Thursday, March 18, 2010

The Jersey disease also hits Hong Kong

Hong Kong is one of Asia's most important secrecy jurisdictions - remember the kerfuffle at the G20 summit last April when Chinese premier Hu Jintao wrangled to get Hong Kong and Macau - two favoured secrecy jurisdictions for the use of Chinese elites - snipped off the OECD blacklist.

So it is no surprise to find this, in a superb story from the Financial Times:

"A territory better known for its breathtaking harbour-front skyline and its money-making possibilities has plenty of misery to go round. In a city of 7m people with an average per capita income of nearly US$30,000, 1.23m live below the poverty line, earning less than half of a desperately low median wage. The city’s Gini coefficient, which measures income inequality, is the worst in Asia (worse even than India and mainland China) before the limited effects of the city’s half-hearted income redistribution are counted."

(See some details about Hong Kong poverty and inequality here.) Now we've written a fair bit in the past about what we sometimes call the "Jersey Disease," a phenomenon similar in nature to the "Dutch Disease" that afflicts mineral-rich nations, where one dominant sector crowds out many others, partly through a rise in the real effective exchange rate, partly through the draining of social and economic capital into the dominant sector. Mineral dependence provokes the Dutch Disease (and other ills); tax havenry provokes the Jersey Disease. The result is, all too often, soaring inequality and social tensions. Read our last blog on the subject for more on that. The FT continues:

"Hong Kong has a tradition of small government and a credo of “positive non-interventionism”. A free-market philosophy lauded as key to Hong Kong’s success as a financial centre, positive non-interventionism has little to offer if you are living in a cage. The upshot is no public pension and very small unemployment benefits or disability allowances. As yet, there is no minimum wage. Government expenditure is around 16 per cent of gross domestic product. Now you know what Sweden spends the other 34 per cent on."

A while ago we blogged about similar problems in another major Asian secrecy jurisdiction: Singapore. Read our December 2008 blog about Singapore, and note the similarities with the Hong Kong that Pilling describes.

Now this is no coincidence: in states dominated by finance and tax havenry, the dominant ethic is almost always an outright libertarian one, or at least an atmosphere tilted that way. This pervasive hatred of regulation and governments so common in the secrecy jurisdictions not only encourages the idea that it's OK to subvert other governments' tax revenues, but it also leads to these tensions at home, not to mention the other things Hong Kong suffers from, such as a surfeit of complex monopolies harming ordinary people and benefiting a tiny elite.

Time and again, in haven after haven, the pattern repeats itself. Tax havens cause poverty - we say. And this applies inside the havens, as well as in the wider world.


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