Dr Tingting Fan

4 December 2024

When we listen to music through our earphones these days, do we realize that over 30% of it is already produced by AI? Last year, the AI-generated song “Heart on My Sleeve” got 20 million hits on Spotify. Early this year, the burgeoning AI-generated music scene drove Universal Music, the world’s leading music company, to remove all its records from TikTok, the largest platform for short-form mobile videos. After the two companies reached an agreement in mid-2024, TikTok agrees to label all AI music footage accordingly. The impact of AI technology on the music industry has been fast and furious.

Cause for celebration or concern

With the progress in AI technology, major technology companies have extended their reach over the music industry. For example, the text-to-music model named MusicGen was launched by Meta to users in 2023. The Stable Audio 2.0 model, introduced by Stability AI this year, even allows users to upload existing music to generate new tracks in a completely different style. The acoustic quality is comparable to that of a vinyl record.

It is a cause for celebration because AI enables ordinary people, who are not music professionals, to not only “create” music with ease but also earn money from these “creative” works. Boomy, an American start-up, supports users in uploading their AI-generated music to Spotify and other streaming platforms for a commission.

That being said, it is a cause for concern because if music can be “created” by an AI model, would professional musicians find themselves out of a job? Given the five consecutive months of protest from Hollywood actors and screenwriters in 2023, the looming fear is clear as day.

As a matter of fact, the great concern is not unjustified. In 2017, 87% of music tracks played on Spotify were from singers signed with record labels. By 2022, this percentage fell to 75%. As of 2023, over 100 million pieces of music were generated by AI, taking up around 30% of our music-listening time. The revenue generated by the AI music market is projected by industry members to reach US$7 billion by 2026, while AI music is expected to have a 50% share of the music sector by 2030.

Quantity or quality

At present, the advantages of AI-generated music lie in speed and quantity. Boomy claims that in just a few years, there are already 18 million pieces of AI-generated music, whereas only 100 million pieces of old and new music spanning all time periods have found their way to Spotify so far. Nevertheless, does the quality of AI-composed music rival that of the creative works by professional musicians? So far, the works created by AI have been based on past music. With the rapid growth in quantity, the quality of AI-generated music will eventually regress to the mean. When the excitement over this new technology wears off for the public, will people tire of AI-produced music and turn to works by music artists? Alternatively, one wonders if a “scientific division of labour” is possible, whereby AI-generated music serves as low-cost background music while the concert stage is reserved for music artists’ works to shine.

When it comes to people’s requirements for music, quantity and quality are never mutually exclusive. Striking a balance between the two is something that both AI companies and music artists should explore.

As a matter of fact, both music artists and record companies, which rely on music copyrights to survive, are on the receiving end of AI-generated music’s vexing challenge. The music works owned by record companies provide the raw materials for AI models to “create” new music after learning their characteristics. But should AI companies be obliged to pay royalties for these raw materials? And should AI-created music be under copyright protection?

Recent years have seen increasing challenges arising from these issues. In 2023, for instance, Universal Music accused Anthropic, an AI company with investments from Google and Amazon of illegally using works owned by Universal Music to train Anthropic’s AI models. In its defence, the company claims that using existing music to train AI models does not constitute copyright infringement.

Challenge or opportunity

Since advancements in AI technology have far outpaced developments in intellectual-property laws, these problems without quick solutions have become a grey area, presenting both challenges and opportunities for record companies and AI technology companies. In retrospect, this is not the first time music publishers have encountered copyright challenges. The late 20th century saw the migration of music from CDs to electronic MP3 files, which, coupled with the rise of sharing platforms like Napster, led to rampant pirated music that pushed many record companies out of business. It took an entire decade for record companies to develop a business model more profitable than the traditional approach of selling CDs and to eventually reach agreements with music streaming platforms regarding music copyright.

Taking lessons from history and embracing the unstoppable trend of AI music, record companies no longer regard it as an uncontrollable beast. Instead, they are striving to devise a new business model that can enable music copyrights to bring greater profit in the AI era. Robert Kyncl, CEO of Warner Music Group, once says that simply rejecting AI and fighting against it is out of the question. In promoting legal definition and protection of music copyright, record companies actively use AI to facilitate music creation by professional artists in cheaper and faster ways on the one hand. For example, AI is harnessed to produce multilingual versions of podcasts for the enjoyment of audiences around the world. Machine learning has even been used to extract a muddled demo song left behind by the Beatles’ lead singer, John Lennon, in 1973. The recent release not only gave new life to the song “Now and Then” but also reignited enthusiasm for their Beatles’ classic ballads. On the other hand, AI models are also trained to precisely detect copyright-infringing music for litigation purposes, if necessary. Additionally, record companies may even roll out a two-pronged carrot-and-stick strategy to protest against copyright infringement by AI companies while leveraging their advantage as copyright owners to become market pioneers through closer cooperation with AI companies.

Two centuries ago, the Fate Symphony strikes a chord with us, helping us to empathize with Beethoven’s struggle against destiny after losing his hearing. Two centuries later, if Beethoven came back to life, could AI restore his hearing to inspire him to compose even more masterpieces for posterity? Two hundred years ago, through musical notes, Beethoven issued the rallying cry: “Listen! Fate is knocking at the door!” Today, two hundred years later, hopefully the door opened by AI will lead to a new era of human creativity!

美國大選結果折射出的避責文化

互相指摘或卸責，也許只是個人沒擔當的怯懦行為，但放大到社會層面，就足以產生混淆公眾視聽的惡果。政治人物往往透過彼此指摘來轉移視線，力求貶低對手而抬高自己。在競爭白熱化的選舉中，不惜一切推卸責任已成政客的慣技，或對選舉結果以至未來管治和政策帶來難以想像的衝擊。

民主黨敗選背後

本月美國總統選舉結果塵埃落定，共和黨特朗普以壓倒性姿態勝出。賀錦麗慘敗後，其所屬民主黨內隨即出現大舉卸責現象，矛頭直指拜登，歸咎他未能及時退選，陷賀錦麗於尷尬境地。不少黨內成員亦認為拜登年老退化，不受選民歡迎，雖然他及後宣布退選，賀錦麗仍因受選民支持度不足，未能於明年入主白宮。

與此同時，民主黨在國會改選中失去參議院和眾議院的控制權，較4年前表現更糟。根據《紐約時報》的分析，自拜登在2020年出任總統以來，美國3100多個縣的選民大都轉向右傾。民主黨向來標榜的支持墮胎權和民主立場，無法像經濟和移民等迫切議題引起選民共鳴。

儘管美國失業率現正維持在歷史低位，股市暢旺，但物價高、房租貴也是事實。拜登任內，物價上漲超過20%。康奈爾大學的經濟學家巴蘇（Kaushik Basu）指出，各種經濟指標之中，通脹對政治影響最大。一般人無需數據，也對通脹有切身感受。再者，《金融時報》的分析顯示，在今年舉行選舉的10個國家中，執政黨的表現都不如上屆選舉，相信也與高通脹有關。

根據民調，三分之二的美國選民對經濟給予劣評，收入較低的一群傾向於支持特朗普。2020年，他以15個百分點的差距失去收入介乎5萬至10萬的選民，但在這次選舉中卻逆轉獲勝。民主黨人似乎忽略了馬斯洛的需求層次理論（Maslow’s Hierarchy of Needs）：基本需要（如財務穩健和身心健康）必須先行，然後再滿足其他方面。在競選活動中，民主黨聚焦於民主等議題而忽略經濟。曾經是該黨核心的工人階級選民不再予以支持，因愈來愈多人按自身的經濟利益來投票。黨內對敗選結果莫衷一是，更出現互相指摘。如此反應，是否就能把選票贏回來？答案不言而喻。政治指摘伎倆層出不窮，皆因政黨或領導人藉此進行政治操弄，以便大權在握。

企業卸責文化

在商業環境中，互相指摘確也頗為普遍。譬如一家公司面臨存亡危機，責任的分配將直接影響其股價和投資者的信心。假使管理層只管找替罪羊，哪怕是象徵式的代罪羔羊，公司亦難逃衰敗的厄運。從管理學的研究可見，將公司失敗歸咎於外部因素的管理層，其整體表現往往不及承認自身責任並自我反省的公司。在瀕臨破產的企業中，可以看到不少經理將業績欠佳委過於其他部門。相反，管理層若有責任感，則有可能轉虧為盈，讓業務重上軌道。前事不忘，後事之師，只有汲取教訓，才能避免重蹈覆轍。

此外，互相指摘也足以助長風險規避文化，員工因害怕受責備而不敢主動行事，或礙於不願分享想法而窒礙創意。眾所周知，成功的企業有賴暢順的運作；管理層必須致力培養團隊合作精神，以解決公司內部的分歧。

「無過失」調查的啟示

反觀一些行業早已認識到指摘的弊端，例如航空業所以在降低意外事故一環取得成效，很大程度上受惠於「無過失」調查的程序。在美國，負責調查有關事故的國家運輸安全委員會明確表示，調查目的並非追究責任，而是找出問題並提出建議，以防同類事件重演。航空業不進行追責的事後調查，為現代航空安全奠下重要基石。

這種調查方式有助於建立開放的安全文化，鼓勵業界報憂，最終目的是確保減少意外事故。英國的航空監管機構在誠實錯誤和其他錯誤之間劃界線，也是個好的起點。航空公司致力於營造一種文化，使機師不會因為與其經驗和培訓相符的決定或疏忽而受到懲罰。這種做法並非完全免責，只是將責任範圍收窄而已。

醫療保健領域也面臨類似情況。一旦發生醫療事故，世界各地對病人的補償制度各有不同。例如英國依賴找出過失的訴訟程序，而紐西蘭則是全球最早實施醫療事故處理制度的國家。紐西蘭率先以「無過失補償」的程序來處理醫療事故，並於1974年成立意外補償局負責，接受因工作、交通或醫療事故導致的傷害賠償申請。在這一制度下，無論醫療措施或副作用造成的傷害是否可以避免，病人均可向補償局提出申請。只要問題與醫療診斷或決策相關，申請便可獲批准。該制度推行後，除非醫療人員的行為嚴重違法，否則紐西蘭患者幾乎無法向醫療機構提出訴訟。

在航空和醫療領域，從錯誤中學習的動機特強，因為從業員在工作中生命隨時受到威脅，安全無疑至關重要。因此，軟件工程師和開發人員經常進行「無過失的事後分析」，以調查網站失靈或伺服器故障等問題。一般人不易理解這種不追責的思維，心理學家James Reason在1990年代為此提出一個框架，以釋除大眾對無能和犯錯者逃避責罰的疑慮。

問責而非卸責

要逃避指摘其實並非易事。一、當事人為了避責往往要大費心力，但指摘別人反而是毫不費力的快速反應，而且容易令人入信。至於記錄錯誤並確保流程得以改進，則難免涉及結構性的變化。例如無過失事後分析長期以來已屬谷歌企業文化的一部分，該公司為此提供模板、反饋和討論小組。二、企業管理層既然大權在握，指摘屬下僱員也就輕而易舉。

加州大學聖地牙哥分校和新加坡南洋理工大學的學者最近合作發表一篇研究論文，指出當權者往往認為其他人會將失敗歸咎於他們。在一項實驗中，參與者被隨機分配為主管或工人，然後檢視有關錯誤的紀錄。參與者都收到道歉信，聲明網絡連接不穩定，以致任務無法正常完成。結果扮演主管者每多認定抄寫員應為失誤負責，主張剋扣其報酬。由此可見掌權與施罰之間的因果關係。

指摘別人似乎也具傳染性。2009年，心理學學者David Sherman 和 John Klein發表合著論文【註】，其中一個實驗要求參與者閱讀有關政治失敗的新聞，然後寫下政客的過失。讀到關於政客將失敗歸咎於特殊利益的報道時，參與者更可能將自己的失敗責任推卸給別人。至於讀到政客承擔責任的參與者，則更可能肯為自身的不足負責。同理，管理高層若輕易指摘別人，公司員工也會有樣學樣。如此一來，不難衍生出一種推卸責任的指摘文化。

不同文化對於失責和指摘的容忍度不盡相同。例如集體主義可能導致共同指摘，而在個人主義的文化中，個人指摘則較常見。相互指摘的經濟學強調人類行為與經濟結果之間的相互作用。了解這些動態關係當有助於機構創造出更具建設性的環境，減少諉過於人，以鼓勵問責和合作。

註：Sherman, D. K. and John M. Klein, “Failure to Blame: The Effect of Collective Blame on Self-Attribution.” Psychological Science, 2009.

謝國生博士
港大經管學院金融學首席講師、新界鄉議局當然執行委員

何敏淙先生
香港大學附屬學院講師

（本文同時於二零二四年十一月二十七日載於《信報》「龍虎山下」專欄）

美國大選結果折射出的避責文化

互相指摘或卸責，也許只是個人沒擔當的怯懦行為，但放大到社會層面，就足以產生混淆公眾視聽的惡果。政治人物往往透過彼此指摘來轉移視線，力求貶低對手而抬高自己。在競爭白熱化的選舉中，不惜一切推卸責任已成政客的慣技，或對選舉結果以至未來管治和政策帶來難以想像的衝擊。

民主黨敗選背後

本月美國總統選舉結果塵埃落定，共和黨特朗普以壓倒性姿態勝出。賀錦麗慘敗後，其所屬民主黨內隨即出現大舉卸責現象，矛頭直指拜登，歸咎他未能及時退選，陷賀錦麗於尷尬境地。不少黨內成員亦認為拜登年老退化，不受選民歡迎，雖然他及後宣布退選，賀錦麗仍因受選民支持度不足，未能於明年入主白宮。

與此同時，民主黨在國會改選中失去參議院和眾議院的控制權，較4年前表現更糟。根據《紐約時報》的分析，自拜登在2020年出任總統以來，美國3100多個縣的選民大都轉向右傾。民主黨向來標榜的支持墮胎權和民主立場，無法像經濟和移民等迫切議題引起選民共鳴。

儘管美國失業率現正維持在歷史低位，股市暢旺，但物價高、房租貴也是事實。拜登任內，物價上漲超過20%。康奈爾大學的經濟學家巴蘇（Kaushik Basu）指出，各種經濟指標之中，通脹對政治影響最大。一般人無需數據，也對通脹有切身感受。再者，《金融時報》的分析顯示，在今年舉行選舉的10個國家中，執政黨的表現都不如上屆選舉，相信也與高通脹有關。

根據民調，三分之二的美國選民對經濟給予劣評，收入較低的一群傾向於支持特朗普。2020年，他以15個百分點的差距失去收入介乎5萬至10萬的選民，但在這次選舉中卻逆轉獲勝。民主黨人似乎忽略了馬斯洛的需求層次理論（Maslow’s Hierarchy of Needs）：基本需要（如財務穩健和身心健康）必須先行，然後再滿足其他方面。在競選活動中，民主黨聚焦於民主等議題而忽略經濟。曾經是該黨核心的工人階級選民不再予以支持，因愈來愈多人按自身的經濟利益來投票。黨內對敗選結果莫衷一是，更出現互相指摘。如此反應，是否就能把選票贏回來？答案不言而喻。政治指摘伎倆層出不窮，皆因政黨或領導人藉此進行政治操弄，以便大權在握。

企業卸責文化

在商業環境中，互相指摘確也頗為普遍。譬如一家公司面臨存亡危機，責任的分配將直接影響其股價和投資者的信心。假使管理層只管找替罪羊，哪怕是象徵式的代罪羔羊，公司亦難逃衰敗的厄運。從管理學的研究可見，將公司失敗歸咎於外部因素的管理層，其整體表現往往不及承認自身責任並自我反省的公司。在瀕臨破產的企業中，可以看到不少經理將業績欠佳委過於其他部門。相反，管理層若有責任感，則有可能轉虧為盈，讓業務重上軌道。前事不忘，後事之師，只有汲取教訓，才能避免重蹈覆轍。

此外，互相指摘也足以助長風險規避文化，員工因害怕受責備而不敢主動行事，或礙於不願分享想法而窒礙創意。眾所周知，成功的企業有賴暢順的運作；管理層必須致力培養團隊合作精神，以解決公司內部的分歧。

「無過失」調查的啟示

反觀一些行業早已認識到指摘的弊端，例如航空業所以在降低意外事故一環取得成效，很大程度上受惠於「無過失」調查的程序。在美國，負責調查有關事故的國家運輸安全委員會明確表示，調查目的並非追究責任，而是找出問題並提出建議，以防同類事件重演。航空業不進行追責的事後調查，為現代航空安全奠下重要基石。

這種調查方式有助於建立開放的安全文化，鼓勵業界報憂，最終目的是確保減少意外事故。英國的航空監管機構在誠實錯誤和其他錯誤之間劃界線，也是個好的起點。航空公司致力於營造一種文化，使機師不會因為與其經驗和培訓相符的決定或疏忽而受到懲罰。這種做法並非完全免責，只是將責任範圍收窄而已。

醫療保健領域也面臨類似情況。一旦發生醫療事故，世界各地對病人的補償制度各有不同。例如英國依賴找出過失的訴訟程序，而紐西蘭則是全球最早實施醫療事故處理制度的國家。紐西蘭率先以「無過失補償」的程序來處理醫療事故，並於1974年成立意外補償局負責，接受因工作、交通或醫療事故導致的傷害賠償申請。在這一制度下，無論醫療措施或副作用造成的傷害是否可以避免，病人均可向補償局提出申請。只要問題與醫療診斷或決策相關，申請便可獲批准。該制度推行後，除非醫療人員的行為嚴重違法，否則紐西蘭患者幾乎無法向醫療機構提出訴訟。

在航空和醫療領域，從錯誤中學習的動機特強，因為從業員在工作中生命隨時受到威脅，安全無疑至關重要。因此，軟件工程師和開發人員經常進行「無過失的事後分析」，以調查網站失靈或伺服器故障等問題。一般人不易理解這種不追責的思維，心理學家James Reason在1990年代為此提出一個框架，以釋除大眾對無能和犯錯者逃避責罰的疑慮。

問責而非卸責

要逃避指摘其實並非易事。一、當事人為了避責往往要大費心力，但指摘別人反而是毫不費力的快速反應，而且容易令人入信。至於記錄錯誤並確保流程得以改進，則難免涉及結構性的變化。例如無過失事後分析長期以來已屬谷歌企業文化的一部分，該公司為此提供模板、反饋和討論小組。二、企業管理層既然大權在握，指摘屬下僱員也就輕而易舉。

加州大學聖地牙哥分校和新加坡南洋理工大學的學者最近合作發表一篇研究論文，指出當權者往往認為其他人會將失敗歸咎於他們。在一項實驗中，參與者被隨機分配為主管或工人，然後檢視有關錯誤的紀錄。參與者都收到道歉信，聲明網絡連接不穩定，以致任務無法正常完成。結果扮演主管者每多認定抄寫員應為失誤負責，主張剋扣其報酬。由此可見掌權與施罰之間的因果關係。

指摘別人似乎也具傳染性。2009年，心理學學者David Sherman 和 John Klein發表合著論文【註】，其中一個實驗要求參與者閱讀有關政治失敗的新聞，然後寫下政客的過失。讀到關於政客將失敗歸咎於特殊利益的報道時，參與者更可能將自己的失敗責任推卸給別人。至於讀到政客承擔責任的參與者，則更可能肯為自身的不足負責。同理，管理高層若輕易指摘別人，公司員工也會有樣學樣。如此一來，不難衍生出一種推卸責任的指摘文化。

不同文化對於失責和指摘的容忍度不盡相同。例如集體主義可能導致共同指摘，而在個人主義的文化中，個人指摘則較常見。相互指摘的經濟學強調人類行為與經濟結果之間的相互作用。了解這些動態關係當有助於機構創造出更具建設性的環境，減少諉過於人，以鼓勵問責和合作。

註：Sherman, D. K. and John M. Klein, “Failure to Blame: The Effect of Collective Blame on Self-Attribution.” Psychological Science, 2009.

謝國生博士
港大經管學院金融學首席講師、新界鄉議局當然執行委員

何敏淙先生
香港大學附屬學院講師

（本文同時於二零二四年十一月二十七日載於《信報》「龍虎山下」專欄）

特朗普會辭退鮑威爾嗎？

特朗普在成功當選下屆美國總統後，迅即籌組內閣。從人選來看，差不多每個任命都是要顛覆原有建制，這為未來數年的美國及國際社會增添濃厚不確定性。明年1月，美國各政府部門都有新主管上任，然而有一個重要職位不會因總統換屆而改變人選，那便是聯儲局主席。現任主席鮑威爾由特朗普提名和參議院確認，但隨後因加息引起特朗普的不滿。看來若法律或政治成本低的話，特朗普也會以親信取代鮑威爾，並將聯儲局來個翻天覆地的改動。

聯儲局與貨幣政策的重要性不言而喻，在這次總統選舉中更清晰可見。不少調查都顯示經濟是選民最關心議題，而40年來首次出現的高通脹，正是民主黨失敗的一個主要原因。這次通脹在2021年中已明顯呈現，但聯儲局在翌年3月才首次加息，未能先發制人，通脹因而冒升至2022年6月的9.1%。雖然通脹在今年中已放緩至約3%，惟物價水平仍高企。由2021年4月至本年10月，消費者物價指數上升了18.3%，這都被選民算在拜登和賀錦麗頭上，同期間工資雖然有增長，卻被看為個人努力的成果。

面對通脹，拜登政府也有一些應對措施，例如出售40%的戰略石油儲備以紓緩能源價格，但畢竟不若貨幣政策之有效。同時，民主黨被傳統思維限制，在經濟議題上一貫重就業輕通脹，看見失業率徘徊於歷史最低水平的4%以下，便認為已贏得民心，忽略了40年來通脹都處於低水平，約50歲以下選民都是首次面對無端失去大幅購買力的困境，而把通脹歸咎於企業提高價格以謀取暴利的論述，實際上並沒有解決問題。聯儲局這次對通脹反應過慢，加上其他政治經濟因素，使一些政客產生把貨幣政策收歸政府行政部門的意圖。諷刺的是，特朗普這次勝出的一個原因是兩年多的通貨膨脹，但他二進白宮後迅速推行的高關稅，將大幅提高美國物價。

美國大選結果揭曉後不久，剛好是聯儲局議息會議結束，鮑威爾在記者會上被問及，如果特朗普要他辭職會否接受，他只簡單回應一個「不」字，然後是好幾秒鐘的冷場，無聲勝有聲地道出他與特朗普之間的張力。特朗普2017年以鮑威爾取代耶倫任聯儲局主席；其後聯儲局在2017及2018兩年加息7次，每次0.25厘，把2008年金融海嘯後接近零的利率提高至較正常水平，但特朗普認為提高利率會影響他任內經濟，公開稱鮑威爾是敵人，他和他的團隊是笨蛋（bonehead）等。這次競選期間，特朗普數次提過總統要有權決定利率，認為自己賺錢很多，也很成功，在很多情況下比聯儲局決策人和聯儲局主席有更佳直覺。其後他又自辯，說不是要直接控制利率，只是認為總統可如其他人一樣就利率政策表達意見。他警告在競選期間減息有助民主黨競選，但又多次提及當選後會減息，儘管在目前框架下，他沒有這個權力。

鮑仍可掌FOMC 誕兩權力中心

聯儲局成立的法律依據，是1913年國會通過的《聯邦儲備法案》（Federal Reserve Act）。聯儲局有3個主要組成部分，分別是聯邦儲備理事會（Federal Reserve Board of Governors）、12家聯邦儲備銀行（Federal Reserve Banks）和聯邦公開市場委員會（Federal Open Market Committee，簡稱FOMC）。嚴格來說，《聯邦儲備法案》中沒有聯儲局主席一職，只有聯邦儲備理事會主席。理事會有7位成員，都由總統提名和參議院確認，任期14年，原則上不能續任，而且任期平均分布，大約每兩年委任一名新成員。此外，理事會主席及兩位副主席也是由總統在7人中提名及參議院確認，每個任期4年。現時鮑威爾作為理事會主席任期到2026年5月，但作為理事會成員，他的任期到2028年1月才結束。

至於那12家聯邦儲備銀行，分別對全國12個區域提供服務，主席則由該銀行的董事物色及委任，不在總統權力之內。聯儲局的貨幣政策由FOMC制定，FOMC設有12位成員，包括理事會的7位成員及紐約聯邦儲備銀行主席，其餘4位則由餘下11家聯邦儲備銀行的主席輪流擔任。其他聯邦儲備銀行主席可以出席FOMC會議，但沒有投票權。《聯邦儲備法案》沒有說明誰是FOMC主席，傳統上，FOMC的12位成員都會推舉理事會主席為FOMC主席及紐約聯邦儲備銀行主席為FOMC副主席。也就是說，FOMC的正、副主席並非由總統提名委任。

現時鮑威爾在聯儲局中有幾個職位，分別是理事會的主席和成員，以及FOMC的主席和成員。特朗普要辭退鮑威爾，須先從他理事會成員職位着手，但要解除理事會成員職務，必須要有一個合適和有力的理由，如瀆職或玩忽職守等。若以政策看法與總統或白宮相左為理由，自然難以服眾。如果只解除鮑威爾理事會主席職務，仍然留他為理事會成員，程序或許較為簡單或阻力較小，不過他仍可被推舉為FOMC主席，和今天一樣在每次議息會議後面對傳媒。若總統另外提名理事會主席，會使聯儲局內出現兩個權力中心。無論是解僱的過程或結果，都會帶來金融市場震盪。

和這點有關的是，目前可能出現的一個政策矛盾。FOMC是合法制定貨幣政策的單位，如上所述，它包括了7位理事會成員和5位聯邦儲備銀行主席。前者由總統提名委任，後者的委任和總統無關。與此同時，法律又把銀行在聯儲局儲備金的利息決定權授予理事會。在一般情況下，銀行儲備的利息與FOMC制定的聯邦基金利率步伐一致、相輔相成。但假如FOMC認為應該提高聯邦基金利率，較容易受總統影響的理事會卻降低銀行儲備金利率，政策矛盾便出現。

特朗普若不能或不想付出太高成本辭退鮑威爾，那他仍可以等到有空缺時委任志同道合者為理事會成員或主席，去影響聯儲局的貨幣政策，不過這有一定的困難。他在第一任總統期內提名了3人，均過不了參議院，其中女經濟學者謝爾頓（Judy Shelton）因主張美元與黃金掛鈎及對聯儲局獨立性置疑而失去一些共和黨參議員的支持。

有趣的是，被特朗普考慮做財政部長的貝桑（Scott Bessent），建議特朗普上任後即提名及爭取參議院提早確認新的理事會主席人選，作為影子主席，架空鮑威爾。影子主席可就貨幣政策發言，在慣常的前瞻指引（forward guidance）做法下，市場會比較聽取影子主席意見而不理會任期只到2026年的鮑威爾。貝桑說這只是他個人意見，而非特朗普的意見，但又說曾和特朗普討論，並有把這個想法與特朗普的顧問分享。未知貝桑這一招會否在未來美國黨爭中被重複使用，導致政壇幻影重重？

陸炎輝博士
港大經管學院榮譽副教授

（本文同時於二零二四年十一月二十日載於《信報》「龍虎山下」專欄）

特朗普會辭退鮑威爾嗎？

特朗普在成功當選下屆美國總統後，迅即籌組內閣。從人選來看，差不多每個任命都是要顛覆原有建制，這為未來數年的美國及國際社會增添濃厚不確定性。明年1月，美國各政府部門都有新主管上任，然而有一個重要職位不會因總統換屆而改變人選，那便是聯儲局主席。現任主席鮑威爾由特朗普提名和參議院確認，但隨後因加息引起特朗普的不滿。看來若法律或政治成本低的話，特朗普也會以親信取代鮑威爾，並將聯儲局來個翻天覆地的改動。

聯儲局與貨幣政策的重要性不言而喻，在這次總統選舉中更清晰可見。不少調查都顯示經濟是選民最關心議題，而40年來首次出現的高通脹，正是民主黨失敗的一個主要原因。這次通脹在2021年中已明顯呈現，但聯儲局在翌年3月才首次加息，未能先發制人，通脹因而冒升至2022年6月的9.1%。雖然通脹在今年中已放緩至約3%，惟物價水平仍高企。由2021年4月至本年10月，消費者物價指數上升了18.3%，這都被選民算在拜登和賀錦麗頭上，同期間工資雖然有增長，卻被看為個人努力的成果。

面對通脹，拜登政府也有一些應對措施，例如出售40%的戰略石油儲備以紓緩能源價格，但畢竟不若貨幣政策之有效。同時，民主黨被傳統思維限制，在經濟議題上一貫重就業輕通脹，看見失業率徘徊於歷史最低水平的4%以下，便認為已贏得民心，忽略了40年來通脹都處於低水平，約50歲以下選民都是首次面對無端失去大幅購買力的困境，而把通脹歸咎於企業提高價格以謀取暴利的論述，實際上並沒有解決問題。聯儲局這次對通脹反應過慢，加上其他政治經濟因素，使一些政客產生把貨幣政策收歸政府行政部門的意圖。諷刺的是，特朗普這次勝出的一個原因是兩年多的通貨膨脹，但他二進白宮後迅速推行的高關稅，將大幅提高美國物價。

美國大選結果揭曉後不久，剛好是聯儲局議息會議結束，鮑威爾在記者會上被問及，如果特朗普要他辭職會否接受，他只簡單回應一個「不」字，然後是好幾秒鐘的冷場，無聲勝有聲地道出他與特朗普之間的張力。特朗普2017年以鮑威爾取代耶倫任聯儲局主席；其後聯儲局在2017及2018兩年加息7次，每次0.25厘，把2008年金融海嘯後接近零的利率提高至較正常水平，但特朗普認為提高利率會影響他任內經濟，公開稱鮑威爾是敵人，他和他的團隊是笨蛋（bonehead）等。這次競選期間，特朗普數次提過總統要有權決定利率，認為自己賺錢很多，也很成功，在很多情況下比聯儲局決策人和聯儲局主席有更佳直覺。其後他又自辯，說不是要直接控制利率，只是認為總統可如其他人一樣就利率政策表達意見。他警告在競選期間減息有助民主黨競選，但又多次提及當選後會減息，儘管在目前框架下，他沒有這個權力。

鮑仍可掌FOMC 誕兩權力中心

聯儲局成立的法律依據，是1913年國會通過的《聯邦儲備法案》（Federal Reserve Act）。聯儲局有3個主要組成部分，分別是聯邦儲備理事會（Federal Reserve Board of Governors）、12家聯邦儲備銀行（Federal Reserve Banks）和聯邦公開市場委員會（Federal Open Market Committee，簡稱FOMC）。嚴格來說，《聯邦儲備法案》中沒有聯儲局主席一職，只有聯邦儲備理事會主席。理事會有7位成員，都由總統提名和參議院確認，任期14年，原則上不能續任，而且任期平均分布，大約每兩年委任一名新成員。此外，理事會主席及兩位副主席也是由總統在7人中提名及參議院確認，每個任期4年。現時鮑威爾作為理事會主席任期到2026年5月，但作為理事會成員，他的任期到2028年1月才結束。

至於那12家聯邦儲備銀行，分別對全國12個區域提供服務，主席則由該銀行的董事物色及委任，不在總統權力之內。聯儲局的貨幣政策由FOMC制定，FOMC設有12位成員，包括理事會的7位成員及紐約聯邦儲備銀行主席，其餘4位則由餘下11家聯邦儲備銀行的主席輪流擔任。其他聯邦儲備銀行主席可以出席FOMC會議，但沒有投票權。《聯邦儲備法案》沒有說明誰是FOMC主席，傳統上，FOMC的12位成員都會推舉理事會主席為FOMC主席及紐約聯邦儲備銀行主席為FOMC副主席。也就是說，FOMC的正、副主席並非由總統提名委任。

現時鮑威爾在聯儲局中有幾個職位，分別是理事會的主席和成員，以及FOMC的主席和成員。特朗普要辭退鮑威爾，須先從他理事會成員職位着手，但要解除理事會成員職務，必須要有一個合適和有力的理由，如瀆職或玩忽職守等。若以政策看法與總統或白宮相左為理由，自然難以服眾。如果只解除鮑威爾理事會主席職務，仍然留他為理事會成員，程序或許較為簡單或阻力較小，不過他仍可被推舉為FOMC主席，和今天一樣在每次議息會議後面對傳媒。若總統另外提名理事會主席，會使聯儲局內出現兩個權力中心。無論是解僱的過程或結果，都會帶來金融市場震盪。

和這點有關的是，目前可能出現的一個政策矛盾。FOMC是合法制定貨幣政策的單位，如上所述，它包括了7位理事會成員和5位聯邦儲備銀行主席。前者由總統提名委任，後者的委任和總統無關。與此同時，法律又把銀行在聯儲局儲備金的利息決定權授予理事會。在一般情況下，銀行儲備的利息與FOMC制定的聯邦基金利率步伐一致、相輔相成。但假如FOMC認為應該提高聯邦基金利率，較容易受總統影響的理事會卻降低銀行儲備金利率，政策矛盾便出現。

特朗普若不能或不想付出太高成本辭退鮑威爾，那他仍可以等到有空缺時委任志同道合者為理事會成員或主席，去影響聯儲局的貨幣政策，不過這有一定的困難。他在第一任總統期內提名了3人，均過不了參議院，其中女經濟學者謝爾頓（Judy Shelton）因主張美元與黃金掛鈎及對聯儲局獨立性置疑而失去一些共和黨參議員的支持。

有趣的是，被特朗普考慮做財政部長的貝桑（Scott Bessent），建議特朗普上任後即提名及爭取參議院提早確認新的理事會主席人選，作為影子主席，架空鮑威爾。影子主席可就貨幣政策發言，在慣常的前瞻指引（forward guidance）做法下，市場會比較聽取影子主席意見而不理會任期只到2026年的鮑威爾。貝桑說這只是他個人意見，而非特朗普的意見，但又說曾和特朗普討論，並有把這個想法與特朗普的顧問分享。未知貝桑這一招會否在未來美國黨爭中被重複使用，導致政壇幻影重重？

陸炎輝博士
港大經管學院榮譽副教授

（本文同時於二零二四年十一月二十日載於《信報》「龍虎山下」專欄）

Today, in the face of a complex set of Environmental, Social, and Governance (ESG) indicators and their increasingly diverse practices, ESG is no longer a marginal issue in the corporate world. How to enhance ESG competitiveness through precise policy implementation and high-efficiency management has become a burning question for enterprises. With relatively limited resources at their disposal, what ESG strategies should companies prioritize?

Optimizing cost-effectiveness with ESG ratings in mind

When mapping ESG strategies in the past, companies tended to adopt the indicators and weightings of ESG rating agencies as the basis in order to achieve higher ratings. Such an approach is rational as it aligns with the rating standards investors rely upon, thus enabling enterprises to gain the upper hand in compliance, financing, etc.

However, the burgeoning ESG rating agencies and their diversified rating standards in recent years have brought new challenges to businesses. Incomplete statistics show that there are now around 600 rating bodies worldwide, each selecting different indicators and weightings. Existing research indicates that the correlation among ratings from different agencies is weak (see Table), particularly in terms of Social and Governance themes.

Table   Correlation coefficients among ESG ratings of different agencies

Note: This table compares the correlation coefficients of ESG ratings of several mainstream agencies. SA, SP, MO, RE, KL, and MS represent Sustainalytics, S&P Global, Moody’s ESG, Refinitiv, KLD, and MSCI respectively. For example, the first column in the Table indicates that the ESG correlation coefficient between KLD and Sustainalytics is 0.53; the correlation coefficient for the E theme is 0.59, the correlation coefficient for the S theme is 0.31; and the correlation coefficient for the G theme is 0.02. These research results are derived from Berg et al. (2022).

Source: Florian Berg, Julian F Kölbel, Roberto Rigobon. “Aggregate Confusion: The Divergence of ESG Ratings.” Review of Finance, Vol 26, Issue 6 (2022): 1315–1344.

The uncertainty of such a rating approach produces several problems. First, even businesses that have invested heavily in ESG can still receive low ratings from some rating agencies. Second, companies that use ESG as a means of greenwashing or window dressing can instead get high ratings from some agencies. Coupled with the fact that many agencies keep churning out all sorts of league tables and awards for profit, the credibility of ESG ratings is going south. The resulting uncertainty over decisions based on ESG ratings poses formidable challenges for a wide range of decision-makers, including enterprises and investors.

To address this problem, we believe that, on the one hand, it is necessary to regulate the ESG-rating market to promote greater transparency of rating methodologies. On the other hand, enterprises should also further assess the actual costs and benefits of each ESG action and initiative so as to facilitate more rational ESG practices.

Specifically, enterprises should identify ESG actions conducive to not only social benefits but also effective cost control. By accurately identifying and prioritizing the implementation of these ESG measures, companies can ensure better value for money for each and every input. Hence, not only can a good market image and investor confidence be secured, but both social and economic benefits can also be expanded.

Ele.me sets an example with its fine-tuned interface

For implementation, enterprises are encouraged to identify low-cost ESG measures that yield high social benefits through experimentation. At the same time, companies can seek collaboration with academia to conduct precise assessments of the costs and social benefits of specific ESG action plans. We will outline a case of collaboration between Alibaba and academia to illustrate how businesses can derive greater social benefits at lower costs.

Ele.me, Alibaba Group’s online delivery services platform, is the second largest food delivery company in China, with over 700 million users in 2022. During a collaborative project with the platform, we studied how “green nudges” impacted the use of disposable tableware. Specifically, Ele.me has started a “green nudge” experiment in Beijing, Shanghai, and Tianjin. For customers in these three cities, the default option on the ordering interface is set to “no need for tableware” and those who choose this default option are awarded “Ant Forest ‘s Green Energy” points. This is a non-cash customer incentive. Once a customer has collected enough points, Alibaba will, in the name of the customer, plant trees in a desert area or launch other environmental protection actions.

Such a change may involve minimal costs for Ele.me but what social benefits can it bring? Our analysis of users’ orders in 10 major Mainland cities between 2019 and 2020 illustrates that cities where “green nudge” measures have been introduced have seen a 648% surge in no-cutlery orders (see Figure). Nationwide implementation of such measures is expected to save over 21.75 billion sets of single-use cutlery, thus reducing 3.26 million tons of plastic waste and saving 5.44 million trees from being cut down for timber. This study was featured as the cover story of the Science magazine in 2023, gaining wide attention from global media.

Figure    Share of no-cutlery orders in Ele.me’s green-nudge experiment: before and after

This case study demonstrates that it is possible for enterprises to honour their social and environmental commitments at a low cost. Just a few hours of work by a programmer is enough to generate tremendous social value. Such an innovative ESG action has not only boosted corporate ESG performance but also brought actual social benefits conducive to achieving national environmental goals.

Collaborative verification of strategy outcomes by enterprises and academia

While the collaborative study between businesses and academia mentioned above is just the tip of the iceberg, this methodology can be applied to the analysis of various problems. For instance, how can a leading company manage supply chains in terms of “E” in ESG? Given budget constraints, should enterprises invest more in reducing carbon emissions or focus more on air pollution management (in terms of “E” in ESG)? How would a wider diversity of staff and management impact the financial and ESG performance of businesses (in terms of “S” in ESG)? What assessment and evaluation mechanisms are most beneficial for enhancing business performance and staff satisfaction (in terms of “G” in ESG)? While it may be challenging for enterprises to find answers to these questions, it is a less daunting task for academia. By collaborating with academia, companies can leverage its theoretical base and data analytical capabilities to more precisely identify ESG opportunities and verify the effectiveness of their strategies. In our opinion, as far as ESG ratings are concerned, enterprises are not just “exam candidates” but should be drivers and practitioners of ESG. Undoubtedly, more collaborations between companies and academia will give a powerful impetus to ESG innovations.

Prof. Guojun He
Professor in Economics
Director, HKU Jockey Club Enterprise Sustainability Global Research Institute
Associate Director, Institute of China Economy

Ms Wendy Cui

Dr Maurice Tse
18 September 2024

The US presidential election is now proceeding at full throttle. Long advocated by the Republican candidate, Donald Trump, measures including tax cuts, increased military spending, and economic stimulation are bound to pump up the government’s fiscal expenditures. His Democratic opponent, Kamala Harris, on the other hand, calls for expansion of social programmes, boosted infrastructural investments, and economic stimulus initiatives. While a tax hike is on the table, without a corresponding growth in revenue, federal debt will only stack up over time.

Over the past five years, the US government’s fiscal deficit has persistently remained above US$1 trillion while its debt level has been among the highest in the world. Surprisingly, neither of the two presidential candidates regards this as a priority. One cannot help but wonder if America’s economic future is at risk of a debt time bomb, potentially fulfilling the prophecy of the fall of the West.

International standards for financial assessment

When evaluating a country’s financial situation, it is necessary to understand that debt is the total sum of money owed at any particular time while a deficit occurs when the government’s spending surpasses its income, leading to larger national debt. Fiscal deficit and debt are usually compared against Gross Domestic Product (GDP) as the latter serves as a rough indicator of a country’s solvency.

Using a collection of data covering the period from 1946 to 2009, gathered from the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development, American economists Carmen Reinhart and Kenneth Rogoff have conducted a study on 44 countries. Their work reveals a significant negative correlation between the government debt ratio and economic growth. In developed economies and emerging economies with a debt-to-GDP ratio over 90%, the median growth rate is lower by 1.5% and the average growth rate is lower by nearly 3% compared to economies with smaller debt obligations.

A government’s annual fiscal-deficit-to-GDP ratio consistently over 3% would cause alarm for many economists and international organizations. Take the European Union for example. Its Stability and Growth Pact, introduced in 1997, is designed to maintain sound public finances and facilitate economic growth by overseeing and controlling member states’ budget deficit levels and public debt levels. Under the pact, the annual budget deficit of each member is capped at 3% of its GDP and the public-debt-to-GDP ratio must be kept below 60%. Assessed against these criteria, the steadily high US fiscal deficits and public debts are inevitably a cause for concern among scholars and pundits regarding America’s economic future.

Under the catalytic effect of virtually zero interest rates and low debt costs over the past decade, escalating government debts have become a global issue. In June 2023, US President Joe Biden signed the Fiscal Responsibility Act passed by the Congress, which suspended the US$31.4 trillion debt ceiling until January 2025. At the beginning of 2024, the overall debt of the federal government stood at US$33 trillion, approximately US$28 trillion of which was held by the American public.

The federal government’s towering debt

Figure 1 shows that the US public-debt-to-GDP ratio in 2023 almost reached 100% while the total debt-to-GDP ratio exceeded 120%, the highest level since the 103% recorded at the end of the Second World War. Thanks to strong economic growth and financial surplus, the total debt-to-GDP ratio fell to 23% in 1974. Upon Bill Clinton’s departure from the White House in 2001, that ratio registered at 32.8%. Since then, the US has seen fiscal deficits for 23 consecutive years.

As a matter of fact, the debt-to-GDP ratio approaching 100% is not necessarily a problem; rather, what causes concern is the continuous upward trend. The Congressional Budget Office (CBO) forecasts that the ratio will reach 116% by 2034 and even 163% by 2054. A persistent trend is sure to hamper the US economy in the long term.

Critical fiscal imbalance

In June 2024, the CBO adjusted its forecast for the deficit for the same fiscal year, raising the amount by more than US$400 billion to US$2 trillion, which equated to 7% of GDP (see Figure 2). During the COVID-19 pandemic, the national deficit rocketed to an all-time high of US$3.13 trillion, representing 14.7% of GDP. By 2021, the deficit totalled US$2.78 trillion, or 11.8% of GDP.

CBO data indicates that US fiscal deficit has been accelerating: averaging US$138 billion in the 1990s, US$318 billion in the 2000s, US$829 billion in the 2010s, and even averaging US$2.23 trillion in the 2020s. During the past three years, massive deficits have arisen in an environment of economic growth, low unemployment, and stable national defence spending. The CBO therefore regards these deficits as structural and projects that the accumulated deficit between 2025 and 2034 will stand at the high level of US$22.1 trillion.

Recent deficits have stemmed from large outlays. Since 1974, with an average revenue share of 17.3% of GDP and an average expenditure share of about 21% of GDP, the annual average deficit-to-GDP ratio has remained between 3% and 4%. During the same period, revenue has stayed close to the long-term average level. The current expenditure-to-GDP ratio is around 24%. The CBO forecasts that it will remain high in the coming decade, approaching 25% in 2034 while the deficit-to-GDP ratio will reach 7.7%.

To settle the fiscal balance amounting to almost US$2 trillion, it is necessary to both raise taxes and cut spending. According to the US Internal Revenue Service’s latest data in 2021, the top 5% of income earners pay approximately two-thirds of income tax, the top 25% of income earners pay almost 90% of the total tax revenue, and half of the bottom income earners pay merely 2.3% of the total tax revenue. Evidently, any tax rise should be clearly targeted and should not dampen investment.

The Tax Cuts and Jobs Act of 2017 passed during Trump’s tenure as president has reduced both personal income tax rates and the corporate tax rate. A significant part of the Act is set to expire by the end of 2025. In the event of non-renewal, the CBO forecasts that accumulated fiscal deficit in the next decade will reach US$22.1 trillion. However, if renewed, the accumulated fiscal deficit is projected to surge by an additional US$4 trillion.

Tax hikes alone unlikely to be effective

President Biden has promised not to raise taxes for families earning less than US$400,000 annually (95% of all families) but will raise taxes for the remaining 5% to accommodate the renewal of the Tax Cuts and Jobs Act of 2017. Nevertheless, experience in Europe shows that raising taxes on the rich to balance the budget, has, at best, uncertain effects.

At present, 80% of the US government’s fiscal expenditure is mandatory, with social security and healthcare being the two largest expenditure items while only 20% is discretionary, e.g. national defence and education. Apart from national defence, the actual discretionary outlay amounts to US$750 billion. With the proportion of people aged 65 or above now at 18% of the total population, annual spending on social security and healthcare has been accelerating unabated. Over the past two decades, these two items have not been subject to review by the Congress and both are in danger of running out of funding within 10 years. Needless to say, slashing expenses is easier said than done.

Excessive debt has driven up the interest costs for the federal government, which has now become the government’s third-largest expenditure item, with an average interest-cost-to-GDP ratio of over 3%. The CBO estimates that the interest cost will reach the US$1.7 trillion mark within a decade, impacting not only the operations of government agencies but also some social welfare programmes.

How will debt expansion end

It is well known that US Treasury bonds, being the largest bond asset class, play a pivotal role in the global financial system. Given that the US Treasury has to refinance around one-third of the existing debt and fund the current deficit, bond auctions may not be effective. If anything goes wrong, market confidence could be undermined. Now that the credit ratings of US Treasury bonds have been downgraded by S&P Global Ratings and Fitch Ratings, foreign investors (who hold about 25% of US debt) may therefore exert pressure on the US to implement fiscal policy changes. For instance, urged by bond vigilantes during the mid-1990s, President Bill Clinton achieved four budget surpluses in his last term of office.

In its Annual Economic Report, the Bank for International Settlements also warns that rising debt exposes governments to the risk of a crisis similar to the UK government bond market turmoil in 2022. Investors at that time shied away from UK bonds, resulting in a surge in borrowing costs, currency depreciation, and chaos in the stock market.

All in all, the sustainability of a high fiscal deficit depends on economic growth rates, interest rates, overall debt levels, and currency stability. Against the backdrop of “the rise of the East and the fall of the West”, whether the US government is strong enough to support unlimited debt expansion is an enormous challenge for the next administration.

References
1. Annual Economic Report 2024, Bank of International Settlements
2. Budget and Economic Outlook, Congressional Budget Office 2024

Coming under the global spotlight, the recent US presidential election was so closely contested that nationwide election polls showed Donald Trump and Kamala Harris in a dead heat with each other. At the time of writing this article, neither candidate managed to hold a lead beyond the margin of error. Under the influence of various factors, the accuracy of the public polls is questionable. After all, both the prediction of a victory for Hillary Clinton in the 2016 presidential election and the forecast of a landslide victory for the Republicans in a “red wave” in the 2022 mid-term elections failed to materialize. However, regardless of who wins the election, the international political and economic landscape is bound to undergo some serious changes as a result, especially if the often-considered “maverick” Trump comes to power.

Trump’s foreign economic policy approach was made quite clear in his first term as president with the slogan “Make America Great Again”. Concrete measures include rejection of win-win cooperation, withdrawal from multilateral agreements, targeting trading partners with trade surpluses against the US, and using tariffs as a main weapon. In his comeback this time, he has reiterated multiple times that, if elected, he will impose higher tariffs on imports from all countries. The tariff rates on Chinese imports will be between 60% and 100% or even higher, while those on imports from other countries will be as high as 10% to 20%.

Protectionism from the founding of the US to WWII

Tariffs are Trump’s favourite weapon in international negotiations to threaten other countries into submission. When he initiated the trade war in 2018, he arbitrarily used national security as a pretext to impose massive tariffs on imports from European Union and China. He even bragged, “I am a tariff man”, believing that “trade wars are good, and easy to win”. While delivering a stump speech at a rally in Chicago about two weeks ago, he said, “Tariff is the most beautiful word.” On another occasion, he boasted that tariffs could serve to fight for peace. In the event of a war between two countries, he claimed he could call both sides and warn them that if their conflict continues, America will levy tariffs on them, which would naturally bring an end to the war.

Trump’s obsession with tariffs suggests that he regards the tool as a virtual panacea for all foreign economic affairs. This may be attributed to different reasons or complexes. First, on the face of it, from his perspective as a businessman, getting goods out the door is a good thing. Otherwise, it is a bad thing. Likewise, a trade deficit is a problem for the US, and since tariffs can deal a blow to the sales of the importing country, of course it is a good policy. Second, whether intentional or not, Trump erroneously insists that the increased tariffs are borne by foreign countries rather than by American consumers. Since imposing the tariffs can also serve to lighten the burden of taxes on American companies and individuals, why not proceed with it?

On a deeper level, tariffs, as an indispensable external economic tool, have a long history in America. Trump’s views and policies about tariffs apparently echo historical precedents. During the Second World War, the US took the lead in establishing the global economic order. In the name of free trade, it called on other economies to open up their markets, as if free trade had always been the national policy and philosophy of America. On the contrary, from its founding to the Second World War, the country had been highly protectionist, with tariffs as the essential tool for its policy implementation.

Since the founding of America, the government’s role in economic development has been subject to change and debate. Even so, the fundamental approach has consistently been for the government to drive economic development with a visible hand.

While the American economy was largely agriculture-based and its economic strength paled in comparison to the UK, the nation regarded the latter as its chief competitive rival. Rejecting the free trade advocacy of the UK at the time, the US relied on high tariff rates to protect and develop its own industry and allocated government subsidies to build its infrastructure in a bid to catch up with the UK. This sentiment grew much stronger when the two countries went to war again in 1812.

A boon to social harmony and economic development

The high regard the US places on levies is evident in its high tariffs over the years. Calculating only the imports subject to tariffs, the average tariff rate during the 1820s once reached a staggering 60% and still hovered between 40% and 50% in the second half of the 19th century. Even including imports unaffected by tariffs, the average tariff rate throughout the 19th century was 30%. By the early 20th century, despite having undergone a downward adjustment, the average US tariff rate rose back to approximately 60% after the Smoot-Hawley Tariff Act was passed during the Great Depression of the 1930s. Hefty tariffs led to retaliation from trading partners and such mutually destructive practices are regarded as one of the reasons for the world economy’s predicament during the Great Depression.

Apart from protecting domestic industrial development, steep tariffs were also a main source of income for the US government. While high tariffs do not necessarily lead to increased revenue, they did account for 90% or more of state coffers in various fiscal years during the 19th century.

During the decades between 1870 and 1910, the average US tariff rate was as high as 50%. Such a high share of tariffs in fiscal revenue can primarily be attributed to the absence of income taxes. While a form of income taxes existed during the Civil War, the US business income tax and personal income tax, as we know them today, were introduced by legislation later in 1909 and 1913 respectively. After that, tariffs became much less important fiscally. Nevertheless, for over 100 years before 1913, tariff income afforded the US government significant fiscal space to maintain social harmony and facilitate economic advancements. Although there is considerable controversy surrounding the extent to which tariffs and protectionism have promoted US industrial and economic development, the long-standing and prominent presence of tariffs makes it more readily acceptable to Americans.

That being said, tariffs as a type of tax have a clear problem in that they are inherently regressive rather than progressive, unlike income taxes, which are a common form of taxation nowadays. Everyone, rich or poor, pays the same levy rate when buying the same product. In contrast, the tax as a share of income is lower for the rich than for the poor. This means that the tax rate is relatively lower for higher-income earners, thus contravening the principle of fair taxation in the eyes of many.

All these considerations, though not the principal cause of the American Civil War, do reflect certain conditions in the country. Although the South had a lower income than the North, it paid the same amount of import tariffs. In fact the industrial sector protected by these tariffs was chiefly located in the North.

By the early 20th century, the importance of tariffs diminished in the US. For one thing, with its productivity already surpassing that of the UK, the US became the world’s biggest economy. Also the world leader in industrial development, the US could better afford the impact of reduced trade protection. Out of consideration for a fair tax system, the country shifted to a new system with income taxes as the major source of fiscal revenue. In addition, some regard tariffs as undesirable because they can lead to corruption. Given the myriad of commercial products, there are bound to be loopholes for tariff exemptions. The higher the tariffs, the greater the incentive for seeking tax exemptions and the more money the briber is willing to pay. In light of Trump’s proposal to impose tariffs on imports from all countries, commentators are already concerned about the considerable administrative costs involved in handling tariff exemption applications and the potential rise in corruption cases.

Trump’s views on tariffs may be influenced by Robert Lighthizer, the trade representative he appointed during his last presidency. Perhaps that is why Lighthizer was one of the few cabinet members who managed to serve out his full four-year term without being fired by Trump. Last year, Lighthizer published a new book entitled No Trade Is Free, presenting his narrative on world trade and China trade. Adopting a rather hawkish stance, the book paints a generalized picture of tit-for-tat dynamics between China and the US. It depicts China as the country firing the first shot with its policies, resulting in a trade deficit for the US and causing job losses. The US responds by retaliating, leading to a trade war, etc.―a narrative that has become all too familiar today.

President authorized by Constitution to directly revise tariffs

Just like Trump, Lighthizer is also gravely concerned about the US trade deficit. He believes that America should maintain a balanced trade and, towards this end, the government can depreciate the greenback or force other currencies to appreciate by imposing tariffs on countries unwilling to comply. Such a tactic is reminiscent of the Plaza Accord in the 1980s, under which the US pressured the Japanese yen to appreciate. With Trump’s possible return to the White House, Lighthizer may regain favour and even assume a higher position than trade representative.

Judging by Trump’s personality and behaviour during his first tenure, if re-elected, he would most likely levy tariffs on imports from all nations, dealing a severe blow to global trade. According to the US Constitution, while the power to set tariffs rests with Congress rather than the president, under certain circumstances—such as trade discrimination by a foreign country against US products or unfair trade practices against the US, Congress can authorize the president to retaliate with tariffs.

The long-standing narrative of China’s unfair trade practices, framed by the US to suppress China, is one of the few consensuses between Republicans and Democrats. Trump may be able to bypass the Constitution and directly introduce an across-the-board 60% tariff on Chinese imports. However, his proposal to impose 10% or 20% tariffs on imports from all other countries may face challenges from the Democrats. This will depend on the post-election distribution of seats in the two houses of Congress.

Dr. Y. F. LUK
Honorary Associate Professor in Economics

Professor Heiwai Tang and Ms Shuyi Long

30 October 2024

In the 2024 Policy Address recently announced by the Chief Executive, mention is made of the Government’s plan to boost investment in the development of the digital economy, particularly in the digitalization of trade. Concrete measures include expediting the establishment of the Trade Single Window and forming a working group within the Hong Kong Monetary Authority to study the creation of a digital trade ecosystem with a focus on talent and infrastructure.

Soon after its release, the Policy Address sparked wide discussion in the community. Besides repeatedly writing about launching trade digitalization in Hong Kong time and again, we have also advocated for this issue publicly. Not only is digital trade an emerging trend in trade but it also presents a golden opportunity for the city’s growth. Hence, apart from the prerequisite hardware for building the Trade Single Window, it is crucial to concentrate on the transformation of trade models and to be fully prepared for the development of digital services and cross-border e-commerce.

Paperless trade

One key aspect of digital trade is paperless trade, which involves digitalizing and automating all procedures during the trade process. This entails converting paper texts into digital files and changing from manual to electronic vetting processes so as to reduce costs in labour, resources, and time. The Trade Single Window  in the Policy Address is tantamount to digital customs administration. This platform streamlines the processing of imports and exports by integrating all procedures, covering customs clearances, declarations, document completion and submission, as well as fee payments into a unified digital interface.

Not a novel concept that emerged in recent years, the Trade Single Window has long been introduced in various countries and has already been widely used. According to the 2023 United Nations Global Survey on Digital and Sustainable Trade Facilitation, over 40 countries worldwide have fully implemented the Trade Single Window System, including developed nations in Europe, the US, and Japan as well as developing countries such as Peru, Thailand, and Brazil. Having launched the first two phases of the Trade Single Window, the Hong Kong SAR Government plans to complete the final phase by 2026.

In addition to customs, international trade encompasses many other aspects ranging from shipping and goods collection to loans and insurance, plenty of which still require paper documents. A 2022 report of the World Trade Organization (WTO) estimates that each cross-border trade transaction involves at least 240 copies of 36 documents. Digitalizing the submission, vetting, and handling of all these documents will not only save paper and protect the environment but also streamline processes, saving much time and manpower. While establishing the Trade Single Window, Hong Kong should hasten the digitalization of other departments associated with trade, including updating regulations on the legal status of electronic documents and enhancing the digital infrastructure for processing them, thereby enabling Hong Kong to handle a larger trade volume.

Electronic commerce

Progress in paperless trade can be regarded as pivotal to digital trade and even the broader digital economy. However, digital trade does not merely change the flow of traditional goods trade to electronic mode. The WTO and the World Bank classify digital trade into digitally ordered trade and digitally deliverable trade. The former is characterized by e-commerce while the latter comprises the bulk of financial, legal, and consultation services. Both types of digital trade have enormous potential in the Hong Kong market. Although still in its infancy, e-commerce in the SAR has ample room for growth. Given that imports and exports of services are one of Hong Kong’s strengths, the digitalization of services trade is sure to usher in greater opportunities for this thriving sector.

E-commerce has become a massive market with a global income exceeding US$4 trillion and is expected to maintain rapid expansion for at least another decade. Hong Kong’s e-commerce market has also undergone dramatic development in recent years. Government statistics show that e-commerce sales were valued at over HK$30 billion in 2023, with clear signs of continued growth momentum ahead. Readers may be aware from their daily experiences that businesses like Hong Kong’s Yoho and HKTV Mall, the Mainland’s Taobao and Jingdong, and Amazon from overseas have become an increasingly important part of our lives, whether through their online platforms or retail sales.

Yet the Hong Kong’s e-commerce market still offers tremendous opportunities for development. At present, this sector accounts for approximately 8% of the SAR’s total retail sales—a percentage that pales in comparison to developed e-commerce markets such as Mainland China, the UK, and South Korea (each standing above 25%) but is also lower compared to neighbouring countries such as Japan, Taiwan, and Singapore. This relatively low market share implies that consumption potential remains largely unexploited. Meanwhile, numerous enterprises and merchants will have the opportunity to get a slice of the e-commerce pie.

The local e-commerce market is now in urgent need of improvement in the following two areas. First, e-merchant facilities, e.g. logistics and internet platforms, are not up to par. Despite the availability of next-day delivery, same-day delivery, and even delivery by the hour in the Mainland, Japan, and South Korea, it can still take up to three days for orders to be delivered from Kowloon to Hong Kong Island. Consumers encountering problems with their purchases still have to undergo complicated procedures, ranging from after-sales service and communications to returns and refunds. These inconveniences only offset the biggest advantage of online platforms―efficient shopping. Ever in pursuit of efficiency, Hongkongers may find it more convenient to shop by going out to local stores or travelling north to Shenzhen.

Second, for businesses looking to develop e-commerce capabilities, the lack of the right skills is another problem. With an insufficient talent pool in e-commerce, hiring is difficult even for big companies, let alone small and medium enterprises (SMEs). A report released by FedEx in 2022 reveals that 60% of Hong Kong’s SMEs find it difficult to hire personnel with e-commerce skills. E-commerce differs from conventional retailing in terms of management, sales, operations, and promotion. Hence, to many merchants, e-commerce professionals are a prerequisite for developing this business. The Hong Kong SAR Government should drum up support for talent training programmes at local higher education institutions and companies so as to quickly expand the talent reserve, thereby giving a boost to the e-commerce sector.

Trade in services

Services trade delivered through digital channels largely comprises professional services, including finance, law, education, healthcare, and information technology. In 2023, the world’s digital services exports amounted to over US$4 trillion, with the US, Mainland China, Japan, and India being the largest exporters.

Hong Kong being the world’s most services-oriented economy, the city’s services sector contributes to over 90% of its GDP, 60% of which is made up of services delivered through digital channels. Last year, the sector’s total production value exceeded HK$2.5 trillion, with the financial sector alone contributing more than HK$550 billion. With competitive advantages such as diverse services, a sound legal and judicial system, and an abundance of professionals, Hong Kong is second to none among the large services exporters mentioned above. Nevertheless, the digital services export figures simply do not do justice to these obvious advantages. In 2023, Hong Kong’s total services exports were valued at HK$700 billion, with digital services exports accounting for merely HK$300 billion (approximately US$45 billion). In comparison, Singapore’s digital services exports in the same year were valued at US$180 billion, nearly five times those of Hong Kong.

In the digital trade era, the challenges facing Hong Kong in leveraging the services sector’s distinct advantages can be attributed to the following reasons. First, digital services exports have been hindered by the incomplete progress in paperless trade. So long as required procedures of customs, banks, and the Government remain to be fully digitalized, digital services exports cannot be conducted on a large scale. In addition, unlike trade in goods, trade in services is also subject to various restrictions governing internet safety, cross-border data flow, and cross-border electronic payments. Since these issues cannot be resolved unilaterally, Hong Kong must negotiate with its trading partners to reach a consensus, making digital trade-related agreements indispensable. In this year’s Policy Address, the Government pledges to insert relevant provisions on digital trade and cross-border data flow into bilateral and multilateral trade agreements.

Last but not least, all sectors rely on platforms and opportunities to break into overseas markets, and the services sector is no exception. While sizeable companies in the services sector can probably explore export prospects on their own, SMEs are bound to stumble upon formidable challenges in following suit. They need the Government to provide them with information and connections, much like those offered for trade shows and exchange activities. The Government should consider taking similar measures to facilitate overseas visits and exchanges between companies in the services sector with foreign businesses. In addition, Government offices can be set up in Hong Kong’s major trading partner countries to help local enterprises to develop overseas markets. These initiatives would benefit the thriving services sector, propelling it to new heights.

Dr Yifei Zhang

23 October 2024

The rapid rise in Environmental, Social, and Governance (ESG) investment in recent years has become a hot topic in the international financial market. Born of increasing public concern over climate change, social inequality, and corporate governance issues, ESG investing emerged with the aim of achieving sustainable development by integrating environmental protection, social responsibility, and corporate governance into investment decisions. This approach not only places emphasis on financial return but also focuses on the long-term impact on the environment and society, striving to create a social and environmental win-win situation while pursuing economic benefits.

Despite its appeal as an investment concept and the support from many investors and enterprises, ESG has been plagued by objections and challenges. So who are the opponents to ESG investment and what are their reasons for opposition? Underlying this chorus of opposition are not just suspicions about the existing rating systems and their transparency but also apprehensions about conflicts between short-term market gains and long-term goals. Getting a grasp from multiple perspectives of the opposing voices is conducive to enabling various stakeholders to have a better understanding of the complexities and obstacles facing ESG investing.

Waves of resistance on American soil

The anti-ESG movement in the US has been receiving growing attention in recent years. While ESG investing has garnered significant support and development worldwide, it faces considerable resistance and challenges within the country. First, in terms of the federal government’s view, the Donald Trump administration took an expressly anti-ESG investment stance, arguing that over-intervention in market freedom might undermine the competitiveness of American enterprises. During Trump’s presidency, the Department of Labour (DoL) and the Securities and Exchange Commission launched a series of measures to limit the integration of ESG factors into pension plans and other investment funds. In 2020, for example, the DoL released the Financial Factors in Selecting Plan Investments rule, which requires the Employee Retirement Income Security Act of 1974 fiduciaries to put first the economic interests of the plan in providing financial returns, thus restricting the application of ESG factors in investment decisions.

Apart from policy changes at the federal level, some state governments have also actively participated in the wave of resistance to ESG. For instance, conservative states such as Texas and Florida are strongly opposed to ESG investing. The governments of these states believe that ESG investment could jeopardize the future prospects of the energy sector, particularly oil and natural gas companies. Consequently, anti-ESG laws and policies have been introduced in these states to curtail investment by state government pension funds and other public funds in ESG products and projects. A case in point is the Senate Bill 13, passed in Texas in 2021, to prohibit state government agencies from investing in financial institutions that limit commercial relations or refuse to do business with fossil fuel companies. The bill aims to protect the oil and natural gas sectors in Texas and prevent investment drain caused by ESG-related policies.

Apprehensions of investors

Besides the governments, fierce opposition to ESG investing comes from the energy sector, especially oil and natural gas companies. The reason behind this is that such investments will increase their operational costs and hamper their business development. As one of the largest oil companies in the world, Exxon Mobil Corporation has been an openly opposing voice against ESG investing. In the opinion of its senior management, overemphasizing environmental and social factors could threaten the company’s profitability and returns for its investors. Chevron, another major oil company that takes a similar stance, has repeatedly expressed its concerns about ESG investing at its annual general meetings, in the belief that the related criteria may harm its core business.

While ESG criteria are gaining more recognition and broader implementation, opposition still exists in regions dependent on conventional energy and resource-intensive industries. Much of the opposition from traditional sectors boils down to the following aspects: stringent ESG criteria might negatively impact the economy and employment, or they could incur additional compliance costs, thereby compromising corporate profitability.

In general, financial investors are concerned that ESG criteria may limit their investment options and could affect their long-term returns. There is conflict between short-term pressures of the market and long-term ESG investing goals. More often than not, the capital market concentrates on quarterly financial returns and short-term performance, while ESG investing targets long-term sustainable development. This conflict leads some investors to doubt the true results of ESG investing, leaving them with the impression that it cannot satisfy short-term market demands.

Another issue constantly raised by ESG opponents is the controversy over the ESG rating system. Among the many rating systems available today, standards and methodologies vary significantly. The starkly different ratings under various systems for the same company inevitably cause puzzlement and doubts in the minds of investors. For example, Tesla scores a relatively high ESG rating in the electric vehicles category from MSCI, mainly for its contributions to innovation and sustainability. However, the company receives a rather low rating from Sustainalytics due to its problems with governance and social responsibility—working conditions and supply chains, to name just a few.

Since ESG ratings rely on information and data voluntarily disclosed by companies, there may be issues with information quality and transparency. Although Walmart has published detailed ESG reports, investors cannot help but question the accuracy and reliability of the data because of the lack of independent verification. Some companies may selectively disclose their ESG-related information, leaving out the unfavourable bits. When it comes to the transparency and independence of the rating system, some investors query the fairness of the ratings given the potential conflict of interest among the rating agencies.

Policy guidance as the first step

In the face of continuous waves of resistance against ESG, governments looking to advocate for ESG practices should take various measures to address and resolve related problems. First, incentives for good ESG practices should be provided for enterprises. To encourage corporate participation, tax concessions and other economic incentives can be offered to those with outstanding performance in relevant areas. ESG awards and certification programmes can also be set up to recognize enterprises that have made valuable contributions to sustainability and social responsibility. Furthermore, governments should strive to drive the development and promotion of green financial products, such as green bonds and sustainable development funds, to lend financing support to ESG top performers.

Second, to overcome scepticism about information and transparency, it is pivotal for governments to step up efforts in terms of disclosure and regulation. The authorities concerned can cooperate with international organizations and industry experts to establish unified ESG assessment standards so that inconsistencies in ratings can be minimized. In addition, governments should encourage enterprises, particularly unlisted companies, to disclose more ESG-related data to raise the transparency and reliability of information. To ensure the truthfulness and accuracy of information, regulators can require corporate ESG reports to be audited by independent third-party providers.

All in all, paying attention and providing feedback to opposing stakeholders are equally indispensable. It is suggested that governments should organize public forums and sharing sessions to solicit views and proposals regarding ESG standards from all sectors concerned  in order to reach a consensus. Policy-making departments should also conduct extensive studies to identify concrete reasons for opposition and doubts, and to make improvements and adjustments accordingly.