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Social Policy and Development Programme Paper 21: The Politics of Welfare Developmentalism in Hong Kong

18 Nov 2005



Compared with its Asian counterparts, the welfare regime of Hong Kong Special Administrative Region (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.

The founding of the “residual welfare state” in the early 1970s marked the inception of welfare developmentalism in Hong Kong. Rapid industrialization and socioeconomic development 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. Sustaining this residual welfare state required high economic growth rates, while full employment 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 1997 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. The reconfiguration of welfare developmentalism 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.

What are the prospects for more progressive social policy change? 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. The author writes that 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.

Order SPD PP 21 from UNRISD, 15 pages, 2005; US$ 12 for readers in industrialized countries and US$ 6 for readers in developing and transitional countries and for students.