End of Hong Kong lais­sez-faire?


Hong Kong has prided it­self as the freest econ­omy in the world, but last week Chief Ex­ec­u­tive CY Le­ung pro­nounced that the “pos­i­tive non- in­ter­ven­tion” pol­icy is out­dated.

Is this the end of the lais­sez­faire phi­los­o­phy that has served Hong Kong suc­cess­fully for the last half-cen­tury?

The phrase “pos­i­tive non­in­ter­ven­tion” was at­trib­uted to Sir John Cow­perth­waite, fi­nan­cial sec­re­tary from 1961-71, a Scots­man who in­her­ited the moral phi­los­o­phy of his coun­try­man Adam Smith. His first speech as fi­nan­cial sec­re­tary marked his ap­proach to mar­kets: “In the long run, the ag­gre­gate of de­ci­sions of in­di­vid­ual busi­ness­men, ex­er­cis­ing in­di­vid­ual judg­ment in a free econ­omy, even if of­ten mis­taken, is less likely to do harm than the cen­tral­ized de­ci­sions of a gov­ern­ment, and cer­tainly the harm is likely to be coun­ter­acted faster.”

State Vs. Mar­ket

Whether one likes it or not, history has shown that Sir John was more right than wrong. No­tice that he did not say that in­vestors might not panic (as in re­cent share crashes) or that gov­ern­ments do not have a role in mar­kets. He was sim­ply mak­ing a state­ment that de­ci­sion-mak­ing in a world of un­cer­tainty is bet­ter made by mar­kets. That phi­los­o­phy is also built into the Third Plenum where the Chi­nese plan­ners rec­og­nize that mar­kets are bet­ter at in­no­va­tion, job cre­ation and re­source al­lo­ca­tion than the state. State-owned en­ter­prises are good at build­ing in­fra­struc­ture where there were none, but in terms of prod­uct and ser­vice gen­er­a­tion and prof­its, the mar­kets beat state-run in­sti­tu­tions.

In the de­bate be­tween state and mar­ket, there has been too much of a ten­dency to see the is­sue as black and white, whereas Sir John’s dic­tum of pos­i­tive non­in­ter­ven­tion­ism fit­ted the Chi­nese dia­lec­tic phi­los­o­phy of you wei-wu wei ( ) (trans­lated as in­ter­ven­tion vs. self-or­der). There is al­ways room for in­ter­ven­tion, even if the nat­u­ral or­der of mar­kets fol­lows the Tao.

Firstly, the phi­los­o­phy was em­i­nently re­al­is­tic, prac­ti­cal and ef­fi­cient. The Bri­tish colo­nial gov­ern­ment in the 1960s had lim­ited re­sources and lim­ited skills, whereas the Hong Kong en­trepreneurs were hun­gry, cre­ative, hard work­ing and risk-tak­ing in abun­dance. By run­ning bal­anced bud­gets, sound money and fair mar­kets, he sim­ply let loose the en­tre­pre­neur­ial spirit to find new mar­kets and sources of prof­its.

Se­condly, pos­i­tive non-in­ter­ven­tion did not mean no in­ter­ven­tion. The fact that Hong Kong had good trans­port in­fra­struc­ture with onethird of the pop­u­la­tion in public hous­ing, with heav­ily sub­si­dized health care and ed­u­ca­tion was real state in­ter­ven­tion.

Thirdly, the state worked hand in hand with the mar­ket, not against it.

The counter ex­am­ples against the Hong Kong phi­los­o­phy are Sin­ga­pore and South Korea. These ex­am­ples fail to point out that the com­par­a­tive ad­van­tages were very dif­fer­ent. Both coun­tries saw their sur­vival as geopo­lit­i­cal, with a need to spend hugely on de­fense, which ne­ces­si­tated quick wins in in­dus­tri­al­iza­tion, with the Kore­ans mov­ing very rapidly in heavy en­gi­neer­ing and tech­nol­ogy through chae­bols. Sin­ga­pore re­lied more on gov­ern­ment-linked com­pa­nies to drive in­vest­ment and growth, whilst wel­com­ing multi­na­tion­als. On the other hand, Hong Kong had more than its fair share of home­grown en­trepreneurs as well as an open door to ex­ter­nal tal­ent.

What the three economies shared in com­mon was heavy state fund­ing of ed­u­ca­tion, health care and in­fra­struc­ture.

The dif­fer­ence be­tween Hong Kong and the other two civil ser­vices was one of phi­los­o­phy. The Hong Kong civil ser­vice un­der­stood in its bones that the mar­ket was smarter and you did not fix it, if it ain’t broke. The other two had to in­ter­vene be­cause of geopo­lit­i­cal needs.

What has changed in Hong Kong is the pol­i­tics post-1997. The po­lar­iza­tion of po­lit­i­cal views has meant that the Hong Kong gov­ern­ment be­came par­a­lyzed in ex­actly its ar­eas of pre­vi­ous strength: ed­u­ca­tion, in­no­va­tion (tech­no­log­i­cal catch-up) and in­fra­struc­ture (still good, but creak­ing at the seams). The civil ser­vice is now caught be­tween the pol­i­tics, so­cial media and gen­uine so­cial needs. When top civil ser­vants have to spend more time an­swer­ing ques­tions in Legco and the media, rather than get­ting on with the job, are we sur­prised that the men­tal­ity is switch­ing from one of “can-do” to one of “no-do, no mis­takes, wait for re­tire­ment?”

Busi­ness-friendly In­cen­tives

Pos­i­tive non- in­ter­ven­tion­ism is not wrong — it’s just that the con­text has changed, whereas the pol­i­tics has not. With strong re­serves, open­ness to global tal­ent but high costs, the busi­ness com­mu­nity is ask­ing whether they can con­cen­trate their re­sources on busi­ness or should they be wor­ried about more state in­ter­ven­tion? If the lat­ter, can the Hong Kong gov­ern­ment de­liver for them more busi­ness-friendly in­cen­tives than com­pet­ing gov­ern­ments else­where?

The long game for Hong Kong is struc­tural — how can Hong Kong build up its tal­ent into pos­i­tively ben­e­fit­ing from the In­ter­net Age, rather than neg­a­tively protest- ing against any­thing that moves? Whilst Hong Kong cit­i­zens are still de­bat­ing about who is right or wrong, its com­peti­tors are al­ready up­ping the game. The cen­ter of grav­ity is shift­ing out­side Hong Kong — Shen­zhen, Sin­ga­pore, Shang­hai, Seoul and Syd­ney are vig­or­ously be­com­ing al­ter­na­tive cen­ters of cul­ture, in­no­va­tion and cre­ativ­ity.

Thus, the is­sue is still about lo­cal pol­i­tics, not about busi­ness. To blame the civil ser­vice for not be­ing in sync with the lead­er­ship is the wrong game. Even if the bu­reau­cracy is will­ing to fol­low the new change in phi­los­o­phy, it can’t get past the cur­rent meat-grinder of a po­lit­i­cal process.

The pol­i­tics in Hong Kong is in a quag­mire be­cause both sides see is­sues in black and white. One thinks that democ­racy is all about one-per­son one vote, and the other thinks that it’s pos­si­ble to do busi­ness as usual.

John Cow­perth­waite was the right man at the right time, be­cause he melded Scot­tish moral phi­los­o­phy with Chi­nese dia­lec­tic prag­ma­tism. To get any­thing done, the Chi­nese phi­los­o­phy has al­ways been about three things: tim­ing, ge­og­ra­phy and so­cial unity [ ] With Hong Kong ge­o­graph­i­cally lo­cated in still the fastest grow­ing re­gion in the world, the only thing that is lack­ing to move for­ward is so­cial unity.

And how to get so­cial unity is clearly the re­spon­si­bil­ity of Hong Kong’s lead­er­ship, at all lev­els. An­drew Sheng writes on Asian is­sues.

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