Monday, March 10, 2014

Lion Rock 12: Bill Stacey on Free Markets, Big Government and Hong Kong

The Lion Rock Institute (LRI) is Hong Kong's  first independent free market think tank. It was formed 10 years ago by locals and some HK-based expats.

LRI Chairman is Bill Stacey (left in this photo), an Australian banker who has been living in HK for more than a decade now. Co-founders of LRI Simon Lee (middle) and Andrew Work (right), a Canadian married to a HK lady and was LRI's first Executive Director. Picture taken during the LRI Reading Salon, October 19, 2013 of which I was one of the foreign participants.

Bill writes for Next magazine in HK. I am posting below three of his articles there: "Finding free markets", "Too much government is corrupting", and "Dare to be different". Photo right, Bill, Margaret Tadeja, also from the Philippines, Nick Solow, a British who has been working and living in HK for more than three decades. Vacant seat was mine as I stood up to take photos :-)

Next Magazine (Second opinion A002, 2013.03.14)

Even people who favor free markets will often describe Hong Kong as a city with a business landscape dominated by property developers and their associated conglomerate monopolies. Countless articles seek to “de-bunk” the purported myth that Hong Kong is the freest economy in the world. Such cynicism makes it easier to justify more interventions that chip away at the freedoms we have.

Is the property sector really the most important feature of business in Hong Kong?

Our city is also the home to many companies, large and small, that are highly competitive internationally. They get on with their businesses with little attention or support from the government – a good thing. Understanding what Hong Kong companies need to be internationally competitive must guide public policy.

Compared to many cities, Hong Kong is well endowed with companies founded locally that have grown well beyond our shores and hinterland. It has long been a haven for entrepreneurs grown locally and those who come to Hong Kong from around the world.

Take some well-known examples. VTech produces educational toys found everywhere that are renowned for quality at an affordable price. Johnson Electric is a global leader in small electric motors. Techtronic Industries makes household name power tools. These companies compete more than on cost; they manufacture around the world and have invested heavily in their brands.

Hong Kong shipping companies and ports operators operate in highly competitive markets with efficiency and profitability that reflects the disciplines honed in competitive Hong Kong markets. Commodities traders (say Noble) rise and fall in Hong Kong. We are the home to a growing suite of leading hotel brands that start with the iconic Mandarin Oriental and Peninsula, but have aspiring additions.

Even maligned Hong Kong utilities like CLP and the various Hutchison infrastructure companies have managed competitive international expansion. Hutchison itself has managed to win internationally in retail, ports and telecommunications. The Swire and Jardines groups have rejuvenated conglomerates grown well beyond their local origins.

Our city remains one of the best places in the world to establish new financial services businesses. In education, the Kid’s Gallery franchise is a small and innovative business that shows an economy that is broadening. This journal is a reminder of our vibrant publishing industry. Remember Hong Kong is just a city, with 7.1 million people. However, it has fostered companies with much broader horizons.There are characteristics of these businesses that are intimately tied with corporate origins in Hong Kong. They have an international orientation. Many draw management from all over the world, but have a core of efficient Hong Kong born and educated administration that is in a class of its own. There can be no place in the world with better secretarial support. The Hong Kong diaspora means you can hire people here with connections to every corner of the earth and willingness to be mobile. Efficiency is characteristic of Hong Kong. It is easier to get things done here than most so-called international cities. The rule of law abides in commerce and contracts written here garner confidence as much as those in London or New York. Open borders, free trade, the rule of law, fiscal prudence allowing low taxes, a lean government, well defined property rights and a regulatory burden that remains less onerous than most developed markets all make Hong Kong commerce vibrant and create opportunities for entrepreneurs.Few of these strengths rely exclusively on China for their competitive edge. Being globally competitive is usually the best foundation for success in China.Hong Kong is not unique in struggling to develop competitive property markets. Arguably limited and expensive land has encouraged us to economize on its use, finding a competitive edge elsewhere.Hong Kong's traditional city state rivals all have their merits, but none have grown the depth of business or have had the economic freedom that has allowed Hong Kong to thrive -- and must be preserved -- if Hong Kong is to continue its success. A focus on the positives of a free Hong Kong is as important as addressing the negatives that we are all too well aware of.

Next Magazine (Second opinion A002, 2012.3.15)

The people of Hong Kong look at their government and many see slippage of standards and question whether the civil service and officials any longer share their values.

The crescendo of allegations about building code violations, conflicts of interest on committees, travel and accommodation and the connections of officials may have varying merits, but all undermine the confidence of the people in a government that they see less as their own. Yet by focusing on the drama of punch and counterpunch, we risk missing the broader point of the show that the puppets are playing a role that is inevitable. This is a drama where the constantly expanding role of government in Hong Kong inherently produces growing conflicts of interest and old rules of conduct from an age of constrained government will often be found lacking. Think back to a time in Hong Kong where government had little involvement in business, a meagre budget and no more than a prudent buffer of reserves. Then there would have been few reasons to worry about the close connections between officials and businessmen at club, alter, lodge and racetrack because there would have been little advantage from those links. Due process meant that government could do little that was not specifically outlined in laws and legislation that were slim volumes transparently available to scrutiny by all.

It is our institutions that are now failing us, more than the people holding office. As government spending is set next year to have increased by 70% from 2007-8 to 21.4% of GDP, the advantages to be gained from grabbling a share of that money have expanded enormously. Administrative discretion from laws conferring more power on statutory authorities and officials creates more incentive to lobby for decisions to go your way. New legislation like the competition law proposes unprecedented discretion to investigate, penalize and reshape businesses in competitive markets. Government now determines the minimum price for labor and mandates savings by employees. It gives little choice about who will manage the money. These imposts are a burden on the poorest and risk unemployment to the advantage of more organized labor. Growing business subsidies through concessional access to land, government financing guarantees, specific industry grants, labor market support programs and massive infrastructure spending provide more incentives for business to get close to government. Direct involvement of government in business as the owner of interests in our airport, the MTR, the largest property developer (MTRC, URA), exhibition companies, mortgage insurance and securitization, the stock exchange, education, health care and some utilities all go to make government one of the biggest suppliers and consumers of goods and services in Hong Kong, thus turning the government into the dispenser of potentially lucrative jobs and board positions.

The government's infrastructure investments have become far bigger than any private developments and initiatives in the SAR. The government thus in effect sets the price for and becomes the first call on the capabilities of the major contractors and professionals in the construction industry. As government stretches its role more, businesses and vested interests increasingly spend more time and resources trying to manage and influence the decisions of the government. In a small town, this creates potential conflicts of interest and corruption. Perhaps we have reached a point where our government has become so pervasive that conflicts of interest are unavoidable, the perception of favor is inherent in every government decision and along with it a growing risk of real corruption. The  answer is not more honest people. People of integrity are likely equally prevalent in every generation. The answer is much leaner government and a program of reform that takes our government out of involvement in business, returns the largest projects to the private sector and leaves more money in the hands of taxpayers. Only then will we see impartial decision making with equal treatment of all before a government driven by laws not men. We have created a system where government does so much that even an honest official will struggle to show that he has favored no one and given no undue advantage. Choosing the Chief Executive is less important than reforming our institutions, reducing regulation, shrinking excessive government ambition and returning money to the taxpayers of Hong Kong.

Next Magazine (Second opinion A002, 2012.5.3)

As an employer in Hong Kong, every week I see resumes from people around the world who are looking to work here. As frequently there are businesses looking to establish themselves here in many industries, artists looking to establish a name in Asia and sporting codes looking for a profile. Universities are attracting more international students. Interest in Hong Kong is as great from people and businesses in other parts of China.

Hong Kong today is like the London or New York of an earlier era, when young and driven people from around the world come in hope of greater opportunity. Not everyone makes it, but most would think they had a fair chance. Contrast this world of opportunity with the popular view in the print, electronic and social media that opportunity and upward mobility in Hong Kong is fading, schooling is in crisis and pollution is driving people away.Why the disconnect?Perhaps we are concerned about the competition from new migrants, both international and from other parts of China. Singapore is currently having a debate about the rate of immigration and the impact on jobs for those born there. In Europe the essential idea of open borders that was core to founding of the EU is now being questioned. Debates about cross border driving licenses and maternity in Hong Kong suggest similar fears.Perhaps the relative attractions of Hong Kong compared to other cities remain great, but the absolute level of opportunity for people living here has diminished. Higher costs of living, steadily accumulating bureaucracy in fields like financial services, Hong Kong’s version of a licensing Raj limiting entry in many fields, threats of new legislation and barriers to entry in established businesses all make establishing new businesses more difficult than it once was.The rise of politics in Hong Kong also contributes. There is a belief that policy solutions can be found to most issues and problems. As a result failure can be blamed on political failures as well. Moreover, key political decisions are often remote, opaque or populist with weak checks and balances from the ballot or constitution. This reduces an individual sense of responsibility for one’s fate.

What do those looking to Hong Kong for opportunity see? First, they see a highly efficient airport, and a transport system and physical infrastructure that makes Hong Kong wear its dense population more lightly than most large cities. They also see tax rates that allow them to keep most of the fruits of their labor and the gains from their investments. People experience superior service, where tradesmen turn up on time and the myriad of support services for business work well. The legal system quickly facilitates large transactions and effectively arbitrates commercial disputes. The streets are safe and corruption is contained. Hong Kong has become a meeting place for people across the world, i.e. a city that is tightly integrated with global businesses.Contrast this with much of Europe, where the cities are more physically attractive, but so many young people are eager to leave. High minimum wages create extremely high unemployment even in the richest countries (10.8% for the Eurozone). Few European cities of any size are as safe as the streets of Hong Kong. The burden of pensions and transfer payments is crushing for budgets and leaves large parts of the population dependent on government support. Tax rates reduce the incentive to work and encourage the most successful people to leave. The cost of living remains high, with less of the “value” options that still exist in Hong Kong. Education and health care outcomes are not as good as they once were. There is little for Hong Kong to copy in Europe.Hong Kong might have pollution, but the environment is nicer than much of China; and with effort, has every prospect of improving. Access to international education may be tight, but likely no worse than New York and the increasingly competitive market provides alternatives of quality. Hong Kong is different. It is an Asian city, yet racier than European cities and works better with more people. People in Hong Kong and their families take responsibility for their own future. Our challenge is to remain different, preserving our freedoms and our free commerce.

See also 

No comments: