The model economy
Apr 06, 2009 About a year ago, I took part in a meeting with Hong Kong Treasury officials and businesspeople primarily from western countries. A Hong Kong official referred to the western countries as the "more developed economies". I took issue with that, telling him not to have an inferiority complex: Hong Kong is the developed economy.
Balanced budget provisions in the Basic Law, excellent monetary policy, a rapid transition from trade to manufacturing and then services - these have characterised our progress and continued success. Hong Kong stands in marked contrast to the so-called developed economies, with its open ports and capital controls, lack of proxy economic controls (like anti-trust measures) and a labour market flexibility that gives our entrepreneurs space to manoeuvre through the storms that buffet our ports.
These "developed economies" are condemned politically to debt and deficit unless they have oil riches (even then, sometimes); suffer from a paralysed immigration policy caught between the desire for more young workers and xenophobia and security fears; and witness violent strikes and protests on labour issues. Rather than letting manufacturing go, as Hong Kong did in the 1990s, western economies are desperate to save these jobs, leading to repeated bailouts of perennial failures.
Rather than damaging our psyche, as some suggest, our response to the Asian financial crisis, severe acute respiratory syndrome, and other calamities, has been admirable. What is notable about all the storms is that they have their origins elsewhere, and we do better than anyone in weathering them. When it comes to a slowdown, Hong Kong is Lifo - Last In, First Out. Of course, the Hong Kong model isn't perfect: it is not ideal to have half the people without home equity because of dependence on public housing; our demographics will challenge our health care system; and, our independent monetary policy will come under siege if the US dollar becomes a liability.
However, Hong Kong will manage. Inventive and liberal immigration policies advocating new settlers from - but not limited to - the mainland - could go a long way to restoring the demographic balance. Maintaining a labour market unfettered by a minimum wage, maximum working hours and other ridiculous creations of less-developed economies would allow workers and employers flexibility in their relationship.
We will adapt. Policy development will play a role. The government has been persistent in its attempts to keep spending under 20 per cent of gross domestic product. This type of commitment ensures the most productive use of resources in our economy, generating real wealth and keeping poverty at bay. While developed economies limit the numbers of skilled immigrants, or have year-long waiting times, a university degree and a job should get you access to Hong Kong residency in a matter of weeks. The government's recent decision to delay a competition law arose from a spirited debate among the local community and a realisation that this "developed" economy construct had done those economies no good whatsoever.
The spirit of the people under the Lion Rock is alive and well and will continue to thrive if we embrace our uniqueness and strengths. Throughout the 1960s, the Hong Kong formula of responsible small government with minimal involvement in the economy, plus open ports, had created an increasingly affluent society on a par with any in the developed world.
By the end of that period, the disastrous policies of successive British Labour governments resulted in a devaluation of the pound. Again - a storm for Hong Kong, but not of our making. Had we followed discredited world trends, the legacy would have been far greater unemployment, more crime, and less social mobility.
We do need new ideas. Fortunately, we face the current crisis in a much stronger position than our global rivals. Our relative strength should give us the confidence to develop policy solutions the world has never seen. Hong Kong's path as the developed economy seemed radical, because it was different. But it works.
Cheung Wei-han is an associate at The Lion Rock Institute