Home » Uncategorized » Hong Kong still shows the way for economic freedom.

Hong Kong still shows the way for economic freedom.

hong kong skylineFor the 23rd consecutive year, the Index of Economic Freedom—compiled by The Wall Street Journal and the Heritage Foundation—ranks Hong Kong as the freest economy in the world.  The Index measures the impact of liberty and free markets around the globe.  It’s compilers point to “the formidable positive relationship between economic freedom and progress.”

Lawrence W. Reed with the Foundation for Economic Education has published several articles on the tiny nation, calling their economic progression, “The Hong Kong Miracle.”

Though part of mainland China since the British ceded it in 1997, HK is governed locally. So far, the Chinese have remained mostly faithful to their promise to leave their economy alone.

For Reed, what sets Hong Kong apart is a list of things that should make liberty-lovers everywhere salivate.

“Relatively little corruption. An efficient and independent judiciary. Respect for the rule of law and property rights. An uncomplicated tax system with low rates on both individuals and business and an overall tax burden that’s a mere 14 percent of GDP (half the U.S. rate). No taxes on capital gains or interest income or even on earnings from outside of HK. No sales tax or VAT either. A very light regulatory touch. No government budget deficit and almost nonexistent public debt. Oh, and don’t forget its average tariff rate of near zero.”

What must frustrate socialists across the globe is more than just this.  It is the fact that Hong Kong also has one of the richest populations on the planet. Its per capita income, at 264 percent of the world’s average, has more than doubled in the past 15 years. People don’t flee from Hong Kong. During World War II, their population was 750,000. Today it’s more than seven million.

Reed concludes that to say that an economy is “the freest” is to say that it’s “the most capitalist.”  Then, he gives us the money quote.

“Capitalism is what happens when you leave peaceful people alone. It doesn’t require some elaborate and artificial, Rube Goldberg contrivance cooked up by tenured central planners in their insular ivory towers.”

012716opinionjohn_1280x720The genesis of this miracle, according to Reed, is the policy of “Positive Non-Interventionism.”  The credit goes to Sir John James Cowperthwaite (pictured, right (1915–2006). The late Milton Friedman explained in a 1997 tribute to Cowperthwaite:

“Compare Britain—the birthplace of the Industrial Revolution, the nineteenth-century economic superpower on whose empire the sun never set—with Hong Kong, a spit of land, overcrowded, with no resources except for a great harbor. Yet within four decades the residents of this spit of overcrowded land had achieved a level of income one-third higher than that enjoyed by the residents of its former mother country.”

After Hong Kong’s occupation by the Japanese during World War Two, Cowperthwaite was asked to come up with plans for the government to boost economic growth. He saw the economy was already recovering well without government direction. So Cowperthwaite introduced “positive non-interventionism” in HK.

“Over a wide field of our economy it is still the better course to rely on the nineteenth century’s ‘hidden hand’ than to thrust clumsy bureaucratic fingers into its sensitive mechanism,” Cowperthwaite declared in 1962. “In particular, we cannot afford to damage its mainspring, freedom of competitive enterprise.”

He believed firmly that “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”

In summation, Cowperthwaite recognized that there are many areas where the market is a MUCH better option that central planners.   Notice that he did not say that investors might not panic or that governments do not have a role in markets. He was simply making a statement that decisions in a world of uncertainty are better made by markets.

For those who are reflexively nervous about what you may view as unfettered Capitalism, read this again.  “Positive Non-Interventionism” does not mean NO intervention.  Even with Cowperthwaite’s economic policies in place, Hong Kong spent lots of education, infrastructure and public housing.

Satirist P.J. O’Rourke was duly impressed with the South Asian rock when he reported on their economy for “Eat the Rich.”   He wrote, “Hong Kong is the best contemporary example of laissez faire. The economic theory of ‘allow to do’ holds that all sorts of doings ought, indeed, to be allowed, and that government should interfere only to keep the peace, ensure legal rights, and protect property.”

Is it a perfect example of what any economy can look like?  Of course not.  Hong Kong has never faced a significant defense burden so military spending has never been a drain on their perpetually-balanced budgets.  Also, the cost of service delivery for a small geographic area with a high-population density eased other budgetary pressures.  But the word I keep getting back to is “freedom.”

Libertarian commentator John Stossel several years ago filmed a demonstration of the business mentality in Hong Kong.  He flew there with a camera crew who filmed the process of him obtaining a business license.  They followed him inside of a government building where he waited in line for ten minutes, spent five minutes filling out a two-page form, turned it in, then was approved ten minutes later.  In less than a half-hour he was able to obtain a license to do business in a foreign nation!

There have been modifications to Hong Kong’s economy in the two decades since they reverted to rule from mainland China; but one thing that apparently has NOT changed is their fundamental understanding of the proper relationship between government and the private sector.  They (correctly) see government’s role as the baseball umpire calling balls and strikes—as the boxing referee who “wants a good clean fight,” but warns, “protect yourself at all times.”  They reserve the right to step in ONLY when the fight is getting out of hand.

I’ll close with classic P.J.:

“How a peaceful, uncrowded place with ample wherewithal stays poor is hard to explain. How a conflict-ridden, grossly over-populated place with no resources whatsoever gets rich is simple. The British colonial government turned Hong Kong into an economic miracle by doing nothing.”

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