By Prudence Ho and Matthew Campbell
Mrs. Lau can’t help but glance nervously at the calendar. Her next paycheck isn’t for a week, and she doesn’t have enough money to feed her family of four crammed into her small, government-subsidized Hong Kong apartment. Her husband can’t work, and the kids don’t understand why their mother keeps buying stale food.
“We’ll eat rice soup for all three meals,” said the 42-year-old, a cashier at the Wellcome supermarket chain controlled by the Jardine Matheson group. Lau, who asked that only her surname be used, has been the sole provider for her 7-year-old daughter and 15-year-old son since her husband injured his back. She makes the equivalent of $5.40 an hour, nowhere near the $15-an-hour minimum wage in cities like Seattle, where the cost of living is cheaper.
It’s an increasingly familiar tale in Hong Kong, a city of soaring skyscrapers and glittering luxury boutiques that’s become perhaps the epitome of income inequality in the developed world. Two decades after Britain handed the former colony over to China, its richest citizens”•billionaires such as Li Ka-shing and Lee Shau Kee”•are thriving, thanks to surging real estate prices and their oligopolistic control over the city’s retail outlets, utilities, telecommunications and ports. But not people like Lau.
“Hong Kong is an incredibly extreme case of unmitigated inequality, with very little in place to stop it,” said Richard Florida, author of “The New Urban Crisis” and a director at the Martin Prosperity Institute in Toronto. “I don’t see it as being sustainable. It’s not the economics, it’s the political backlash. It generates a backlash, and people just get angry eventually.”
Hong Kong’s struggle to help its citizens improve their lives may represent the greatest challenge to its unique economic model. The city has been lionized for decades by some economists as the closest thing to a free economy, with few regulations of any kind, and no retail sales or capital gains taxes. More than half of Hong Kong’s working population, including Lau, live below the level at which they must pay income tax”•and for the minority who do, the standard rate is a low 15 percent.
But wages have failed to keep up with costs, leaving hundreds of thousands of Hong Kong people barely able to get by. A common measure of inequality, the Gini coefficient, in which 0 is absolute equality and 1 is all money in a single person’s hands, illustrates the problem: The latest figure out last week puts Hong Kong at a record 0.539, the highest since data started being kept in the 1970s. It’s the biggest disparity in Asia, greater than places like Papua New Guinea and Brazil.
“Hong Kong is a very interesting case study, where profits are sheltered from competition while labor cannot easily organize,” said Emmanuel Saez, an economics professor at the University of California, Berkeley, who often collaborates with Thomas Piketty, the French economist who wrote “Capital in the Twenty-First Century.” “This leads to very high inequality.”
In some respects, Hong Kong is experiencing a turbo-charged version of the growing divide evident elsewhere. Formerly remunerative manufacturing jobs”•Hong Kong used to be the world’s toy-making capital”•have vanished, replaced at one end of the spectrum by highly paid bankers and at the other by low-wage waiters and floor sweepers.
Perverse Effect
Originally intended to stimulate entrepreneurial dynamism, the hands-off approach may have ended up having a perverse effect, allowing a few large companies to entrench their positions and ultimately stifle competition. Charges of collusion between business and government have felled several officials and led to public discontent.
“The earlier generations have managed to entrench themselves so effectively, it becomes much more difficult for a new upstart,” said Steve Tsang, director of the China Institute at London’s School of Oriental and African Studies.
Even deep-pocketed foreign companies have trouble breaking in. French supermarket giant Carrefour SA spent four years trying to build a Hong Kong footprint before abandoning the city in 2000, citing the difficulty of obtaining store locations. That’s not a problem for the two dominant supermarket chains, Wellcome and ParknShop, which are backed by their parent companies: Jardines and CK Hutchison Holdings Ltd.
Debates about Hong Kong’s rich and poor tend to come back to one word: land. Housing is the least affordable in the world, according to housing-policy think tank Demographia, with median prices relative to incomes far outstripping those of Sydney, London and San Francisco. Home prices have risen nearly 400 percent since a real estate slump ended 14 years ago.
That’s created an unpleasant lexicon for living conditions unknown in other cities. “Cage homes,” as the name suggests, are compartments of wire mesh barely large enough to hold a single bed, often stacked on open-plan tenement floors. “Coffin home” berths are slightly larger and offer a modicum of privacy thanks to walls made of wood or plaster. For the middle class, developers have been building an increasing number of micro-apartments, the smallest just 128 square feet, with price tags of more than $400,000.