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Friday, January 15, 2021, 00:44
Economic system needs to be rejigged to benefit the vulnerable
By Edward Pinkney and Paul Yip
Friday, January 15, 2021, 00:44 By Edward Pinkney and Paul Yip

If stories of economic struggle this year in Hong Kong are not enough, the recently released “Hong Kong Poverty Situation Report 2019” offers more signs that the interests of the wealthy were decoupled from those of the poor in 2019. This is not a recipe for a healthy society. 

While the economy entered a recession in 2019, the non-poor extended their income gap over the poor by almost HK$4 billion ($516 million) annually based on the latest poverty report. If the trend continues, this year 2020-2021 the poverty gap will double from a decade ago, indicating that the brunt of the ongoing economic crisis is being disproportionately borne by the poor.

If we are to address the structural issues causing poverty, the first step is to ensure we acknowledge that there is a problem. When the community, the business sector and government all accept responsibility, we may then follow this up by implementing effective mitigation measures

In defense of government measures, poverty last year was pushed down substantially by recurrent cash interventions, such as social security benefits. The latest poverty report highlights the significance of this by pointing out that the poverty figures before interventions are a “purely theoretical assumption” — a new phrase for the latest annual report that is used 127 times. 

Unfortunately, the pre-intervention poverty situation is not merely “theoretical” to those affected by the often cumbersome process of accessing social security benefits. There have been reported cases of people unable to access CSSA due to government offices being closed for all but a few days of the month. It is hard to understand why government services would need to close despite luxury malls remaining open as usual. Surely the ability for a man or woman to provide for their family’s basic needs should take priority over the ability to buy luxury handbags? 

Certainly everyone is facing a difficult time due to the pandemic. Yet we need to be empathetic to the vulnerable in the community who need additional help. Young families are struggling due to school closures, and small business owners in the hospitality sector have taken a heavy toll. It is important that small businesses, community services and schools are well supported and are able to provide for children and families without compromising on the risk of COVID-19.

The Poverty Situation Report notes that a growing economy is essential for reducing the poverty problem, which may be why public libraries, beaches and outdoor exercise areas are closed while indoor malls remain open. Certainly if the GDP was in positive territory then there may not have been such a jump in poverty last year. However the poverty rate increased in each of the previous five years when GDP was growing, therefore arguments that the increase in poverty is caused by a poor economic outlook don’t hold water. 

In the 19th and 20th centuries, economists hypothesized that relative poverty increase and decrease in societies cyclically as a result of urbanization or crises (Malthusian checks) that rebalance distribution of resources. We may think of this like an accordion that stretches and then compresses rhythmically. The mid-20th century was used as a defense of this theory, as upward mobility rose following the World Wars and the Great Depression. 

Such theories of cyclical patterns of inequality have been dismissed by the French economist Thomas Piketty, however, who claims the data show that inequality has risen consistently in advanced nations, and that the levelers of the 20th century only temporarily eased a stubborn upward trend. Looking at previous economic crises in Hong Kong, with the Asia Financial Crisis and SARS epidemic around the turn of the century, there are certainly not many positive signs. 

Between 1996 and 2006, both poverty rates and the Gini coefficient, a measure of income inequality, continued to slowly grind higher in Hong Kong. One glimmer of hope was with home ownership rates, as these rose from 46 percent to 54 percent between 1999 and 2005 due to house prices sharply falling, offering opportunities to get onto the housing ladder. However, home ownership rates fell back below 50 percent in recent years and there are no signs of the trend reversing. Unlike in previous recessions, house prices and rents have remained high this year providing few signs of upward-mobility. 

The poor have benefited from recent one-off cash handouts, as have businesses. The difference between individual and business handouts, however, is that the problems facing the business community are temporary, whereas the poverty problem has been getting worse for the last 30 years. According to census data, in 1986 the poverty rate was just 11.5 percent, rising to over a fifth of the population by the 2000s. 

The government has been trying to ease the poverty situation, and the annual poverty report serves as proof that interventions do help. However, if pre-intervention poverty rates continue to rise, as they have done for the last six years, then it is like trying to use a bucket to bail out an increasingly leaky boat. Unless the leaks are patched, the situation is unsustainable. So far, minimum wages and protection laws for low skilled workers remain too weak. 

One of the additional structural “leaks” this year concerns the way in which business support has been provided. Governments around the world have handed out cash payments to businesses on the premise of subsidizing salaries for employees that would otherwise be laid off. While this may have helped some struggling small businesses to survive and avoid cutting jobs, many larger companies without financial trouble have accepted the funds while reducing the hours and salaries of their employees, keeping the cash for themselves. 

Government payouts to businesses have helped to reduce official unemployment. However, low unemployment is not something we can celebrate if even those with jobs remain poor and vulnerable. In Hong Kong last year, 35 percent of the rise in poverty rate involved those in working households, even after recurrent cash interventions. For “Asia’s World City” to have workers toiling hard yet still unable to put food on the family table is not something we can be proud of. 

If we are to address the structural issues causing poverty, the first step is to ensure we acknowledge that there is a problem. When the community, the business sector and government all accept responsibility, we may then follow this up by implementing effective mitigation measures. There are limitations in the way in which the poverty rate is measured, but with the benefit of robust poverty data published annually, we can see a steadily worsening problem year on year. 

The government efforts to respond to the immediate economic crisis through one-off measures are vital and commendable, yet they are short-term, and we must not lose sight of more fundamental issues that need to be addressed. It is high time that the government shows the community what they can deliver. We need concrete and cost-effective solutions to a problem not merely hypothetical, but one which affects the everyday lives of up to 7.4 million Hong Kongers. 

Edward Pinkney is a project officer and Paul Yip is the chair professor (Population Health) of Faculty of Social Sciences at the University of Hong Kong. 

The views do not necessarily reflect those of China Daily. 

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