July 12, 2005
Hong Kong libertarian
I've now re-read Bryan Caplan's piece Hong Kong: Statist at Heart (and thanks to Conrad for the pointer). There are several pieces that require a response.
Hong Kong has had the freest economy in the world since 1970, the earliest year covered by the Economic Freedom of the World data set. Indeed, it's higher now under the Communists than it was in 80's! And it's hard to deny that Hong Kong has been an economic miracle since World War II. So even though Hong Kong was not a democracy before the Communist takeover, it's very tempting to believe that the people of Hong Kong would have voted to retain (if not initially adopt) the free-market policies they had.Hong Kong always scores highly in economic freedom surveys, because such surveys are biased in Hong Kong's favour. The city is a low taxing trading port with rule of law and little corruption. But Hong Kong economists are the first to admit Hong Kong's economy is not "free" at all:
"There is a misconception that Hong Kong has the freest economy in the world -- it is called free because there are no laws to control the behaviour of businesses," said Lin Ping, head of economics at Hong Kong's Lingnan University. "Some companies are very powerful; there is no level playing field. New companies cannot come in and compete fairly, I do not see that as a free economy."Being "free" and "open" is not necessarily an optimal result. Yes, Hong Kong has been an economic miracle. But it has come at a cost. The city is the plaything of cartels. Not very liberatarian.
Next comes the assertion Hong Kongers would have voted to establish and retain the free market policies that got the city to this point. Not only is that impossible to prove, it is meaningless. You could argue that Hong Kongers may have been prepared to pay the price in foregone economic success in return for the right to vote. Worse, the statement supposes that Hong Kong's voters would have been blessed with incredible foresight - that they would have known these policies would be the "best" ones. It also supposes that Hong Kongers are happy with today's economy. While there is no denying many Hong Kongers are well off today, there are many more who are not. Companies and cartels wield far more power over consumers and taxpayers than in other advanced market economies. The average Hong Konger still lives in a flat that is 600 square feet. Measures of welfare are broader than per capita GDP. Quality and standards of living matter more.
Hong Kongers generally agreed with the laissez-faire policy of HK's Government, back in 1990, although I wonder how many of the survey's subjects understood what laissez-faire meant. But when presented with more specific interventionist policies, Hong Kongers generally backed them as well. That could imply a disconnect between what Hong Kongers think is laissez-faire and how it is implemented. It could also reflect a general willingness to agree with whatever the survey asked. If the specific policies suggested were asked in isolation, without explaining their implementation and potential costs, it is not surprising that people agreed on the need for a minimum wage, price controls, taxing the rick and protecting local industry. These kind of motherhood statements are often well supported...in isolation. You'll likely get similar support if the survey is done in Communist China or in capitalist New York.
I came across a study of Folk Economics that explains "the intuitive economics of untrained persons. It is concerned with distribution, and does not allow for or understand incentives." This perfectly explains the reactions in the survey (and in many other debates besides). It boils down to general ignorance of economics. That's not a crime and it is something that democracy could well cure. How? Because when politicians become accountable to voters rather than special interests, they need to educate the electorate on the value of their policies.
Unfortunately this blows the rest of Caplan's point out of the water:
To be blunt, it looks like the lack of democracy under British rule was a key component of Hong Kong's ascent. The policies worked wonders, but they never became democratically self-sustaining. In politics, people often resist policy change just because "things have always been this way," even if the results were never very good. But free-market policies apparently labor under a greater political handicap. Even if "we've always left these things to the free market," even if leaving things to the free market has worked in the past, it just isn't enough to win over public opinion.While non-democratic Hong Kong did well economically, so did democratic Japan, the United States, Australia and even the UK once Maggie got in. The linkage between democracy and economic success in Hong Kong is an experiment going on in real time. Even under Beijing's bastardised democracy here, Hong Kong's economy is growing strongly after a nasty bout of deflation, brought about through a currency board and the Asia crisis. There is absolutely no proof that free-market policies labour under a greater political handicap. Indeed modern political history in other countries, such as Australia, the USA and the UK, all point to a move towards free-market policies by both sides of the political fence.
There may be merit to the idea that these policies are not democratically self-sustaining. That supposes that Hong Kongers should leave the running of their city and economy to the experts - an illiberal notion. If the policies have proven good enough for Hong Kongers in the past then they should be confident enough to hold their own should they be subjected to a public vote. Surely that's the point of voting - a competition of ideas.
Countless market-oriented intellectuals idolize Hong Kong but I've never heard of, much less met, a Hong Kong libertarian. Google confirms my impression, returning no relevant hits for "Hong Kong libertarian." I'd like to think, then, that Hong Kong's problem was a shortage of libertarian intellectuals to transform freedom by default into freedom on principle. But sadly, I suspect that wouldn't have been enough either.Admittedly in the very next post he acknowledges some Hong Kong libertarians and Chris could also point him to his favourite letter writer, Simon Patkin. Since when has Google been the arbiter of whether a political ideology lives within a particular place? Helpfully the title of this post should soon set Google right. Mr Caplan is welcome to step on a plane and come to the Big Lychee. We'll have a beer and chat about de Soto and Hayek.
Even if Hong Kong's free markets aren't so free, Mr Caplan needn't despair. Libertarianism is alive and well in Hong Kong, although it may not go under that name.
Besides, Hong Kongers don't get a choice.posted by Simon on 07.12.05 at 04:27 PM in the
TrackBack URL for this entry:
Send a manual trackback ping to this post.
'I've never heard of, much less met, a Hong Kong libertarian.'
How about Professor Steven Cheung, a leading Chicago School economist? I would think many Hong Kong students (like me) are deeply influnced by Professor Cheung's views on market economy.
I am also curious if Caplan has ever read Hong Kong Economic Journal (Shun Po) / Next Magazine, both support and promote economic liberties.
How about the '71 Demonstration' in 2003 fighting for civil liberties? Half a million Hong Kongers turned out. After all, civil liberties are closely linked to economic liberties, are they?posted by: dc on 07.12.05 at 06:48 PM [permalink]
Part of the problem is HK's libertarians have not really used the term to describe themselves. The underlying ideology does have a strong following here.posted by: Simon on 07.12.05 at 08:14 PM [permalink]
The voices of working class people are irrelevant anyway. In a laissez-faire society, money talks!
How? Because when politicians become accountable to voters rather than special interests, they need to educate the electorate on the value of their policies.
Educate? How? You got to have money for your "education" agenda, and "needn't despair", it's never a problem for "right" politicians in a laissez-faire capitalism. BTW, politicians are always working for special interests, well, specific voters. posted by: lin on 07.13.05 at 04:32 AM [permalink]
Well in a proper democracy politicians would need to cater to more than just special interests in order to secure their seats in the parliament. Hence politicians would be naturally inclined to educate voters about their platform. A very vivid example was the 1999 Victorian state election.posted by: spacehunt on 07.13.05 at 10:12 PM [permalink]
There's nothing "unlibertarian" about cartels, unless those cartels exist due to help from the government.
Libertarians do not believe in anti-monopoly laws - legislation is the cause of monopolies, not the cure.
Hong Kong is the most economically Libertarian country in the world, unless you count tiny tax havens like Vanuatu.
A large part of this is because of the lack of democracy in Hong Kong's history. The history of democracy is also the history of social welfare and vote-buying.
Why try to explain economic concepts to voters when promising them a bunch of someone else's money is so much easier and more effective?
Most of the free-market, low tax countries have either no history of Democracy or only a very recent one.
Hong Kong, Singapore, Japan, South Korea, Taiwan, Monte Carlo, The Caribbean Islands and various South Pacific Fiefdoms have either never had democracy or have only had it since WW2 or later.posted by: Yobbo on 07.14.05 at 06:40 AM [permalink]
Yobs, I'll have to disagree. While it might be anti-liberatarian to have antitrust laws, surely the Hong Kong experience has proven that in relatively small and concertrated economies that cartels naturally emerge. Cartels tend to operate suboptimally economically, and the ones in Hong Kong in particular. There is thus a loss of general economic welfare as the cartels capture excess profits at the expense of consumers.
The other problem I have is with this linkage between democracy and liberal (in the true sense) economic policy (and BTW, you missed Chile). The best example is the US, a country that is relatively liberal economically and yet the home of democracy for more than 200 years. It is effectively taking the view that voters will always put their short term interests above long term ones. That may or may not be true, but its up to them to decide, not an elite. You know, who watches the watchers and all that.
I understand your cyncicism but I don't subscribe to it. If you've got links to academic studies or research on it, point me the way.
A final point - Hong Kong might seem libertarian prima facie, but scratch the surface and you'll see the dead hand of Government far more than you'd suspect. Government's share of GDP has doubled since the 60s.posted by: Simon on 07.14.05 at 09:55 AM [permalink]
"Yobs, I'll have to disagree. While it might be anti-liberatarian to have antitrust laws, surely the Hong Kong experience has proven that in relatively small and concertrated economies that cartels naturally emerge. Cartels tend to operate suboptimally economically, and the ones in Hong Kong in particular. There is thus a loss of general economic welfare as the cartels capture excess profits at the expense of consumers."
I'm not arguing that Simon. There may well be a net economic penalty, but that doesn't make it "unlibertarian".
"A final point - Hong Kong might seem libertarian prima facie, but scratch the surface and you'll see the dead hand of Government far more than you'd suspect. Government's share of GDP has doubled since the 60s."
It still has one of the lowest taxation rates and % of GDP of any country in the world. All the other countries have been increasing at the same time.
The case of the US is an outlier to a general trend. Don't forget that their constitution forbade taxation by the federal government until the early 1900's. US history since that point is the history of creeping government expansion.posted by: Yobbo on 07.14.05 at 07:26 PM [permalink]
I'll defer to your greater knowledge, Yobbo. All I know is I love the low tax rate.posted by: Simon on 07.15.05 at 03:18 PM [permalink]