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Public Organization Review: A Global Journal 3: 247267 (2003) # 2003 Kluwer Academic Publishers. Manufactured in The Netherlands.

Organizations in the Public Sector in Hong Kong: Core Government, Quasi-Government and Private Bodies with Public Functions
IAN SCOTT School of Politics and International Studies, Murdoch University, and Department of Politics and Public Administration, University of Hong Kong

Key words: public sector organizations, civil service, small government, public sector reform

Twenty-ve years ago, the Hong Kong government was lauded as the model of a small, restricted government which was most suited to capitalist economic growth. Since that time, the government and the organizations which it has created have expanded to such an extent that there has been widespread concern that the public sector has grown too large. This article examines the reasons for the rapid growth in the size of the public sector, reects on the organizational forms outside the traditional civil service that have been adopted, and analyzes the attempts that have been made to reduce the public bureaucracy by corporatizing and privatizing some of the services that it provides. Central to the argument presented is the question of whether an ideological commitment to small government or other functional and political factors have been the critical determinants of organizational change.

Introduction The government of the Hong Kong Special Administrative Region, and its colonial predecessor, have long re-iterated the virtues of small government. Some commentators, such as Friedman (1979: 5458) and Rabushka (1979: 7, 31), have claimed that the ideas of Adam Smith on limited government have found their closest contemporary expression in the philosophy and practices of the Hong Kong government and that they represent the most appropriate model for capitalist economic growth. Yet, over the past two decades, there has been an increasing and worrying tendency towards corpulence in the Hong Kong body public. In the 1980s, for example, one Financial Secretary remarked that the Hong Kong government was growing like Topsy and his successors have continued to struggle unsuccessfully to reduce its size and cost. At present, the civil service employs some 173,000 people; the government-subvented organizations, very largely funded by the taxpayer, employ a further 140,000; and there are probably another 40,000 or so in public bodies that derive their



revenue from commercial activities and pay their employees from the proceeds (Civil Service Bureau, 2002: 15). At the end of 2002, 3.26 million of the 6.8 million people in Hong Kong were in employment (HKSARG, 2003a, 2003b); of these, over 350,000, or approximately one in every nine employed persons in Hong Kong, worked in the public sector. If one criterion for rapid economic growth is a skeletal public sector with minimalist functions, then Hong Kong, at least over the past two decades, does not t the model.

The structure of the public sector The organization of the public sector may provide some indications as to why, and in what form, expansion has taken place. Table 1 shows the array of organizations that are involved in the management of public affairs in Hong Kong. It seeks to convey the diversity of organizational forms that exist in the Hong Kong public sector and the wide range of functions performed. On the basis of their legal foundations and funding arrangements, the organizations can be divided into three categories. Core government (Table 1: A) is composed largely of the civil service. Quasi-government (Table 1: B) consists of a variety of organizations that are either fully funded by government or charge fees for their services. The third category (Table 1: C) comprises private organizations that are subject to some form of government control because they provide important public services. In general, the more government provides funds, the more it seeks to exercise control; the more commercial the activities of the public bodies, the less the government tries to dictate how they should run their affairs. One might conceive of the relationship between government and the organizations of the public sector as a series of concentric circles, or ripples in a pond, where those public bodies nearest to the farthest shore are closest to the private sector and those closest to the center are most related to the core work of government. But the analogy can only be taken so far. Table 1 does not necessarily represent a historical progression from core government to an increasingly corporatized and privatized public sector. For example, some government departments now operate as trading funds with a degree of independence but without being incorporated. In addition, the growth of the public sector itself cannot be portrayed as an entirely linear development. The governments relationship, especially with voluntary welfare organizations, has existed since Hong Kongs earliest days as a colony, while its relationship with organizations constituted as statutory bodies and government companies has more recent origins. Since 1973, the core government of Hong Kong has been divided into bureaus responsible for policy-making, and departments responsible for implementation (Table 1: 1, 2). The reality is that the distinction between the two has little more validity than the politics/administration dichotomy. Until July 2002, the Principal



Ofcials in charge of the bureaus, who were all civil servants, did have ultimate responsibility for policy decisions, but were very often reliant on the advice of senior ofcials in the departments. After July 2002, a system of political appointments to the positions of Principal Ofcial was introduced in which the appointees, who are not necessarily civil servants, are directly responsible to the Chief Executive and are no longer employed on civil service terms. It is possible that this development will eventually lead to a merger of all of the bureaus and their related departments, as it has already in the case of the Housing Bureau and Housing Department. Beyond the bureaus and the departments, there are a number of organizations that perform governmental functions but which are semi-independent of the government (Table 1: 3, 4). Such bodies as the Hong Kong Monetary Authority, which is responsible for the regulation of banks and the management of the Exchange Fund, and the Independent Commission against Corruption (ICAC), created in 1974 to combat corruption, fall into this category. Bodies such as the Monetary Authority and the ICAC are fully funded by the taxpayer. However, the government has also created some statutory bodies which charge fees for their services and look to support themselves from this income (Table 1: 5). Other, more commercial, enterprises that are government-owned are the Housing Authority (which in 2002 reverted largely to departmental control), the Hospital Authority and the Airport Authority. Each of these is a statutory body with large capital expenditure requirements which are in effect underwritten by the government (Table 1: 6). The more fully commercial operations, the KowloonCanton Railway Corporation and the Mass Transit Railway Corporation, are respectively an incorporated statutory body and a company (Table 1: 7, 8). The government also has a long-standing relationship with voluntary organizations which, traditionally, have provided a considerable proportion of Hong Kongs health, welfare and educational services. These are private organizations that provide public services but which need some form of subsidy or control. Voluntary welfare agencies, for example, charge fees for their services but their income is insufcient to fund their activities in their entirety. The government subvents 181 of these agencies (Table 1: 9) and seeks to exert control over the ways in which they spend their money. Similarly, in the health and educational elds, the government has an interest in ensuring that any support that it gives is properly accounted for and that standards are maintained. Finally, the government has a range of different relationships with the private providers of various services which do operate at a prot, such as bus companies, tunnel operators and providers of public utilities (Table 1: 10). These are all subject to some form of control either through franchises, which may or may not be renewed by the government, or by ordinances which specify the length of time that a company may operate a particular facility or service. How do we explain this diversity? Has the Hong Kong government simply, like Topsy, grown out of its clothes and adopted these various organizational forms as an ad hoc response to economic, social and political pressures? Or have there


Table 1. Legal foundation Funding Examples

Organizations: Core government, quasi-government, and private bodies with public functions.


A. Core government organizations Fully funded by government

1. Policy bureau

2. Government department

Recognized under the Basic Law but established by an executive order or decision Recognized under the Basic Law but established by an executive order or decision Mostly fully-funded by government. Some departments providing commercial services may operate as trading funds

Education and Manpower; Health, Welfare and Food; Constitutional Affairs Education Department; Social Welfare Department. The Post Ofce operates as a trading fund

B. Quasi-government organizations Established by an executive order or decision Established by an ordinance Fully or nearly fully funded by government Usually fully funded by government

3. Executive body

4. Not-for-prot funded statutory body Established by an ordinance Established by an ordinance as a body corporate

5. Not-for-prot non-funded statutory body 6. Partially commercial statutory body underwritten by government 7. Commercially viable statutory body Established by an ordinance as a body corporate Established by its own constitution pursuant to the Companies Ordinance, and sometimes also subject to a special ordinance

Hong Kong Monetary Authority; University Grants Committee; Equal Opportunities Commission Independent Commission Against Corruption; Hong Kong Trade Development Council Hong Kong Council of Academic Accreditation Housing Authority; Hospital Authority; Airport Authority

Kowloon-Canton Railway Corporation Mass Transit Railway Corporation

8. Company in which government holds all or a majority of the shares

Organization charges fees and is self-nancing May charge fees or rent or sell property, but may be dependent on government backing for capital expenditure Wholly self-nancing but government may forego dividends to support further capital expenditure Wholly self-nancing but government may forego dividends to support further capital expenditure


Table 1. Continued.

C. Private organizations with public functions Regularly or partially funded by government grants, with supplementation from organizations such as the Community Chest and the Jockey Club Company contracts with government to manage a public function at a prot to the company but with controls over prices and standards. Government may also legislate or issue directives in regard to the operating arrangements Hong Kong AIDS Foundation; Hong Kong Council on Smoking and Health; Community Advisory Drug Council; Po Leung Kuk

9. Not-for-prot private (voluntary) welfare organization

10. Private or publicly-listed company with public functions

Established by its own constitution or deed of trust pursuant to an ordinance, such as the Societies Ordinance, and sometimes incorporated under a special ordinance Established by its own constitution pursuant to the Companies Ordinance, operating under a contract, franchise, build-ownoperate agreement or the like with government

Bus companies; tunnel companies; other companies performing various former government activities on an outsourcing basis


Note: Ordinances in Hong Kong are the equivalent of statutes elsewhere. Thanks to Ian Thynne for assistance with this table, particularly in identifying the types of organizations and their legal foundations.



been more conscious government efforts to structure the public sector in more complex ways which are better suited to the needs of a sophisticated community? If so, how do we understand the types of organizations that have emerged? In the following sections, some tentative answers are provided to these questions. The discussion essentially seeks to identify the principal historical factors which continue to have relevance and which have shaped the present system of government and public sector organizations.

Colonial administration From the standpoint of the organizational theorist or the New Public Management school, there is much of interest in British colonial administration, not least because it was often able to deliver efcient and inexpensive government with a minimal use of resources. Although there were vast differences between the colonies in terms of their economies and social structures, a common administrative structure was usually imposed, largely because the imperial government wanted to run its colonies as cheaply as possible. Changes were made to accommodate local conditions but there was also a sometimes implicit, sometimes explicit, organizational design from which the colonies were expected to draw. The model was developed in the latter half of the 19th century and is often described as Weberian in the sense that its principal components are a centralized hierarchical organization, recruitment by merit, full-time employment and tenure for life. In the Hong Kong case, because colonial government persisted for so long, from 1841 to 1997, there is an opportunity to see how the basic colonial model evolved and how it was eventually able to accommodate a diverse range of social and political pressures.

The origins of the system British Colonial Ofce ofcials rst undertook bureaucratic reform in the colony in 1862 after the ndings of a Commission of Inquiry into corruption and the badly soured relations among the senior civil servants had caused an outcry both in the territory and in London (Endacott, 1964: 107108; Welsh, 1993: 231). There was no sense of unity in the local administration. Until 1858, senior ofcials sometimes voted against each other in the Legislative Council and there was constant friction over jurisdiction. Before the reforms, the senior levels of the government included placemen who owed their loyalty to their patrons, saw their role as honoric in the Weberian sense (Weber, 1991: 214), and were sometimes incompetent and corrupt. The reforms introduced in 1862 saw more qualied new recruits to senior positions, a requirement that these cadets (as they were known) spoke Cantonese, and an underlying assumption that



generalists, often recruited from the Arts faculties of the older British universities, were the most suitable people to run the administration. The cadets were the forerunners of the administrative grade which continued to occupy powerful, fused political/administrative positions until the introduction of a system of political oversight in 2002. Where did these ideas about organizational reform come from? It seems most likely that the Colonial Ofce followed the reforms then being introduced in Britain as a result of the Northcote-Trevelyan Report of 1854, reforms which brought about the transformation of the British civil service into something more closely approaching a Weberian bureaucracy but which were not fully implemented until 1920. Another factor that may have been important was the constant pressure exerted on the government by the local business community, mostly British at this time but also drawing on a growing Chinese middle class. Businessmen believed not only that the administration was inefcient and an obstacle to enterprise but also that it was far too expensive. In their repeated protests against the extravagances of the colonial administration, often indirectly supported by the Colonial Ofce, lay the origins of the Hong Kong governments sometimes anxious efforts to keep government small and to balance its budget. But there may also have been something else that resonates more widely of the relationship between the growth of capitalism and the creation of a bureaucracy, between the impetus for modernization and the rational means of regulating that process. In an environment where Hong Kong was beginning to establish itself as a capitalist metropolis, businessmen may well have been aggravated by the incompetencies of the administration because, as Weber (1991: 215) writes, the capitalist market economy . . . demands that the ofcial business of administration be discharged precisely, unambiguously, continuously, and with as much speed as possible. Although businessmen acted as a spur for efforts to improve efciency, it was often specic local events rather than their continuous criticism that resulted in change. The introduction of the cadets in 1862 was a consequence of the fact that the only senior ofcial in the government who could speak Cantonese was found to be corrupt and in league with pirates. The police force, which was endemically corrupt, was reformed in the late 1860s. In the following decades, government nances were re-organized, hygiene and health problems were addressed, if not resolved, and some attempts were made to devise rudimentary social policies. The capacity of the administration increased as its governmental structures were rationalized and its revenue base grew. A fundamental issue was the question of how the colonizer would deal with the colonized. Unlike many other British colonies, there were no indigenous elites on Hong Kong island or the Kowloon peninsula with whom the government could deal. In consequence, the authorities looked to immigrant Chinese social and business elites to provide control over the society which in other colonies might have been exercised by traditional leaders. However, in the New Territories



(closer to the Mainland), which were acquired on lease in 1899, there were indigenous elites in place and the pattern of administration there was thus slightly different.

Government and society To deal with the problems of society in policy terms, the Hong Kong government had to work out some broader form of modus vivendi with its inhabitants and with the institutions to which they related. In the early years of the colony, it was constrained in important respects by the shortfall in revenue which meant that it was spending beyond its means. It was unlikely, in any event, that a budgetary surplus would have persuaded the administration to increase its social policy expenditure. Neither the times nor the business community would have permitted what would have been perceived as proigacy. Instead, the government essentially contracted out social policy to non-government organizations, principally at rst to missionaries in the education and health elds, but increasingly also to Chinese charitable organizations. It was here that the interface between the administration and the society became important. The relationship was regulated by ordinances but it also soon came to have political signicance beyond the delivery of social services. In 1870, the government incorporated the Tung Wah organization and lent it $15,000 dollars to build a hospital. By the 1890s, the directors of a group of charitable organizations, especially the Po Leung Kuk and the District Watch Committee (an important force for maintaining local security), were formally recognized as political leaders of Chinese society and appointed to government advisory committees. At the same time, the erce critics of government in the business circles were offered places on other advisory committees and in the Legislative and Executive Councils. Government became a closed shop. There were no elections and little dissent, and bureaucratic power increased because of the centrality of senior civil servants in the structure of government and its ancillary organizations. In the literal sense of bureaucracyrule by bureaus Hong Kong was a bureaucracy and remained so until 1985. With the political system in place, the government turned its attention to the problems facing the society. The early 20th century saw a spate of regulatory legislation designed to improve standards of hygiene, to control schools, and, most important, to regulate associations/societies. Because the government was not interested in taking on new functions and did not have sufcient staff to administer comprehensive policies, the principal means of dealing with problems was through regulation and the prohibition of certain kinds of anti-social behavior. This eventually had some effect in improving sanitation and hygiene and led to the appearance of a new organizational form within the government. Thus the Sanitary Board, as an early example of a statutory body, became responsible for the implementation of the health regulations. From 1886, it was



composed in part of members appointed from the community (Endacott, 1964: 188, 200). It evolved in 1935 into an Urban Council with elected members. In similar regulatory vein, the Societies Ordinance of 1911 was aimed at monitoring organizations with the potential to create dissent or to de-stabilize the colonial regime. It gave the government wide powers to refuse to register societies, in which case they became illegal, or to suspend or to de-register them. Likewise, the 1927 Illegal Strikes and Lockouts Ordinance was intended to prevent labor from bringing the economy to a halt and to control the development of unions. Although regulatory legislation was central to the colonial administrations attempts to maintain stability and to resolve social problems, it was not always successful. The Societies Ordinance proved to be ineffective and was amended in 1920, just as the creation of the Urban Council and the introduction of tighter regulations on hygiene did not prevent the outbreak of epidemics in the late 1930s. In a more positive sense, legislation was used to establish a relationship between government and the voluntary welfare organizations, many of which were incorporated under special ordinances. For the period up to World War II, this regulatory regime served to maintain the peace and to allow the provision of services in education and health by organizations beyond the government. It was not a system that required a large government, but it was sufcient to deal with the problems that the colony faced within the limited connes of its bureaucratic capability.

The administrative machine The limited connes were reected in the structure of a government that remained small and distant from the people that it sought to rule. Between 1914 and 1939, the civil service establishment grew from about 4400 posts to just over 10,000 (Miners, 1987: 79). It had minimal policy-making capabilities. The engine room of government, the source of all major ofcial decrees, was the Colonial Secretariat which, until the 1950s, was housed in a two-storey building of dignity and antiquity, not unlike a baronial mansion (Wilson, 2000: 66). The cadets dominated the Secretariat. Since they controled the ow of money and information and decided on what proposals from the departments would go forward, they were enormously powerful. The Governor was no check on their activities because he was often either drawn from their numbers or effectively controled by his Colonial Secretary (Perham, 1960: 187). Departments revolved around the Secretariat and constituted, in effect, the only mold into which governmental activities were permitted to t; even the KowloonCanton Railway, founded in 1910, was set up and remained for many years as a government department rather than as a separate, commercially viable organization. The departments were characterized by rigidly observed



hierarchies and resembled a steep pyramid with few senior ofcials but with a very broad base at the bottom. Problems tended to be addressed by recruiting more people to the base of the pyramid. The results of this structure were that line implementation was very effective but that coordination, such as might be desired for social policy implementation, was very poor (Scott, 1987). Over time, this system gradually ossied; decisions took longer and longer to reach and concerned matters of less and less importance. The nature of the structure also meant that the administrative elite did not have the capacity to undertake new and innovative policies, a feature reected in the Colonial Secretariats increasing concentration on minutiae. Policy-making, in consequence, was almost invariably incremental. Yet, despite its considerable weaknesses, this system of administration was not without its strengths. It was, rst, an appropriate system for the minimal goals of the government. With its limited resources, the government had to make the best use of its manpower. A centralized, hierarchical system with inexpensive recruitment at the base of the pyramid was the most appropriate means of achieving that end. Second, the structure itself was appropriate for the implementation of policies. If the main objectives of the regime were to sustain itself in power and to provide for peace, order and good government, it needed to be able to respond quickly in routine situations. Most of the problems with which it was confronted were not to do with the formulation of social policies, for most of these were in the hands of the voluntary organizations. Rather, they were to do with crises of various kindsepidemics and challenges to the governments authority in the form of strikes, boycotts, demonstrations and riotswhich were best dealt with by a structure which could relay decisions quickly down through the hierarchy. Third, the government did develop administrative capacity in sequential, incremental steps: it solved the problems of unity within the civil service and the allocation of responsibilities and jurisdictions within departments, set out values to establish the civil service as meritocratic and as corruption-free as possible, and re-organized government nances to reect the principles of scal frugality and balanced budgets. In this sense, despite its weak policymaking capabilities, it was an efcient and successful system, especially in routine situations.

Post-war policies The system became somewhat less efcient after World War II when the prevailing organizational form was increasingly less suited to the changing political, social and economic situation. The government faced major social problems resulting from a quadrupling of the population in the space of seven years after the war and the communist threat of inltration of the schools and the labor movement. None of these problems was really amenable to control by means of the regulatory strategy of the pre-war period or by incremental policy-



making. Yet the structure of government did not change to accommodate the new situation. After the war there was some effort to make Hong Kong more democratic and to widen the powers of the Urban Council, but it failed in the face of the communist threat and unsympathetic local elites (Tsang, 1988: 116). A later attempt to expand the powers of the Council in 1966 was equally unsuccessful (Hong Kong Government, 1966a). Despite the level of economic development, no progress towards a more representative government was made until 1985 and, even then, the steps taken were very tentative. Similarly, within the civil service, there was little inclination for experimentation with organizational forms. A Development Secretariat was created after World War II but, by 1951, its components had reverted to traditional departmental form. By early 1966, shortly before the riots that were to alter fundamentally the nature of government in Hong Kong, the structure of government had scarcely changed from its pre-war conguration. The civil services strength was just over 65,000 ofcials, employed in 30 departments. The largest of the departments, as it always had been and still remains, was the Police Department, followed by Urban Services, Medical and Health, and Education (Hong Kong Government, 1966b, Table 1). There was little to impel change from the top. The Governors who held ofce between 1947 and 1971, Grantham, Black and Trench, had all served in the Colonial Secretariat. Grantham was critical of the Secretariat and did give more authority to professional ofcers, but neither Black nor Trench saw anything really wrong with the existing structure. Although there was little change in the structure of government, there was some expansion of its functions. The squatter problem and the Shek Kip Mei re of 1953 persuaded the government to launch a public housing program and to create the Housing Authority as a statutory body (Hong Kong Government, 1955: 126). The aim was not to provide charity but rather to re-claim the land from the squatters for more economic purposes. In education, the government decided to provide public education at the primary level on a far greater scale than it had done previously, largely because of the perceived threat of communist inltration of schools. These changes led to far greater social policy outputs in the 1970s, but they were not sufcient to prevent the Kowloon riots of 1966. In response, the government appointed a Commission of Enquiry whose recommendations were gradually adopted over the next decade and which were to lead to major changes in the structure of government (Commission of Enquiry, 1967).

Response to political unrest The reforms were intended to provide a new base of political support for the regime by removing some of the most unacceptable social conditions, particularly sub-standard housing. They were to be supplemented by the vast expansion of school places, hospital beds and health facilities, and social welfare



provision. These changes were pressed forward forcefully by a new Governor, Sir Murray (later Lord) MacLehose (19711982). However, he soon realized that the existing structure of government was inadequate to achieve his goals. Thus the McKinsey consultants were employed in 1972 to devise a more efcient framework to deliver services without making any fundamental changes to the system of government (McKinsey, 1973). In 1973, they came up with a system of policy branches which supervised and provided policy direction for a number of related departments under their jurisdiction. The branches were stacked with the administrative grade, the successors to the cadets, and reported through their policy secretary to the Chief Secretary. The Financial Secretary, at his insistence, retained his old authority and status, as did the Attorney-General. The effect of the reforms was liberating, however, in the sense that the policy secretaries had more discretion and that the proposals did not, as they had previously, get lost for months in the bowels of the Colonial Secretariat. In any event, MacLehose was impatient to bring about change and wanted a system that would reach and implement decisions quickly. MacLehose faced other critical problems before the new system could be properly bedded down. In 1973, in a case that caused outrage in the community, an expatriate police ofcer, arraigned on corruption charges, jumped bail and ed the colony. He was extradited and eventually charged and convicted in Hong Kong. But the incident pointed to syndicated corruption in the police force and, as it turned out, in some other government departments as well. MacLehose set up an ICAC with wide powers in 1974. The organization was established under an ordinance and staffed by ofcers often drawn from government but appointed on contract. The Commission had to be established as a statutory body semiindependent of government, if only because the previous Anti-Corruption Bureau in the Police Force had clearly lost the condence of the public. It did, nonetheless, represent a step away from the traditional format of the department and provided something of a model for later statutory bodies operating close to, but not within, the ambit of government. Many of MacLehoses other policy goals could not be accomplished by departments which functioned in their normal way. The decision to create the Mass Transit Railway, initially as a statutory corporation, meant that it could incur debt underwritten by the government but that it would eventually return a prot (Legislative Council Debates, 1975: 662). It followed that the Kowloon-Canton Railway should be treated in a similar way and it, too, became a statutory corporation. The provision of public housing on a massive scale led to the incorporation of the Housing Authority. The government did not see this as a new form of organization, however, but rather as a rationalization of previous practice. There were also increasing attempts to involve the community in the work of government and to develop a sense of citizenship. This led to the creation of various organizations at the interface between government and the community. Even before MacLehose arrived, a City District Ofcer scheme had been established which was intended to pick up and deal with complaints at the



district level and to act as a broker with other government departments to resolve complaints. This was supplemented by Mutual Aid Committees in the apartment blocks, which were assisted in their work by government ofcials, and by a range of schemes and programs focusing on community development. Not all of these schemes worked well, but they did show that the government was thinking, in organizational terms, outside its traditional structural format. Between 1973 and 1982, the strength of the Hong Kong civil service grew from 89,941 to 154,034, an increase of approximately 42% (Civil Service Branch, 19731982). Although the cost of emoluments rose over eight-fold, the future cost was masked to some extent by a buoyant economy, by the fact that some 8 or 9% of positions remained unlled, and because the new recruits came in at relatively young ages and on the bottom point of the incremental scale. Nonetheless, this could scarcely be called small government and the administration became increasingly concerned about problems of cost and of the delivery of quality services which the population and emerging pressure groups were increasingly demanding. Clearly, the costs of government were rising particularly rapidly in the social policy areas where the government had begun to recruit many more professionals, themselves a potential source of friction in a generalist-dominated administration. By the 1980s, these problems, together with the changing political climate of Hong Kong, persuaded the government to look more favorably on devolving government activities. The 1984 Sino-British agreement ushered in an era of considerable anxiety, demands for more representative government, and a much more politicized public. By this stage, the government had also become the major provider of many social services which were beginning to generate a substantial volume of complaints about the standard of services. In 1985, the government employed the consultants W. D. Scott and Company to advise on the establishment of a Hospital Authority. The authority was set up in 1989 as a statutory body, with the responsibility for the administration of all government hospitals and drawing its staff mainly from former civil servants in the Medical and Health Department. In 1988, the government also increased the nancial powers of the Housing Authority and endorsed its long-term housing strategy. A similar model of a statutory body with considerable nancial exibility was adopted in the 1990s when the government decided to build a new airport. In common with the Housing and Hospital Authorities, the Airport Authority is an organization which is required to make large capital expenditures. To separate these bodies from government made sense in the 1980s and 1990s because they seemed to solve a number of different problems, removing potential trouble areas from government and providing a framework which was expected to deliver services more efciently than traditional departments. From the governments standpoint, the new structures served both to deect criticism and, because civil servants were transferred to them, to give the impression that the civil service itself had ceased to grow at such a rapid rate.



By the 1990s, the tension between the government and the people over the slow pace of democratic development and the friction with the Chinese government over the electoral reforms that Patten (who became Governor in 1992) had introduced were more than sufcient to occupy the attention of the government. However, the government did begin to experiment with other forms of public sector organization, partly perhaps to relieve the pressure it was experiencing on the political front. In 1992, it hived off the Hong Kong Monetary Authority from the Finance Branch, setting it up, in effect, as a central bank. In 1993, it passed legislation to allow departments to operate as trading funds if they were commercially viable. Six trading funds were established: the Lands Registry; the Companies Registry, the Ofce of the Telecommunication Authority, the Post Ofce, the Electrical and Mechanical Services Department, and the Sewage Services Department. The latter ceased to be a trading fund after Legislative Councillors objected to its plans to raise charges, and the other funds have also been criticized because of their continuing monopoly situations and because they do not have the right to set their own prices (Cheung, 2001; Huque et al., 1999). Such initiatives as the trading funds legislation are evidence that the Hong Kong government was becoming more attracted to the idea of introducing private sector management practices into the civil service, especially since both the Mass Transit Railway and the KowloonCanton Railway had proved commercially successful. There was certainly more talk of improving management, with the governments Efciency Unit developing programs in human resource management and, more generally, providing a framework for change which might have led to radical changes (Civil Service Branch, 1995a, 1995b). However, implementation was constrained by the political sensitivities of the transitional period and the basic structure of government remained essentially unaffected. The transitional period also saw the creation of some semi-independent public sector organizations which were designed to assuage fears about possible violations of future civil liberties by a repressive government. A Bill of Rights was passed, an Equal Opportunities Commission was established, a Privacy Commissioner was appointed and legislation was passed to protect personal data, and the powers of the Ombudsman were strengthened. In form, the new organizations are not unlike the ICAC, and they were set up in that form for the same general reason: the need to assure the public that their activities would have a degree of independence from government. Like the ICAC, the Privacy Commissioner and the Equal Opportunities Commission are reliant on the government for their funding and staff. Unlike the ICAC, they are established by executive orders or decisions rather than by an ordinance, which prima facie makes them less independent of the government. But, at the time of their creation and in the charged political atmosphere of transitional Hong Kong, they had some symbolic signicance as organizations which might help to provide some protection from the potentially untrammelled executive authority of a post1997 regime.



Since Hong Kongs retrocession to China, two factors have inuenced the form and structure of the civil service and its relationship with quasi-government and private organizations. The rst of these relates to moves to reform the civil service and to strengthen the political executive. The second is the still-notfully-realized aim of corporatizing and privatizing more government departments and statutory bodies and introducing more private sector practices in the remaining departments. Neither factor, however, is entirely removed from practical considerations which may require the government to intervene in the economy or to re-centralize some of its functions. The government remains driven as much by immediate political concerns and functional needs as it is by ideology.

Reforming the civil service and strengthening the political executive The political executive that came to power in Hong Kong in July 1997 was not necessarily committed to the structure that had survived in gradually modied form since the 1860s. During the transitional period, however, there was an agreement between the British and Chinese sides that nothing should be done to destabilize the civil service (Scott, 2000). For example, the Basic Law, Hong Kongs post-1997 constitutional arrangement, species that civil servants shall continue to enjoy salaries and conditions of service no less favorable than before 1997. The Chinese government conrmed all the serving policy secretaries in their positions so that there was apparent continuity with the previous system. The political executive, that is, the Chief Executive and the Executive Council, however, was drawn mainly from business elites who had been sympathetic to the Chinese government both during and, in some cases, prior to the transition. They held attitudes towards the civil service which were not so different from those of their business predecessors a century before. They believed that the civil service was over-staffed and over-paid; some also saw it as a colonial relic and an obstacle to achieving their policy goals. This set the stage for potentially radical change in the civil service, both to its structure and to the conditions of service of its personnel. Thus, in 1999, the Civil Service Bureau produced a document which presaged wide changes in recruitment, tenure, pay and performance management, and discipline (Civil Service Bureau, 1999; Burns, 2002: 283284). Reductions to civil service pay were made in 2002 and 2003. In July 2002, a new system was introduced in which the Principal Ofcials who had previously been the civil servants holding the positions of policy secretaries were replaced with political appointees on contract (Constitutional Affairs Bureau, 2002). Nine of the new appointees had formerly been senior civil



servants and policy secretaries but the other ve were drawn directly from outside the civil service. The new system institutes, for the rst time in Hong Kong, political heads of government bureaus and is probably intended to strengthen the political executive at the expense of the civil service. The Principal Ofcials are appointed by the Chief Executive and are accountable to him for their performance. They are not directly accountable to the Legislative Council, although they are expected to debate policies and answer questions in the Council. The effects of the reforms are still working through the system. At this stage, it is not entirely clear how the public sector will emerge from the proposals to reform the system and install political heads in the bureaus and departments. It is evident, however, that tenure and incremental salaries are under threat and that political leaders favor a more exible civil service in which there would be greater movement of ofcials between core government and the public sector beyond the civil service and vice-versa. There may also be changes within the civil service to the way in which bureaus and departments relate to one another. The Principal Ofcials have been given until July 2003 to devise a new relationship between the bureaus and the departments. Some have already decided to merge the two, a development that has done away with the separation of policy from administration and which potentially opens the way to a major decline in the power and inuence of the administrative grade. A dedicated policy-making grade will no longer be necessary if bureaus and departments are merged.

Corporatization and privatization With the accession to power of those who were convinced of the benets of private sector practices in the public sector, one might have expected a greater degree of structural devolution and the creation of more statutory bodies than has actually been the case. There is no doubt that the government is committed to an accelerated program of corporatization and privatization. However, the state of Hong Kongs economy, and the measures taken to try to reduce its structural decit, have clearly been constraining factors in attempts to increase corporatization and privatization. The market conditions have not been suitable for oating new commercial ventures. The only major development in this respect has been the decision to reconstitute the Mass Transit Railway Corporation as a company and to sell 23% of its shares through a public oat. There have been indications that the government will also move to merge the two railway organizations (Tsang, 2002), and there has been a concerted effort to increase the level of outsourcing, driven perhaps by cost considerations and by a desire to help the private sector in troubled times (Efciency Unit, 2001a, 2001b). The post-1997 period has also seen the creation of some new statutory bodies, such as the Urban Renewal Authority.



Despite its inclination towards more corporatization and privatization, the government has not been averse to re-centralizing the powers and functions of public bodies within the civil service. In 1999, after lengthy consultation, it decided to abolish the elected Urban and Regional Councils and to bring the functions carried out by the Urban Services Department under a new Department of Environment and Food. The reasons for this move were attributed to the search for greater efciencies and the need to avoid structures which duplicated one another. Many of the governments critics, however, saw the re-organization as a response to the Urban Services Departments poor handling of the avian u crisis (Huque and Lee, 2000: 4664). A similar argument might have been made in the case of the decision in 2002 to bring the Housing Authority more within the ambit of government. In 1999, two housing blocks had to be demolished after the pilings were found to be faulty (Housing Authority, 2000). The result was the loss of $258 million, the resignation of the chair of the Housing Authority, and the conviction of some ofcials and contractors on corruption charges. In its re-organization of the Authority in 2002, the government argued that there were overlapping functions and confusion between the responsibilities of the Housing Authority (a statutory body) and the Housing Department, which was part of the civil service (Chief Secretary, 2002). The new structure merged the Bureau and Department within government and envisages that the nancing role of the Housing Authority will return to government. The Housing Authority is to take on a more advisory role and is to be chaired by the Principal Ofcial responsible for Housing. As these examples illustrate, the government has shown no reluctance to intervene in the public sector to reconstitute it in ways that it deems to be appropriate. Indeed, in some respects, it has been more interventionist than its colonial predecessor. Its decision to support the stock market by buying shares in 1998 and the rather looser regulations that now seem to apply to the movement of senior ofcials between the civil service and the rest of the public sector, for example, indicate that it does not see either non-intervention in the market or the separation of the civil service from the rest of the public sector to be sacrosanct. The present concerns with reducing the size of the civil service and attempting to balance the budget may mean that any structural options that are open and which save money will have some appeal. Structural changes may also be driven by the political perception that the civil service needs to be shaken up to achieve ambitious policy goals. The danger is that, in the process of making these changes, the government could fall into the trap of many post-colonial governments of assuming that structural reform is the solution to its problems. If this process deteriorates into ad hoc and uncoordinated change for the sake of change, as it has in many former colonies, the only outcomes are likely to be confusion in the lines of authority and further loss of morale among civil servants and other public sector employees.

264 Conclusions


To date, the Hong Kong public sector has evolved in ways which do not suggest that the reasons for devolving more functions to quasi-government and private organizations have been purely ad hoc and/or opportunistic. Rather, the structural changes can be seen in terms of three broad categories, all of which relate to the functional needs of the government. The rst area of importance has been that of providing social services to the population. Out of necessity, the government initially had to rely on private sector providers to perform these functions; but, in doing so, it clearly had a responsibility to ensure that such services were provided in ways which met agreed standards and which spent whatever public funds were granted in a costefcient and effective manner. The relationships between government and private sector providers have often been governed by incorporation under special ordinances, and have been subject to increasingly explicit provisions regarding funding. With a model in existence, it has been relatively simple over the years to t in new voluntary organizations as they have emerged. The relationships have changed in some areas, such as education and health, as government itself has assumed a more prominent role as a provider, but the model has remained because private sector providers were themselves wellestablished long before government took on a more active role. A second area of importance has been the development of organizational forms for commercial bodies owned by government. The rst government-owned commercial operation probably dates to the establishment of the KowloonCanton Railway as a department in 1910. However, the rst explicit recognition of a government-owned commercial operation was the creation of the Mass Transit Railway Corporation as a statutory corporation in 1975. The Financial Secretary of the time saw this as a new organizational form for Hong Kong and one which might provide a model for the future, even though it followed a practice which was well-established and long familiar in other countries and territories (Legislative Council Debates, 1975: 659). In the 1970s, the government was also learning how to structure its relationship with private companies which provided public services, particularly those in the transport eld. Schemes of control were developed to monitor the performance and standards of the electricity and bus companies, and legislation was passed to allow the tunnel companies to operate at a prot for a specied period of time before handing the tunnels back to government. Precedent was again important. New organizational relationships, if they worked successfully, provided the analogy for future developments. The third source of functional need, the creation of public bodies partly independent of government, also has a long historical pedigree. The formal need for an independent judiciary and a government auditor saw precedents established early. The creation of a Public Service Commission in 1950 was also a step in the recognition of the need for non-departmental public bodies



which could not be expected to generate their own income but which nonetheless performed critical functions. Since 1974, with the creation of the ICAC, there has been a considerable expansion in the number of these bodies, many of which draw on the ICACs relationship with government as the model for the conditions under which their staff work and the way in which they enjoy a degree of autonomy. These include the Ombudsman, the Equal Opportunities Commission, and, possibly, the Independent Police Complaints Council which is soon to be established as a statutory body. In each of these cases, the value of independence from government, and public condence as a result of that independence, has been the critical reason for the establishment of the organization in that form. Nonetheless, it should be recognized that their independence from government may be more symbolic than real. There are both legal constraints on their independence, especially in the case of those set up by an executive order or decision, and funding constraints which may limit the extent of their operations. The reason for the creation of these bodies was to bolster public condence, but their successful operation may depend on their demonstrating independence in their work. The public holds the courts, the Audit Commission and the ICAC in esteem because they have shown that ability to act independently of government over time. Newer organizations such as the Equal Opportunities Commission and the Privacy Commissioner have yet to do so (Petersen, 2001). The discussion began by suggesting that size and ideology might be a factor in explaining the growth of the civil service and the wider public sector in Hong Kong. It could be argued that, in an effort to return to the small government and non-interventionist market philosophy to which the government still strongly subscribes, the expansion of the public sector beyond the civil service was a convenient way of divesting government of the large numbers of civil servants and the consequently large salary bill that it had acquired during the MacLehose era. Yet public expenditure as a whole has continued to rise, and public sector salaries have remained a cause for concern. Although the argument that government should remain small has certainly been used as a rationalization for the creation of new statutory bodies, it is not clear that this has always been the reason for their introduction. Rather, particular events such as the corruption crisis of 1974, structural convenience such as the creation of the Monetary Authority in 1992, and political considerations such as the establishment of organizations protecting civil liberties in the 1990s, appear to have been more important. The related argument that statutory bodies will be more efcient and cost-effective because they will be less encumbered by the civil service regulations seems equally implausible as a reason for their creation. It may be that some statutory bodies do operate more efciently than they would within the civil service. But this argument has not prevented the government from bringing statutory bodies back into the civil service or from creating new units within government if it sees the need, even when, such as in the case of the Housing Authority, it has previously argued that they would be more successful



as semi-independent organizations. It would appear, then, that the considerable recent growth of the public sector, far from embodying a commitment to a market philosophy and to small government, has been a response to the functional needs of a more sophisticated economy and society and to specic political crises with which the government has had to deal.

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Ian Scott is Emeritus Professor, School of Politics and International Studies, Murdoch University, Perth, Australia and Visiting Professor, Department of Politics and Public Administration, University of Hong Kong.