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The Hong Kong government should set aside an extra HK$25.6 billion for welfare, medical and education spending, a community advocacy group urged yesterday ahead of the annual budget speech to be

delivered by Financial Secretary John Tsang Chun-wah next week.

City, February 15

The other day I passed a small roadside construction crew that was entirely composed of Pakistani migrant labourers. Okay, perhaps the works boss was local, although I didn’t see him, but I’ll eat my desk blotter if any of the others held a permanent ID card.

And what has this to do, you may ask, with whether our government should set aside HK$25.6 billion to reduce income polarity through welfare, medical and education spending?

Everything.

The problem is that when you confer a narrow social benefit, for instance a big Mark 6 win, you have one happy citizen, several hundred thousand slightly poorer ones who have been dunned by a classic tax on the poor, and no wider social change of any sort.

But when you confer a widespread social benefit, something intended to improve the living circumstances of the large majority of the working class, what you actually do is create an employer subsidy.

It is a grand irony that a town recently billed as having the most expensive housing on earth is actually more distinctive for having what is perhaps the cheapest urban housing of any developed economy on earth

Take public housing for instance. We have a stock of almost 800,000 public rental units, 36 per cent of total housing in this town (almost 50 per cent if you include public sale units) and the average rent per unit is about HK$1,200 a month.

Yes, it is a grand irony that a town recently billed as having the most expensive housing on earth is actually more distinctive for having what is perhaps the cheapest urban housing of any developed economy on earth.

But my real point today is that Hong Kong’s employers know that the large bulk of their general workers pay next to nothing for housing and they adjust their wage levels accordingly.

This is one big reason that working class wages are still so low. The bosses effectively say, “Well, if the government wants to cover such a big part of their living costs for them, why should I bother doing it? They can still make ends meet. They’ll work for lower pay.”

It’s true. They will and they do. What is more, this requires no conspiracy. The bosses do indeed get together regularly and promise each other that they will keep wages down this year. They would never succeed in doing it so effectively, however, if public housing rents were at private market levels.

The fact is that widespread social forces take on what is almost an intelligence of their own. It isn’t the result of the bosses plotting, although plot they do. It’s just the way the market works, inanimate and yet craftier than any of us.

What counts for housing counts equally for all social services – welfare, education, medical services, public transport, income security, you name it.

Subsidise them for a few people and there are no overall society-wide effects. Subsidise them for everyone and you only negate their intended effect by creating what is actually an employer subsidy.

But there is a way of getting out of this circular trap and this brings me back to that Pakistani construction crew. For almost six years now our unemployment rate has stood at the very low level of just over 3 per cent. This is effectively fully employment. The residual consists mostly of people who cannot or do not want to work.

It quickly leads to a shortage of workers, which is most notable in the construction trades where, in normal circumstances, it would push wages steadily up whether bosses like it or not.

People would then move into construction from other trades, and menial jobs such as petrol pump jockey and street sweeper would have to give way to automation as even the most unskilled workers would find better jobs. Gradually all of society would change and income polarity would narrow.

But normal circumstances have not been allowed to apply. Migrant labour has quietly been brought in, so quietly that we no longer even know in what numbers. They are undoubtedly large but the government has stopped publishing figures on the foreign population.

The effect, however, is undeniable. Income polarity continues to widen.

And advocacy groups get the reasons why all mixed up. You’re looking the wrong way, folks.