The Politics of Welfare Developmentalism in Hong Kong

This paper examines the change in social policy in Hong Kong Special Administrative Region (HKSAR) after the 1997 Asian financial crisis, tracing how the historical path of development, economic globalization and the state of political development have combined to structure the response of the state to growing pressures for change in its welfare regime.

Compared with its Asian counterparts, the welfare regime of HKSAR stands out because of the strong role played by the state as the financier and provider of services, as opposed to being simply the regulator. On top of its heavy involvement in financing and provision, it is perhaps also the state that adheres most closely to the idea of small government. This paradoxical combination of a colonial state of limited capacity with a relatively heavy state role in financing and the provision of collective consumption is the result of the confluence of a number of factors that were related to the colonial condition, namely the interest of colonial domination, and the special configuration of economic and financial policies that arose from such interest.

The founding of the “residual welfare state” in the early 1970s marked the inception of welfare developmentalism in Hong Kong. Rapid industrialization, socioeconomic development and a crisis of legitimacy generated the need for more social provision. At the same time, the colonial state was careful to subsume this political need for better social provision under the wider policy parameters of economic non-interventionism and financial conservatism (which entailed a low tax rate, low public expenditure and a public sector of limited size). Sustaining this residual welfare state required high economic growth rates to generate a continuous increase in government revenue with which to fund the expansion of social programmes. A situation of full employment also gave rise to real wage increases that minimized public demands for welfare provision.

These optimal conditions started to change in the 1980s, as socioeconomic development, economic restructuring, the rise of structural poverty, an aging population and rising expectations all led to increasing demands for social programmes. The potential problem of the long-term sustainability of the residual welfare state was partly obscured in the late 1980s to early 1990s by the economic bubble generated by the real estate market. The political transition toward 1997 saw the partial democratization of the legislature. An accumulation of revenue coupled with the political transition led the government to generously increase spending on social provision. The first chief executive of HKSAR, Tung Chee-Hwa, continued increasing social spending, envisioning the construction of a Confucian welfare state as the basis of the new political order. However the Confucian contract’s underlying message of strong political leadership, social unity and a caring government was dealt a deathblow by the Asian financial crisis, which resulted in an economic downturn that destroyed the preconditions that underlay the old social pact. An economic recession of unprecedented magnitude reduced the growth of gross domestic product (GDP) to –5.3 per cent in 1998, increased the unemployment rate to 7.4 per cent in the second quarter of 2002, and raised the public budget deficit to 65 billion Hong Kong dollars (equivalent to 5.2 per cent of GDP) in 2001–2002. Both the middle and lower classes were hit hard by unemployment, wage decline and asset deflation.

Faced with all these challenges, the government prioritized the elimination of the budget deficit; as a result, social programmes suffered from expenditure cutbacks. The retrenchment of the residual welfare state was accomplished through measures of recommodification and cost containment. In response to the structural problems of the economy, the government embarked on the development of a knowledge-based economy and government initiatives in business. The reconfiguration of welfare developmentalism thus entailed a neoliberal turn in social policy and a developmentalist turn in economic policy. The withdrawal of the state from redistributive social programmes has happened at a time when the middle and lower classes have been deeply affected by real financial difficulties, a substantial decline in standards of living, and a lack of social safety nets that could serve as a buffer against such economic fluctuations.

The prospects for more progressive social policy change lie in the construction of alternative discourses. While political parties, labour unions, non-governmental organizations and profes­sional organizations have been quite critical of current development trends, a stronger societal consensus has yet to emerge on what the contours of the new social pact should be. Many of the institutional conditions for the generation of this consensus—and hence, progressive change—hinge on further constitutional reform. In sum, in Asian industrialized states such as HKSAR, social policy reform is inevitably connected with democratization.

Eliza W.Y. Lee is Associate Professor in the Department of Government and Public Administra­tion at the Chinese University of Hong Kong.