Milton Friedman bragged on Hong Kong’s free economy in 1980 and Dan Mitchell does in 2016!!!
Milton Friedman PBS Free to Choose 1980 Vol 1 of 10 Power of the Market
America’s freedom and prosperity derive from the combination of the idea of human liberty in America’s Declaration of Independence with the idea of economic freedom in Adam Smith’s Wealth of Nations. Friedman explains how markets and voluntary exchange organize activity and enable people to improve their lives. He also explains the price system. Friedman visits Hong Kong, U.S. and Scotland.
March 11, 2016 by Dan Mitchell
Hong Kong is a truly remarkable jurisdiction.
Can you name, after all, another government in the world that brags about how little it spends on redistribution programs andhow few people are dependent on government?
And how many jurisdictions adopt private Social Security systems to help make sure the burden of government spending doesn’t climb above 20 percent of GDP?
Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government.
For additional background, let’s enjoy the insight of one of these men.
In a column for Reason, my Cato Institute colleague Marian Tupy reminisces on his meeting with John Cowperthwaite, one of the British-appointed economic advisers.
…a young Scottish civil servant named John Cowperthwaite arrived in the colony to oversee its economic development. Some 50 years later, I met Cowperthwaite in St Andrews, Scotland, where I was a student and he was enjoying his retirement. As he told me, “I came to Hong Kong and found the economy working just fine. So, I left it that way.” …Of all the policies that we discussed, one stands out in my mind. I asked him to name the one reform that he was most proud of. “I abolished the collection of statistics,” he replied. Cowperthwaite believed that statistics are dangerous, because they enable social engineers of all stripes to justify state intervention in the economy. At some point during our first conversation I managed to irk him by suggesting that he was chiefly known “for doing nothing.” In fact, he pointed out, keeping the British political busy-bodies from interfering in Hong Kong’s economic affairs took up a large portion of his time.
I especially like Cowperthwaite’s insight about the downside risk of letting governments collect a lot of data.
Something that’s worth considering in a world where governments want to engage in massive data collection and data sharing for purposes of imposing and enforcing bad global tax policy.
But let’s not get sidetracked. Economic freedom in Hong Kong is today’s topic. With that in mind, here’s a chart from Marian’s column. It shows that Hong Kong used to be much poorer than the United Kingdom. But after decades of faster growth (thanks to good policy), Hong Kong is now more prosperous than its former colonial master.
In other words, Hong Kong didn’t just converge with one of the world’s richest countries, which by itself would be a remarkable and unusual achievement. It actually became richer.
This is tremendous evidence on the benefits of good policy and the importance of strong, long-run growth.
Let’s close by looking at this issue of growth and development. Here’s a video from Marginal Revolution, narrated by Professor Alex Tabarrok of George Mason University. You should watch it from start to finish, but if you’re pressed for time, make sure to at least watch the first 2:10.
Puzzle of Growth: Rich Countries and Poor Countries
There are two things that are worth emphasizing from the video.
The productivity of workers (and therefore the pay of workers) is dependent on the quantity and quality of capital.
Entrepreneurs play a key role in figuring out the best ways of mixing labor and capital and this innovation boosts productivity.
By the way, there are two sins of omission in the video. If you watch the whole thing, you’ll notice it mentions that strong economic performance is linked to therule of law, property rights, free trade, and sensible regulation.
But I’m nitpicking. Let’s close with another video from Marginal Revolution. You should once again watch the entire video, but for those in a rush, I adjusted the settings so it starts at the most important part.
Growth Rates Are Crucial
The video uses GDP data that is adjusted for both inflation and population, which is a very useful approach. But the key lesson, as Professor Tabarrok explained, is that even small sustained changes in growth have enormous implications for long-run prosperity.
Indeed, that’s why Hong Kong is now richer than the United Kingdom. And it’s also worth noting that Hong Kong (and Singapore) are passing the United States.