Hong Kong’s Bequest
The idea of positive non-intervention is arguably one of Hong Kong’ s greatest bequests to political thought. This idea is even more relevant today as ad-hoc government responses to economic problems are creating an ever deeper financial crisis. Yet despite the better performance of Hong Kong because of its superior approach to economic policy, candidates campaigning to be our next Chief Executive are all distancing themselves from this tried and true doctrine.
These canadidates are going down a dangerous path. The idea of positive non-intervention is closely linked to the rule of law. It guides government to focus on rule making that is universally applicable rather than arbitrary interventions. It protects the weak against the strong by requiring a common approach to all issues. The path away from positive non-intervention is a path towards government discretion, often exercised by officials in favor of vested interests. If there are no limits on how government might react in any policy area, the overhanging uncertainty will prevent businesses and individuals from planning for the future. This will likely induce them to invest more of their time and resources to lobbying government to make special rules in their favor.It is a straw man to argue that because government is involved in the provision of many services “non-intervention” is a myth. Of course there is room for debate about what the limits to government activity ought to be. What is most important is that there are limits. There is ample evidence that the tighter the limits, the better the economic outcomes. Over the past 30 years, Hong Kong’s compound average growth in real per capita GDP has been 3.6%, which was higher than any OECD country. Over the past 10 years of increasing intervention in many countries, real growth had slowed. In Hong Kong the 1.7% real per capita GDP growth is slower, but keeps its relative edge over average OECD real growth of 0.8%.One explanation for the length of the great depression and our current economic slump is Robert Higg’s idea of “regime uncertainty”. He argues that the chronically over-active policy making so undermines confidence in future returns and activities that investment slows dramatically. Flexible economies with stable rules are known to have absorbed economic shocks better, and turned around quicker, than those that are intervention prone. Hong Kong has demonstrated this flexibility by not over reacting to the financial crisis with liquidity destroying short-selling bans, higher taxes, new imposts on banks or onerous governance requirements. The last thing that Hong Kong needs is a shift to more of the interventions that are undermining growth in other parts of the world and are already taking the edge off growth here.The managerial impulse is to see problems and propose fixes. Our Chief Executive candidates may be good managers. Unfortunately the obvious, or popular, fix is often bad economic policy. The best set plans can flounder on unintended consequences and poorly thought out incentives. More or subsidized public housing might seem like the answer to high housing prices, but combined with other land policy likely serves to undermine the market for low cost homes and never delivers the supply needed to house people. The guiding constraint of non-intervention can save our “practical men” who would be Chief Executive from becoming “the slaves of some defunct economist” in the words Lord Keynes.Hong Kong’s approach to non intervention is not a requirement for inaction. The “positive” part of non-intervention is a critical and demanding injunction. It requires thoughtful and forward looking rule-making that adjusts to changes, anticipates the unintended risks from poor rules and provides a framework in which the free people of Hong Kong can pursue their individual goals unhindered by the visible hand of the state. A return to these traditions of Hong Kong would be a positive and compelling basis for a platform for a Chief Executive candidate that would best secure our future prosperity.
Bill Stacey is in his 10th year as a resident of Hong Kong and is Chairman of the Lion Rock Institute.We are now on Facebook http://www.facebook.com/pages/Next2ndOpinion/464005150156