Benign Indifference in Old Hong Kong

We continue to observe the rich and the powerful trying to make the world as they want it. This, seen by this old Tavern Keeper and customers, is usually done by politics, money and immense amounts of weaponry. Of course becoming rich takes effort and can guarantee a spot at the political tables, where weaponry becomes a personal side-arm to bully folks in the country and outside in other countries.  And so get ever richer. But in the west almost any fatuous idiot can be elected to power. They can be good, bad, or indifferent. And they are armed. Few countries are without armies. Few politicians escape the temptation to use force.

Hong Kong on the other hand..... a different kettle of fish all round.

It has never needed its own army. It had Britain backing it, albeit from immense (at the time) distance. And now it has the vast forces of the Chinese.  It is incredibly rich. I learned today from some bright folk just how it managed after WW2 to become so well off.

We get quite a few Chinese and Honk Kong visitors in the Tavern but few have ever heard of the quiet, bespectacled Hero who was the guiding hand. So let me introduce him. Or, rather, let my visitor, Oliver Riley take the chair. But first some background.

Hong Kong literally: "Fragrant Harbour" or "Incense Harbour": officially the Hong Kong Special Administrative Region of the People's Republic of China, is an autonomous territory on the Pearl River Delta of East Asia. Macau lies across the delta to the west, and the Chinese province of Guangdong borders the territory to the north. With a total land area of 1,106 square kilometres (427 sq mi) and a population of over 7.3 million of various nationalities, it ranks as the world's fourth most densely populated sovereign state or territory.

I shall add some more as Oliver speaks: But, how did such a small place, so remote, get so rich?

Benign neglect:  How Hong Kong prospered

The power of do-nothing government

Hong Kong could easily be described as the most neoliberal country in the world — a paragon of neoliberal success.

The story of Hong Kong’s growth is both long and fascinating, and could not be done justice in a mere blogpost. But there is one man who is worth mentioning, who has much responsibility for making Hong Kong into what it is today, and yet is all too often forgotten.

https://www.adamsmith.org/blog/the-neoliberal-man

So, let us see our Hero. 

John J. Cowperthwaite is not likely a name that you will remember from your history lessons. 

In fact, it is not likely a name that you will remember at all. 

He is arguably one of history’s most unsung heroes, and that is a great shame, for he was absolutely instrumental in not only taking Hong Kong’s economy from strength to strength after the Second World War, but also in showing the world that laissez faire economics is workable and brings results.

In fact, let us look closer at this Knight, for such he was, although Oliver, being American, skates over it. 

Sir John James Cowperthwaite, KBE, CMG  25 April 1915 – 21 January 2006), was a British civil servant and the Financial Secretary of Hong Kong from 1961 to 1971. His introduction of free market economic policies are widely credited with turning pos-twar Hong Kong into a thriving global financial centre.

Cowperthwaite attended Merchiston Castle School in Edinburgh, Scotland, and later studied classics at St Andrews University and Christ's College, Cambridge.

He joined the British Colonial Administrative Service in Hong Kong in 1941, but left briefly during World War II to a posting in Sierra Leone.

He returned to Hong Kong in 1945 and continued to rise through the ranks. He was asked to find ways in which the government could boost post-war economic outlook but found the economy was recovering swiftly without any government intervention. He took the lesson to heart and positive non-interventionism became the focus of his economic policy as Financial Secretary

Back to Oliver:

Milton Friedman said “it would be hard to overestimate the debt that Hong Kong owes to Cowperthwaite”. 

But he was by no means a self-important man. He had a reputation for being shy, and as an appointed civil servant, he owed no favours to anyone. He arrived in Hong Kong in 1946 as the Assistant financial secretary, with instructions to “come up with a plan for economic growth”. 

But he came up with no plan.... 

and yet the economy grew. It grew astoundingly. 

In the decade that he was financial secretary, wages rose by 50% and the percentage of those living in poverty in Hong Kong plummeted from 50 to 15%.

What did this son of a Scottish tax collector do to propel so many into prosperity? The answer is that he didn’t do anything. 

When a British executive approached Cowperthwaite to ask him to develop the merchant banking industry, Cowperthwaite politely palmed him off and told him that he had better find a merchant banker.

Similarly, when a legislator suggested to Cowperthwaite that the government should prioritise the development of promising industries, Cowperthwaite refused and asked how the government could possibly know which businesses had potential and which did not.

Cowperthwaite flat out refused to collect most economic statistics, from fear that doing so would give bureaucrats and legislators an excuse to meddle in the economy. Of course, this caused upset in Whitehall, and when they commanded a group of civil servants to go over and see just what the hell was going on, Cowperthwaite sent them home as soon as they arrived. 

Yet still from 1945 to 1997 Hong Kong ran a surplus every financial year – surprising all involved because the surpluses were not planned. Rather, they arose as a result of the market being left free.

It was slightly unfair of me to state that John Cowperthwaite “didn’t do anything”. For though his success was largely down to his non-interventionism, ensuring that there was no intervention was backbreaking work. 

People were always trying to tinker with the economy. 

But Cowperthwaite maintained: “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”

According to Catherine R. Schenk, Cowperthwaite's policies helped it to develop from one of the poorest places on earth to one of the wealthiest and most prosperous:

 "Low taxes, lax employment laws, absence of government debt, and free trade are all pillars of the Hong Kong experience of economic development The Economic Freedom of the World 2015 Report ranks Hong Kong as both the freest economy in the world, a distinction it has held since this index began ranking countries in 1975, and among the most prosperous."

Today Hong Kong has a GDP per capita at 264% of the world's average, which has doubled in the last 15 years. The World Bank now rates the “ease of doing business” in Hong Kong as the best in the world. It has no taxes on capital gains, interest income or earnings from abroad. Its overall tax burden is just half of that of the United States. Its people are rich and its government small, and for this reason, it makes a fitting cover for our latest paper, but for this reason also, we should be thankful to John J Cowperthwaite.

Of course, it was not all rosy and some may look back at some of his 'neglect' with some criticism. It remains to be seen if he was not right all along. 

Throughout the 1960s, Cowperthwaite refused to implement free universal primary education, contributing to relatively high illiteracy rates in today's older generation. Compulsory education was only introduced under the governorship of Sir Murray MacLehose the next decade. At a time when Hong Kong's roads were crippled by traffic congestion, Cowperthwaite also steadfastly opposed construction of the Mass Transit Railway, a costly undertaking which was nevertheless built following his retirement. It would later become one of the world's most heavily utilised (and profitable) railways.

In 1960, he was appointed as an Officer of the Most Excellent Order of the British Empire (OBE) and, in 1964, a Companion of the Most Distinguished Order of Saint Michael and Saint George (CMG). He later became a Knight Commander of the Most Excellent Order of the British Empire (KBE) in 1968. He was highly praised by Nobel laureate Milton Friedman just before his death.

Others may point to additional factors behind the growth and low taxex. A voice from a dark corner threw in....

Hong Kong has very low taxes on productivity because it collects land rents instead. All the freehold property in HK is owned by the state except for the cathedral. The government sells relatively short leaseholds with high ground rent. Hong Kong is a shining example of the superiority of Land Value Tax.

Who am I to argue.  I was busy pulling pints for Oliver and the interested customers. I sent a pint into the darkness too.

Heroes are not always leaping around whacking with a sword. 

Cowperthwaite wielded a pen. Probably one you dip into an ink-well.

I doubt very much that he had his hand in the till like many 'high poobahs' we can all name.

Pax