To the global elite, warnings from hedge-fund guru Ray Dalio that capitalism must reform or face revolution sound fresh and provocative. To Hong Kong’s Li Ka-shing, the question is what took you so long?
The real estate billionaire was ahead of Dalio’s April 5 treatise on the dangers of mushrooming inequality by about five years. And you can find the roots of Dalio’s words in Li’s 2014 “Sleepless in Hong Kong” speech.
As Li told students at China’s Shantou University: “I fear that widening inequality in wealth and opportunities, if left unaddressed could fast become ‘the new normal.’”
There was nothing “normal” at the time. Not with young protesters commandeering entire sections of downtown Hong Kong for weeks at a time. A taste of the “great conflict” and “revolution that will hurt most everyone and will shrink the pie” about which Dalio warns has long been known to the tycoons who tower over Hong Kong.
Five years on, those tensions worry politicians in Washington, like New York Congresswoman Alexandria Ocasio-Cortez. Connecticut hedge-fund billionaires like Dalio, too. The eight years following the 2008 Lehman crisis saw average wages stagnate while the 1% became richer.
Two years of Donald Trump rule turbocharged the dynamic. The US president’s US$1.5 trillion tax cut trickled up to the uber-wealthy.
That tax cut does nothing to incentivize research and development or invest in education or training to raise productivity and average living standards. Its effects are accelerating the divide between the haves and have nots. It even has socialism gaining in popularity with American millennials.
That has Dalio fearing the worst about the trajectory of the biggest economy. “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die,” Dalio wrote on LinkedIn. “This is now true for capitalism.”
Appalling disparity in Asian cities
And doesn’t Hong Kong know it? While America’s inequality problem is hurtling in the wrong direction, Hong Kong is already in the danger zone. Its “Gini coefficient,” a key wealth-gap barometer, hit a 45-year high of 0.539 in 2018.
Anything above 0.5 raised warning flags among development economists. America’s is 0.411, while Singapore’s is 0.4579. In a report late last year, Oxfam said it was “appalled at the disparity between the rich and poor in Hong Kong.”
Li’s concern, as he explained back in June 2014, is that the “howl of rage from polarization and the crippling cost of welfare dependence is a toxic cocktail commingled to stall growth and foster discontent.” As a result, he said, trust, the cornerstone of a cohesive society, “is crumbling before our eyes.”
The dramatic events of 2014 were thrust back in the news this week. A Hong Kong court found three pro-democracy activists guilty of leading those massive protests. That, in the same week Hong Kong’s stock market surpassed Japan to become the world’s third largest in value. It’s a sign Hong Kong’s market development is outpacing social justice.
Since then, the now-retired Li, the world’s 28th richest man, has advocated what amounts to Hong Kong heresy: higher taxes. Specifically, Li suggests higher taxes on corporate profits. Why not also go with a markedly higher marginal tax rate of the kind New York Congresswoman Ocasio-Cortez advocates?
Higher government revenues are needed to finance increased education and wider public safety nets. “We need to give opportunities and hope to young people,” Li said.
That’s increasingly true of the US, too. As Washington-based Axios news site points out, income for the top 1% of Americans tripled since the 1980s. The top 10% saw incomes double. Prime workers in the bottom 60% have seen flat wages. Hence calls from some leading Democrats to tax wealth at a higher rate to keep all the spoils of growth from trickling upward.
Amid talk of slowing US growth, Trump is leaning on the Federal Reserve to cut interest rates. Yet 20 years of ultra-low rates haven’t restored Japan to health. Deflationary currents continue to depress wages, while weak confidence among executives impeded investment. Monetary largess is no replacement for structural reforms that raise competitiveness and average incomes.
If Hong Kong’s leaders had heeded Li’s advice, inequality indicators in the city might not be flashing an even deeper hue of red. Yet as Dalio’s own distress signal suggests, the damage from the crises of the last decade is still being calculated. And raising existential questions about capitalism as we know it.