Hong Kong Capitalist haven?

[Hansmeister]

Interesting facts about the Hong Kong gov't economic policies from the NRO:

Just How Free Is the World's Freest Economy?
Democracy may pose the greatest danger to Hong Kong's free-market economy.

By John C. Goodman


Hong Kong has the freest economy in the whole world, according to both the Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal, and the Economic Freedom of the World report published by the Fraser Institute and the Cato Institute.

There are good reasons for this ranking. The highest tax rate on personal income in the country is only 16 percent, and there are no taxes on interest, dividends, or capital gains. Hong Kong has complete free trade. There is very little special-interest (mercantilistic) interference in most markets. Hong Kong is one of the least corrupt countries in the world. And its legal system is based on British common law.

These undoubtedly are the reasons why this tiny land of 7 million people, with no natural resources to speak of, has a per-capita income ($29,900) that rivals that of the United States. Hong Kong enjoyed meteoric economic success in the space of a few decades — and did so mainly under British rule. Ironically, while the mother country was stifled by socialism and the welfare state (before Margaret Thatcher, at any rate), the colony soared from Third World to First World status by adopting capitalism instead. By the time Hong Kong was turned over to China, its per-capita income exceeded that of Britain.

But just how free is Hong Kong? On a recent visit, I spent an entire week with people in and out of government, and what I learned was surprising and disturbing.

Shocking fact number one: One out of every two residents of Hong Kong lives in government housing. Shocking fact number two: Under Hong Kong's system of socialized medicine, everyone is entitled to (nearly) free health care (there are only nominal charges, and even those are waived if your income is low). In a sense, Hong Kong is even more socialistic than the Chinese mainland when it comes to housing and health care.

Of course, when things are free, demand exceeds supply. So there is a waiting list for public housing, and the average wait to see a medical specialist is more than seven months. That is why almost one out of every two health-care dollars is spent privately — with people paying market prices to obtain promptly what they are supposed to be getting gratis.

It gets worse. In a country that is often held up as the quintessential alternative to the modern welfare state, it turns out that people can and do apply for . . . well . . . welfare. Shocking fact number three: One out of every seven Hong Kong residents is receiving cash payments from the government, and more than 40 percent of these people are neither old nor disabled.

To begin with, there is a basic cash benefit. Then there is a whole slew of child-related cash allowances, covering such items as day care, pre-school, kindergarten, textbooks, and school lunches. Add to that a transportation allowance, a utilities allowance, and even a burial allowance, and you get a whole new meaning of the idea of "cradle to grave."

There are no lifetime limits to these benefits, but they are reduced if you earn any income. Start with an average $12,000 annual cash benefit. If the family earns $8,000, the benefit is reduced to $4,000. If the family earns $9,000, the benefit is only $3,000. In economic terms, these families face a 100 percent  marginal tax rate on private-sector earnings. One wonders why anyone works at all in Hong Kong. The answer seems to be: There is a strong work ethic that overrides the lure of living off the state.

Shocking fact number four: There is no private property in Hong Kong — at least not real property. All land is owned by the government. Nominal owners are actually leaseholders who have merely acquired the right to use the property they have.

Ah, I know what you're thinking. At least Hong Kong isn't infected by political correctness and nanny-state lunacies. Think again. There are laws against age, sex, and race discrimination. Smoking in restaurants and office buildings is illegal. And (would you believe it?) Hong Kong has an indigenous population for whom some people feel a lot of guilt. Thus any male (females don't count — an indigenous people's exception to the no-sex-discrimination rule) who can prove he is a lineal descendant of a male who was living in the region in 1898 is entitled to a free plot of land on which to build a "small house." Since land is so scarce, its value is worth many times the construction costs of a house — allowing many an 18-year-old to enter into a flip arrangement with a real-estate investor and become an overnight millionaire.

I don't want to be too negative here. I would rank Hong Kong among the best places to live in the whole world. It is a city of glass and steel that is visually stunning. Schoolchildren wear uniforms. The people are unfailingly friendly. And although there are no obese people to speak of, it has some of the best restaurants in all of Asia.


The public-transport system is largely privatized and self-sustaining (no eco-friendly but uneconomical subsidies). There is a measure of school choice. One public school I observed posted ads touting its attributes. If it fails to attract enough students, it will have to close. The constitution requires a balanced budget. And maybe most important of all, government spending is only 20 percent of national income. By contrast, the U.S. government takes about 50 percent more than that; the average European government takes twice as much.

So what does the future hold? When the British turned Hong Kong over to China in 1997, the great fear was that China would try to turn it into a Communist state. As part of an effort to forestall that outcome, the British left the country with institutions that would move in the direction of true democracy with universal suffrage.

In retrospect, the fear was completely misplaced. Capitalism in Hong Kong is in far greater danger from its own citizens than it is from anyone in Beijing.

Ironically, the biggest problem is: The people of Hong Kong are just like us! They don't understand free enterprise any more than Americans understand it. They are no more dedicated to it than we are. They do not think of free-market capitalism as a moral and ethical ideal any more than Americans or Europeans think of it that way.

True enough, people in Hong Kong are aware that theirs has been named the freest economy in the world, and they are proud of that fact — even though capitalism was handed to them by a colonial government that no one in Hong Kong ever voted for. But from what I can tell, they would be perfectly willing to let it die a death of a thousand cuts — just as the rest of the developed world has done.

All signs point in the wrong direction. The government is about to impose Hong Kong's first minimum-wage law. It is pushing for expansion of the public sector in health care. And when the welfare cash allowances described above were reduced recently, almost all the members of the elected Legislative Council (which acts in an advisory role) protested the move.

The Chinese government has pledged universal suffrage in Hong Kong by 2020. But is that really such a good idea? Right now, the most important bulwark against the creation of a welfare state in Hong Kong is the fact that the citizens cannot vote for it.

— John C. Goodman is founder and president of the National Center for Policy Analysis.

[Razgovory]

Okay that was good. I can't really tell if that's parody or not.

[Neil]

Unrestricted capitalism is goofy anyways.  There isn't a single informed person who thinks that Hong Kong is actually admirable.

[Razgovory]

Okay, I've read this three times.  Is it a joke or what?

[DGuller]

Okay, I've read this three times.  Is it a joke or what?

I has to be a joke.  Why would anyone read that tripe more than once?

[Razgovory]

Okay, I've read this three times.  Is it a joke or what?

I has to be a joke.  Why would anyone read that tripe more than once?

Cause I have comprehension problems?

[Monoriu]

The article is mostly correct.  Especially the conclusion. 

[Razgovory]

The article is mostly correct.  Especially the conclusion.

As the only person who actually lives there you are disenfranchised and don't count!

[Monoriu]

Shocking fact number 4 is mostly cosmetic.  It is a fact that all land in HK is owned by the government and all home "owners" are technically "rentors" of government property.  But it makes no difference in reality. 

The highest personal tax rate in HK has just been revised - it is now 15%, not 16%

A measure that the HK government likes to quote is the ratio of government spending as a % of GDP.  It varies from year to year of course, but our range is usually between 15-20%.  That's a lot lower than almost everybody in the developed world. 

Another thing to keep in mind is that the HK government (remember, it is a municipal level government) has over US$60 billion in cash reserves.  A few years ago it built a new airport, a new railway, then the longest bridge in the world, a new island, a new town, a new highway, a new cross harbour tunnel, all without borrowing a single cent.  Even with this kind of infrastructure investment, the HK government faces an annual problem - its coffers are overflowing.  If the government does not spend money on things like public housing, the budget surplus will be embarrassingly high. 

[Monoriu]

About shocking fact number 1 - while it is true, perhaps I should add the historical background behind it.  Back in the 60s, there was no public housing at all.  But the people still had to live somewhere.  So they illegally built wooden sheds everywhere - on slopes, on government land, basically anywhere they could find.  The government would employ masses of civil servants to engage in street battles with half the population every now and then in an effort to clear the squatters.  They would succeed, of course, but the people still had to live somewhere.  After every clearance operation, they would simply rebuild elsewhere.  One day, there was a huge fire that destroyed a huge squatter area that made hundreds of thousands of people homeless.  They were not criminals - they were productive factory workers who paid taxes.  The government then made a decision that, instead of spending money in endless battles to clear the sheds, it would simply build high rise concrete buildings to house them, then charge the people rent to cover some of the costs.  The buildings are nothing fancy - 30,000 people lived in 8 buildings. 

[Faeelin]

Wait, I don't understand.

Is Hans posting an article saying:

a) Democracy is overrated, because the plebs will demand health care instead of the run away libertarianism they deserve, at the hands of a dictator.

or

b) Hong Kong's success story isn't because of freewheeling capitalism, but because of a people who have managed to take the best of "socialism" together with socialism to jump in 50 years from a backwater entrepot for opium to one of the richest places on Earth?

[Monoriu]

Wait, I don't understand.

Is Hans posting an article saying:

a) Democracy is overrated, because the plebs will demand health care instead of the run away libertarianism they deserve, at the hands of a dictator.

or

b) Hong Kong's success story isn't because of freewheeling capitalism, but because of a people who have managed to take the best of "socialism" together with socialism to jump in 50 years from a backwater entrepot for opium to one of the richest places on Earth?

The political system in Hong Kong is unique.  It is neither a democracy, nor a dictatorship.  It is essentially ruled by the civil service.  The current head of the Hong Kong government is a career civil servant, as are most of his ministers.  The civil servants draft the laws, prepare the budgets, etc.  The legislators cannot initiate spending or introduce bills of their own.  They can only vote yes or no on the laws prepared by civil servants.  The civil service does not have a political agenda.  Their idea of ruling is to continue what they've been doing for the past decades. 

But that's not what the people really want.  The situation in Hong Kong has changed a lot.  A lot of people demand that the government spend the huge cash reserves they have.  They want things like minimum wage, retirement benefits, unemployment insurance etc.  The civil service resist change, and only cave in in the face of extreme political pressure.  Democracy will likely make Hong Kong less capitalist. 

[Monoriu]

If you want to understand the political system in Hong Kong, you must first look at its colonial history.  There was a Governor appointed from London.  The guy was most likely a noble, or a diplomat.  In other words, they had no idea how to run a city.  So, London dictated that the Governor could not make decisions by himself.  The Governor had to be "in Council" to make decisions.  The Council, known as the Executive Council, is composed of the most senior civil servants, head of the British garrison, prominent Chinese, and representatives from major British firms (the Tai Pans).  These guys ensure that the Governor would not do anything stupid. 

But the Tai Pans do not govern on a full time basis.  They have their own companies to run.  They meet for like 2 hours every week.  They can't draft laws, they can't prepare budgets, they can't do research on public policy, they can't explain a new initiative to the public.  So they had to rely on the civil service to do all these things.  The HK colonial civil servants were expected to do all these things, and make a submission to the Executive Council for approval.  The civil servants were expected to appear in TV and sell a proposal.  They explain a draft law in front of the legislative council, not the governer.  They come up with ideas.  They do the research.  They manage crisis.  They explain the government's failures when something bad comes up.  They do everything, so that the only thing their colonial masters needed to do was to put a chop on any law. 

[FunkMonk]

Very interesting stuff. 

[Razgovory]

Cool.  Americans write Dystopian novels describing your government.