Hong Kong's leaders must learn to put the territory's interests before their own
Last week marked an important milestone for hong Kong. For the first time, the territory's governing Cabinet has been appointed directly by the Chief Executive, Tung Chee-hwa, instead of being drawn solely from the career civil service. The Cabinet's 14 members include eminent academics, market-savvy operators and political leaders, one of whom heads the local proxy of the Chinese Communist Party. In his second term, Tung won't be able to blame his failings on not having his own team. In fact, his new lieutenants can help Tung improve on his somewhat sullied legacy.

Hong Kong's problems can be tackled if there is the political will. There are many vexing issues—new laws against subversion could be abused, a tamer press seems less inclined to play watchdog—but Hong Kong marks its fifth anniversary under Chinese rule facing really just two major woes: economic stagnation and a deep, communal sense of disenfranchisement.

Hong Kongers view their leaders either as stooges of Beijing or of property tycoons with vested interests in every important business in town. Government in Hong Kong is decidedly nonparticipatory. If locals are looking toward a greater say in their affairs in future, they can forget it: Chinese Vice Premier Qian Qichen last week made it clear that full democracy is not an option for the territory. Hong Kong's pragmatic and stoic citizens could tolerate all that if they were assured that the plutocrats were repairing the ailing economy. Unemployment has risen to European levels. Growth is anemic. Public deficits are on the up. The Financial Secretary once let slip that Hong Kong could become another Argentina. Scary but true.
Beijing's aging leaders talk tough, but China's younger generation wants the country to become as open, rich and cosmopolitan as Hong Kong.
Tung's new ministers are no fools. Admittedly, not all are the best and the brightest, but the economic team has a long and credible record in the financial and industrial communities. Its members appreciate that pro-growth policies must be implemented even if it means hurting the interests of powerful cartels run by billionaires who have, in some cases, helped make the careers of several of Tung's appointees. Part of the problem has been that those same vested interests, with government collusion, have kept the territory's cost structure too high relative to its productivity and its competition, especially China. Real-estate prices in Shanghai are a quarter of those in Hong Kong. The issue is not whether the territory deserves a "Hong Kong premium," but rather how high that premium should be.

Local developers sit on $60 billion worth of land, enough to meet private housing needs for the next 10 years. These developers are in fact Hong Kong's largest speculative hoarders. Boosting property values may provide temporary relief, but it raises the hurdle of investment returns, deterring business expansions and start-ups. Given that much land is held by a cartel of property companies and not subject to market forces, the government should not allow the developers to dictate when they apply for rezoning or when they build. Initially, lower real-estate prices will arouse ire among homeowners and tycoons, but the alternative—becoming an uncompetitive, overpriced backwater—is even more frightening. Falling prices will quickly stabilize. The last five years of stagnation plainly show that short-term pain is far better than long-term torture. Even those who have complained loudly about "negative equity" in their real-estate portfolios now know better.

Then there's the matter of wages. Fiscal deficits may become permanent as 70% of the government budget goes toward salaries. The head of the Hong Kong Monetary authority makes $1.1 million a year, twice the pay of the Chief Executive and six times that of Alan Greenspan. These multimillionaire public servants defend their pay by using private-sector wages as a benchmark—which is pure avarice. They ought to feel a calling for service rather than lucre. Encouragingly, several new Cabinet members from the private sector have taken a pay cut, some well over 50%. No public servant should make more than the Chief Executive.
The territory also seems overeager to please Beijing. Last week's brief airport detention of U.S. Sinologist Perry Link—rumored to be on the mainland's visa blacklist, presumably because of his consistent forthrightness on the subject of human rights—sends out the wrong signal that Hong Kong is less "two systems," more "one country." True patriots should realize that Beijing's aging leaders talk tough but that China's younger generations want the country to become as open, rich and cosmopolitan as Hong Kong. Hong Kong can serve the motherland better by providing a "best practice" showcase. Aping communist behavior can only shrink the "Hong Kong premium." What Tung and his new team must understand is that China needs Hong Kong to be the dynamic, bustling, free place it has always been, not just another Chinese city. This is Tung's last chance not to blow it.

Sin-ming Shaw, a longtime professional investor in Asia, will be a visiting fellow at Oxford University in the fall

Byline: Newly elected President Jacques Chirac needs the support of both sides in next month's parliamentary elections to push through economic reforms, writes Sin-ming Shaw

FRENCH PRESIDENT Jacques Chirac, who gained over 80 per cent of the vote in Sunday's election, did not win because of his policies. He won because the people did not want his far-right opponent, Jean-Marie Le Pen, to win.

The vote of 82 per cent for Mr Chirac and 18 per cent for Mr Le Pen was in line with expectations.

A crucial battle will be fought in next month's elections to select legislators to the National Assembly. If supporters of the left - the Socialists, various environmentalist parties and other fringe groups - vote along traditional lines, Mr Chirac will not get his parliamentary majority. He may be forced to again select a prime minister from the opponent's camp to forge a political marriage known in France as "cohabitation".

There have been three cohabitation governments in this Fifth Republic created by General Charles de Gaulle in 1958. The first was in 1986-89, when Socialist president Francois Mitterrand had to choose Mr Chirac to be his prime minister. The second was in 1993-95, when Mitterrand chose Edouard Balladur, a right-wing rival to Mr Chirac. The third began in 1997 when Mr Chirac, elected president two years earlier, found himself with Socialist Lionel Jospin as his prime minister.

For many voters, the terms right-wing and left-wing have become meaningless. For clear manifestos, many have turned to extremists. On the right, there is Jean-Marie Le Pen. Save perhaps for the French Communist Party, there is no extreme left of significance in France. The communist candidate got less than 3.4 per cent of the presidential vote.

The right is said to represent the free market, low taxes and globalisation, while the left is said to be mainly comprised of "free lunchers", labour unions and sock-the-rich do-gooders.

In reality, such distinctions are not significant. France has been ruled by essentially the same kinds of people, irrespective of their political labels.

Most prime ministers, socialist or right-wing, were educated at the Ecole Nationale d'Administration (ENA), as were Mr Jospin and Mr Chirac. Nearly all the senior ministers in Mr Jospin's cabinet went there, or to another grande ecole. The new Prime Minister, Jean-Pierre Raffarin, went to the Ecole Superieure de Commerce de Paris, another grande ecole which is a notch below the ENA.

The principal difference between centre left and centre right is essentially more free lunches versus fewer ones.

The predominant thinking among the ruling elite is that problems can be solved by leaders with superior intellect and overwhelming logic, and who are properly trained, like themselves.

In France, these graduates of grande ecoles plan for the country. They decide how many doctors must be trained at universities, what textbooks children must study and how many should enter universities. Advancement of knowledge is mostly through examinations. Those who make it to the top are assured of their ability to know the right answers.

Pre-dating Hong Kong's Financial Secretary Antony Leung Kam-chung by a century, members of the French elite have never doubted their ability as "market enablers" who can give the market the right kick to send it higher. The end result is that France has the largest government share in gross domestic product of all major western economies and one of the least efficient economies. Worse, mixing political and economic powers, like in China, has been the path to corruption which has tainted both sides.

France's many problems are now structural. Too many interest groups: unions (even in universities), government bureaucracies (also unionised), the ruling elite themselves and the salaried workers - blue- and white-collar - have benefited from heavy-handed state policies. Only the outsiders - the new job seekers, immigrants and the entrepreneurial - know the French way is not necessarily the best way. But the obstacles to change are formidable.

Left-wing voters realise there is something wrong with the economic structure. But the generous redistribution policies in place are what they traditionally sought. Will they throw their weight behind Mr Chirac to allow the right to restructure France to become more competitive, even if that means dismantling many of their favourite programmes?

Or will they revert to form to select their own representatives and force another cohabitation government to stand up against moves to dismantle "free lunch" programmes?

If Mr Chirac were deprived of a majority, would he seek an alliance with the extreme right to avoid another cohabitation with the left?

In the best of worlds, supporters of the left will hold their nose, wear their gloves and vote to give Mr Chirac a parliamentary majority to enable him to push through reform measures to restructure the economy.

Such a hypothetical outcome makes a few heroic assumptions about French politics. Nothing so far has indicated that those on the left are ready to abandon their ideological bent. Nor is there evidence that the ruling elite truly believes the market is a better "enabler" than itself.

A still bigger assumption is that the unions and subsidised agricultural sector will abandon their familiar tactic of paralysing strikes and embrace market forces.

Next month's election will mark a critical moment for France: will it be business as usual, ensuring continued decline, or a new beginning to regain the glory that was France?

Sin-ming Shaw teaches at the American University of Paris smshaw@shaw.com.hk

In Sin-ming Shaw's article on the French presidential elections published on Saturday, it was stated that Jacques Chirac and Lionel Jospin were graduates of the Ecole Normale Superieur. They were actually educated at the Ecole Nationale d'Administration. The mistake was due to a sub-editing error.

TOMORROW FRANCE GOES to the polls again to choose a president. The choice is between the incumbent Jacques Chirac and Jean-Marie Le Pen.

Many French people call Mr Chirac a thief. He has been dogged by money scandals for many years. Mr Le Pen, on the other hand, is pegged as a racist. He is opposed to immigration - a code word for non-whites - and he says the Holocaust was a mere detail of history.

Mr Chirac got 20 per cent of the popular vote during the first round last week, while Mr Le Pen got 17 per cent. Every poll indicates Mr Chirac will win by a landslide this weekend.

Mr Le Pen, unlike Mr Chirac or the defeated Lionel Jospin, the French socialist Prime Minister, is an outsider. He is not from the same social and educational background that political leaders, senior civil servants and corporate chiefs usually come from.

Mr Le Pen attacks the exclusive fraternity of the privileged. It is a criticism particularly embarrassing to a country proud of being the intellectual birthplace of liberty, equality and fraternity.

The French establishment recruits its members from the upper-middle class. Mr Chirac and Mr Jospin are both graduates of the Ecole Normale Superieur, one of France's top colleges - as were most post-World War II prime ministers.

If Mr Chirac wins as predicted, the French will once again hold their heads high and declare Mr Le Pen does not represent the civilised French.

His success is largely down to the arrogance and complacency of the political leadership that has been ruling France for over half a century.

France is a country of great talent. It is pathetic that the country is living well below its potential because the ruling elite is cynical, corrupt, arrogant and self-serving.

It is a country unwilling to cope with globalisation, insisting that the French way is the Third Way between capitalism American-style - caricatured as unmerciful - and the inhumane, corrupt ways of communism.

Labour practices are so restrictive they are hurting new entrants to the job market. Business Week estimates 30 per cent of the young in France are leaving the country every year to seek jobs abroad, while immigrants from Eastern Europe and Africa face an even tougher employment hurdle.

Welfare payments in France are notoriously generous, funded by a punishing tax system that hurts mainly the salaried middle class and small businesses.

Petty crime has ballooned and insecurity, a euphemism for street crimes committed by non-whites, is a major campaign issue, an important source of dissatisfaction among those who voted for Mr Le Pen in the first round.

A quarter of the French population is non-European. But you would not know this by looking at the composition of the French political, social and corporate elite. There the non-European French are invisible. But by focusing on the racial differences, Mr Le Pen falls into the trap set for him by the establishment that delights in labelling him a lunatic racist.

Mr Le Pen's supporters are not just racist. They are often owners and employees of small- and medium-sized firms who find it impossible to compete against giant state enterprises run by the same elite members that control the executive and legislative branches.

Mr Le Pen even finds supporters among those who traditionally vote for socialists. These blue-collar workers feel threatened by the forces of competition. Their fears have been channelled against the immigrants, not against the anti-growth policies of the elite.

The French ruling class has over the years made a devil's pact with trade union leaders: "You let us run France and we will legislate the kind of policies you like." France alone among the richer nations has imposed a maximum 35-hour working week and has unemployment benefits that are blatant bribes to buy off workers.

The inevitable result is economic stagnation and high unemployment. Real living standards have fallen behind those in Britain and France's other northern European neighbours.

France's traditional leadership in science and culture has diminished. Even in the fashion industry, once a legend, the best designers today at French high fashion houses are foreigners. In science, France is not even on anyone's radar screen. Its universities are large, impersonal and badly managed and its industries are no longer at the forefront.

Mr Le Pen will no doubt be defeated. But France will still need to confront its underlying problems.

The largest peaceful demonstration in France in living memory occurred on May 1 in Paris to remind people to vote for Mr Chirac. However, two common banners read: "Cast the vote for Chirac with plastic gloves and clasped nose" and "Better a voleur than a Fuhrer", voleur being French for thief.

Jacques Chirac will get his presidency reaffirmed. But to many of those who will vote for him he remains a voleur.

Sin-ming Shaw teaches a course on globalisation at the American University of Paris

Byline: The willingness of US citizens to provide generous funding for universities puts their wealthy SAR counterparts to shame, writes Sin-ming Shaw

HONG KONG'S WEALTHY are giving very little back to the society that has enriched them beyond imagination. The University Grants Committee estimates total private individual contributions amounted to $540 million last year, a small sum to the mega-rich and far short of what higher education needs.

Without significant alternative sources of income from the private sector, universities will remain dependent on public funds, boding ill for those trying to become first-rate.

Government funds will be limited as Hong Kong's fiscal health suffers from structural deficits. Total dependence on public funds, even if they were forthcoming, reinforces the "iron rice bowl" culture among universities not subject to competition, a necessary condition for excellence.

Every Oxford needs a Cambridge. One important reason why public US universities, such as Berkeley and Michigan, are so good is because they have to compete against private ones for the same pool of student talent and, more importantly, for funds from corporations, foundations, donors and government.

The generosity with which the American rich and the not-so-rich give to education goes far beyond what tax deductibility can explain.

It puts to shame Asians whose dedication to educating their young is supposedly legendary.

Gordon Moore, the inventor of the computer chip, has given $4.7 billion to the California Institute of Technology. The Hewlett Foundation, of Hewlett Packard fame, has donated $3.2 billion to Stanford University.

In January 2002, Sanford Weill, chairman of Citigroup, gave $780 million to the Cornell Medical School. Maurice Greenberg, of the American International Group, an adviser to the SAR Government, chipped in another $490 million. The Greenberg family has now given more than $3 billion to the hospitals of Cornell and Columbia Universities.

Mr Greenberg ranks number 103 on the Forbes list of the world's richest. Mr Weill does not rank at all, unlike a number of Hong Kong's billionaires.

The nouveaux riches here have given a pittance to education. Li Ka-shing, ranked 23 on the Forbes list this year, is a notable exception, as is the unranked Gordon Wu Ying-sheung, who has pledged $780 million to Princeton University.

But Sir Gordon tellingly shunned Hong Kong's universities on the grounds that their mediocrity would waste his money. Mr Li gives huge sums principally to mainland campuses.

In Hong Kong, wealth accumulation has become an end in itself. The rich reject the argument that Americans care more than they do about charity, and, in particular, education.

They insist that America's higher marginal tax rates provide an incentive that Hong Kong's scant 15 per cent flat tax lacks. To address the issue head on, the SAR Government ought to provide the needed incentive by allowing deductions at 30 per cent for every dollar given. That would closely match the American allowances.

Christopher Cheng, chairman of the Hong Kong General Chamber of Commerce, has used the same argument in the context of supporting the arts. A 30 per cent tax deduction should, indeed, apply to all charitable donations. Once that supposed obstacle is removed, Hong Kong's creative and intellectual communities can more forcibly call on the rich to give more.

Hong Kong has to develop a culture of giving if its people want to be proud of their institutions of higher learning.

There is a strong argument for "privatising" at least two universities. Not only would they provide an alternative model, they would reduce the drain on the SAR's budget.

Take the Chinese University. It spends roughly $3 billion a year. The Government should transfer $50 billion to "endow" the university, using a six per cent return as a benchmark. The university will then have to fend for itself.

Its scholars can, like their US counterparts, compete openly for public funds for projects. But they must win on merit. Government bureaucrats may object to "depleting" official reserves by such a transfer. But their reasoning is invalid, because the money stays within the community. Once it has been transferred, an item of recurrent expenditure will forever be eliminated from the Budget. This would immediately reduce the size of the SAR's fiscal deficit.

Certain facts are straightforward. Not all universities, departments and professors are equal. They should not be funded as if they were. Universities should not all remain public, and private funds should be encouraged.

Universities have been overly generous in handing out honorary doctorates to the rich while getting very little in return. Such wantonness actually cheapens the honours and the institutions that give them.

Sin-ming Shaw teaches at the American University of Paris