“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 2 of 7)

 

Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them.

Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are refugees from countries that don’t allow the economic and political freedom that is taken for granted in Hong Kong.

Despite rapid population growth, despite the lack of natural resources, the standard of living is one of the highest in all of Asia. People work hard, but Hong Kong’s success is not based on the exploitation of workers. Wages in Hong Kong have gone up fourfold since the War, and that’s after allowing for inflation. The workers are free. Free to work what hours they choose, free to move to other jobs if they wish. The market gives them that choice. It also determines what they make. You can be sure that somebody somewhere is willing to pay for these cheap, plastic toys. Otherwise they simply wouldn’t be made.

Competition from places like South Korea and Taiwan has made cheap products less profitable, so Hong Kong businessmen have been adapting. They have been developing more sophisticated products and new technology that can match anything in the West or East and their employees have been developing new skills.

Hong Kong never stops. There’s always some business to be done, some opportunity to be seized. Its long been a tourist center and a shoppers paradise and it’s now one of the business centers of the East. It’s the ordinary people of Hong Kong who benefit from all this effort and enterprise.

This thriving, bustling, dynamic city, has been made possible by the free market __ indeed the freest market in the world. The free market enables people to go into any industry that they want; to trade with whomever they want; to buy in the cheapest market around the world; to sell in the dearest around the world. But most important of all, if they fail, they bear the cost. If they succeed, they get the benefit and it’s that atmosphere of incentive that has induced them to work, to adjust, to save, to produce a miracle. This miracle hasn’t been achieved by government action __ by someone sitting in one of those tall buildings and telling people what to do. It’s been achieved by allowing the market to work. Walk down any street in Hong Kong and you will see the impersonal forces of the market in operation.

Mr. Chung makes metal containers. Nobody has ordered him to. He does it because he has found that he can do better for himself that way than by making anything else. But if demand for metal containers went down, or somebody found a way of making them cheaper, Mr. Chung would soon get that message.

A few doors away, Mr. Yu’s firm has been making traditional Cantonese wedding gowns for 42 years. But the demand for these elaborate garments is falling. The firm has already gotten that message and is now looking for another product. The market tells producers not only what to produce, but how best to produce it through another set of prices __ the cost of materials, the wages of labor, and so on. For example, if these workers could earn more doing something else, Mr. Ho would soon find a way to mechanize his picture frame production.

Inside this Chinese medicine shop, a market transaction is going on. The customer’s confidence that this painful looking ordeal will help him doesn’t rest on any official certification of the bone doctor’s qualifications __ it comes from experience __ his own or his friends. In his turn, the doctor treats him not because he has been ordered to, but because he gets paid. The transaction is voluntary so both parties must expect to benefit or it will not take place.

Believe it or not, this backyard is an entrance to a factory. The workers here are some of the best paid in Hong Kong. It’s hot, sticky, and extremely noisy. The workers are highly skilled so they can command high wages. They could induce their employer to improve working conditions by offering to work for less, but they would rather accept the conditions, take the high wages, and spend them as they wish. That’s their choice. The best known statement of the principles of a free market, the kind of free market that operates in Hong Kong, was written on the other side of the world. Two hundred years ago in Scotland, Adam Smith taught at the University of Glasgow. His brilliant book, The Wealth Of Nations, was based on the lectures he gave here.

The basic principles underlying the free market, as Adam Smith taught them to his students in this University, are really very simple. Look at this lead pencil, there is not a single person in the world who could make this pencil. Remarkable statement? Not at all. The wood from which it’s made, for all I know, comes from a tree that was cut down in the State of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make the steel, it took iron ore. This black center, we call it lead but it’s really compressed graphite, I am not sure where it comes from but I think it comes from some mines in South America. This red top up here, the eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn’t even native. It was imported from South America by some businessman with the help of the British government. This brass feral __ I haven’t the slightest idea where it came from or the yellow paint or the paint that made the black lines __ or the glue that holds it together. Literally thousands of people cooperated to make this pencil. People who don’t speak the same language; who practice different religions; who might hate one another if they ever met. When you go down to the store and buy this pencil, you are, in effect, trading a few minutes of your time for a few seconds of the time of all of those thousands of people. What brought them together and induced them to cooperate to make this pencil? There was no Commissar sending out orders from some central office. It was the magic of the price system __ the impersonal operation of prices that brought them together and got them to cooperate to make this pencil so that you could have it for a trifling sum.

That is why the operation of the free market is so essential. Not only to promote productive efficiency, but even more, to foster harmony and peace among the peoples of the world.

These people are crossing between two very different societies. This is Lo Wool, the official border crossing point between China and Hong Kong.

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