The great stagnation of Hong Kong

In Hong Kong recently I picked up a stack of the books in the new Penguin Specials series on Hong Kong–which despite being nicely featured in local bookstores are not yet readily available outside the city, or getting much promotion from the publisher. I don’t think they have to be read in any particular order, but I started with Simon Cartledge’s A System Apart (mainly because Simon is an old friend), which is an excellent short overview of Hong Kong’s recent political and economic situation.

The argument, simply put, is that Hong Kong is suffering from severe economic, social and political stagnation:

Hong Kong is stuck, with remarkably little change to show for the last two decades. Its economy is still dominated by a handful of companies, most of them run by ageing tycoons. No new business has risen up to challenge or replace them. No major new industry has been established. The city remains and finance and business center. But its intermediary role has declined in importance over the last twenty years. Across the border, China has created a host of inventive internet and technology giants; Hong Kong cannot point to a single success in these areas.

It is not a place that has failed, but it is one of lost opportunity, of diminished expectations and modest ambition. Despite living on the doorstep of the world’s most dynamic economy of the last two decades, and despite having played a crucial role in that economy’s initial opening and development, Hong Kong has gone sideways.

A further contention is that all these forms of stagnation are interrelated, and trace their origins to the arrangements put in place after Britain’s handover of Hong Kong to Chinese rule. Hong Kong’s peculiar institutions were intended above all to maintain continuity, but in fact resulted in a significant change for the worse:

When China drafted the Basic Law, one of its key aims to put in place machinery to ensure the economy continued running in the same way as before. The obvious way to do this, it seemed, was to allow businesses a big say in policy – hence the decision to make Hong Kong’s first chief executive a businessperson, and to pack the committee which would choose future chief executives with business figures. …

Under colonial rule, the administration, while undeniably pro-business, had always been separate from business itself. The governor was sent from Britain, and the top posts were filled with career civil servants – also all from the UK, until shortly before the handover. While these officials were friendly to business, they were not of business. They may have favored business interests before those of other parts of society, and they also co-opted leading local business figures into government bodies. Nevertheless, to the end, Hong Kong’s colonial rulers maintained strict control over their political power. The Basic Law changed this balance, opening the way for cronyism and corruption and preventing the kind of changes needed that would allow the city to maintain its economy dynamism. …

In the decades after the Second World War, Hong Kong successfully reinvented itself twice. For the first time in the 1950s, after American and United Nations embargoes on trade with China led to it becoming one of the world’s largest makers of light industrial goods. For the second, in the 1980s and 1990s, when it took advantage of China’s opening up to the world, in order to end its reliance on manufacturing and become a services economy centered on trade and finance. Since 1997, despite receiving its worst economic battering in more than half a century, it has undergone remarkably little change.

This economic stagnation, and the accompanying phenomena of slow growth and widening inequality, are clearly related to the increased extremism and polarization in local politics. But as Simon notes, Hong Kong is not exactly the only place in the world to have experienced these kind of political changes:

Many people seem to feel that they are not in control of their lives, and that those running Hong Kong are out of touch with their needs and interests. The senitments are broadly the same as those that to Britain’s Brexit vote and many Americans choosing Donald Trump. In Hong Kong, they manifested themselves in the one-fifth share of the vote for localist and independence candidates in the 2016 Legislative Council elections.

Hong Kong in fact seems to fit well into a common global trend (in high-income societies at any rate) of collapsing support for established political institutions and a rise in the influence of what used to be more marginal movements. So you could question whether Hong Kong’s peculiar institutions are really the cause of its deepening political divide, when places with quite different institutions are suffering from similar problems. The counter argument would be that Hong Kong had much more potential to escape stagnation because it is part of fast-growing China, and yet that potential largely has not been realized.

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