How UK’s Spectator and Milton Friedman misconstrue Hong Kong
In common with the late doyen of free-market economists, writer James Delingpole saw only what he wanted to on his visit to the former British colony
It’s my understanding from meeting people who know him that the English journalist James Delingpole is a decent, thoughtful sort of fellow, despite being way further to the right than seems entirely compatible with possession of a full set of marbles. Personally, I rather enjoy his writing even when he is being wrong-headed – for its honesty, its freewheeling chutzpah, its soft-pedaled erudition.
It was fairly obvious, though, from reading his September 24 column in Britain’s Spectator magazine, that he must have spent most of his recent visit to Hong Kong in the pub. Starting off with an anecdote about taxis is usually a giveaway sign that you’ve neglected to do any homework whatsoever. His piece descends from there into a Cook’s Tour of free-market phantasmagoria.
Milton Friedman spent his twilight years evangelizing about Hong Kong and how its economic success proved the irreproachability of pure free-market capitalism. Delingpole merely picks up the baton. Hong Kong’s laissez-faire, “red-in-tooth-and-claw” environment and its low taxes lead him to realize “how incorrigibly, nauseatingly socialistic most western nations are.” The only basis he provides for this realization is that his stepson has a better job in Hong Kong than he could land in London, despite – I’m reading between the lines – not being especially bright.
Stepsons aside, the main problem with this narrative about Hong Kong’s development is that it was only partially true when Friedman was espousing it and it is even less true now. Sure, Hong Kong has very low marginal tax rates and, at around 18%, low state spending relative to GDP. Moreover, it consistently scores high on indexes measuring ease of doing business. These indicators can be misleading, though: Hong Kong, while spending nothing on defense, is far more statist than outsiders generally perceive.
For decades, the Hong Kong government has offered advanced social welfare services along vaguely European lines. It provides an excellent public health care system and funds education and social security. In public transport and utilities, it grants monopoly franchises and holds equity in them. And it imposes strict rent controls for the roughly 30 percent of Hongkongers who live in public housing, thereby indirectly subsiding the cost of labor.
There’s plenty of indirect taxation, too. Exorbitant real estate prices have caused spiralling inequality but they also keep government revenues high even as income taxes remain flat and low. How this works is that the government owns all the land in the territory (capitalism, James?) and drip feeds it on a lease system to a small handful of developers, who in turn control the supply of housing to keep the market inflated for buyers and renters.
Without help from their families, households with two above-average earners can just about save for a deposit to buy a home – provided they don’t eat out much or go on holiday for a few years. (If they want to have children, their careers, mercifully, needn’t be interrupted: childcare is provided by an army of imported workers from the Philippines and Indonesia who earn a pittance and have next to no rights.)
For those a rung below, there is no chance. In the first quarter of this year, the average wage in Hong Kong decreased to HK$15,500 (US$2,000) a month. At the same time, a survey classified Hong Kong homes as being the “least affordable” anywhere, ever, with average flat prices surging to 19 times gross annual median income.
One might argue that it’s not the government’s job in a laissez-faire system to fix this problem, but the point is that the government’s role skews the market already and it’s not in favor of the vast majority of Hong Kong people, however hard-working and entrepreneurial they might be. Indeed, there is a case to be made that Hong Kong’s mantra of “positive non-interventionism” has never been more than a soundbite anyway.
The reality of Hong Kong is that it has institutionalized cartels and monopolies in almost every sector of life
In the banking sector alone, the history of Hong Kong since the 1950s is one of repeated bailouts, government rescues and regulatory capture by HSBC and Standard Chartered to stop outside banks gaining licenses. So much for Friedman’s notion of free and open markets. Interest rates were set by a cartel until 2001.
The reality of Hong Kong is that it has institutionalized cartels and monopolies in almost every sector of life. The government works hand in hand with the same business elites who appoint its Chief Executive. There are about 300,000 SMEs in the city and yet its economy is dominated by a handful of conglomerates. According to a Wall Street Journal report in 2013, the six biggest “take in at least 23 cents of every dollar that residents spend, controlling Hong Kong’s biggest mobile-phone network, its electrical system, its bus system, the vast majority of the buildings making up its iconic skyline, plus two-thirds of its private housing market and 90% of its supermarket sales.”
There’s no doubt that the ingenuity of the private sector helped Hong Kong to grow its per capita income from 28 percent of Britain’s in 1960 to being almost on a level pegging with the United States by that measure today. But so too did government spending on the poor, the fact that Hong Kong is an entrepot economy and the surplus value it has attained from attracting global companies to make it their home.
As for Mr Delingpole, I get it: you need somewhere to hold up as a paragon of the virtue of selfishness, because the “socialism” being foisted on Britain by its Conservative government is crap. But if you see it in Hong Kong, you’re mistaken.