Public Organization Review: A Global Journal 3: 247–267 (2003)# 2003 Kluwer Academic Publishers. Manufactured in The Netherlands.

Organizations in the Public Sector in HongKong: Core Government, Quasi-Governmentand 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

Abstract

Twenty-five 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 forthe rapid growth in the size of the public sector, reflects 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 colonialpredecessor, have long re-iterated the virtues of small government. Somecommentators, such as Friedman (1979: 54–58) and Rabushka (1979: 7, 31),have claimed that the ideas of Adam Smith on limited government have foundtheir closest contemporary expression in the philosophy and practices of theHong Kong government and that they represent the most appropriate model forcapitalist economic growth. Yet, over the past two decades, there has been anincreasing and worrying tendency towards corpulence in the Hong Kong bodypublic. In the 1980s, for example, one Financial Secretary remarked that theHong Kong government was ‘‘growing like Topsy’’ and his successors havecontinued to struggle unsuccessfully to reduce its size and cost. At present, thecivil service employs some 173,000 people; the government-subventedorganizations, 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 millionpeople in Hong Kong were in employment (HKSARG, 2003a, 2003b); of these,over 350,000, or approximately one in every nine employed persons in HongKong, worked in the public sector. If one criterion for rapid economic growth is askeletal public sector with minimalist functions, then Hong Kong, at least over thepast two decades, does not fit 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 oforganizations 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 HongKong public sector and the wide range of functions performed.

On the basis of their legal foundations and funding arrangements, theorganizations 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 orcharge fees for their services. The third category (Table 1: C) comprises privateorganizations that are subject to some form of government control because theyprovide important public services. In general, the more government providesfunds, the more it seeks to exercise control; the more commercial the activities ofthe public bodies, the less the government tries to dictate how they should runtheir affairs.

One might conceive of the relationship between government and theorganizations of the public sector as a series of concentric circles, or ripples ina pond, where those public bodies nearest to the farthest shore are closest to theprivate sector and those closest to the center are most related to the core work ofgovernment. But the analogy can only be taken so far. Table 1 does notnecessarily represent a historical progression from core government to anincreasingly corporatized and privatized public sector. For example, somegovernment departments now operate as trading funds with a degree ofindependence but without being incorporated. In addition, the growth of thepublic sector itself cannot be portrayed as an entirely linear development. Thegovernment’s relationship, especially with voluntary welfare organizations, hasexisted since Hong Kong’s earliest days as a colony, while its relationship withorganizations constituted as statutory bodies and government companies hasmore recent origins.

Since 1973, the core government of Hong Kong has been divided into bureausresponsible for policy-making, and departments responsible for implementation(Table 1: 1, 2). The reality is that the distinction between the two has little morevalidity than the politics/administration dichotomy. Until July 2002, the Principal

248 I. SCOTT

Officials in charge of the bureaus, who were all civil servants, did have ultimateresponsibility for policy decisions, but were very often reliant on the advice ofsenior officials in the departments. After July 2002, a system of politicalappointments to the positions of Principal Official was introduced in which theappointees, who are not necessarily civil servants, are directly responsible to theChief Executive and are no longer employed on civil service terms. It is possiblethat this development will eventually lead to a merger of all of the bureaus andtheir related departments, as it has already in the case of the Housing Bureau andHousing Department.

Beyond the bureaus and the departments, there are a number of organizationsthat perform governmental functions but which are semi-independent of thegovernment (Table 1: 3, 4). Such bodies as the Hong Kong Monetary Authority,which is responsible for the regulation of banks and the management of theExchange Fund, and the Independent Commission against Corruption (ICAC),created in 1974 to combat corruption, fall into this category. Bodies such as theMonetary Authority and the ICAC are fully funded by the taxpayer. However, thegovernment has also created some statutory bodies which charge fees for theirservices and look to support themselves from this income (Table 1: 5). Other,more commercial, enterprises that are government-owned are the HousingAuthority (which in 2002 reverted largely to departmental control), the HospitalAuthority and the Airport Authority. Each of these is a statutory body with largecapital expenditure requirements which are in effect underwritten by thegovernment (Table 1: 6). The more fully commercial operations, the Kowloon-Canton Railway Corporation and the Mass Transit Railway Corporation, arerespectively an incorporated statutory body and a company (Table 1: 7, 8).

The government also has a long-standing relationship with voluntaryorganizations which, traditionally, have provided a considerable proportion ofHong Kong’s health, welfare and educational services. These are privateorganizations that provide public services but which need some form of subsidyor control. Voluntary welfare agencies, for example, charge fees for their servicesbut their income is insufficient to fund their activities in their entirety. Thegovernment subvents 181 of these agencies (Table 1: 9) and seeks to exertcontrol over the ways in which they spend their money. Similarly, in the healthand educational fields, the government has an interest in ensuring that anysupport that it gives is properly accounted for and that standards are maintained.Finally, the government has a range of different relationships with the privateproviders of various services which do operate at a profit, such as buscompanies, tunnel operators and providers of public utilities (Table 1: 10). Theseare all subject to some form of control either through franchises, which may ormay not be renewed by the government, or by ordinances which specify thelength of time that a company may operate a particular facility or service.

How do we explain this diversity? Has the Hong Kong government simply, likeTopsy, grown out of its clothes and adopted these various organizational formsas an ad hoc response to economic, social and political pressures? Or have there

ORGANIZATIONS IN THE PUBLIC SECTOR IN HONG KONG 249

Tab

le1.

Org

aniz

atio

ns:

Co

reg

overn

ment,

quasi-

go

vern

ment,

and

private

bo

die

sw

ith

pub

licfu

nctio

ns.

Typ

eLeg

alfo

und

atio

nF

und

ing

Exam

ple

s

A.

Co

reg

ove

rnm

ent

org

aniz

atio

ns

1.

Po

licy

bure

au

Reco

gniz

ed

und

er

the

Basi

cLaw

but

esta

blis

hed

by

an

executive

ord

er

or

decis

ion

Fully

fund

ed

by

go

vern

ment

Ed

ucatio

nand

Manp

ow

er;

Health,

Welfare

and

Fo

od

;C

onstitu

tio

nal

Aff

airs

2.

Go

vern

ment

dep

art

ment

Reco

gniz

ed

und

er

the

Basi

cLaw

but

esta

blis

hed

by

an

executive

ord

er

or

decis

ion

Mo

stly

fully

-fund

ed

by

go

vern

ment.

So

me

dep

art

ments

pro

vid

ing

co

mm

erc

ialserv

ices

may

op

era

teas

trad

ing

fund

s

Ed

ucatio

nD

ep

art

ment;

So

cia

l

Welfare

Dep

art

ment.

The

Po

st

Offi

ce

op

era

tes

as

atr

ad

ing

fund

B.

Quasi

-go

vern

ment

org

aniz

atio

ns

3.

Executive

bo

dy

Esta

blis

hed

by

an

executive

ord

er

or

decis

ion

Usually

fully

fund

ed

by

go

vern

ment

Ho

ng

Ko

ng

Mo

neta

ryA

uth

ority

;

Univ

ers

ity

Gra

nts

Co

mm

itte

e;

Eq

ual

Op

po

rtunitie

sC

om

mis

sio

n

4.

No

t-fo

r-p

rofit

fund

ed

sta

tuto

ryb

od

y

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blis

hed

by

an

ord

inance

Fully

or

nearly

fully

fund

ed

by

go

vern

ment

Ind

ep

end

ent

Co

mm

issio

nA

gain

st

Co

rrup

tio

n;

Ho

ng

Ko

ng

Tra

de

Deve

lop

ment

Co

uncil

5.

No

t-fo

r-p

rofit

no

n-f

und

ed

sta

tuto

ryb

od

y

Esta

blis

hed

by

an

ord

inance

Org

aniz

atio

ncharg

es

fees

and

is

self-fi

nancin

g

Ho

ng

Ko

ng

Co

uncil

of

Acad

em

ic

Accre

ditatio

n

6.

Part

ially

co

mm

erc

ial

sta

tuto

ryb

od

yund

erw

ritt

en

by

go

vern

ment

Esta

blis

hed

by

an

ord

inance

as

a

bo

dy

co

rpo

rate

May

charg

efe

es

or

rent

or

sell

pro

pert

y,

but

may

be

dep

end

ent

on

go

vern

ment

backin

gfo

rcap

ital

exp

end

iture

Ho

usin

gA

uth

ority

;H

osp

ital

Auth

ority

;A

irp

ort

Auth

ority

7.

Co

mm

erc

ially

via

ble

sta

tuto

ryb

od

yE

sta

blis

hed

by

an

ord

inance

as

ab

od

yco

rpo

rate

Who

llyself-fi

nancin

gb

ut

go

vern

ment

may

fore

go

div

idend

sto

sup

po

rt

furt

her

cap

italexp

end

iture

Ko

wlo

on-C

anto

nR

ailw

ay

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rpo

ratio

n

8.

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mp

any

inw

hic

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go

vern

ment

ho

lds

all

or

am

ajo

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of

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share

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blis

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by

its

ow

nco

nstitu

tio

n

purs

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om

panie

sO

rdin

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and

so

metim

es

als

o

sub

ject

toa

sp

ecia

lo

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ance

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llyself-fi

nancin

gb

ut

go

vern

ment

may

fore

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div

idend

sto

sup

po

rtfu

rther

cap

italexp

end

iture

Mass

Tra

nsit

Railw

ay

Co

rpo

ratio

n

250 I. SCOTT

Tab

le1.

Co

ntinued

.

C.

Priva

teo

rganiz

atio

ns

with

pub

licfu

nctio

ns

9.

No

t-fo

r-p

rofit

private

(vo

lunta

ry)

welfare

org

aniz

atio

n

Esta

blis

hed

by

its

ow

nco

nstitu

tio

no

r

deed

of

trust

purs

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toan

ord

inance,

such

as

the

So

cie

ties

Ord

inance,

and

so

metim

es

inco

rpo

rate

dund

er

asp

ecia

l

ord

inance

Reg

ula

rly

or

part

ially

fund

ed

by

go

vern

ment

gra

nts

,w

ith

sup

ple

menta

tio

nfr

om

org

aniz

atio

ns

such

as

the

Co

mm

unity

Chest

and

the

Jo

ckey

Clu

b

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ng

Ko

ng

AID

SF

ound

atio

n;

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ng

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ng

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on

Sm

okin

gand

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Co

mm

unity

Ad

vis

ory

Dru

gC

ouncil;

Po

Leung

Kuk

10.

Private

or

pub

licly

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ted

co

mp

any

with

pub

lic

functio

ns

Esta

blis

hed

by

its

ow

nco

nstitu

tio

np

urs

uant

toth

eC

om

panie

s

Ord

inance,

op

era

ting

und

er

a

co

ntr

act,

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e,

build

-ow

n-

op

era

teag

reem

ent

or

the

like

with

go

vern

ment

Co

mp

any

co

ntr

acts

with

go

vern

ment

tom

anag

ea

pub

licfu

nctio

nat

a

pro

fit

toth

eco

mp

any

but

with

co

ntr

ols

over

prices

and

sta

nd

ard

s.

Go

vern

ment

may

als

ole

gis

late

or

issue

directives

inre

gard

toth

e

op

era

ting

arr

ang

em

ents

Bus

co

mp

anie

s;

tunnelco

mp

anie

s;

oth

er

co

mp

anie

sp

erf

orm

ing

vario

us

form

er

go

vern

ment

activitie

so

nan

outs

ourc

ing

basis

No

te:O

rdin

ances

inH

ong

Ko

ng

are

the

eq

uiv

ale

nt

ofsta

tute

sels

ew

here

.T

hanks

toIa

nT

hynne

for

assis

tance

with

this

tab

le,p

art

icula

rly

inid

entify

ing

the

typ

es

of

org

aniz

atio

ns

and

their

leg

alfo

und

atio

ns.

ORGANIZATIONS IN THE PUBLIC SECTOR IN HONG KONG 251

been more conscious government efforts to structure the public sector in morecomplex ways which are better suited to the needs of a sophisticatedcommunity? If so, how do we understand the types of organizations that haveemerged? In the following sections, some tentative answers are provided tothese questions. The discussion essentially seeks to identify the principalhistorical factors which continue to have relevance and which have shaped thepresent system of government and public sector organizations.

Colonial administration

From the standpoint of the organizational theorist or the New Public Managementschool, there is much of interest in British colonial administration, not leastbecause it was often able to deliver efficient and inexpensive government with aminimal use of resources. Although there were vast differences between thecolonies in terms of their economies and social structures, a commonadministrative structure was usually imposed, largely because the imperialgovernment wanted to run its colonies as cheaply as possible. Changes weremade to accommodate local conditions but there was also a sometimes implicit,sometimes explicit, organizational design from which the colonies were expectedto draw. The model was developed in the latter half of the 19th century and isoften described as Weberian in the sense that its principal components are acentralized hierarchical organization, recruitment by merit, full-time employmentand tenure for life. In the Hong Kong case, because colonial governmentpersisted for so long, from 1841 to 1997, there is an opportunity to see how thebasic colonial model evolved and how it was eventually able to accommodate adiverse range of social and political pressures.

The origins of the system

British Colonial Office officials first undertook bureaucratic reform in the colony in1862 after the findings of a Commission of Inquiry into corruption and the badlysoured relations among the senior civil servants had caused an outcry both in theterritory and in London (Endacott, 1964: 107–108; Welsh, 1993: 231). There wasno sense of unity in the local administration. Until 1858, senior officialssometimes voted against each other in the Legislative Council and there wasconstant friction over jurisdiction. Before the reforms, the senior levels of thegovernment included placemen who owed their loyalty to their patrons, saw theirrole as ‘‘honorific’’ in the Weberian sense (Weber, 1991: 214), and weresometimes incompetent and corrupt. The reforms introduced in 1862 saw morequalified new recruits to senior positions, a requirement that these cadets (asthey were known) spoke Cantonese, and an underlying assumption that

252 I. SCOTT

generalists, often recruited from the Arts faculties of the older British universities,were the most suitable people to run the administration. The cadets were theforerunners of the administrative grade which continued to occupy powerful,fused political/administrative positions until the introduction of a system ofpolitical oversight in 2002.

Where did these ideas about organizational reform come from? It seems mostlikely that the Colonial Office followed the reforms then being introduced in Britainas a result of the Northcote-Trevelyan Report of 1854, reforms which broughtabout the transformation of the British civil service into something more closelyapproaching a Weberian bureaucracy but which were not fully implemented until1920.

Another factor that may have been important was the constant pressureexerted on the government by the local business community, mostly British atthis time but also drawing on a growing Chinese middle class. Businessmenbelieved not only that the administration was inefficient and an obstacle toenterprise but also that it was far too expensive. In their repeated protestsagainst the extravagances of the colonial administration, often indirectlysupported by the Colonial Office, lay the origins of the Hong Kong government’ssometimes anxious efforts to keep government small and to balance its budget.

But there may also have been something else that resonates more widely ofthe relationship between the growth of capitalism and the creation of abureaucracy, between the impetus for modernization and the rational means ofregulating that process. In an environment where Hong Kong was beginning toestablish itself as a capitalist metropolis, businessmen may well have beenaggravated by the incompetencies of the administration because, as Weber(1991: 215) writes, ‘‘the capitalist market economy . . . demands that the officialbusiness of administration be discharged precisely, unambiguously, continu-ously, and with as much speed as possible.’’

Although businessmen acted as a spur for efforts to improve efficiency, it wasoften specific local events rather than their continuous criticism that resulted inchange. The introduction of the cadets in 1862 was a consequence of the factthat the only senior official in the government who could speak Cantonese wasfound to be corrupt and in league with pirates. The police force, which wasendemically corrupt, was reformed in the late 1860s. In the following decades,government finances were re-organized, hygiene and health problems wereaddressed, if not resolved, and some attempts were made to devise rudimentarysocial policies. The capacity of the administration increased as its governmentalstructures were rationalized and its revenue base grew.

A fundamental issue was the question of how the colonizer would deal with thecolonized. Unlike many other British colonies, there were no indigenous elites onHong Kong island or the Kowloon peninsula with whom the government coulddeal. In consequence, the authorities looked to immigrant Chinese social andbusiness elites to provide control over the society which in other colonies mighthave been exercised by traditional leaders. However, in the New Territories

ORGANIZATIONS IN THE PUBLIC SECTOR IN HONG KONG 253

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

Government and society

To deal with the problems of society in policy terms, the Hong Kong governmenthad to work out some broader form of modus vivendi with its inhabitants and withthe institutions to which they related. In the early years of the colony, it wasconstrained in important respects by the shortfall in revenue which meant that itwas spending beyond its means. It was unlikely, in any event, that a budgetarysurplus would have persuaded the administration to increase its social policyexpenditure. Neither the times nor the business community would have permittedwhat would have been perceived as profligacy. Instead, the governmentessentially contracted out social policy to non-government organizations,principally at first to missionaries in the education and health fields, butincreasingly also to Chinese charitable organizations.

It was here that the interface between the administration and the societybecame important. The relationship was regulated by ordinances but it also sooncame to have political significance beyond the delivery of social services. In1870, 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 ofcharitable organizations, especially the Po Leung Kuk and the District WatchCommittee (an important force for maintaining local security), were formallyrecognized as political leaders of Chinese society and appointed to governmentadvisory committees. At the same time, the fierce critics of government in thebusiness circles were offered places on other advisory committees and in theLegislative and Executive Councils. Government became a closed shop. Therewere no elections and little dissent, and bureaucratic power increased becauseof the centrality of senior civil servants in the structure of government and itsancillary organizations. In the literal sense of bureaucracy—‘‘rule by bureaus’’—Hong Kong was a bureaucracy and remained so until 1985.

With the political system in place, the government turned its attention to theproblems facing the society. The early 20th century saw a spate of regulatorylegislation designed to improve standards of hygiene, to control schools, and,most important, to regulate associations/societies. Because the government wasnot interested in taking on new functions and did not have sufficient staff toadminister comprehensive policies, the principal means of dealing with problemswas through regulation and the prohibition of certain kinds of anti-socialbehavior. This eventually had some effect in improving sanitation and hygieneand led to the appearance of a new organizational form within the government.Thus the Sanitary Board, as an early example of a statutory body, becameresponsible for the implementation of the health regulations. From 1886, it was

254 I. SCOTT

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 atmonitoring organizations with the potential to create dissent or to de-stabilize thecolonial regime. It gave the government wide powers to refuse to registersocieties, in which case they became illegal, or to suspend or to de-registerthem. Likewise, the 1927 Illegal Strikes and Lockouts Ordinance was intended toprevent labor from bringing the economy to a halt and to control the developmentof unions.

Although regulatory legislation was central to the colonial administration’sattempts to maintain stability and to resolve social problems, it was not alwayssuccessful. The Societies Ordinance proved to be ineffective and was amendedin 1920, just as the creation of the Urban Council and the introduction of tighterregulations on hygiene did not prevent the outbreak of epidemics in the late1930s.

In a more positive sense, legislation was used to establish a relationshipbetween government and the voluntary welfare organizations, many of whichwere 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 ofservices in education and health by organizations beyond the government. It wasnot a system that required a large government, but it was sufficient to deal withthe problems that the colony faced within the limited confines of its bureaucraticcapability.

The administrative machine

The limited confines were reflected in the structure of a government thatremained small and distant from the people that it sought to rule. Between 1914and 1939, the civil service establishment grew from about 4400 posts to just over10,000 (Miners, 1987: 79). It had minimal policy-making capabilities. The engineroom of government, the source of all major official decrees, was the ColonialSecretariat which, until the 1950s, was housed in a two-storey building of dignityand antiquity, not unlike a baronial mansion (Wilson, 2000: 66). The cadetsdominated the Secretariat. Since they controled the flow of money andinformation and decided on what proposals from the departments would goforward, they were enormously powerful. The Governor was no check on theiractivities because he was often either drawn from their numbers or effectivelycontroled by his Colonial Secretary (Perham, 1960: 187).

Departments revolved around the Secretariat and constituted, in effect, theonly mold into which governmental activities were permitted to fit; even theKowloon–Canton Railway, founded in 1910, was set up and remained for manyyears as a government department rather than as a separate, commerciallyviable organization. The departments were characterized by rigidly observed

ORGANIZATIONS IN THE PUBLIC SECTOR IN HONG KONG 255

hierarchies and resembled a steep pyramid with few senior officials but with avery broad base at the bottom. Problems tended to be addressed by recruitingmore people to the base of the pyramid. The results of this structure were thatline implementation was very effective but that coordination, such as might bedesired for social policy implementation, was very poor (Scott, 1987).

Over time, this system gradually ossified; decisions took longer and longer toreach and concerned matters of less and less importance. The nature of thestructure also meant that the administrative elite did not have the capacity toundertake new and innovative policies, a feature reflected in the ColonialSecretariat’s increasing concentration on minutiae. Policy-making, in conse-quence, was almost invariably incremental.

Yet, despite its considerable weaknesses, this system of administration wasnot without its strengths. It was, first, an appropriate system for the minimal goalsof the government. With its limited resources, the government had to make thebest use of its manpower. A centralized, hierarchical system with inexpensiverecruitment at the base of the pyramid was the most appropriate means ofachieving that end. Second, the structure itself was appropriate for theimplementation of policies. If the main objectives of the regime were to sustainitself in power and to provide for peace, order and good government, it needed tobe able to respond quickly in routine situations. Most of the problems with whichit was confronted were not to do with the formulation of social policies, for mostof these were in the hands of the voluntary organizations. Rather, they were to dowith crises of various kinds—epidemics and challenges to the government’sauthority in the form of strikes, boycotts, demonstrations and riots—which werebest dealt with by a structure which could relay decisions quickly down throughthe hierarchy. Third, the government did develop administrative capacity insequential, incremental steps: it solved the problems of unity within the civilservice and the allocation of responsibilities and jurisdictions within departments,set out values to establish the civil service as meritocratic and as corruption-freeas possible, and re-organized government finances to reflect the principles offiscal frugality and balanced budgets. In this sense, despite its weak policy-making capabilities, it was an efficient and successful system, especially inroutine situations.

Post-war policies

The system became somewhat less efficient after World War II when theprevailing organizational form was increasingly less suited to the changingpolitical, social and economic situation. The government faced major socialproblems resulting from a quadrupling of the population in the space of sevenyears after the war and the communist threat of infiltration of the schools and thelabor movement. None of these problems was really amenable to control bymeans of the regulatory strategy of the pre-war period or by incremental policy-

256 I. SCOTT

making. Yet the structure of government did not change to accommodate thenew situation.

After the war there was some effort to make Hong Kong more democratic andto widen the powers of the Urban Council, but it failed in the face of thecommunist threat and unsympathetic local elites (Tsang, 1988: 116). A laterattempt to expand the powers of the Council in 1966 was equally unsuccessful(Hong Kong Government, 1966a). Despite the level of economic development, noprogress 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. ADevelopment Secretariat was created after World War II but, by 1951, itscomponents had reverted to traditional departmental form.

By early 1966, shortly before the riots that were to alter fundamentally thenature of government in Hong Kong, the structure of government had scarcelychanged from its pre-war configuration. The civil service’s strength was just over65,000 officials, employed in 30 departments. The largest of the departments, asit always had been and still remains, was the Police Department, followed byUrban Services, Medical and Health, and Education (Hong Kong Government,1966b, Table 1). There was little to impel change from the top. The Governorswho held office between 1947 and 1971, Grantham, Black and Trench, had allserved in the Colonial Secretariat. Grantham was critical of the Secretariat anddid give more authority to professional officers, but neither Black nor Trench sawanything really wrong with the existing structure.

Although there was little change in the structure of government, there wassome expansion of its functions. The squatter problem and the Shek Kip Mei fireof 1953 persuaded the government to launch a public housing program and tocreate 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 thesquatters for more economic purposes. In education, the government decided toprovide public education at the primary level on a far greater scale than it haddone previously, largely because of the perceived threat of communist infiltrationof schools. These changes led to far greater social policy outputs in the 1970s,but they were not sufficient to prevent the Kowloon riots of 1966. In response, thegovernment appointed a Commission of Enquiry whose recommendations weregradually adopted over the next decade and which were to lead to majorchanges 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 theregime by removing some of the most unacceptable social conditions,particularly sub-standard housing. They were to be supplemented by the vastexpansion of school places, hospital beds and health facilities, and social welfare

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provision. These changes were pressed forward forcefully by a new Governor, SirMurray (later Lord) MacLehose (1971–1982). However, he soon realized that theexisting structure of government was inadequate to achieve his goals. Thus theMcKinsey consultants were employed in 1972 to devise a more efficientframework to deliver services without making any fundamental changes to thesystem of government (McKinsey, 1973). In 1973, they came up with a system ofpolicy branches which supervised and provided policy direction for a number ofrelated departments under their jurisdiction. The branches were stacked with theadministrative grade, the successors to the cadets, and reported through theirpolicy secretary to the Chief Secretary. The Financial Secretary, at his insistence,retained his old authority and status, as did the Attorney-General. The effect ofthe reforms was liberating, however, in the sense that the policy secretaries hadmore discretion and that the proposals did not, as they had previously, get lostfor months in the bowels of the Colonial Secretariat. In any event, MacLehosewas impatient to bring about change and wanted a system that would reach andimplement decisions quickly.

MacLehose faced other critical problems before the new system could beproperly bedded down. In 1973, in a case that caused outrage in the community,an expatriate police officer, arraigned on corruption charges, jumped bail andfled the colony. He was extradited and eventually charged and convicted in HongKong. But the incident pointed to syndicated corruption in the police force and,as it turned out, in some other government departments as well. MacLehose setup an ICAC with wide powers in 1974. The organization was established under anordinance and staffed by officers often drawn from government but appointed oncontract. The Commission had to be established as a statutory body semi-independent of government, if only because the previous Anti-Corruption Bureauin the Police Force had clearly lost the confidence of the public. It did,nonetheless, represent a step away from the traditional format of the departmentand provided something of a model for later statutory bodies operating close to,but not within, the ambit of government.

Many of MacLehose’s other policy goals could not be accomplished bydepartments which functioned in their normal way. The decision to create theMass Transit Railway, initially as a statutory corporation, meant that it could incurdebt underwritten by the government but that it would eventually return a profit(Legislative Council Debates, 1975: 662). It followed that the Kowloon-CantonRailway should be treated in a similar way and it, too, became a statutorycorporation. The provision of public housing on a massive scale led to theincorporation of the Housing Authority. The government did not see this as a newform of organization, however, but rather as a rationalization of previous practice.

There were also increasing attempts to involve the community in the work ofgovernment and to develop a sense of citizenship. This led to the creation ofvarious organizations at the interface between government and the community.Even before MacLehose arrived, a City District Officer scheme had beenestablished which was intended to pick up and deal with complaints at the

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district level and to act as a broker with other government departments to resolvecomplaints. This was supplemented by Mutual Aid Committees in the apartmentblocks, which were assisted in their work by government officials, and by a rangeof schemes and programs focusing on community development. Not all of theseschemes worked well, but they did show that the government was thinking, inorganizational terms, outside its traditional structural format.

Between 1973 and 1982, the strength of the Hong Kong civil service grew from89,941 to 154,034, an increase of approximately 42% (Civil Service Branch,1973–1982). Although the cost of emoluments rose over eight-fold, the futurecost was masked to some extent by a buoyant economy, by the fact that some 8or 9% of positions remained unfilled, and because the new recruits came in atrelatively young ages and on the bottom point of the incremental scale.Nonetheless, this could scarcely be called small government and the adminis-tration became increasingly concerned about problems of cost and of thedelivery of quality services which the population and emerging pressure groupswere increasingly demanding. Clearly, the costs of government were risingparticularly rapidly in the social policy areas where the government had begun torecruit many more professionals, themselves a potential source of friction in ageneralist-dominated administration.

By the 1980s, these problems, together with the changing political climate ofHong Kong, persuaded the government to look more favorably on devolvinggovernment activities. The 1984 Sino-British agreement ushered in an era ofconsiderable anxiety, demands for more representative government, and a muchmore politicized public. By this stage, the government had also become themajor provider of many social services which were beginning to generate asubstantial volume of complaints about the standard of services. In 1985, thegovernment employed the consultants W. D. Scott and Company to advise onthe establishment of a Hospital Authority. The authority was set up in 1989 as astatutory body, with the responsibility for the administration of all governmenthospitals and drawing its staff mainly from former civil servants in the Medicaland Health Department.

In 1988, the government also increased the financial powers of the HousingAuthority and endorsed its long-term housing strategy. A similar model of astatutory body with considerable financial flexibility was adopted in the 1990swhen the government decided to build a new airport. In common with theHousing and Hospital Authorities, the Airport Authority is an organization which isrequired to make large capital expenditures. To separate these bodies fromgovernment made sense in the 1980s and 1990s because they seemed to solve anumber of different problems, removing potential trouble areas from governmentand providing a framework which was expected to deliver services moreefficiently than traditional departments. From the government’s standpoint, thenew structures served both to deflect criticism and, because civil servants weretransferred to them, to give the impression that the civil service itself had ceasedto grow at such a rapid rate.

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By the 1990s, the tension between the government and the people over theslow pace of democratic development and the friction with the Chinesegovernment over the electoral reforms that Patten (who became Governor in1992) had introduced were more than sufficient to occupy the attention of thegovernment. However, the government did begin to experiment with other formsof public sector organization, partly perhaps to relieve the pressure it wasexperiencing on the political front. In 1992, it hived off the Hong Kong MonetaryAuthority from the Finance Branch, setting it up, in effect, as a central bank. In1993, it passed legislation to allow departments to operate as trading funds ifthey were commercially viable. Six trading funds were established: the LandsRegistry; the Companies Registry, the Office of the Telecommunication Authority,the Post Office, the Electrical and Mechanical Services Department, and theSewage Services Department. The latter ceased to be a trading fund afterLegislative Councillors objected to its plans to raise charges, and the other fundshave also been criticized because of their continuing monopoly situations andbecause they do not have the right to set their own prices (Cheung, 2001; Huqueet al., 1999). Such initiatives as the trading funds legislation are evidence that theHong Kong government was becoming more attracted to the idea of introducingprivate sector management practices into the civil service, especially since boththe Mass Transit Railway and the Kowloon–Canton Railway had provedcommercially successful. There was certainly more talk of improving manage-ment, with the government’s Efficiency Unit developing programs in humanresource management and, more generally, providing a framework for changewhich might have led to radical changes (Civil Service Branch, 1995a, 1995b).However, implementation was constrained by the political sensitivities of thetransitional period and the basic structure of government remained essentiallyunaffected.

The transitional period also saw the creation of some semi-independent publicsector organizations which were designed to assuage fears about possibleviolations of future civil liberties by a repressive government. A Bill of Rights waspassed, an Equal Opportunities Commission was established, a PrivacyCommissioner was appointed and legislation was passed to protect personaldata, and the powers of the Ombudsman were strengthened. In form, the neworganizations are not unlike the ICAC, and they were set up in that form for thesame general reason: the need to assure the public that their activities wouldhave a degree of independence from government. Like the ICAC, the PrivacyCommissioner and the Equal Opportunities Commission are reliant on thegovernment for their funding and staff. Unlike the ICAC, they are established byexecutive orders or decisions rather than by an ordinance, which prima faciemakes them less independent of the government. But, at the time of theircreation and in the charged political atmosphere of transitional Hong Kong, theyhad some symbolic significance as organizations which might help to providesome protection from the potentially untrammelled executive authority of a post-1997 regime.

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Post-1997 developments

Since Hong Kong’s retrocession to China, two factors have influenced the formand structure of the civil service and its relationship with quasi-government andprivate organizations. The first of these relates to moves to reform the civilservice and to strengthen the political executive. The second is the still-not-fully-realized aim of corporatizing and privatizing more government departmentsand statutory bodies and introducing more private sector practices in theremaining departments. Neither factor, however, is entirely removed frompractical considerations which may require the government to intervene in theeconomy or to re-centralize some of its functions. The government remainsdriven as much by immediate political concerns and functional needs as it is byideology.

Reforming the civil service and strengthening the political executive

The political executive that came to power in Hong Kong in July 1997 was notnecessarily committed to the structure that had survived in gradually modifiedform since the 1860s. During the transitional period, however, there was anagreement between the British and Chinese sides that nothing should be doneto destabilize the civil service (Scott, 2000). For example, the Basic Law, HongKong’s post-1997 constitutional arrangement, specifies that civil servants shallcontinue to enjoy salaries and conditions of service no less favorable thanbefore 1997. The Chinese government confirmed all the serving policysecretaries in their positions so that there was apparent continuity with theprevious system. The political executive, that is, the Chief Executive and theExecutive Council, however, was drawn mainly from business elites who hadbeen sympathetic to the Chinese government both during and, in some cases,prior to the transition. They held attitudes towards the civil service which werenot so different from those of their business predecessors a century before.They believed that the civil service was over-staffed and over-paid; some alsosaw it as a colonial relic and an obstacle to achieving their policy goals. This setthe stage for potentially radical change in the civil service, both to its structureand to the conditions of service of its personnel. Thus, in 1999, the Civil ServiceBureau produced a document which presaged wide changes in recruitment,tenure, pay and performance management, and discipline (Civil Service Bureau,1999; Burns, 2002: 283–284). Reductions to civil service pay were made in 2002and 2003.

In July 2002, a new system was introduced in which the Principal Officials whohad previously been the civil servants holding the positions of policy secretarieswere replaced with political appointees on contract (Constitutional AffairsBureau, 2002). Nine of the new appointees had formerly been senior civil

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servants and policy secretaries but the other five were drawn directly fromoutside the civil service. The new system institutes, for the first time in HongKong, political heads of government bureaus and is probably intended tostrengthen the political executive at the expense of the civil service. The PrincipalOfficials are appointed by the Chief Executive and are accountable to him fortheir performance. They are not directly accountable to the Legislative Council,although they are expected to debate policies and answer questions in theCouncil.

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 toreform the system and install political heads in the bureaus and departments. Itis evident, however, that tenure and incremental salaries are under threat andthat political leaders favor a more flexible civil service in which there would begreater movement of officials between core government and the public sectorbeyond the civil service and vice-versa. There may also be changes within thecivil service to the way in which bureaus and departments relate to one another.The Principal Officials have been given until July 2003 to devise a newrelationship between the bureaus and the departments. Some have alreadydecided to merge the two, a development that has done away with theseparation of policy from administration and which potentially opens the way toa major decline in the power and influence of the administrative grade. Adedicated policy-making grade will no longer be necessary if bureaus anddepartments are merged.

Corporatization and privatization

With the accession to power of those who were convinced of the benefits ofprivate sector practices in the public sector, one might have expected a greaterdegree of structural devolution and the creation of more statutory bodies thanhas actually been the case. There is no doubt that the government is committedto an accelerated program of corporatization and privatization. However, thestate of Hong Kong’s economy, and the measures taken to try to reduce itsstructural deficit, have clearly been constraining factors in attempts to increasecorporatization and privatization. The market conditions have not been suitablefor floating new commercial ventures. The only major development in this respecthas been the decision to reconstitute the Mass Transit Railway Corporation as acompany and to sell 23% of its shares through a public float. There have beenindications that the government will also move to merge the two railwayorganizations (Tsang, 2002), and there has been a concerted effort to increasethe level of outsourcing, driven perhaps by cost considerations and by a desire tohelp the private sector in troubled times (Efficiency Unit, 2001a, 2001b). Thepost-1997 period has also seen the creation of some new statutory bodies, suchas the Urban Renewal Authority.

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Re-centralization

Despite its inclination towards more corporatization and privatization, thegovernment has not been averse to re-centralizing the powers and functions ofpublic bodies within the civil service. In 1999, after lengthy consultation, itdecided to abolish the elected Urban and Regional Councils and to bring thefunctions carried out by the Urban Services Department under a new Departmentof Environment and Food. The reasons for this move were attributed to thesearch for greater efficiencies and the need to avoid structures which duplicatedone another. Many of the government’s critics, however, saw the re-organizationas a response to the Urban Services Department’s poor handling of the avian flu’crisis (Huque and Lee, 2000: 46–64).

A similar argument might have been made in the case of the decision in 2002 tobring the Housing Authority more within the ambit of government. In 1999, twohousing 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 resignationof the chair of the Housing Authority, and the conviction of some officials andcontractors on corruption charges. In its re-organization of the Authority in 2002,the government argued that there were overlapping functions and confusionbetween the responsibilities of the Housing Authority (a statutory body) and theHousing Department, which was part of the civil service (Chief Secretary, 2002).The new structure merged the Bureau and Department within government andenvisages that the financing role of the Housing Authority will return togovernment. The Housing Authority is to take on a more advisory role and is tobe chaired by the Principal Official responsible for Housing.

As these examples illustrate, the government has shown no reluctance tointervene in the public sector to reconstitute it in ways that it deems to beappropriate. Indeed, in some respects, it has been more interventionist than itscolonial predecessor. Its decision to support the stock market by buying sharesin 1998 and the rather looser regulations that now seem to apply to themovement of senior officials between the civil service and the rest of the publicsector, for example, indicate that it does not see either non-intervention in themarket or the separation of the civil service from the rest of the public sector tobe sacrosanct. The present concerns with reducing the size of the civil serviceand attempting to balance the budget may mean that any structural options thatare open and which save money will have some appeal. Structural changes mayalso be driven by the political perception that the civil service needs to be shakenup to achieve ambitious policy goals. The danger is that, in the process of makingthese changes, the government could fall into the trap of many post-colonialgovernments of assuming that structural reform is the solution to its problems. Ifthis process deteriorates into ad hoc and uncoordinated change for the sake ofchange, as it has in many former colonies, the only outcomes are likely to beconfusion in the lines of authority and further loss of morale among civil servantsand other public sector employees.

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Conclusions

To date, the Hong Kong public sector has evolved in ways which do not suggestthat the reasons for devolving more functions to quasi-government and privateorganizations have been purely ad hoc and/or opportunistic. Rather, thestructural changes can be seen in terms of three broad categories, all of whichrelate to the functional needs of the government.

The first area of importance has been that of providing social services to thepopulation. Out of necessity, the government initially had to rely on private sectorproviders to perform these functions; but, in doing so, it clearly had aresponsibility to ensure that such services were provided in ways which metagreed standards and which spent whatever public funds were granted in a cost-efficient and effective manner. The relationships between government andprivate sector providers have often been governed by incorporation underspecial ordinances, and have been subject to increasingly explicit provisionsregarding funding. With a model in existence, it has been relatively simple overthe years to fit in new voluntary organizations as they have emerged. Therelationships have changed in some areas, such as education and health, asgovernment itself has assumed a more prominent role as a provider, but themodel has remained because private sector providers were themselves well-established long before government took on a more active role.

A second area of importance has been the development of organizationalforms for commercial bodies owned by government. The first government-ownedcommercial operation probably dates to the establishment of the Kowloon-Canton Railway as a department in 1910. However, the first explicit recognition ofa government-owned commercial operation was the creation of the Mass TransitRailway Corporation as a statutory corporation in 1975. The Financial Secretaryof the time saw this as a new organizational form for Hong Kong and one whichmight provide a model for the future, even though it followed a practice whichwas well-established and long familiar in other countries and territories(Legislative Council Debates, 1975: 659). In the 1970s, the government wasalso learning how to structure its relationship with private companies whichprovided public services, particularly those in the transport field. Schemes ofcontrol were developed to monitor the performance and standards of theelectricity and bus companies, and legislation was passed to allow the tunnelcompanies to operate at a profit for a specified period of time before handing thetunnels back to government. Precedent was again important. New organizationalrelationships, if they worked successfully, provided the analogy for futuredevelopments.

The third source of functional need, the creation of public bodies partlyindependent of government, also has a long historical pedigree. The formal needfor an independent judiciary and a government auditor saw precedentsestablished early. The creation of a Public Service Commission in 1950 wasalso a step in the recognition of the need for non-departmental public bodies

264 I. SCOTT

which could not be expected to generate their own income but whichnonetheless performed critical functions. Since 1974, with the creation of theICAC, there has been a considerable expansion in the number of these bodies,many of which draw on the ICAC’s relationship with government as the model forthe conditions under which their staff work and the way in which they enjoy adegree of autonomy. These include the Ombudsman, the Equal OpportunitiesCommission, and, possibly, the Independent Police Complaints Council which issoon to be established as a statutory body. In each of these cases, the value ofindependence from government, and public confidence as a result of thatindependence, has been the critical reason for the establishment of theorganization in that form. Nonetheless, it should be recognized that theirindependence from government may be more symbolic than real. There are bothlegal constraints on their independence, especially in the case of those set up byan executive order or decision, and funding constraints which may limit theextent of their operations. The reason for the creation of these bodies was tobolster public confidence, but their successful operation may depend on theirdemonstrating independence in their work. The public holds the courts, the AuditCommission and the ICAC in esteem because they have shown that ability to actindependently of government over time. Newer organizations such as the EqualOpportunities 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 inexplaining the growth of the civil service and the wider public sector in HongKong. It could be argued that, in an effort to return to the small government andnon-interventionist market philosophy to which the government still stronglysubscribes, the expansion of the public sector beyond the civil service was aconvenient way of divesting government of the large numbers of civil servantsand the consequently large salary bill that it had acquired during the MacLehoseera. Yet public expenditure as a whole has continued to rise, and public sectorsalaries have remained a cause for concern.

Although the argument that government should remain small has certainlybeen used as a rationalization for the creation of new statutory bodies, it is notclear that this has always been the reason for their introduction. Rather, particularevents such as the corruption crisis of 1974, structural convenience such as thecreation of the Monetary Authority in 1992, and political considerations such asthe establishment of organizations protecting civil liberties in the 1990s, appearto have been more important. The related argument that statutory bodies will bemore efficient and cost-effective because they will be less encumbered by thecivil service regulations seems equally implausible as a reason for their creation.It may be that some statutory bodies do operate more efficiently than they wouldwithin the civil service. But this argument has not prevented the government frombringing statutory bodies back into the civil service or from creating new unitswithin government if it sees the need, even when, such as in the case of theHousing Authority, it has previously argued that they would be more successful

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as semi-independent organizations. It would appear, then, that the considerablerecent growth of the public sector, far from embodying a commitment to amarket philosophy and to small government, has been a response to thefunctional needs of a more sophisticated economy and society and to specificpolitical 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,

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