In handling this year’s budget, Financial Secretary John Tsang Chun-wah succeeded in lowering and then surpassing all expectations by handing out “sweeteners” amounting to almost 60 per cent of the forecast surplus for the financial year 2014-15.  Instant university polls show satisfaction levels for the budget to be the highest in recent years.

It can surely be said in defence that a developed economy like Hong Kong cannot be expected to keep registering high-speed growth.  By contrast, Singapore, which along with Hong Kong was one of the fabled  “four Asian tigers”, has performed much better. Its  gross domestic product growth has surpassed that of Hong Kong’s: in the past four years,  it has grown at the rate of 6.2 per cent, 3.4 per cent, 4.4 per cent and 2.9 per cent.

Both are small, open economies at the mercy of global headwinds. Singapore is located at the heart of  Southeast Asian nations.  Hong Kong is even more favourably located at the gateway to southern China, with the mainland market of 1.4 billion as its hinterland. What went wrong？

One could easily attribute the divergence to the different political economies of the two cities. Singapore is a city state which has benefited from the strong leadership of its founding father, Lee Kuan Yew.  It has a truly “executive-led” government uninhibited by voices of opposition in its Parliament.

Hong Kong, a former colony, has a hybrid system under the Basic Law. Probably unintended by the Basic Law drafters, it has an  aggressive legislature, inchoate party development, and an executive branch without a power base within and outside its legislature. In recent years, many government  plans have been  stymied by legislative obstruction.

Officials look carefully over their shoulders for signs of populist attacks, and often opt for the easiest way out. Short-term considerations about poll numbers and safe passage in the legislature predominate official strategising.

The  “positive non-interventionist” tradition of the administration has also contributed to bureaucratic hesitation in economic decision-making. Hong Kong bureaucrats habitually decline to make God-like decisions in picking winners. As historian Frank Welsh recorded, in the 1960s, then financial secretary Sir John Cowperthwaite  led the way by teaching his underlings that “politicians and civil servants did not necessarily know more about business than did businessmen (a heretical thought in Britain at that time); nor did politicians have to suffer the consequences of business failures”. Such a minimalist approach to macroeconomic management has, to this day, strongly influenced bureaucratic thinking.

Since 1997, a sharp economic decline in the wake of the Asian financial crisis has, however, prompted the administration to pick winners, with mixed results. Its grandiose aim to boost technology-based enterprises  with the Cyberport project is a sorry tale of failed promises,  the result of poor timing, political attacks and a lack of appropriate support measures.

It picked Disney, whose theme park in Hong Kong is finally turning the corner. It picked the cruise terminal, which will be hard-pressed to deliver blockbuster results in view of the city’s geographical limitations as a cruise hub.

And in a desperate attempt to revive the economy after the outbreak of severe acute respiratory syndrome in 2002-03, it picked mainland mass tourism. After the global financial crisis of 2008, it picked mainland tourism again – this time by admitting large numbers of Shenzhen residents on multiple-entry permits.

Mainland tourism no doubt provided a quick fix in boosting consumption and low-end employment. But Hong Kong’s dependence on mainland tourism has further encouraged reliance on “the old economy” (domestic consumption and commercial property speculation) and taken away incentives for innovation.

Lacking confidence to restructure the economy to move up-market, bureaucrats have confined their role to fiscal management by way of providing large-scale, one-off relief measures  when the economy is in the doldrums, as it was  in 2009 during the  financial crisis, and smaller-scale  crowd-pleasers in  other years. Ministers responded to industry requests for support after prolonged lobbying, but  they  lack a long-term vision.

Successive budgets under Tsang leave little doubt bureaucrats are doers and followers, not movers and shakers. They deserve maximum praise for stashing away our cash and guarding against misuse.  But what is the point of empathising with young people’s “spiritual needs” when those in charge make little use of our cash mountains to meet the people’s material quests？

Source: SCMP