When asked what she likes best about living in Hong Kong, 71-year-old Fung Lin’s answer is surprising: “the assistance I get from the government.”. In China, she says, there is very little welfare for the elderly, and she would receive next to nothing.

Mrs. Fung first came to Hong Kong fifteen years ago, from Guangzhou. She receives HK$2,500 (US$324) each month in the form of the Hong Kong Government’s Comprehensive Social Security Assistance (CSSA) and a rental allowance. Out of this, she pays HK$600 (US$78) to live in a small but tidy Government hostel for the elderly with four other women. While the amount she receives is small, she says it is enough, and that she is happy.

Mrs. Fung is lucky. 80-year old Mrs. Chan also receives HK$2,500 from CSSA, and pays HK$1,000 (US$130) a month in rent, however she lives in a “caged home” in Mong Kok with 13 other women. The space is only slightly larger than that of the Government hostel, but here the women are housed in bunk beds, with each bed surrounded by cage-like wire to protect the occupant’s belongings. Mrs. Chan has lived here for 30 years.

Mrs. Chan’s eyes peer out from her gnome-like face, as she tells how she came to Hong Kong 36 years ago. She originally came in order to get medical treatment that wasn’t available in China. She stayed because “There was nothing to eat in China, and people were starving.”

Mrs. Chan’s husband was killed in the Japanese war. The Japanese conducted medical experiments on her son, until he died too. With her husband and son both gone, Mrs. Chan raised her daughter by herself. When her daughter died two years ago, she was left with no family in Hong Kong. “I can’t say it’s bad living here,” she says of her life in the caged home, “because I’ve been living here for so long. But I can’t say it’s good either.”

Mrs. Chan and Mrs. Fung are at the center of one of the biggest dilemmas facing Hong Kong today. Social welfare activists and politicians point to Mrs. Chan’s situation as a shameful blotch on the face of Hong Kong’s economic success, and call for the government to do more for the city’s poor. Even those who call for more spending on welfare however, acknowledge that it is precisely the lack of government intervention in the economy that has allowed the territory to be so successful - so successful in fact that even the poorest consider themselves lucky to be here.

The problem, then, is how the lives of the truly needy, especially the elderly poor, can be made better without creating a Western-style welfare state that encourages dependence on the state and puts a heavy burden on the territory’s taxpayers. This dilemma is coming to a head as the first year under Chinese rule draws to a close: those who call for more spending insist that there is no danger of Hong Kong turning into a European or North-American-style welfare state, because the Hong Kong people are by nature self-reliant and industrious, and the increases they call for will not raise spending to a level that could even compare to those of Western countries.

Government spending on welfare has been on the rise for several years, however, and so has the public’s willingness to take advantage of welfare services. Applications for CSSA, for instance, have risen dramatically in recent years, primarily among able-bodied workers, and during a time when unemployment in the territory was actually falling.

Whether Hong Kong is able to resolve this dilemma could determine the future success of the territory: whether it is able to continue as the vibrant and prosperous enclave that has earned it “economic miracle” status, or whether it follows the path of Western economies towards slow economic growth, high unemployment, and increased dependence on the government.

Mrs. Chan’s caged home is in Mong Kok, a district in Hong Kong that not long ago was ranked as the most densely populated area in the world. Like Mrs. Chan, most of her flatmates have no family to take care of them, and Government hostels for the elderly only accept new residents up to the age of 75, and have long waiting lists. The room in Mong Kok is dark and cramped, with only an old sheet to separate the sleeping area from the tiny kitchen. At night, Mrs. Chan and her thirteen roommates crawl into tiny bunks stacked three high, and close their caged doors behind them.

An estimated 1,500 to 3,000 people in Hong Kong live in these caged homes, paying an average of HK$600 to HK$800 (US$78-104) a month. The homes are privately owned and operated, and the vast majority of residents are elderly and others who have no family to support them. In Hong Kong, they are called “singletons.”

Most singletons are men, between the ages of 60 and 70 who either never married, or whose families are in China. Only a small percentage are women. Like Mrs. Chan, most are unskilled workers who came to Hong Kong in the fifties and sixties, looking for work. With Hong Kong’s manufacturing sector moving into southern China over the past dozen years, it has become even harder for such people to make a good living in the territory, and some of the younger residents are from this group of displaced manufacturing workers.

Recent years have also seen more new immigrants moving into caged homes. According to Kalina Tsang of the Society for Community Organisation (SOCO), some 10% of caged home residents are now immigrant families from mainland China. “In the past,” she says, “almost all of the people were singletons, but now more and more families are living in caged homes. They are not allowed to go to public housing, because you have to live in HK for seven years to become a resident and apply for public housing.” Even after they apply, says Tsang, the average waiting time for government subsidized singleton housing is ten years. “Even in such conditions,” says Tsang, “they think that life in Hong Kong is better than life in China.”

In the weeks leading up to Hong Kong’s handover to Chinese sovereignty, Hong Kong’s caged-home dwellers were in the spotlight. The city was flooded with foreign journalists, and the phenomenon of the city’s caged homes was at the top of their lists of things to see.

Foreign reporters streamed in and out of the city’s caged homes, and gasped in horror at the squalid accommodations of the cagemen and women. However, it seems that few bothered to investigate into the background of the caged housing. In the months leading up to the handover, welfare groups and the Hong Kong Government were swamped with requests to visit the caged people. Some caged dwellings were visited by as many as four camera crews a day as the handover drew near. Yet, when the Secretary for Housing gave a press briefing on the territory’s housing policies, only about a dozen foreign journalists showed up.

In their eagerness to seek out a “dark side” to Hong Kong’s capitalist success story, these journalists missed one important point: that the phenomenon of people living out their old age in cages is rooted not in the vagaries of Hong Kong’s capitalist system, but in a severe housing shortage caused by a long-standing government monopoly on land ownership, and early government intervention in the property market. These journalists also missed out on an even more interesting story: that in spite of a history of from zero to minimal government support for public welfare services, and in spite of the fact that less than 40 years ago well over half the population lived in abject poverty, Hong Kong has actually performed better than many western nations in the area of social welfare.

Hong Kong’s housing problems began in the late 1940s, when refugees flooding in from China more than tripled the local population in a five-year period. At the time, the government had a policy of rent control on all pre-war housing. Rent could not be raised at all on such housing until the tenant chose to vacate, and repossession of buildings for reconstruction became nearly impossible. The government’s control of all the land in the territory further impeded the construction of new buildings. In the absence of sufficient housing, the hundreds of thousands of new immigrants built makeshift squatter huts throughout the territory.

Christmas day of 1953 brought a change to Hong Kong’s housing policy in the form of a devastating squatter fire that left over 50,000 people homeless. The fire prompted the government to launch a massive public housing program. Today, over half of the territory’s population lives in public housing. The problem is far from resolved, however. The government has been slow to release land for private development, and even the public housing that has been built has yet to accommodate all of the squatters - a few corrugated tin roofed villages still dot the territory’s hillsides, and there are long waiting lists to get into public flats.

The public housing scenario runs counter to the myth of “laissez faire” Hong Kong. While in many ways this myth is a reality, in some very substantial areas, it is not. Hong Kong’s “traded sector” is probably the least subject to government intervention of any place in the world. There are significant exceptions to the government’s free market policies, however, and most of these form what is known as the “non-traded sector.” Housing is primary among these exceptions.

Not surprisingly, it is the areas most insulated from the free market - those in the non-traded sector - that are the most problem-ridden and produce the least satisfaction for their users. A prime example is the territory’s public health care system, which has been plagued in recent years by poor quality service and a long string of serious blunders.

Incidents like the accidental removal of a girl’s fallopian tube instead of her appendix; an operation last April, in which a woman died when a hospital attendant pumped a lethal dose of oxygen into her by mistake; and a mixup last November in which hundreds of children were mistakenly given mouthwash instead of fever syrup, have become almost commonplace in recent years.

Although the government’s Hospital Authority denies that such blunders are the result of staff shortages, health care professionals disagree. Doctors and nurses claim that public hospitals have cut back their budgets so much in recent years, that the level of service provided can now only be described as “bare bones.” The ongoing spate of medical blunders, they say, is a direct result of cutbacks in staff, and the Association of Hong Kong Nursing Staff has threatened industrial action if the Hospital Authority does not heed their demands to hire more staff.

"If you look at all the incidents, there are problems with staff, problems with the system,” said Public Doctors' Association spokesman Dr Andrew Yip Wai-chun, in response to the Hospital Authority’s assertion that the long series of medical errors in public hospitals was not linked to staff shortages.

Although there are some private hospitals in Hong Kong, the vast majority belong to the government. Critics have long predicted that the public health care system, unable to raise its prices to meet the level of consumer demand and cover growing costs, would begin to deteriorate in terms of the quality of care provided. In recent years, this is exactly what has happened. In an attempt to provide nearly free health care, the government hospitals charges fees that are a mere fraction of those in private hospitals. With both a guaranteed dominant position in the market, and a policy that prohibits raising prices to market levels, the government hospitals have very little incentive to be responsive to the public.

Public housing as well, although hailed internationally as a success for housing over half of the territory’s population, is not without serious problems, including grossly inefficient allocation of living spaces, and waiting lists that average six and a half years.

The benefits to the poorest in the territory are also in question. Parking spaces in public housing complexes are often filled with Mercedes and BMWs, and according to the Housing Authority, some 13% of public housing renters also own private residential property. In fact, the Rating and Evaluation Department indicated that nearly one quarter of all private housing units purchased between late 1992 and early 1993 were purchased by public housing tenants.

And those who could use the subsidy the most are not necessarily covered by the program. According to Richard Wong, Director of the Hong Kong Centre for Economic Research, as recently as 1986, income distribution among public renters was not significantly different from that of private renters, and at very low levels, there were actually more poor families in private housing than in public.

Part of the reason for the discrepancy lies in the fact that although new applicants must fall below a certain income level, they may retain their public housing even if their income rises above this level in the future. With rents for public flats far below market value, the right to live in public housing is a valuable asset in itself, and one that tenants do not give up easily. In addition, the government’s Home Ownership Scheme (HOS) places tight restrictions on the re-sale of public housing bought by existing tenants. This effectively means that tenants are being asked to purchase an asset that has very limited re-sale value. Even when these flats are offered at a deep discount to their market value, tenants have been reluctant to purchase them.

So, for now, existing tenants hold on to their public flats, simply because the alternative is less attractive. This, in spite of the fact that according to two separate estimates, public housing tenants only value the flats they live in at around 60% of the market value for that flat. Meanwhile, those who might value the property more are prevented from acquiring it, by the restrictions on re-selling. And those who could use the housing subsidy the most must face a six and a half-year queue to get in at all.

Public housing policy is only one side of the housing shortage in Hong Kong. The other side has to do with rapidly growing demand that is not matched by supply increases. This is due in large part to the Government’s policy of releasing land for new development very slowly. However, much land that has already been developed currently goes unused, or under-used, because of restrictions on re-development. Property in areas zoned for industrial use, for instance, rents at a fraction of the rents charged for office and residential property. Some, like the HKCER’s Wong, suggest that easing restrictions on redevelopment could go far in alleviating the housing shortage.

An alternative way of increasing the supply of housing without having to increase the supply of new land,” says Wong, “is to make it easier to redevelop existing properties so that the effective supply of housing can be increased through the provision of more new units to replace existing ones.”

It is an idea the government may be more likely to consider, now that the current economic downturn has put a damper on the property market. Before the economic turmoil began, Chief Executive Tung Chee Hwa had promised that between public and private construction, an additional 85,000 new units would be built each year until the end of the century. Although the public sector plans to achieve its part of this goal, the 35,000 new units originally to come from the private sector now looks highly unlikely. In an effort to encourage private developers to build more flats, easing redevelopment and zoning restrictions would be a relatively inexpensive option. Allowing for public flats in the Home Ownership Scheme to be freely transferable would also free up valuable housing units now tied up in a system that does not allocate them effectively, or even serve those in greatest need of a housing subsidy.

Aside from the massive exceptions of public housing and health care, the Hong Kong government’s role in providing welfare services historically has been fairly minimal. What is surprising is that in spite of this, the welfare of the Hong Kong people is by many measurements at least on par with that of people in Western countries. In some significant ways, it is even superior.

The percentage of people living below the poverty line in Hong Kong is roughly the same as that in the USi, and is significantly lower than in many major US cities. Hong Kong does not have the large numbers of homeless people found in large cities in the US, and both crime and unemployment in the city are negligible compared to the US. Perhaps most importantly though, Hong Kong does not have the problem of chronic poverty that plagues communities in the United States. Somehow, it is still possible - and in fact is a frequent occurrence - for people to rise from humble beginnings to become successful on their own, with no assistance from the government. In the US, such a notion tends to be cynically dismissed as a “Horatio Alger myth,” as more and more resources are taken from the country’s citizens to pay for government welfare programs.


Stories like Mrs. Chan’s are among the many reasons behind calls in recent years for more Government spending on social welfare. Heeding these calls, Government has increased social spending (education, health, housing and welfare) from 21% of the budget in 1966 to 48% in 1996. In the 1998 budget, announced in February, total Government spending was increased by 11.2% to 19.2% of GDP, the highest level in a decade, and spending on welfare alone received an increase of 13.6%.

Social welfare groups and political parties in the territory are widely pleased with the budget. However calls for more spending have not subsided. In addition, a proposed Mandatory Provident Fund (MPF) is on the verge of becoming a reality, after many years of promotion from various groups within Hong Kong. Those who support the Fund point to examples like Mrs. Chan, who are forced to live out their old age in squalid caged homes, because they have no retirement pension. Some groups have even called for the immediate introduction of an Old Age Pension scheme, under which today’s elderly would receive payments immediately.

The MPF is different from Social Security in the US, in that the proposed contribution (5% of wages to be contributed from the employer and 5% from the employee) will be put into a fund and invested in stocks and other financial products. However it is similar to Social Security in that participants have no choice as to whether or not they take part, nor do they have much say in how the money is invested. To qualify as MPF vehicles, investment products must meet highly restrictive guidelines as to how the money is invested. Given the already high savings and investment rates among the Hong Kong people at all levels of society, the value of such a Fund for the population at large remains questionable. In fact, in a survey conducted in early 1997 by the Hong Kong University, over 90% of respondents opposed the MPF as it was then proposed.

It is unclear who stands to benefit from the proposed MPF, other than the fund management and insurance companies that will provide the investment packages for employers and employees. The fact that the overwhelming majority of Hong Kong residents does not now seek out government assistance after retirement should be a good indication that this is not a form of support that is required by the public at large. And the fact that those who do live on CSSA are predominantly those who were in the labor force at a time when there was widespread poverty in the territory should further indicate that the elderly poor of today are a very specific group, with very specific historical circumstances.

Many, like Victor Fung, head of the territory’s Trade Development Council, believe that applying a wide-reaching mandatory program like the MPF as a solution to an isolated problem affecting a small group of people is a big mistake. Fung suggests that instead of a sweeping provident fund that covers everyone in society - whether they need, or even want, to be covered - the Hong Kong government should simply make direct payments to those in need.ii

Most agree that the vast majority of those in need today are the elderly poor. Some point out that this group is poor because of their particular historical circumstances, and that their situation does not necessarily represent what the future holds for the elderly of the future.

This is really sort of an outgrowth of Hong Kong’s history, and also the history of China and Southern China.” says Rachel Cartland, Assistant Director (Social Security) of the Social Welfare Department, “if you think back to when somebody who is now age 70, 80, or 60 was born, in their lifespan they’ve gone through one of the most turbulent periods of China’s history, and indeed of Hong Kong’s history.”

These are people who came to Hong Kong and participated in the big expansion of Hong Kong’s economy in the period following the second world war. Although it’s so recent, it’s almost inconceivable for people who weren’t there at the time: the low levels of living, the absolutely genuine poverty that existed during that period. So I think people of that age group were preoccupied with just getting the most basic living, rather than making provisions for their old age.”

On top of being faced with harsh living conditions, many of today’s elderly were deprived of their family support structure, which they left behind in China.

The families got broken up during that period too,” adds Cartland, “because traditionally, and still overwhelmingly, Chinese old people, certainly in Hong Kong, are cared for by their families. On the whole, if you were to pick out a characteristic that to me just jumps out from our CSSA recipients, it is their lack of children, their lack of support.”

Visits to a Government hostel for the elderly, and to the Mong Kok caged home confirm this: the majority of the residents originally came from China over twenty years ago, and most have no family to support them.

On many fronts, the MPF stands to be the most burdensome to those who can afford it the least: employees in low-income brackets, to whom a 5% cut in wages each month could actually eat into basic necessities; and the smallest of small businesses, some of which are no more than hole-in-the-wall trading companies, or noodle shops that can’t even afford a dishwasher, let alone a computer. What is even more puzzling, however, is that those whose plight has been used to promote the idea of a mandatory fund are vehemently opposed to the idea as it is now proposed.

On January 30th of last year, the third day of Lunar New Year, and traditionally a “day for squabbles,” a group of elderly people held a demonstration outside of the government’s headquarters, demanding that the MPF be cancelled. Trade Unionist Lee Cheuk-yan, who led the demonstration, claimed that the elderly and poor did not stand to benefit from the fund. Along with many elderly spokespeople, Lee is not opposed to the idea of the MPF, but says that it should be combined with a pension scheme that would make payments to the elderly immediately. As the MPF is currently designed, it could take up to 20 years for a participant to start receiving any payments under the scheme, and those who are not now in the labor force would not benefit at all.

So if the territory’s poor and elderly are not in favor of the MPF, and the middle class is in very little danger of retiring in poverty, who then stands to benefit from the fund?

One group that will benefit is the providers of MPF products. Under the MPF proposal, employees will be able to choose the investment vehicles in which their mandatory contributions are invested. Banks, fund management companies, and insurance companies will provide competing investment products that meet the MPF requirements. These groups are among the most vocal in calling for the rapid implementation of the MPF.

This is hardly surprising, considering what they stand to gain. The Hong Kong government estimates that total contributions to the fund will amount to HK$12 billion (US$1.6 billion) in the first year, and HK$34 billion (US$4.4 billion) in 30 years’ time. In late 1997, the US pension company Principal Insurance said that it expected to break even after only six months in the MPF product area, and the firm’s CEO urged the Hong Kong government to launch the MPF quickly.

Most industry representatives, however, are not happy with the government’s restrictions on the products they can offer. Of particular concern is a proposed requirement that all MPF providers offer a “capital preservation product,” which would guarantee the initial capital investment as well as a return of at least 2-3%. Fund managers have warned that this puts all of the risk on the shoulders of the investment industry, and could cause heavy losses for providers of MPF products. In response to the industry’s objections, the government has promised to be “flexible” on this issue, however no concrete proposal has been put forward to explain what this will mean.

Other problems remain as well, not the least of which are restrictions on how contributions may be invested. Critics say that the restrictions limit investments to low-risk, low-return products, and that this limits the economic viability of MPF investment products. In combination with the demand that fund managers guarantee returns, many feel that the MPF design is self-defeating. “You can’t tie my feet and then ask me to beat a world record,” said Investment Funds Association spokesman Desmond Chan, urging the legislature not to support the proposed restrictions when it approves MPF subsidiary legislation on April 1st.

The profitability of the MPF may be the least of the problems it presents. Even the Hong Kong Government admits that implementing the MPF will be costly to society. In November of last year, MPF Office Director Maureen To told the Provisional Legislative Council that her office expected annual consumption spending to drop by 0.4% during the first year of implementation.

To’s office also said that lower-income groups would be the hardest hit. “...(T)he move towards increased savings and reduced consumption is likely to be more discernible for the low-income group with a very low savings ratio,” she said in her report to the Provisional Legislature.

In the long run,” says To, “when contributions to the MPF are fully matched by withdrawals, the original savings and consumption balance of the economy could be largely restored.” Whether this actually happens of course, remains to be seen, but what To leaves out is the impact of the administrative costs to businesses in implementing the fund. If the experiences of American businesses in administering the US social security tax are any indication, these costs will be substantial. Aside from the additional burden of what is essentially a 15% tax on employment (10% for Hong Kong businesses, under the proposed MPF), calculating FICA contributions is one of the most time-consuming administrative costs for small businesses in the US.

Employers in Hong Kong are already concerned about these new costs. According to the MPF regulations, employers will have to put in place sophisticated tracking systems in order to monitor contributions to MPF plans. This will be especially burdensome for small companies - many of which are not computerised at all - and those who pay staff on daily or hourly rates. In addition, MPF contributions will be based on “real income,” which means that employers will have to calculate the value of non-wage benefits such as medical and travel allowances.

The impact of these administrative costs could be substantial. More than 98% of Hong Kong’s businesses employ fewer than 100 workers, making them Small and Medium Enterprises (SMEs). The average number of employees per business in Hong Kong is 8.2 people. Many of these businesses are family owned and operated. Aside from providing employment opportunities for thousands of workers, these businesses are themselves an opportunity for individuals and families to achieve success on their own. A large part of Hong Kong’s success has been the ease of doing business here, including the lack of government interference and costly regulations on businesses. The imposition of the MPF is a big step away from this tradition, and one from which many stand to suffer.

The current economic slowdown in Hong Kong may have put a temporary hold on the MPF. The government has said that it may delay implementing the fund because of the crisis, fearing that it has become an unpopular idea, both with employers and employees.

There’s a lot more people who don’t want the MPF than those who do,” Hong Kong Retirement Schemes Association (HKRSA) deputy chairman Stuart Leckie recently told a local newspaper. “To introduce the MPF at this time would be very, very unpopular.” As of yet, however, no-one in Government or the legislature has proposed abandoning the MPF altogether.

If anything, even those who strongly oppose the MPF do so on the grounds that it doesn’t do enough. Most critics argue that the MPF will do little to help the very poor, who can least afford the forced savings, and that those in greatest need - the elderly and unemployed - will not be helped at all. Rather than calling for the fund to be scrapped, however, these critics want more programs to be added, to benefit those not covered by the fund.

In Hong Kong, there seems to be an assumption among supporters of an increased role for government in social welfare that such an increase will end up improving the lives of the poor and disenfranchised in the community. The experience of the US and other Western countries, however, suggests that this may not be the case.

Since the most massive increases in social welfare spending in the 1960s, the US government has spent over US$3.5 trillion in efforts to eradicate poverty. Since this time, however, poverty in the US has increased, not decreased. The poverty rate for families, for example, has risen from 8.8% in 1973 (which saw one of the most dramatic increases in welfare spending to date) to 11% in 1996. Today, around five million families in America receive Aid to Families with Dependent Children (AFDC) support alone. This amounts to one out of every seven children being in a family receiving AFDC. iii

More disturbing, however, are indications that welfare programs in the US actually help to perpetuate poverty, rather than eradicate it. A study in 1992, for example, found that of poor people who received no welfare benefits in 1987, 45% had risen out of poverty by 1992. Of those who received welfare, only 18.3% had risen out of poverty by the same year.iv

One of the reasons for this “welfare trap” is the high value of available benefits. “In 40 states welfare pays more than an US$8.00 an hour job,” according to Michael Tanner of the Cato Institute, “in 17 states the welfare package is more generous than a US$10.00 an hour job. In nine states welfare pays more than the average first-year salary for a teacher. In 29 states it pays more than the average starting salary for a secretary. And in the six most generous states it pays more than the entry-level salary for a computer programmer.”v

Currently only 189,527 Hong Kong residents receive CSSA, or approximately 2.9% of the population. However, the numbers are increasing every year, and many fear that increased welfare spending and changing attitudes towards welfare may lead Hong Kong people into a western-style “welfare trap.” The level of benefits is rising as well, so much so that it is not uncommon for a family collecting CSSA to receive more each month than a family with at least one working adult bringing in a full-time income.

A serious problem in the West, and one from which Hong Kong does not yet suffer, is that of chronic, multigenerational poverty. It is generally perceived in the US, for example, that a child born into poverty will have a much harder time rising out of it and becoming successful than will a child born into a wealthy or middle-class family. One study found that children raised on AFDC were far more likely to become dependent on AFDC themselves than were those who did not receive AFDC as children.vi In Hong Kong, it seems that those who begin life in poverty are less condemned to remain there.

When asked about a class of “chronically poor” in Hong Kong, the Social Welfare Department’s Rachel Cartland is emphatic: “Historically, the absolute reverse has been true,” says Cartland. “If you look at the very top of the wealthy, you’ll find a big portion of those who come from very humble backgrounds.”

Sir Gordon Wu is one of the better-known examples of the upward mobility that characterises the territory. Wu’s grandfather was a taxi driver, and his father owned a fleet of taxis. Sir Gordon still credits his own success with his father’s hard work, which allowed him to attend Princeton University, and then to go on to found one of Asia’s leading infrastructure development companies, Hopewell Holdings, as well as the power plant development company Consolidated Electric Power Asia (CEPA).

Wu feels that a western-style welfare state would be a recipe for disaster in Hong Kong.

When this idea of entitlements started to creep in,” says Wu, “even the mighty United States could not afford it. Lyndon Johnson started the ‘Great Society,’ in 1965, and thirty years later you see the result. That is something I think we can do without.”

The worst danger, he believes, is not just the expense of the money spent on entitlements, but the damage done to a society’s incentive structure. “The worst damage,” he says, happens “after the handouts, when the recipients, particularly the young kids, say ‘ I don’t have to work! I can get that money!’” He compares a person on welfare to a poor athlete who is paid to sit on the bench.

Of course he’s a drag on the team,” says Wu, “but that’s a minor thing. What’s hurting is that you’re not giving that kid any chance to improve. The worst thing you can do is to give that kid money. That’s the worst thing you can do. By doing so, you are ruining that kid.”

Wu, who has lived in the US, believes that Hong Kong offers more of a chance for upward mobility than does America.

There is more opportunity here to make it to the top,” he says, “to really save some money. Mainly it’s the taxation system. With low taxes, whatever money you make, you can accumulate and you can multiply it, and put that money to work.”

Indeed, perhaps the Hong Kong Government’s best support of the territory’s poor is the high level of personal exemptions from income tax. Because of these exemptions, some 40% of the Hong Kong population pays no income tax at all.

Andrew Kwan, a statistician with the Government’s Social Welfare Department, echoes Wu’s sentiments. Kwan’s parents came to Hong Kong from China some twenty years ago, and currently live in public housing. “From my experience in Hong Kong,” says Kwan, “I think people can move from the lower classes to the higher class. Also, people here can freely choose their career, the labour market has a very high degree of freedom.”

To some extent, says the Social Welfare Department’s Cartland, it simply boils down to a question of attitude.

People’s social attitudes are different,” says Cartland, “certainly in the UK, if you come from the working classes, you not only have to battle maybe not a good school, not enough money, whatever. In your own peer group, there’ll be tremendous pressure to stay down, that if you try and move upwards, that you’re some kind of class traitor.”

Indeed, even among Hong Kong’s poor, an attitude of self-sufficiency prevails. Loletta Lee, for example, a divorced woman with one child, was laid off from her part time job in December. Since she cares for her seven-year old on her own, she needs to find a job with a flexible time commitment, and says this is difficult. However, she says that she would not consider applying for CSSA. “I probably could qualify,” she says, “but there are poorer people than me.”

The question, then, is whether this attitude is changing. Many in Hong Kong feel that it is. Some, like Wu, blame the increasing politicization of the territory. Local attitudes are changing, says Wu, “because people want to get elected.” In the past, he says, the local attitude was very much one of self-sufficiency, that “the government owes us nothing, but rather we owe it to ourselves to do something.”

Unfortunately, this is starting to change,” says Wu. “For the first time in Hong Kong, we are seeing elections, and you know how elections are: people go out and promise the electorate the world. They tend to be really generous with taxpayers’ and other peoples’ money.”

There used to be, and to some extent still is, a feeling of shame or diffidence, or not wanting to be dependent on the state,” says Cartland. Along with Wu, and others in Hong Kong, she feels that this is changing.

Kwan agrees “I think there is a change in attitudes,” he says. “People now think that getting a CSSA payment is their right.”

A seminar hosted by the Government’s Central Policy Unit (CPU) in 1997 revealed information supporting this view. According to William Wong, of the Alberta Advanced Education and Career Development Bureau, between 1991-92 and 1996-97, the number of CSSA recipients has increased from 72,969 to 166,720 - a rise of 128%. The percentage of the population on CSSA has risen from 1.2% to 2.5% during this period. While some of the increase could be due to the ageing of the population, this only accounts for a small amount of the rise.

What is most prominent is an increase in the number of able-bodied adults seeking CSSA. Between 1991-92 and 1996-97, the number of “unemployed” CSSA cases rose from 2,248 to 15,000 - a sevenfold increase within five years. This, in spite of the fact that the unemployment rate never rose above 3.6% during this period. Director of Social Welfare Andrew Leung disclosed in September 1997 that the number of unemployed people receiving CSSA had increased by 130% in the past two years alone - while unemployment during this period actually fell from 3.6% to 2.6%.

There is a perception in the territory that much of the change in attitudes towards welfare can be traced to the recent immigrants from China, who do not have the same work ethic as long-time Hong Kongers, and who are more accustomed to viewing assistance from the government as an entitlement. Callers to radio shows, for example, frequently complain of neighbours from the mainland who don’t work and collect money from the government.

According to the Social Welfare Department’s Cartland, the facts do not bear this perception out.

There’s a really common misconception throughout Hong Kong, that the increase in CSSA caseload is caused by new immigrants,” says Cartland, “and it really isn’t borne out by the facts. Less than one percent of the caseload are immigrants who have been here for less than a year.”

Social Welfare Department statistics indicate that the percentage of CSSA recipients who have been in Hong Kong for less than 1 year is only around 1%, and that those who have been in the territory for between one and five years is only 7.6% In fact, says statistician Andrew Kwan, the percentage of CSSA recipients who are recent immigrants has actually gone down in recent years. This is in spite of the fact that the average income for immigrant families is less than half of the median family income for all of Hong Kong.

When asked what she thinks accounts for the rise in CSSA recipients, Cartland raises several different issues. “Over the last six years or so,” she says, “we’ve had some quite dramatic real improvements in CSSA, in both the introduction of new grants, and also increases in the rate of the grant. And, I think then as a result, several things happen.”

The first of these is publicity. “Every time there is an increase, it is publicised,” says Cartland. As more people find out about the services available to them, more take advantage of these services. In addition, the Social Welfare Department has “widened the net” in recent years, allowing CSSA to cover more people.

When a person applies for CSSA, they are asked to give an accounting of their financial needs, based on standard rates of allowance for rent and other basic expenses, and of their income. CSSA then makes up the difference.

So what that means in effect,” says Cartland, “is that every time we put the rates up, or introduce new special grants, we sort of inflate this figure... (the level of basic expenses covered by CSSA) for the needs. It makes the net bigger.”

So why have more people been taking advantage of welfare benefits, particularly over a period of time when unemployment rates have been declining?

There is going to be, always, a number of people, ex-prisoners, ex-drug addicts, people who genuinely will find it difficult to find a job. Frankly, we used to think that that was what our unemployment component was, that it was the unemployable. But I think with the rise in the figures, and the anecdotal evidence, what we’re concerned about now is: is there another factor entering into it? i.e.; people who could get a job but either won’t, or have got some other removable barrier that will stop them.”

If it is true that attitudes in Hong Kong are changing, then what can be done to prevent the territory from developing a US or European-style welfare state? Already benefits have grown to the point that a family living on CSSA can receive well above the mean family income level for the territory. And demands for more welfare spending continue. Is it too late for this trend to be reversed?

We haven’t got any sort of definitive answers,” says Cartland, “This is why we’re in the middle of the qualitative study.” Currently, the Social Welfare Department is focusing on a commitment made by Tung Chee Hwa in his October policy address: to have a plan by Summer of 1998 for getting able-bodied CSSA recipients back into the job market. “Although we’re in the middle of it, and we certainly can’t say what’s going to come out of it,” says Cartland, “but certainly, our starting point isn’t ‘shouldn’t we be making the net wider?’”

One proposal puts a limit on how long the unemployed can collect CSSA. Another proposal would require jobless CSSA recipients to take retraining courses if they couldn’t find work.

One area where Government is already clamping down is welfare abuse. Abuse of CSSA is on the rise, with 44 cases of fraud (usually giving false information) reported between April and September of 1997, as compared to 17 cases of fraud in all of 1996. So far, nine people have been charged, and two convicted of CSSA fraud. The Social Welfare Department has set up a special team to investigate into the rise in fraud cases, and plans to review its screening process and eligibility criteria.

The Department is also looking into the rise in jobless people seeking CSSA. The number of jobless CSSA recipients has increased nearly fivefold in the last three years, from 3,500 to 16,300, even before the full impact of the Asian economic crisis had hit the Hong Kong labor market, and while unemployment remained low. The SWD is collaborating with the Labour Department to determine the cause of this new trend, and recommend a solution.

One clue lies in the Labour Department’s Job Search Centres. Unemployed CSSA applicants (as opposed to elderly applicants) are required to seek work through these Centres. Jennie Chor, Assistant Commissioner for Labour, says that there is a distinct difference in attitudes between ordinary job seekers at the Centres, and the CSSA applicants who are required to visit the Centres.

CSSA applicants have a less positive work attitude,” believes Chor, “their referral rate is especially low. Ordinary job seekers are more willing to copy down numbers (from the job listings posted at the Centres). CSSA applicants will say ‘these jobs don’t interest me,’ or make excuses for not taking a job.”

Chor’s observations are borne out by the facts: the Job Search Centres’ placement rate for non-CSSA job seekers is between 21-22%. For CSSA applicants, the placement rate is approximately 1.3%.


In Hong Kong, government-funded social welfare programs are a relatively recent phenomenon. It was only in the 1960s that the Hong Kong government began to spend any significant money on social welfare. Although today the government spends a sizeable portion of its annual budget on social services (48% in 1996), many of the services themselves are provided by Non-Government Organizations (NGOs). NGOs receive subventions from the government for varying percentages of their operating costs, and are held accountable to performance standards, but are operated privately.

In fact, the territory has a long history of privately-run social welfare agencies and charity groups, dating back to a time when the city truly was impoverished. Many of today’s welfare agencies have their roots in these private organizations.

Elsie Tu was here then. She remembers when it was common to see young children running naked in the streets, and employers would lock workers inside their factories at night when they had an important order to finish. Tu came to Hong Kong after working in China as a missionary, but she left the mission after only a few years because the church did not allow her to speak out on social issues.

When I arrived here,” says Tu, “at least 80% of the people were living in poverty. Now, most of them are lower and upper middle-class, and only the minority is underprivileged. It’s a big change.”

Housing, however, remains a problem even today. “We’ve still got about 150,000 families that are under-housed,” says Tu. “Rooftop huts, tiny single rooms... that’s quite common.” Tu had just helped to get public housing for a woman with a family of four and a husband with diabetes. “When she had a job, which was casually, she made HK$6,000 (US$777) a month,” says Tu. “She was living in 56 square feet - the children were having to go and sleep with her father. Anyway, we got public housing for her.”

Tu has been a long-time advocate for the poor in Hong Kong. When she first arrived, she would take on cases that came to her: people trying to make a living hawking goods in the street, who would be arrested or forced to pay bribes to the police; people in need of housing; and local community issues. In 1954, Tu started a school for underprivileged children, in an army tent near the airport.

We were living in a squatter area at that time,” she says, “and I was quite disgusted to find that only the top 15% of the kids got free education, and the rest could only get education if they paid for it.” At the time, Tu was living on HK$100 (US$13) a month. Her school charged a very small fee, to cover some of their operations, and started off with only 30 students. Today, the school has nearly 1,500 students, and is housed in a good-sized building in Kwun Tong, Kowloon.

When there were elections for the Urban Council, in 1963, and they needed a teacher on the council, someone asked Tu if she’d be interested in running. She was, and her official political career began. Today, she is still serving, as a member of the Provisional Legislative Council (and previously as a member of the Legislative Council), and she is frequently voted the most popular legislator in Hong Kong - in spite of the fact that she is not Chinese.

Back in the late 1940s, when refugees began to pour into Hong Kong at a rate of 100,000 per month, charity work was almost completely limited to relief efforts for the refugees. Private agencies, international relief organisations, and religious organisations offered their services for the refugees, and the government provided some funding to these groups, thinking that the immigration would only be a temporary phenomenon. Most of the funding for these relief efforts, however, came from local private sources and international relief groups.

When it became clear that the flood of refugees was not a temporary phenomenon, an organisation was formed to coordinate the activities of all the charity and relief groups. The Hong Kong Council for Social Services (HKCSS) is a private organisation that now receives a subvention from the government. At the same time as the founding of the HKCSS, the Community Chest was established, as a donation-collecting body for many of the charities.

Eventually, it was the territory’s economic growth that lifted the population out of poverty. The legacy of the territory’s private charity organisations, however, remains firmly in place. Every weekend, for instance, the streets are dotted with people wearing little colored stickers on their shirts and blouses. These are “flag day” stickers, handed out by various charity groups in the city, whenever they hold a “flag day” to collect donations. Anyone who donates to one of the volunteers receives a sticker to wear.

Admittedly, one of the functions of wearing a sticker is to prevent other flag day volunteers from asking for your donations. However, in Hong Kong there is a strong sense of pride in giving to charity and supporting community activities.

In fact, the Hong Kong Community Chest receives donations exceeding US$25 million annually -- more than the total amount collected by the United Way of America.

In the beginning, people were not well-enough off to be charitable,” says Elsie Tu, “But now, I find the people extremely charitable in Hong Kong, I think we are exceptional in that. We have a disaster relief fund... and we’ve helped Bangladesh, the Philippines, China, now we’ve just sent a big donation to Korea. That’s from the Government. Besides that, we have the Jockey Club, which puts a lot of their money into charity. I think we’re quite famous in the world for being willing to help everywhere.”

Apart from providing valuable social services throughout the territory, these private agencies have become part of a growing political constituency. It is this constituency that is behind much of the demand for more public spending on welfare services. Whether increased welfare spending will make things any better for the vast majority of Hong Kong residents is a subject for debate. What is clear, however, is that certain interest groups stand to benefit from the increases.

Wylie Wu is a graduate of the Chinese University of Hong Kong’s social work department. She now works for a start-up NGO that works with young parents to prevent child abuse. Wu’s organisation is almost wholly supported by the Community Chest, for a trial period of three years. After that, she says, she doesn’t know whether she’ll have a job.

Wu is one of the lucky ones. She says that many of her friends have been unable to find jobs in social work, even a year or two after graduating. “Most of them have found some jobs in teaching, or as insurance agents,” she says, “so I am quite fortunate to have found my job.”

Social work graduates have become a special interest group of their own in the last year. Before leaving office, British Governor Patten had promised to expand social services in the territory, increasing the number of jobs for social workers. After the handover, the Beijing-appointed Provisional Legislature dramatically cut back on these plans. As a result, recent social welfare graduates are faced with much fewer job opportunities than they had expected.

Local politicians, as well as the HKCSS, have taken up the cause of these graduates, calling for more government jobs and higher pay for social workers. In addition, social workers’ advocacy groups have lobbied for the licensing of social workers, a measure which came into practice only this year. A degree in social work is now required in order to work for a social welfare agency or organization.

Last September, the social welfare constituency flexed its political muscles, over an issue not directly related to social work or social welfare services. The issue revolved around the territory’s complex election system. Next May, of the twenty seats in the Legislative Council, twenty will be selected by “proportional” geographical constituencies, thirty by functional constituencies, and the remaining ten will be selected by an electoral committee comprised of eight hundred members. Of this eight hundred, forty members are to be chosen by constituency from the social welfare sector.

One of the local political parties, the “pro-China” Democratic Alliance for the Betterment of Hong Kong (DAB) introduced an amendment to the electoral rules, to expand the definition of the social welfare constituency to include non-profit organisations and community associations, or “kaifongs”. Opponents accused the DAB of trying to manipulate the voting system so as to get their supporters into the election committee via the support of the kaifongs. Organisations such as the HKCSS, the Hong Kong Social Workers’ General Union, and the Hong Kong Social Workers’ Association came out strongly against the DAB’s proposed amendment, and social workers marched to the office of the Chief Executive in protest.

In the end, the amendment was passed, but the issue became moot, as a second amendment virtually rendered the kaifongs ineligible. What was interesting about the incident was that it illustrated the powerful political alliances within the welfare sector, and the willingness of welfare groups to come to the support of politicians who opposed the DAB’s amendment - politicians who promise more spending on social welfare, and more jobs for social welfare workers.

History has shown what the Hong Kong people can accomplish on their own. While men and women living out their old age in cages is a condition that should cause any civilized society great shame, the phenomenon of Hong Kong’s caged people does not detract from the territory’s astronomical successes - not the least of which is raising hundreds of thousands of people out of poverty in a very short span of time, and achieving one of the highest standards of living in all of Asia.

Until very recently, Hong Kong’s social welfare system has truly been a “safety net,” one that meets only the most basic of needs for those who are in genuine trouble. Critics say that the government hasn’t done enough, particularly for the elderly poor. The biggest problem facing the poor in Hong Kong, however, is the same problem that nearly everyone else in the city is faced with: housing.

There is plenty that the government of Hong Kong can do to alleviate the housing shortage, and very little of it actually involves more spending or more subsidies. Removing barriers to the redevelopment of available land, and allowing for public housing owners to freely transfer their property could go a long way in freeing up housing resources that already exist in the territory.

The people of Hong Kong must distinguish between what is genuinely in the best interests of both the poor and society at large, and what is promoted by various interest groups on behalf of the poor. It should be clear from the experiences of European and North American countries that government solutions to poverty do not always improve the lives of the poor. In many ways, such solutions actually make everyone worse off - both those who they are intended to help, and those who are faced with the bill. The worst of such damage comes in the form of encouraging people to become dependent on the state for their survival. Already, Hong Kong is headed in this direction, and although the city is still a long way from a Western-style welfare state, it could catch up quickly if current trends are not checked.

Just as damaging as the “widening net” of Hong Kong’s welfare system, is the proposed Mandatory Provident Fund. The forced savings scheme makes no sense for Hong Kong’s situation, and could be detrimental to the very qualities that have enabled the territory to be so successful. The additional costs of administering the fund alone will present a serious burden to small businesses, dealing a serious blow to the free market environment that has allowed so many people to become successful on their own.

It would be a shame if the Hong Kong people came to believe the politicians and interest groups who insist that they need more government intervention to get by, not less - in spite of all the historical evidence to the contrary. It would be too bad if those whose parents and grandparents raised themselves out of poverty on their own were hampered from achieving their own success by more and more costs and regulations imposed on doing business, but were encouraged to live off of government handouts. Such a vision is less far-away than it seems. Unless the Hong Kong people reverse the current trend of seeking handouts from the government, and act to prevent such interventionist policies as the Mandatory Provident Fund, it is only a matter of time before this vision becomes a reality.


i Note: the poverty line is measured differently in Hong Kong than in the US, so by US standards, poverty in Hong Kong is slightly higher than the official figures

ii Far Eastern Economic Review, “The Security of Opportunity: Hong Kong’s ‘Virtuous Circle,’ January 23, 1997.

iii Michael Tanner “Ending Welfare as We Know It,” CATO Policy Analysis No. 212, July 7, 1994, pp. 1-4.

iv Richard Vedder and Lowell Galloway, “The War on the Poor,” Institute for Policy Innovation, Lewisville, TX, June 1992. Quoted in Tanner, “Ending Welfare as We Know It,” p. 4.

v Tanner, “Ending Welfare as we Know It,” p. 1.

vi Martha Hill and Michael Ponza, “Does Welfare Dependency Beget Dependency?” Institute for Social Research, Ann Arbor, Mich., Fall 1984. Quoted in Tanner, “Ending Welfare as We Know It,” p. 4.

© Bretigne Shaffer 1998