The World needs Hong Kong

… and Hong Kong needs competition.

In the Annual Index of Economic Freedom published by the Frazer Institute of Canada and the Heritage Foundation of USA  Hong Kong comes out on top year after year, followed by Singapore. 

Hong Kong’s famous Laissez Faire Capitalist system works.  It has made Hong Kong prosperous and uniquely successful.  Low taxes, predictable rule-of-law, strong property-rights, low regulation, banking privacy and a history of ‘good  behaviour’ in the financial and political areas make it attractive to capital and talent. 

Much of the [western] world is going down a path of higher taxes, heavy regulation, big government.  This could be the outcome of long-term success and prosperity (they are getting fat and lazy) of unfettered democracy or simply of a tendency for governments to grow and become interventionist and expensive. 

One of the things that tempers the [once-prosperous] west in their clamour for more taxes and compulsion for more interventions is competition – for capital and for talent. The politicians of western democracies are prone to promise things to voters in the hope that they will get elected.  But politicians and their bureaucracies are not stupid (at least not all the time) and they know that if they raise taxes too far, or regulate too heavily,  they will lose their support-base.  People, particularly wealthy and skilled people, will vote with their feet and their bank accounts and move to capital-friendly and talent-friendly jurisdictions;  this where Hong Kong plays a valuable role in keeping the rest of the world honest. 

But Hong Kong is prone to the same forces of government growth as the west.  There is pressure to intervene, to regulate (and eventually to raise taxes ?).  Some say Hong Kong is losing its ‘positive non-interventionist’ tradition.  Local officials see things they think they should be doing – in the name of ‘fairness’ or something.  And pressure comes from international busy-bodies – like the IMF – for interventions (like Minimum Wage Laws) that will, bit by bit, erode not only Hong Kong’s competitive advantage but also its dynamic culture and work ethic.  It is the “Unintended Consequences” of such interventions that cause the damage.  These unintended consequences can permeate into unforeseeable nooks and crannies of the economy and the society with insidious results. 

So while other nations need Hong Kong to keep them  honest and somewhat economically free,  Hong Kong too needs competition, from places like Singapore and other capital-friendly regimes to keep it from becoming a victim of its own success and sliding into interventionism. Hong Kong needs a strong appreciation of its specialness by reinforcing its commitment to hands-off laissez-faire capitalism. 

Institutions like the small but vigorous Lion Rock Institute are needed to point out the dangers of interferences and regulations in Hong Kong’s economy.   

Written by Nev Kennards, a preaching & practicing capitalist who is now living in Hong Kong. This article will also appear in the next issue of ‘Best Practice’, the quarterly publication of the Lion Rock Institute.

3 thoughts on “The World needs Hong Kong

  1. “But Hong Kong is prone to the same forces of government growth as the west. ”

    Maybe is prone, but certainly not as prone. The mentality of the people about where there money goes is entirely different, especially government waste, broadly defined.

  2. Didn’t China agree not to mess with HK for 50 years as part of the handover? It will be interesting to see if things change much in 2047.

  3. I am known for my affection for Hong Kong, but lets not mischaracterize its economy.

    One specific area of it is laissez-faire: the international sector. There are low nominal taxes, true, and relatively low regulation, but the government itself basically dispenses favors to a network of zaibatsu-style favored merchants. Its domestic economy is an unofficial oligopoly where a set of elite tycoons are in bed with the government. Its basically corporate statist, domestically speaking.

    So it is legally libertarian-ish but culturally Cronyist. You don’t really get rags-to-riches stories in HK and Asia generally. You still get them in the West, even if our economy is legally a mixed economy. The fact is that Asia was enriched by the free sectors in its economy, but power-elites like ‘stable social orders’ (read: they want to keep themselves and their buddies at the top of the pile). Hence, they want the wealth of Capitalism but they want to minimize (what they see as) the “negative side effects” (i.e. dynamic, non-heirarchial social structures). This pattern exists pretty much all over Asia.

    For more details on this, I recommend the book “Asian Godfathers” by Joe Studwell; he attacks the corporate statism of HK in the name of actual free markets and the upward social mobility provided by true capitalism.

    For expats and foreigners, HK basically is laissez-faire, but for the people that live there…

    HK is an example of the malfunctions that can occur to a market economy if the underlying social values (i.e. of Western Classical Liberalism) that free markets need are not present.

    Note that I’m not suggesting that Western nations need to avoid emulating HK’s concrete policies. We certainly do. But on the other hand, Asian civilization needs to heavy dose of western values to bring it into alignment with the economic system that dragged it out of the gutter. The West needs to consider the East’s less-regulated policy architectures; the East needs to consider the values of the West’s social-cultural individualism.

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