Hong Kong is consuming its present to feed its future. Harbour View asks after the morality in that.
The Future Fund. As many readers know, I consider myself a rational libertarian. With regard to the Future Fund and rampant government surpluses, my first instinct is, of course, leave the money with the people. Don’t take it and hand it back, incurring transaction fees to feed the infrastructure of government. Just don’t take it in the first place and the people will see it (generally) gets where it needs to be.
In the specific case of Hong Kong, our Financial Secretary and his team have been consistent in pushing forward a doomsday scenario of a declining workforce and aging population driving Hong Kong into penury in the next couple of decades. Accordingly, they are building massive reserves for a ‘rainy day’. They have been roundly criticised for it by many of Hong Kong’s rare intellectuals.
And yet…
Hong Kong, like the rest of the world, is coming awake to the future demographic crunch. Healthcare is peculiar in that there is no limit to how much can be spent on it. There are always new and fantastically expensive treatments that could, maybe, extend life. Politicians and people generally abhor any seeming trade-off between life-saving measures and expense, even though families and bureaucracies make those decisions every day. Housing in Hong Kong is also headed that way as people expect more and more of it. Past generations speak of the gratitude of 400 sq ft. public flat for a family of ten, when public housing was first built. Now, legions of single young people are gaming the system to get in, seemingly oblivious or uncaring regarding elderly singles dieing on waiting lists.
Hong Kongers can barely bring themselves to have sex, much less raise more children. There will be no change in the demographic trends.
So what is a far-seeing Financial Secretary to do? First off, it is the opinion of this house that our Financial Secretary has his heart in the right place. He is a descendent of the prudent administrators in the Cowperthwaite tradition who never saw a deficit they liked. His view of the future is likely correct in general terms, but possibly exaggerated to create cover for his fiscal measures (hoarding) today. Massive importation of workers, Singapore style, is unlikely as unions resist construction workers and as anti-mainland sentiment grows. A baby boom, or even boost, is a dead letter in our education and residence expensive city. Hong Kongers can barely bring themselves to have sex, much less raise more children. There will be no change in the demographic trends. So save now, and spend later.
The free market advocate in me says it is moral to let people invest and spend their own earnings. It also suggests that those selfish (and moral) expressions of preference will lead to better outcomes. That may very well be true individually and globally – but what if the preference is overwhelmingly to take the money out of Hong Kong?
Making hay while the sun shines
Political uncertainty and other factors may see people taking their money elsewhere. From a personal point of view, that may be a good bet. For a FS who will live to see the demographic crunch he fears, it seems to be a fearsome prospect. If the goal is to provide for the indigent in the future, he needs to ring fence the money now, by extracting it from landowners and companies and relatively high earners while he can. It may even be that the Future Fund grows to be so great that its income can replace income lost as the workforce, and salaries tax, decline. The alternative is to let the old eat the young in the future, by increasing wealth transfers, driving away needed capital and growth, deepening the demographic-fiscal crunch until the trend reverses: we arrive at Soylent Green – a dystopian future where the elderly are encouraged to check out early to be turned into food for the young.
Risky business
It is a major risk. Funds saved today could become a political slush fund tomorrow. Governments lacking a clear mandate are oft tempted to use money to buy acquiescence, which only sort of works, until the money runs out (hello Venezuela). Mr Tsang could retire, only to see his massive rainy day fund become the “bridges to nowhere” and “buying Heung Yee Kuk” votes fund.
Free market advocates criticise the FS for taking the money away. Stamp duties and corporate profits tax make life more expensive for people today as the costs are passed on to long-suffering renters and consumers grappling with money-printing driven inflation. Socialists excoriate the FS for not spending the money today, although it has been vaguely promised to be spent on their priorities (i.e. welfare) in the future.
Mr. Tsang could retire, only to see his massive rainy day fund become the “bridges to nowhere” and “buying Heung Yee Kuk” votes fund.
Instead he seems to be hoping that his efforts now will ensure a future where taxes won’t have to go up, business will continue to thrive, and the government will be able to provide welfare for all – or at least a reasonable amount of politically feasible recipients.
“Soylent green is people!”
This path requires a certain amount of faith in Hong Kong’s bureaucratic traditions. If we consider the tradition of prudence to start with Cowperthwaite, it has five decades behind it and may continue for a couple more, at least, until the workforce decline sets in and people can see the reality of it. Perhaps future pols, elected or not, will resist wild, unproductive spending. In the meantime however, the capital has been taken out of the market and today’s contributors denied the fruits of their earning and the chance to make their own choices about deploying their earnings for their future weal.
It is a family business type of approach, where the current generation is expected to sacrifice itself for the retiring elders and the upcoming children – but applied to 7 million people.
If it survives the Future Fund, the welfare spending of the future is made of the earnings of people today. Indeed, the Future Fund is people. Mr Tsang’s chosen path to a healthy future Hong Kong, in the face of relentless criticism, may actually work. Seeing the rack and ruin of other economies that sacrificed their future people for present priorities, Mr Tsang no doubt sees virtue in creating at least the possibility of this generation saving itself in some years.
It is a family business type of approach, where the current generation is expected to sacrifice itself for the retiring elders and the upcoming children – but applied to 7 million people. At the family level, the choices can be freely, and morally, made. At the level of government and people, only the government makes the decision, taking choice away from the individuals and families by grabbing their cash now and vaguely promising to save them tomorrow.
Again, Mr Tsang may prove all detractors wrong and create the means for Hong Kong to navigate the coming demographic crunch with minimal pain. But it will come out of the pockets of today’s Hong Kongers and take away a measure of their options for the future. This is the freedom taken that this house cannot sanction.
