On July 18, the city of Detroit, once the fourth-largest city in the United States, filed for bankruptcy. Although once known as the world's traditional automotive center, the city suffered from a decline in population from a peak of 1.8 million in 1950 to the current 700,000.

I've heard some concerns over whether Hong Kong will be just like Detroit in the future if the politicalized social environment remains unchanged. It's not a groundless worry, but I believe that Hong Kong will not be another Detroit given that the two cities have distinct differences, especially in their economic foundations.

Detroit's deadliest failure was its single-product economic system. The local government attached overwhelming importance to the automobile industry, so when General Motors, Ford and Chrysler, the three giant car manufacturers in the US, successively shut down their plants in the city from 2006 to 2012, it gave rise to unemployment and the economy suffered a disastrous decline. Many residents with professional knowledge had to leave the city to seek jobs elsewhere.

As for Hong Kong, its economy was dominated by manufacturing industry half a century ago, but the situation has changed. About 30 years ago, by virtue of economic reform on the mainland, Hong Kong companies began to move their industrial production lines north, and the local economy underwent upgrading and reforming from secondary industry to tertiary industry, which takes the diverse service sectors as its principal contents. The transformation was successful, qualifying Hong Kong as one of the most notable financial, logistical and tourist centers in the world.

I've always been a firm believer in the promising future of the tertiary industry, especially under circumstances where the improvement of productivity has resulted in overcapacity, with the advance of scientific technology. Our city's experience has already supported this idea, and as long as Hong Kong keeps an unconstrained business environment to give play to the tertiary industry, its economy will continue to flourish.

Although I think optimistically for Hong Kong's future economy, the downfall of Detroit still remains a negative example for us, because other than the unitary form of its economy, the local general election and public welfare systems are also the major causes. In its best days, workers in the automobile industry enjoyed a munificent social welfare and retirement system, and the labor union had power to discuss politics, so that there was a continual increase in labor costs. Nevertheless, since the government didn't have to worry about revenues, they were never prepared for any financial crisis, which led to an expansion in civil service instead.

Good times, however, didn't last long. German and Japanese cars successfully tapped into the American market in the 1970s, impacting on the automotive industry in Detroit. The gradually shrinking economy was never brought to the forefront by the local government, so no prompt economic adjustments were made to mend it. Little by little, the business and investment environment deteriorated, companies and residents began to move away, the economy and revenue started to shrivel - however, the politicians of the two parties connived at these cases for they were too obsessed with competing for votes. What's worse, they even made nominal promises of munificent public welfare, paralyzing the city financially. Running behind its expenses, Detroit's bankruptcy became the largest municipal bankruptcy filing in US history, with a debt estimated at $18-20 billion.

Most white people in Detroit have gone with capital and technology, leaving people who are unable to find a job and can only live on relief. Currently, about 80 percent of its citizens are African American, of which only one-third are in work. Fewer contributors are supporting more and more dependents.

This negative example has warned us that: first, democratic election is necessary, but it's not the solution for all social issues; second, we should maintain economic diversity; third, not to let resentment affect a good business and investment environment, and finally, poverty alleviation and the public welfare system should be appropriate to make ends meet financially.

The author is the vice-president of the Chinese Manufacturers' Association of Hong Kong.

(HK Edition 09/06/2013 page9)