From Milton Friedman:

http://www.opinionjournal.com/editorial/feature.html?id=110009051


It had to happen. Hong Kong's policy of "positive noninterventionism" was too good to last. It went against all the instincts of government officials, paid to spend other people's money and meddle in other people's affairs. That's why it was sadly unsurprising to see Hong Kong's current leader, Donald Tsang, last month declare the death of the policy on which the territory's prosperity was built.

The really amazing phenomenon is that, for half a century, his predecessors resisted the temptation to tax and meddle. Though a colony of socialist Britain, Hong Kong followed a laissez-faire capitalist policy, thanks largely to a British civil servant, John Cowperthwaite. Assigned to handle Hong Kong's financial affairs in 1945, he rose through the ranks to become the territory's financial secretary from 1961-71. Cowperthwaite, who died on Jan. 21 this year, was so famously laissez-faire that he refused to collect economic statistics for fear this would only give government officials an excuse for more meddling. His successor, Sir Philip Haddon-Cave, coined the term "positive noninterventionism" to describe Cowperthwaite's approach.

The results of his policy were remarkable. At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's. By 1997, when sovereignty was transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period. That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests.

The success of laissez-faire in Hong Kong was a major factor in encouraging China and other countries to move away from centralized control toward greater reliance on private enterprise and the free market. As a result, they too have benefited from rapid economic growth. The ultimate fate of China depends, I believe, on whether it continues to move in Hong Kong's direction faster than Hong Kong moves in China's.

Mr. Tsang insists that he only wants the government to act "when there are obvious imperfections in the operation of the market mechanism." That ignores the reality that if there are any "obvious imperfections," the market will eliminate them long before Mr. Tsang gets around to it. Much more important are the "imperfections"--obvious and not so obvious--that will be introduced by overactive government.

A half-century of "positive noninterventionism" has made Hong Kong wealthy enough to absorb much abuse from ill-advised government intervention. Inertia alone should ensure that intervention remains limited. Despite the policy change, Hong Kong is likely to remain wealthy and prosperous for many years to come. But, although the territory may continue to grow, it will no longer be such a shining symbol of economic freedom.

Yet that doesn't detract from the scale of Cowperthwaite's achievement. Whatever happens to Hong Kong in the future, the experience of this past 50 years will continue to instruct and encourage friends of economic freedom. And it provides a lasting model of good economic policy for others who wish to bring similar prosperity to their people.

Yes, the Hong Kong economy, which John Stoessel likes to tout as the shining example of laissez-faire capitalism, had been proven as one hellofa wealth producer. It also produced an economy with one of the highest GINI indexes in the world.

The GINI coefficient measures how wealth is distributed. A coefficient of 0 would mean that all wealth is perfectly evenly shared. A coefficient of 1 would mean that only one person owns all the wealth. A coefficient over .4 is considered bad. Hong Kong's was in the high .5s and has been rapidly increasing since the last GINIs were published five or six years ago.

Socialistic countries like Denmark, Sweden and Japan have very low GINIs, in the .2s.

In my model economy, capitalism creates the wealth and some degree of socialism distributes it. Hong Kong would not be my idea of a good economy.

But to make that a meaningful statistic, wouldn't you need to know the number of people in each category?

Here's the Wikipedia speel on GINI:

GINI

I'm not smart enough to understand the math. The article lists the advantages and disadvantages of the index.

The Wikipedia articale contains a link to a worldwide listing of GINIs that lists Hong Kong as of 1996.

This article is more contemporary. Together, they illustrate how rapidly Hong Kong's GINI is increasing.

Hong Kong was unique as being the only portal into China for many decades. This, and British rule, gave it a license to print money. Ideas about laissez faire economy don't agree with the actual history.

A better example is Singapore where a single "benevolent" dictator ruled for decades while overseeing the huge growth in the GDP.

I discuss whether democracy is necessary for a sucessful economy in this recent essay of mine:
Is Democracy Necessary?

Damn! I used the wrong URL. The more recent article is here (I think.)

Capitalism spreads opportunity, sociaism spreads misery.

Another dumb, vaccuous bumper sticker.

RobertDFeinman

I found your article very interesting. I would like to see you expand on what I would call "hybrid" societies. Specifically, a capitalism-socialism conjoinment. There are some, like Sawdust, who apparently believe that the two are completely incompatible.

No Art, you just can't go to a socialist country where with hard work and a little intelligence, you can fulfill your wildest dreams. The Chinese have a saying, "the nail that sticks out will be driven down."

I have friends in socialist countries in Europe. They have some similar traits. They are afraid to try to be exceptional because the government makes it too difficult but they aren't concerned about being exceptional because when they retire they can go on the dole and die semi comfortably.

I would hate that life.

As far as I can tell there are no "socialist" countries. Places like Sweden are capitalist with large industries like Volvo, etc.

What they do have his government administered social insurance programs. There are a few places where the post and/or telephone are owned by government corporations, but these are being phased out.

The UK had actual socialism in that the government owned railroads and steel mills, etc. Thatcher put a stop to that. British railroads are now a national disgrace.

Socialism is government ownership of the "means of production" there is little of this. If you like, China is the most "socialist" society since the government is a partner in many enterprises.

I've written on the relationship between democracy and capitalism in a recent essay. People confuse the two. It is possible to have one without the other.

Here is the link:
Is Democracy Necessary?

Yeah, Robert. That's the same article as before, but I get your point.

Sawdust
No doubt about it! Hong Kong is your kinda town . . . or perhaps, Chile, or S. Africa, or Brazil (very sexy women there!) Hong Kong is a gold mine for people who love the financial markets and collateral industries. (Things like construction and hospitality; perhaps limousine and private jet businesses.)

As for most of us in the good ole' USA, who have ordinary talents and aspirations that are not particularly commercially viable, or who do not like the world of business and find it vulgar and crass, and who only seek a good life with peace of mind and freedom from worry and excessive anxiety over survival; Well, we will just have to battle it out about what we want from our government. Most of us don't really care about the ambitions of some individuals to become fabulously wealthy doing ordinary things.

You can't convince me that relatively "socialistic" countries lack opportunity for exceptionally talented people (Nokia, Volvo, Sony, Linex, etc.)

In any event, your bumper sticker has absolutely nothing to do with the subject of this thread. The topic is about whether the economy is a good economy or a bad economy.

quote:

As far as I can tell there are no "socialist" countries. Places like Sweden are capitalist with large industries like Volvo, etc.

I guess we'll have to set some definitions so we can discuss this. Democracy is a political system. Socialism and capitalism are economic systems at least as I use them for the sake of this conversation. If that is acceptable.

You're right that many countries in Europe are capitalist with some socialist systems. My company has done business with Chinese and Korean companies and the government is indeed a partner with private enterprise.

My experience with socialism in Europe is through associations with close friends in Belgium and Sweden. My friend from Belgium is a small business man. He doesn't think of Belgium as a socialist country but he also has no experience with establishing himself in a society that doesn't have structures that suppress entrepreneurism like they have in Europe.

The tax system in Europe that governments use to pay for their socialist structures are onerous. VAT in Belgium is 22%. Marginal rates start at 20% and top out at 65%. That means that the lowest income earners pay 20% in tax opposed to this country where there is an earned income tax credit that pays a "refund" to the lowest wage earners who pay no income tax.

My friend who is a small businessman runs a one man company. He's afraid to have employees because of the labor laws and extra expenses he would be liable for. If he had an employee and after gaining tenure in his position, something like the three month waiting period here, and the employee didn't work, severance could cost him tens of thousands of euros.

The effect of this is that large corporations can gain a foothold in these "socialist systems" and are encouraged by government. The little guy however has an uphill battle in trying to establish a company. As a result, most workers take the safe road, getting and keeping a job while waiting for the government safety net at the end of a life's labor.

Those who are concerned about economic stratification of a society (I'm not) should look closely of the aristocratical stratification in Europe. Nouveau rich is an American term, one seldom necessary in Europe.

I am more concerned with giving an individual the opportunity to excel than I am seeing that everyone has the same mediocre outcome.

Art, I have no opinion about the way you chose to live. I hope you're happy. I do have more bumper stickers for you however.

"Those who have nothing are eager to share" Orson Scott Card.

"If you always do what you always did, you always get what you always got."

The "thread" is about what had been a successful economy in Hong Kong that is now being threatened by government intervention. It was bound to happen after the Brits left.

Have a good day.