Hong Kong — For 18 years running, Hong Kong has crossed the finish line first in the Heritage Foundation/Wall Street Journal Index of Economic Freedom. The 2012 edition finds Hong Kong ahead of Singapore and far in front of the U.S., which came in 10th.
“Hong Kong has demonstrated a high degree of resilience during the ongoing global turmoil and remains one of the world’s most competitive financial and business centers,” the Index states. “Regulatory efficiency and openness to global commerce strongly support entrepreneurial dynamism, while overall macroeconomic stability minimizes uncertainty.”
While Americans still reel beneath an 8.3 percent unemployment rate, Hong Kong boasts joblessness of just 3.4 percent. For the fourth quarter of 2011, Hong Kong’s annual GDP-growth rate clocked in at 3 percent while the U.S. expanded sluggishly at 1.6 percent.
According to CB Richard Ellis, for the fourth quarter of 2011, office vacancies stood at 3.4 percent on Hong Kong Island, while the respective figure was 5.5 percent in the relatively subdued Kowloon and more residential New Territories areas. For the same period, the figure across the U.S. was nearly five times higher at 16 percent.
For Americans, Hong Kong’s latest economic indicators should stir nostalgia for the boom times under Ronald Reagan in the 1980s and Bill Clinton in the ’90s, before the disastrous Bush-Rove-Obama plunge into U.S. socialism.
But for some in this city-state, Hong Kong’s envy-inducing data mask what they consider creeping socialism in this Mecca of markets.
“Hong Kong is enjoying the dividends of the laissez-faire system,” Peter Wong of the free-market Lion Rock Institute told me over wonton soup at the Foreign Correspondents Club on Lower Albert Road here. Like Pan American Airlines’ gradual glide into oblivion, Wong credits Hong Kong’s current success more to its previous height than its present and decreasing altitude.
The strongest argument for this view is Hong Kong’s pace of public spending.
“Recurrent expenditures for 2011–12 will increase by nearly 8 percent when compared with 2010–11,” Financial Secretary John Tsang explained in his February 2011 budget speech. “This reflects that the government is always committed to caring for people’s livelihood.” If that last sentence does not spook free-marketeers, how about this one: “Total government expenditure is estimated to reach HK$371.1 billion [US$47.8 billion] an increase of HK$67.6 billion [US$8.7 billion] over 2010–11.” This is a one-year 22.3 percent hike in government spending!
For my five budgets, I have increased government expenditure by nearly 70 per cent. This exceeds GDP growth of 21 per cent for the same period. Dedicated to education, medical services, and social welfare to cater for public needs in such areas, this spending also helps invest in the future and sustain economic vibrancy. The increase in expenditure demonstrates our commitment, and confidence in Hong Kong.
In addition to this 14 percent average annual growth in spending since 2008–09, Wong observes, “Small things add up. You see the mindset changing from our post-handover administration.”
Wong cites a recent local tax on plastic bags. One of the joys of shopping in Hong Kong is its 0 percent sales tax. A cashier here will ask for exactly what appears on a price tag — not a penny more.
However, anyone who wants a plastic bag to carry an item must pay HK$0.50 cents (US$0.06).
While this lightens consumers’ pockets, some argue for the environmental benefits of keeping sacks off the streets and out of landfills. Others marvel at the exclusions and exceptions that have arisen since the tax arrived in July 2009. “I never thought the apparently simple rule on [the] plastic bag levy would be this complicated,” Travel Wire Asia’s Elmer Cagape wrote last December. “Prepare for more twists and turns.”
Hong Kong’s government requires most retailers to collect the tax. However, oddly enough, they now may keep the money themselves, reportedly in hopes that they might do something green with it.
“The plastic-bag tax is not a real big deal, but the way they are implementing it is,” Wong says. “In the second stage of the plastic-bag levy, they want to tax the plastic wrapping around greeting cards.”
Perhaps it depends on what the meaning of the word “bag” is.
More worrisome is Hong Kong’s first minimum-wage law. It began, appropriately enough, last May Day. Previously, the government allowed consenting adults to agree on the price of labor. Now, officials have decided that no one may work for less than HK$28 (US$3.60) per hour.
Whither Hong Kong?
A competition law also is in the works. G. Andrew Work, a Canadian expatriate who co-founded the Lion Rock Institute, laments that “There doesn’t seem to be any capacity to learn from the mistakes of the Western economies.” He explains that the proposed measure “seems to be a mix of the worst elements of various legislations around the world. It has the vagueness and arbitrariness of the American laws. It has the punitive qualities of the European legislation, but is even more draconian. And then it has the all-encompassing government exemptions that you see in Singapore. It’s the worst of all possible laws.”
This legislation assumes that Hong Kong lacks competition. This is beyond laughable in a place where entrepreneurs cram every available crevice and virtually trip over each other to market their wares to willing consumers. Indeed, Work says, “We have a Consumer Council that looks at these things. Every time they get asked to do a study, they come back and say, ‘Well no. We can’t actually find anything or show any evidence of anything.’”
Meanwhile, entrepreneurs fret that large players may use a competition law to bludgeon them.
“Many big companies have their own legal consultants or legal departments to handle investigations and lawsuits,” Stephen Kwok Chun-pong, president of Hong Kong Small and Medium Enterprises Association told Time Out Hong Kong. “But small and medium companies don’t, and they have to employ all these legal resources that will incur excessive costs. It will lead to two ends: either they will close down or they will charge higher on their products and make consumers pay for the extra costs. This is how the Competition Bill can help the sharks prey on us.”
Still, the fear of limited competition — call it potential anti-trust — fuels this bill. Ahead of an expected legislative vote on this measure in May, opposition to it is building among Hong Kong’s businesses. So, it still might sink.
Richard Wong (no relation to Peter Wong) runs the Hong Kong Center for Economic Research. A University of Hong Kong economics professor, he is generally sanguine about this territory’s trajectory. However, he does lament the government’s major involvement in two key areas.
“About half the population lives in government housing,” Wong says, with Hong Kong’s mighty Victoria Peak rising at his back. “A simple solution would be that government can continue this program, but whoever joins this program should be able to acquire the property after five years at a fairly low price and become a private property owner.” As it stands, the government owns all undeveloped land and occasionally sells parcels, which is one non-tax source of government revenue. (Compare that to the U.S. government, which keeps buying private land, even as it mismanages its existing property portfolio.)
Wong’s public-housing divestment proposal parallels Margaret Thatcher’s privatization of council houses in the United Kingdom, which transformed millions of Her Britannic Majesty’s tenants into owners.
“This would be one way to enhance the private-property system in Hong Kong,” Wong adds. “It will help a lot of relatively poor households get assets quickly. The current system basically freezes the land value and nobody gets it.”
“The other thing would be health care,” Wong notes, “which is very difficult to handle. It’s not easy. Although the government is at the moment trying to introduce some sort of an insurance scheme as an option out of the public health system.”
Given Hong Kong’s 99 years of British rule, a local version of the National Health Service hardly is shocking. Whether it gravitates toward private medicine or — gasp! — Obamacare will remain a ripe debate topic.
For his part, Lion Rock’s Peter Wong, a trained chemist, raises the specter of titration. In such an experiment, an acid is dripped slowly into a beaker of an alkaline substance.
No single drop seems to do very much. However, Wong adds, “If you keep adding acid to the basic solution, you don’t see the color change, until you hit a tipping point, and then everything changes in one second.” The entire solution switches color, from top to bottom.
So far, none of these government encroachments on this territory’s economic freedom has changed its fundamental character, but Wong worries that a Chinese water torture of self-imposed regulatory drips suddenly may turn Hong Kong red.
“We still have enough buffers to absorb the bad things, until one point,” Wong says. “I don’t know where that is.”
While all of this may seem ominous to Hong Kong people, as they call themselves many over-governed Americans gladly would swap the U.S. Congress for Hong Kong’s Legislative Council. If Hong Kong is guilty of anything, it may be devolving from a Goldwater-style high-octane model of markets all the way down to something fueled by Ronald Reagan–style regular leaded gasoline.
G. Andrew Work puts this into perspective.
“A lot of the things that Hong Kong does to step into the economy, every other modern economy does them — times ten,” he says, behind his large, amazingly clean desk above Hollywood Road. “Those of us in pro-free-market circles bemoan these things. But when we travel to other places, we find out that there is all of that plus, plus, plus . . . ”
For now, Hong Kong may face droplets of statism within its ocean of economic liberty. While Hong Kong people have every right to complain about this, Americans enduring the pounding surf of socialism should behold the rest of Hong Kong’s example and chant: “Let’s try this at home.”
— New York commentator Deroy Murdock is a nationally syndicated columnist with the Scripps Howard News Service, a Fox News contributor, and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.