Cover

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Title Page, Copyright, Dedication

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pp. i-vi

Contents

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pp. vii-viii

Illustrations

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pp. ix-xiii

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Preface

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pp. xiv-xvi

One of the Millennium Development Goals set by the United Nations was to reduce by half the number of people in the world living below US$1.25 a day over the period 2000–2015. Th is goal has been largely attained as a result of rising global economic growth, especially of rapid economic growth in the poor countries of China...

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Tackling Inequality in the 21st Century

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pp. 17-26

Economic inequality is emerging as a serious problem in Hong Kong in the 21st century. Researchers, public policy makers, and commentators have taken to discussing the topic, but few have gone very deep. A comprehensive overview of the many facets of this multidimensional problem, and of its origins and consequences, is still...

Part 1: Introduction

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1. Rekindling Hong Kong’s Magic

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pp. 29-35

As Hong Kong pads its way through a changing global economic landscape in which China is now an emerging power and our sovereign country, it has become troubled by disagreements over its identity and future place, both in China and the world. Aft er more than half a century of incredible success during which standards of living...

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2. The Population Numbers Challenge

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pp. 36-44

What is the most important challenge Hong Kong is facing? It is not the political elections in 2017. It is not the saturation of our landfi lls. It is not Hong Kong Television losing its bid for a license. Rather, it is the serious population challenge that could have consequences up to the end of this century if best policies are not adopted soon and...

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3. The Population Quality Challenge

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pp. 45-51

I have argued that Hong Kong’s economy will be in demise if our labor force continues its secular decline for the rest of this century. Th e problem stems in part from our rapidly aging population and low labor force participation rate. But declining numbers alone are only part of the story. Th e greater challenge facing Hong Kong is...

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4. Human Capital Enhancement through Education and Immigration

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pp. 52-57

This essay was originally conceived as a response to the public engagement exercise on population policy initiated by the government’s 2013 consultation document, Thoughts for Hong Kong. To meet our population challenge in the next three decades, Hong Kong urgently needs to implement human capital enhancement policies...

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5. Differential Growth Rates in Singapore and Hong Kong: Policy versus Human Capital

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pp. 58-64

Singapore and Hong Kong are city economies well known for their economic growth miracles. Th ere have been many discussions about the differences between the two, and sometimes these have flared into political and academic debates over the proper role of government in economic policy. One long-standing issue has been whether...

Part 2: Alleviating Poverty Is Hard

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6. What Is Wrong with the Poverty Line

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pp. 67-76

Does constructing a poverty line help us understand poverty better? Can it explain why the “poor” are poor? Let me explain why the answer to both is negative. There are two approaches to defining the poverty line. The first is the American approach, which was not favored in Hong Kong for fear that its complexity would...

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7. The Poverty Line and the Value of Public Rental Housing Subsidies to the Poor

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pp. 77-81

In September 2013, the media reported on a government study presented to the Poverty Commission that showed the number of poor people in Hong Kong would drop by almost half—from 1.29 million to 690,000—if public housing subsidies were counted as part of a family’s income. Th is study took the difference between the rent...

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8. Social Welfare Policy and an Income Subsidy Scheme

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pp. 82-91

I know of no modern society that claims it is unwilling to alleviate poverty and assist the poor. Yet very few have succeeded in doing so. The greatest effort applied by a government to alleviate poverty in its own society was made by former US President Lyndon Johnson (1963–1969). He launched the Great Society programs to restructure...

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9. Social Programs, Third-Sector Competition, and Transparency

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pp. 92-100

Why have the welfare states of the rich countries of the West, which transfer on average nearly a quarter of GDP from the rich to the poor, failed to alleviate poverty? And why has inequality widened in recent decades in these countries? The liberals in these countries—intellectuals and politicians—continue to argue for more public...

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10. Policies for Addressing Near-Poverty

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pp. 101-110

Let me explain what I see as Hong Kong’s true poverty problem. It is better described as a problem of “near-poverty.” Poverty appears to be economic in nature. But this is untrue. Th e world was much poorer 100 or 200 years ago, but being poor was not a problem as such; it was accepted as the natural state that one was born into for the...

Part 3: Human Capital, Income Inequality, and Intergenerational Mobility

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11. Human Capital, Poverty, Inequality, and Intergenerational Mobility

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pp. 113-120

The period 1981 to 2010 was a time when growth in the world economy accelerated and poverty fell dramatically. According to the World Bank (see World Bank, 2013), 50% of people in the developing world were living on less than US$1.25 per day in 1981, but by 2010 it had decreased to 21%, despite a 59% increase in the developing...

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12. Education and Individual Income Inequality

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pp. 121-125

Public interest in income inequality in Hong Kong is quite recent even though the degree of income dispersion has been rising for many decades. This stir in interest is in part due to increasing sensitivity to normative concerns regarding distributive justice, but its manifestation is also part of the flourishing of political expression as...

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13. Education, Divorce, and Household Income Inequality in Hong Kong

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pp. 126-131

As I showed in the previous essay, the key factor driving the dispersion of individual incomes is the distribution of productivity in the working population. Education is very important for increasing productivity and is by far the largest investment a person makes in human capital. Other factors like age, gender, marital status, and...

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14. The Top 1% and Top 10% of Income Earners

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pp. 132-138

Income inequality has grown in the US and other developed economies since the early 1970s, due to the combined effects of two different phenomena. The first was an increase in the incomes of the 20% at the top of the income distribution. The second was a drop in the incomes of the 80% in the middle and at the bottom of the income...

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15. Education and Earnings of the Bottom 99%

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pp. 139-144

“We are the 99%!” was the rallying cry of the short-lived Occupy Wall Street movement. It refl ected concern about the fi nding that the share of total income enjoyed by the top 1% of earners has increased since the 1970s, about a society seen as being divided between the very rich and the increasingly poor (at least in a relative sense)...

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16. Upward Mobility in the United States and Hong Kong

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pp. 145-150

Th ere is a general perception that income inequality has increased and intergenerational income mobility has declined in many parts of the world. Intergenerational income mobility refers to a child’s chance of moving up in the income distribution relative to his or her parents. Most people intuitively believe that income inequality...

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17. Factors Critical for Improving Intergenerational Mobility

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pp. 151-156

The previous essay showed that there has been no decline in the relative prospects of intergenerational mobility for people born in the 1970s and 1980s in the US and in Hong Kong. The estimated rank-rank correlations in intergenerational income mobility in the US averaged 0.34. The estimated rank-rank correlations in intergenerational...

Part 4: The Family Matters

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18. Why Family Savings and Investing in Children Matter to the Economy

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pp. 159-165

Perceptions of rising poverty and a growing wealth gap have shift ed public opinion in Hong Kong towards expanding the public provision of subsidized housing and enhancing social welfare programs. Th e scale and scope of public housing is enormous. Less well-known is the scale of social welfare support. A colleague at the...

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19. Early Childhood Education: Unlocking the Secrets of Income Growth and Inequality

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pp. 166-171

During his State of the Union address on February 12, 2013, US President Barack Obama referred to University of Chicago Professor James Heckman’s research and his finding of a 7–10% return on investment per annum for certain early childhood education programs. These rates of return are higher than those for equity in the...

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20. Growing up in Hong Kong before and after 1980: A Statistical Portrait of Education Opportunities

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pp. 172-177

There is a growing public perception in Hong Kong that economic opportunity has worsened for the younger generation—those born aft er 1980—compared to opportunities for their parents’ generation. Most people believe that income inequality has increased since 1980 and intergenerational upward mobility has decreased....

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21. Growing up in Hong Kong before and after 1980: Housing and Divorce Matter

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pp. 178-183

Intergenerational upward mobility in the past half century in Hong Kong, measured by correlating parents’ schooling attainment to that of their children’s for those born between 1956 and 1991, has not changed, once we take into account the waves of emigration.
As discussed in Part 3, Hong Kong’s two waves of emigration, one aft er the 1967...

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22. Divorce, Inequality, Poverty, and the Vanishing Middle Class

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pp. 184-188

The American scholar Charles Murray, in his 2012 book Coming Apart: The State of White America 1960–2010, shows how Middle America is falling apart, but college graduates in highly skilled occupations are doing well. Murray claims that class divisions have vastly expanded over the last half-century. College graduates in highly...

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23. Divorce and Dynamic Poverty

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pp. 189-194

Hong Kong’s divorce rate in 2011 of 2.89 persons per 1,000 population (excluding domestic helpers) is among the ten highest divorce rates in the world. Increases in the divorce rate cause measured household income inequality and static poverty to rise over time. Static poverty is concerned with relative inequality between households at...

Part 5: Housing and Land

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24. Finding $3.336 Trillion in Housing Capital

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pp. 197-201

In 2013, the total value of housing capital in Hong Kong was estimated to be $6.80 trillion or 320% of GDP. This is the net value of the total stock of private residential housing evaluated at market prices. It is based on the gross market value minus the total value of outstanding mortgage loans on private residential housing...

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25. The High Cost of Regulating Development

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pp. 202-210

Th omas Piketty, the French academic economist working in Paris, became a celebrity in the US with his book Capital in the Twenty-First Century (2014). For me, the most interesting parts of his book are the historical charts tracing the rise and fall of the value of capital as a share of national income in some of the old industrial nations...

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26. Building Codes and Postwar Reconstruction in Hong Kong

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pp. 211-217

In 1969, I visited a classmate whose family had recently moved into Man Cheong Building in the Jordan area. Th is was one of eight buildings completed in the late 1960s bounded by Man Cheong Street on the north and west, Man Wui Street on the south, and Ferry Street on the east. All eight were named “Man-something...

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27. On Hong Kong’s High Land Prices

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pp. 218-222

Hong Kong has recently introduced yet more measures to suppress demand in a bid to curb property prices. With the exception of the years following the Asian financial crisis, property prices have been rising steadily in Hong Kong. This phenomenon has been seen around the world. Demand has outstripped supply in all major international...

Part 6: Business Strategy

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28. Demographics and Business Entrepreneurship

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pp. 225-229

Thirty years ago people watched programs produced by TVB and listened to Cantopop. These creative products were Hong Kong’s great export to the Chinese-speaking world. Today, people prefer to watch imported Korean television series and listen to “Gangnam Style,” which has made it to the world’s music video charts...

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29. New Strategies Needed as Third Industrial Age Unfolds

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pp. 230-233

Many today believe the world has entered the Third Industrial Age, during which technological improvements in robotics and automation will boost productivity and efficiency, implying significant gains for companies.
These advancements have three biases: they tend to be capital-intensive (favoring those with financial resources), skill-intensive...

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30. Attract Immigrants or Become Like Japan

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pp. 234-238

Demographic factors are the most important drivers of Hong Kong’s long-term economic future. The chief executive’s 2015 policy address proposed several measures to increase the size and quality of our workforce. This was a welcome step to rebuild our adult working population lost through aging and emigration. Earlier attempts to do...

Part 7: Fiscal Concerns

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31. On Balancing Rising Long-Term Budgets for a Free Society

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pp. 241-246

The financial secretary presented his seventh budget speech to the Legislative Council in 2015. According to media reports, it was his least popular speech, presumably because of the reduced number of relief measures he proposed. Instead, he chose to alert the public to the structural fiscal deficit that the government could face as early...

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32. Health Care and Rising Public Budgets

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pp. 247-255

My previous essay showed that half of government expenditure today is spent on four areas—housing, education, health, and social welfare—compared to one-third 30 years ago. The growth in spending has been the result of economic growth, demographic change, and organized political pressure. Barring unforeseen circumstances...

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33. Means-Tested Old Age Allowances versus Universal Retirement Schemes

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pp. 256-263

Before the 1997 handover, Chris Patten, the last British governor, proposed to introduce a pay-as-you-go social pension scheme. The proposal was withdrawn amid widespread opposition over its fiscal sustainability and impacts on work and savings incentives. In its place, the Mandatory Provident Scheme was introduced in the year...

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34. Tackling Long-Term Budget Deficits in an Aging Society

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pp. 264-270

The aging of Hong Kong’s population is a rapidly approaching, multifaceted challenge that will be around for many decades to come. How can we meet this challenge and turn it into an opportunity for our future? I showed in the previous two essays that public health care and social security expenditures in the wake of population aging...

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35. Greece and Hong Kong: Fiscal Opposites, Same Politics

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pp. 271-274

Both Greece and Hong Kong have unified exchange rate regimes. Greece, as a member of the Eurozone, uses the euro as its local monetary unit. Hong Kong, under the linked exchange rate regime, uses a local monetary unit with its currency fully backed by the US dollar at a fixed rate.
As a consequence, both economies have surrendered...

Part 8: Labor Market Measures That Don’t Work

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36. Minimum Wage Effects on Household Income Distribution and the Labor Market

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pp. 277-282

Concern about the inability of markets to provide income equity for the least able members of the workforce has given the minimum wage its strong social appeal. Statutory minimum wages were first introduced in developed countries and later spread to developing countries to control the proliferation of sweatshops in manufacturing...

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37. The Value of Not Working and Long Working Hours

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pp. 283-292

In the United States, 8.8 million workers were receiving disability payments from Social Security in 2012. The number had jumped by 1.7 million from 7.1 million in December 2007. Thirty years ago, one in 40 of all workers in the US labor force received Social Security disability payments. Today that ratio has more than doubled...

Part 9: What Is the Real Challenge

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38. Demystifying the Rising Poverty Rate

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pp. 295-299

I attended the 2015 Commission of Poverty Summit, at which Chief Secretary Carrie Lam presented an analysis of the poverty situation in 2014 and the poverty figures for 2009–2014. Her main points can be summarized as follows.
First, the number of households below the government-defined poverty line...

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39. Reflections on Old Age Poverty in Public Rental Housing Estates

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pp. 300-304

Most people in Hong Kong think of the public rental housing program as a government subsidy to provide access to shelter to households without means. They expect most of the inhabitants in these housing estates to be predominantly very low-income households.
This was not how the program was initially envisioned. Back in 1953, the...

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40. The Challenge of Poverty, Near-Poverty, and Inequality in 21st-Century Hong Kong

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pp. 305-314

The essays in this volume show that poverty, near-poverty, and inequality are multifaceted conditions. They have coalesced into a growing economic and social condition in Hong Kong, which is also developing into a difficult political problem. The origins can be traced to the effects of economic globalization and China’s opening in...