Tung Chee-hwa, governor of Hong Kong, has made a lot of poor decisions during the past seven years. In fact, he admitted as much in his annual policy address to the Hong Kong Legislative Council. Unfortunately, in that same address Chee-hwa announced what may be his greatest folly yet -- the creation of an anti-poverty commission. Hong Kong's chief executive may have just laid the foundation for a massive welfare system. The taxes required to fund social welfare programs will stifle Hong Kong’s economy, and the dependence on such programs will hobble the labor force. If readers have any doubt, they need only look at the United States.
Colonial America had only a modest government safety net. Churches, charities, and the community –- known as “civil society” –- took the lead in providing assistance to those in need. These entities had the freedom to distinguish between the “deserving” and “undeserving” poor. The deserving poor included those who, although normally self-sufficient, had experienced temporary setbacks due to sickness, accident, or loss of employment during a recession. The deserving poor also included those incapable of self-sufficiency, such as the elderly and orphans. The undeserving poor were those who could be self-sufficient but elected not to work, or who made poor choices that were an obstacle to employment.
Early U.S. welfare law was modeled after English Poor Law. That law established four basic principles for government charity: (1) care for the poor was a public responsibility; (2) care for the poor was a local matter; (3) public relief was denied to individuals who could be cared for by their families; and (4) children of the poor could be apprenticed to farmers and artisans who would care for them in exchange for work. As with civil society’s assistance, the themes were personal responsibility and self-sufficiency. If you were able-bodied, you should be working. If you could not work, then assistance was best delivered on the local level, to ensure effectiveness and accountability.
Unfortunately, the United States did not maintain its modest safety net. Politicians learned that the promise of social programs wins elections, and the economic repercussions of such programs are for the next president to worry about. As each president attempted to shower more “compassion” on those in need, the number of needy continued to rise. For many, the satisfaction of earning a salary was outmatched by the temptation to draw a check for doing nothing.
Chee-hwa’s announcement of initiatives to fight poverty echoes U.S. President Lyndon Johnson’s declaration of a War on Poverty in 1964. The result of U.S. anti-poverty initiatives was an increase in welfare caseloads by 107 percent in the late 1960s. Even more troubling was that three-quarters of that increase occurred between 1965 and 1968, at a time of relative economic prosperity and low unemployment. In the past 40 years, the U.S. government has spent almost $9 trillion (in constant 2003 dollars) on the War on Poverty. The return on that investment has been an increase in out-of-wedlock births and government dependency with no meaningful reduction in poverty rates.Unfortunately, Chee-hwa is tempted by the instant popularity that comes from spending on social programs. A $25.6 million fund to increase cooperation between the government, welfare, and business sectors to help the disadvantaged could be the beginning of Hong Kong’s very own massive welfare state. The government must show restraint. Energy should be focused on fixing the current welfare system, the Comprehensive Social Security Assistance regime, so it serves as a safety net for those who are unable to achieve self-sufficiency or are trying to get back into the job market.
Hong Kong should stay the course. During recent economic slowdown and rising unemployment, the government resisted the temptation to distort the economy through meddling regulation, minimum wages, or work-hour maximums. Hong Kong played to its greatest strength: its free market. The result has been a drop in unemployment. Hong Kong should continue to encourage a dynamic economy through a free market, because employment is the surest way to avoid poverty.
The government of Hong Kong should be wary of recommendations that will come from the new anti-poverty commission. A minimum wage may sound compassionate, but it will raise unemployment. Promises of increased spending on social programs may sound benevolent, but they will come at the expense of higher taxes and greater dependence on the government. If Hong Kong is concerned about poverty, the kindest thing the government can do is leave charitable assistance to civil society and let the economy create jobs.