicians). In the third most densely populated city of the world, property prices give new meaning to the term “unaffordable”. The average home in Hong Kong will set you back 1.3 million USD. For some comparison, housing in London averages at 741k. Consideration for purchasing a shoebox an hour’s commute from the city centre may only occur for a regular family after two decades of saving. Many in the lowest strata of society are forced to endure squalid conditions in subdivided flats. Worse still, some occupy so-called “cage homes” – a bed surrounded by a cage.
The natural question, then, is what the government is doing to tackle such a grave housing problem. The answer lies in the heavily subsidised public housing that is provided for roughly half of the population. Still, the wait list for a flat can be more than 5 years long, and supply scarcely meets demand. The truth is that incentive for the Hong Kong government to increase supply of land is conflicted, because most government revenue comes from selling land. Fiscal surpluses are vast, even with low taxation. This is because the government owns all land in the city, and controls supply by selling to a small number of developers in a lease system. Through these lenses, sky-high rent prices may be seen as a form of indirect taxation; expensive housing keeps the government wealthy. In turn, this money funds an excellent health, transport, and education system.
Hong Kong’s Neoliberal Desert?
Thus the picture being painted of Hong Kong is not one of a neoliberal oasis, but one revealing increasing complexity. Robust public infrastructure, of which the city provides, is not exactly a hallmark of the free market. Neither is state ownership of land, a key factor of production. But the pairing of low taxes and strong public spending is only possible because of the inflated property market.
One may ask: why does the government own all the land in the first place? Precisely to earn enough revenue so taxes can be kept low. This paved the way for a handful of families to buy up cheap land in the days before the city started to boom, making fortunes off developing as the property market became more and more inflated. Profits were then used to buy up other sectors of the economy, such as transport and utilities. This resulted in the modern Hong Kong economy ruled by monopolies and cartels. According to the Te-Ping Chen of the Wall Street Journal in 2012: “[the six biggest conglomerates] take in at least 23 cents of every dollar that residents spend, controlling the biggest mobile phone network, its electrical system, bus system, the vast majority of the buildings making up its iconic skyline, two thirds of its private housing market and 90% of its supermarket sales.”
Playing Monopoly with the Market
Perhaps now is the time to rethink our definition of the “free” market. When a few tycoons control the entire supply chain of Hong Kong, working hand in hand with top officials to effectively quash any competition, monopolising, price-fixing, bid-rigging, it’s hard to see how the economy, and the people in it, are enjoying the benefits of such ‘freedom’. And for all their platitudes on ‘positive non-interventionism’, HK’s administration continues to be hell-bent on encouraging business at all costs. 2003 saw the introduction of the ‘Capital Investment Entrant Scheme’ , which gave out a free ID card with every piece of property sold to overseas investors. This caused mainlanders to buy up of tens of thousands of empty apartments in exchange for residency. This further reduced the supply for local citizens. Indeed, the government has interfered time and time again to poor consequence.
But overwhelmingly, the best thing that Hong Kong’s government has done for the corporate elite – out of blinded loyalty to the ‘free market’- is absolutely nothing. The lack of competition law or corporate governance has enabled the few at the top to accrue billions. Meanwhile, those at the bottom have been left to languish. This is not the hallmark of a neoliberal paradise, despite Hong Kong purporting as such.
“In a modern economy, government sets and enforces the rules of the game- what is fair competition, what actions are deemed anticompetitive and illegal…and alters the dynamics of wealth.”- Joseph Stiglitz (2012). This encapsulates the failure of the Hong Kong administration. Stiglitz’s model happens under a government accountable to the interests of corporations and not the people. It would be remiss not to highlight the role of Hong Kong’s broken electoral system in all this, wherein functional constituencies representing non-human corporate entities elect a substantial portion of the voting body. The voting body then proceeds to elect the chief executive. Lack of transparency in the process enables conglomerates to cast multiple votes through subsidiaries and shell companies. From this perspective, the government’s failure to regulate efficiently is unsurprising when officials must pander to vested interests in order to remain elected.
Hong Kong’s Neoliberal Mirage
I love Hong Kong deeply. It is my home. As much as we may extol its free economy, I owe almost everything to the state. It pays my parents’ salary, subsidises my education, cures my illnesses, and services the libraries I adore. I have also gazed up into the beaming windows of skyscrapers. I have enjoyed the beauty of my city and its capitalist promise of prosperity and wealth. The very same promises propelled my parents, born working class, to enjoy such current financial stability that they can fund my degree as a first generation university student at Cambridge halfway across the planet.
But, we mustn’t fool ourselves into thinking that this social mobility is still our current reality. A nexus of broken political and economic systems has weaved a social fabric leaving many behind, and the political upheaval that HK finds itself in today is the direct consequence. Hong Kong is neither statist, nor free. Those wishing to further their neoliberal agenda may be better off looking for a model elsewhere. There is little evidence here to show that a neoliberal paradise exists in Hong Kong.