Staying number one
Next Magazine (Second opinion A004, 2013.04.11)
Hong Kong has placed first in global rankings of economic freedom from the Fraser Institute since the first publication in 1996 and has earned a similar ranking from the Heritage Foundation. Does this ranking matter? More importantly, does economic freedom matter? Free market scholar Mr. Tom Palmer addressed this question at a British Chamber of Commerce breakfast last week.
His answer was that it certainly does. Economic freedom as measured in these surveys is not all that there is to human freedom, but is a crucial and necessary part of the picture. Being best in this regard is not to be as free as we could be — and our scores have slipped — but on objective criteria Hong Kong retains economic freedoms to a greater degree than anywhere else in the world.
These freedoms allow people autonomy, the ability to choose the way they live their lives, bringing both successes and failures. The practical case that free market capitalism expands wealth is well established, although it is worth emphasizing that the recent financial crisis and weak growth found their causes in moves away from free markets (the US property market) and global economic freedom has taken steps backwards.
There are less discussed benefits from free markets. Societies with free markets are more dynamic, adapt better to the shocks and tribulations that are inevitable in the real world. People of these societies are more charitable, they are better able to care for the old and infirm, and have been more generous in supporting periods of artistic flourishing.
Nor is the right economic policy sufficient to create and preserve a free society. The rule of law protects individual rights. In many of the countries that gained freedom after the fall of the Berlin Wall, it was the weakness in the market for law, not goods and services, which had the most difficult transition.
Mr. Palmer sees the alternative to the economic freedom of capitalism not as socialism, but “crony capitalism”. He argues that in most current systems of government, substantial amounts of capital are privately owned. However, as the role of the government is expanded, such growth typically favors the politically well connected.
State owned industries tend to get favorable legislation from the government, undermining competition and increasing prices for consumers. Measures to support small business must be paid for by taxes on consumers and other aspiring business owners. Those reaping such support are often well practiced in currying favors from bureaucrats rather than shrewd businessmen. Government officials seem to like funding the arts and commercial cinema, often entertainments of the wealthy or successful businesses. Instead of giving protection to consumers, competition law is often hijacked by those adept at litigation in going after their competitors.Opening the door to extensive legislative involvement and government funding in businesses will distort the incentive for businesses and private individuals alike. Who gets the new subsidy that is available for research? Which “social enterprise” will get a grant? Of all the worthy nonprofit groups that might need land or subvention, who will be picked? The short answer is, the charade of due process notwithstanding, resources tend to migrate to those who know the decision makers best. Oftentimes these are considered “safe” to fund as they already command respect, resources or have connections.Where there are no strict constraints on the use of taxpayer money or the power of legislation, it is inevitable that some will become cronies who usurp the power of government for their own ends. Democracy and a vibrant press can serve as constraints on government, but they are not sufficient to create a society where people are free. We need a public debate that pays as much attention to the positive benefits of economic freedom as to those of political freedoms.Hong Kong is magnificently endowed with the rule of law, a rich infrastructure of private civic institutions, relatively high incomes, respect for private property, enterprising people, flourishing creative endeavors and a vigorous debate about our political future.However, we must not lose sight of the core values that our economic freedoms are predicted on. Knowing that greater economic freedom has lifted billions out of poverty round the world, we must seek to expand our own economic freedom wherever possible. We must strive to remain number one.
Bill Stacey is in his 10th year as a resident of Hong Kong and is Chairman of the Lion Rock Institute.
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