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HONG KONG URBAN COUNCIL
to this new initiative. However, the Council should not leave the new Commission entirely to operate alone in its infancy. It is imperative for both the Council and the Commission to recognize explicitly a key factor which has often been overlooked in the past, that is, the search for a reasonable and viable link between remuneration for the staff on the one hand and their productivity on the other.
Hong Kong needs a strong economy to anchor a stable community. In the past, the major stamina of our spectacular growth came from our free enterprise economy. Despite some indications that our system needs sectoral guidance, the merits of our system significantly outweigh its demerits to justify its continual existence. Through adjustments in the demand and supply functions in the market place, the automatic adjustment mechanism serves to rationalize the allocation of resources. In the labour market, wages rise and fall according to the demand for labour and inherently the productivity of labour. Under assumptions of factor mobility, the merits of dynamic rational allocation under such an economic system remain for as long as we are willing to accept the accompanying economic disciplines. In our last recession, we have witnessed a fall of real wages in the private sector, when the average real wage index fell from 101 in March 1974 to 96 in March 1975, representing a fall of 5 percentage points. It is indeed fortunate for the civil service that the system provides an insulation against unpleasant market adjustments as in the private sector.
The insulation of our public servants from economic disciplines is further intensified by government accounting of public expenditure. For if government spending is kept constant in real terms, higher pay per staff will mean less staff available to serve the public at constant cost. The impact of higher pay may not be as revealing as in the case of a private enterprise where cost adjustments are always reflected imminently on the profit figure in the accounts. Unless the pay increase is accompanied by an increase in productivity, this will result in economic misallocation. Within an insulated environment, every wage negotiation can become a matter of political manoeuvre. The desire merely to demonstrate a show of strength will lead to unnecessary industrial action and hence further wastes.
I am not doubting unwittingly the rationale behind the mode of settlements and concessions in previous cases of civil service disputes. Indeed, most of these demands for improvements were justified by reasons which can only be assessed on individual merits. Nevertheless, the invariable theme they share is the issue of relativity or comparability with other grades in the government. Under such circumstances, there should be more emphasis on the measurement of productivity since payments for services are derived from no other source than the public purse.
Of course, one has to concede that an overly sophisticated formula of quantitative evaluation is more an academic aspiration than a real-life instrument. But it should still be important for some basic and simple criteria to be laid down consciously in the process of salary determination for our civil servants. Thus, I feel that there is a need to institute productivity deals between the government and its employees based on certain collective reward schemes which are performance-orientated. Productivity deals can take the form of cost-reduction agreements. There have been successful cases of organizational or section-wide incentive schemes of this nature operating both office staff as well as industrial workers in industrialized countries such as the USA, UK, and parts of Europe. To transplant these schemes wholesale to the civil service in Hong Kong may not be totally relevant to our needs. Yet, there is no reason why we cannot borrow certain elements from these models for local adaptation so that any pay or salary increases for our civil servants can be seen to bear a more genuine relationship with their level of performance.
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It has been suggested that the notion of productivity deals is hardly applicable in the civil service because it produces only non-profit-making services for social and community consumption. So, the argument follows, the output of our public service employees is not readily measurable, unlike their counterparts in the private sector. The fault of such an argument lies in that, given such uniqueness, it will also be illogical for the government to base and justify general pay rises by making comparisons against major private and profit-making companies as it is doing now. Where these private employers may use productivity as a guide for setting wages, the government has looked to the private sector for wage reference without any reference to productivity. The threats of a self-perpetuating wage spiral are very realistic if the private sector in turn looks to the government as a pace-setter. This is especially worrying since the government is by far the largest employer.
So far, I have outlined various economic implications of wage settlement on the community as a whole; we should also understand the frustrations confronting a civil servant. It is often said that a civil servant in Hong Kong owns a 'golden rice bowl'. Recently it has been renamed 'iron rice bowl'. The reason for the modification is simple. Aside from fixed increments and reviews, there are no other ways for a civil servant to increase his income in his employment. For an employee in a private enterprise, his efforts to enhance efficiency will result in a year-end bonus with an increase in company profit. Unlike his counterpart in the private sector, the civil servant gets no year-end bonus arising from increased productivity in his service. Even if he works hard to aim at a promotion, there are constraints of seniority and length of service. An undue emphasis on seniority without due consideration of productivity is not only demoralizing to our civil servants but detrimental to the productivity of the civil service as a whole. Taken to the extreme, this may even result in practices of voluntary work effort restrictions when staff are overly demoralized. Clearly, a motivation device for a constant drive for betterment must be designed to reward extra efforts which result in productivity increases. Such a device will be in the