Hong Kong and Singapore

American Journal of Economics and Sociology, The,  Dec, 2000  by Sock-Yong Phang

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SOCK-YONG PHANG [*]

THERE ARE MANY similarities between Hong Kong and Singapore. They have both enjoyed high rates of economic growth over the past three decades, averaging six percent a year in real terms. The two have become known as "East Asian Tigers," having made the transition from poverty to newly industrialized economies in a relatively short time. Both started off as British colonies, with British legal and administrative systems, and made their living as trading ports serving their respective regions. Singapore has been an independent republic since 1965; Hong Kong was returned to China on July 1, 1997. While Hong Kong and Singapore are now the busiest ports in the world in terms of throughput, they have divested from their reliance on trade since the 1960s, climbed the industrial ladder, and are now important international financial centers as well.

Hong Kong and Singapore are both densely populated cities. Land is a scarce resource and land and property prices are high even when compared to prices in the Organization for Economic Cooperation and Development countries (with the exception of Japan). "Speculating" or "investing" in the property market in both cities is indeed a favorite pastime of risk-loving locals and foreigners alike. The two cities are well known for being free traders as well as international financial centers with few restrictions on trade and capital flows, which are many times their GDP. However, what is less well known is the fact that the state owns all land in the case of Hong Kong, and four-fifths of the land in the case of Singapore. There is no hint of Henry George's distinctive methodology if one examines the technical procedures for deriving revenue from real estate in Hong Kong and Singapore. This is especially true in that no attempt is made to separate site-value from the improvements on land. The assessment systems in both cities are derived from the British rating system and are basically annual value systems. Even though Singapore and Hong Kong depart from the method of land-value taxation that George advocated, they have accomplished to a significant degree the capture of land values for the public, along with the reduction of tax burdens upon industry--which together constitute George's key policy proposal.

Hong Kong and Singapore capture economic rent primarily by nationalizing land and leasing it out. In Progress and Poverty (Book VIII, chapter ii), Henry George contends that this approach is "perfectly feasible," and that it satisfies the "laws of justice" and "meets all economic requirements." However, he goes on to say that there is a "simpler, easier and quieter way," namely, to leave land in private hands while using the tax mechanism to appropriate its economic rent for public purposes.

Yet, (except maybe for minor considerations of administrative efficiency) it should not be taken for granted that he necessarily considered the second way superior to the first for every situation. His statement assumes a context such as that which obtained in the US and most of the Western world both then and now, in which private property in land is the norm. Whether he would have viewed land-value taxation as superior to nationalization in contexts such as Hong Kong and Singapore, where such a high proportion of the land (not merely in area, but also in value) was public from the outset, is by no means clear.

While the state is the largest landowner in Singapore and the only landowner in Hong Kong, the inefficiencies that could have resulted from state ownership have been minimized through the creation of markets for state land and property leases. Unlike the socialist city where the absence of land markets had very negative impacts on efficiency, productivity, and environmental quality, [1] property markets are active in Hong Kong and Singapore and transmit important information to both users and urban planners. Also, the public leasehold system, where the government plays a major role in land use planning and resource allocation, works in Hong Kong and Singapore because the public sector institutions in both cities are efficient and non-corrupt. These institutions in both cities benefit from adequate checks and balances, merit-based recruiting, and pay scales high enough to reduce the temptation to corruption.

I

Hong Kong

HONG KONG'S STATUS as a British colony ceased on June 30, 1997. However, the 1984 Sino-British Joint Declaration guarantees that the legal system that was in place before the resumption of sovereignty by China will continue for a period of fifty years beyond the date of the resumption.

In 1998, Hong Kong's land area of 1,095 square kilometers and her population of 6.6 million were both approximately twice those of Singapore. Owing to historical reasons, Hong Kong's land-tenure arrangements produce an effect comparable to that of straightforward land-value taxation.

The former colony of Hong Kong comprises three main regions: Hong Kong Island, Kowloon Peninsula, and the New Territories. Hong Kong Island was ceded by China to Great Britain in 1841 during the First Anglo-China Opium War, while the Kowloon Peninsula and Stonecutter's Island were ceded to Britain after the Second Anglo-Chinese War in 1860. In the late nineteenth century, after China's defeat by Japan in the war of 1894-95, the British government took advantage of the situation by demanding the lease of the New Territories together with 235 islands from China for 99 years from July 1, 1898. Under the terms of the Sino-British Joint Declaration of 1984, all three regions reverted to China on June 30, 1997.