Refining SAR Advantage: Small & Efficient Government

By Jane Lee

We are always proud of having a small and limited government. But how do we define ‘small’? What should be the optimal size? Is a small government necessarily a good government? Is it necessarily efficient and effective? Martin Barrow warned that the government should secure a stable environment for a healthy market. He believed that we should have less paper work, less bureaucratic red tape and less regulations. Government size tended to increase because more staff could be justified for regulatory or monitoring purposes. Moreover, there were actually areas in which government departments competed with the private sector. Also, civil service pay was leading the private sector. Government officials were criticized as over-paid and the public sector was seen as competing with the private market for quality manpower.

Francis Lui suggested a benchmark of 15% to provoke the debate. Some disputed this view, arguing that the size of Hong Kong’s public sector has been controlled quite effectively in the past few decades within 18-21% of GDP. In most cases, expanded government activity happened mainly in cases of economic recession. Therefore it would be dangerous to simply advise the government to reduce to a 15% level. Others, however, believed that a figure was useful because it would serve as a target for government to aim for. Having said that, there remained a lot of rooms for maneuvering, for example, should the definition include statutory bodies like the Housing Authority and the Hospital Authority or the subsidized sectors such as universities and welfare agencies?

Colin Sankey, Head of the Efficiency Unit, suggested four important criteria for a small and efficient government. First, government should be clear about what objectives we intended to achieve. Second, government should only do what was necessary. Third, we should constantly review whether anything done by the government would be better done by the private sector. Fourth, we should ask whether government was doing things in an efficient way. Most fundamentally, government should not only be responsible for maximizing the limited resources available, but also constantly review its role as well as clearly understand the economic cost and other implications of its own decision and behavior.

The ultimate issue in Hong Kong was not to debate on the right size but to consider how to maintain the existing level. Nancy Tse used the case of the Hospital Authority to show that Hong Kong public finance has already achieved a low percentage. The Hospital Authority has been trying to bring in greater private-public interface; to have greater private sector involvement, to look at change of employment terms, and offer benchmarking experiences for other sectors. Even so, the size of the Hospital Authority remained an issue of general concern.

Some participants pointed out that ‘efficiency’ and ‘small’ did not necessarily go hand in hand. Martin Barrow said we had a good government, but he still highlighted the problems of red tape and bureaucratism repeatedly, a subject he often spoke out in his capacity as Chairman of the Deregulation Group in the Business Advisory Group. It seemed as if anything that involved more than one government departments would always get bogged down in a merry-go-round of paper. Getting visa for people from the Mainland was an issue where difficulties were often met. Apart from bureaucratic delay, policies seemed to be inconsistent. Different people were treated differently. For example, a lawyer could come to Hong Kong for two days for business purposes without a visa, but a violinist could come for one day but needed a visa. We should remove bureaucratic hurdle and do the right things to promote a positive image about Hong Kong. The application of smart card, for example, would improve efficiency for Hong Kong, and is something that the community should endorse.

It was sometimes argued that ‘efficiency’ and ‘effectiveness’ might possibly require a bigger government. But this was exactly why we should consciously exercise control over the size of the government. CK Law, a Legislative Councilor, made a point about regulatory overkill. Government should be aware that where it introduced a new regulation, it then justified the need for more staff. In the cases of lump-sum grant in the welfare sector, government should have a proper balance between deregulation and taking less risk yet justifying the establishment of more monitoring staff. So what we hoped to see was much more rigorous regulatory impact assessment before any new regulation was brought in.

We would like to see more encouragement in the public sector to enhance productivity. For example, it was encouraging to learn that the Efficiency Unit was offering productivity awards and assessing 70 suggestions being put forward by different government departments. In addition, we should also encourage thinking about improving productivity to go down the line in government. There should be a push from the top level, i.e. the Financial Secretary, down to the lowest-level civil servants.

In implementing any reforms, the most difficult issue was staff resistance. The government was trying to push a lot of initiatives in re-engineering but the impression was that they often got stuck. But when the government introduced a voluntary early retirement scheme, 11,000 people signed up. Perhaps more could be done. Could more retraining of the people for other roles inside or outside the government be arranged? Could there be a clearing-house, a kind of internal head hunting within government for various kinds of services? Was there enough staff-management communication? Did we lay off people generously enough? After all, stronger organization culture should be created in the public sector to let civil servants take pride to be the servants of the public. It was most important to maintain staff morale; otherwise, very little could be achieved.

Apart from staff issue, government might easily expand its services because of the continued political pressure. Participants agreed that the unusual structure in Hong Kong generated a difficult political dimension. Despite the merits of small government, there were often resistance to privatization, corporatization and trading fund. Politicans like Lee Wing-tat suggested that reform should not be done at times of economic recession because people would be worried about the loss of job. But Martin Barrow responded by saying that we should be aware that people had different excuses for not reforming at different times. When things were going very well in the economy, everybody would say, ‘everything is going fine; let’s leave things alone.’ When things were difficult, we would then say, ‘Well, it is not the right time’. In the end, we had to move forward and implement some of the reforms.

Political dimension should be dealt with politically. As Lee Wing-tat suggested, reforms could be better achieved by passing on clear messages to the public as to why a small government could benefit a normal citizen. Government should identify priority areas by choosing specific sectors, which were more feasible politically and would benefit the greatest number of people. Also, communication was important. We should communicate the benefits of deregulation or privatization to everyone, mobilize support, and better collaborate with the Legislative Council before a new policy was introduced.

Nowadays we have seen more contracting-out and various forms of private sector participation and public-private joint ventures. The boundary between the public and the private sectors has become blurred. Nevertheless, there remained a lot of room for better private-public partnership. Cooperation between the public and the private sectors should be further strengthened to create a win-win situation.

Having said that, the quest for greater efficiency and effectiveness should continue. Hong Kong government has been small. We did little but were effective. Even so we should always be conscious of deregulating public activity where the private sector could do better. The public sector should avoid competing with the private sector. We should also deliver quality services effectively and efficiently in accordance to public aspirations. What we always hope to see was more de-regulation, less bureaucratic red tapes, smaller government and greater efficiency.