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<TITLE>C.12 Doesn't Hong Kong show the potentials of "free market" capitalism?</TITLE>
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<BODY>
<p>
<H1>C.12 Doesn't Hong Kong show the potentials of "free market" capitalism?</H1>
<p>
Given the general lack of laissez-faire in the world, examples to show
the benefits of free market capitalism are few and far between. However, 
Hong Kong is often pointed to as an example of the power of capitalism 
and how a "pure" capitalism will benefit all. 
<p>
It is undeniable that the figures for Hong Kong's economy are impressive. 
Per-capita GDP by end 1996 should reach US$ 25,300, one of the highest in 
Asia and higher than many western nations. Enviable tax rates - 16.5% 
corporate profits tax, 15% salaries tax. In the first 5 years of the 
1990's Hong Kong's economy grew at a tremendous rate -- nominal per 
capita income and GDP levels (where inflation is not factored in) almost 
doubled. Even accounting for inflation, growth was brisk. The average 
annual growth rate in real terms of total GDP in the 10 years to 1995
was six per cent, growing by 4.6 per cent in 1995.
<p>
However, looking more closely, we find a somewhat different picture than 
that painted by those claim it as an example of the wonders of free 
market capitalism (for the example of Chile, see section <a href="secC11.html">C.11</a>). 
<p>
Firstly, like most examples of the wonders of a free market, it is not 
a democracy, it was a relatively liberal colonial dictatorship run 
from Britain. But political liberty does not rate highly with many 
supporters of laissez-faire capitalism (such as right-libertarians,
for example). Secondly, the government owns all the land, which is 
hardly capitalistic, and the state has intervened into the economy many
times (for example, in the 1950s, one of the largest public housing schemes 
in history was launched to house the influx of about 2 million people 
fleeing Communist China). Thirdly, Hong Kong is a city state and cities
have a higher economic growth rate than regions (which are held back by
large rural areas). Fourthly, according to an expert in the Asian 
Tiger economies, <i>"to conclude . . . that Hong Kong is close to a free 
market economy is misleading."</i> [Robert Wade, <b>Governing the Market</b>, 
p. 332] 
<p>
Wade notes that:
<p>
<i>"Not only is the economy managed from outside the formal institutions
of government by the informal coalition of peak private economic
organisations [notably the major banks and trading companies, which 
are closely linked to the life-time expatriates who largely run the 
government. This provides a "point of concentration" to conduct
negotiations in line with an implicit development strategy], but 
government itself also has available some unusual instruments for 
influencing industrial activity. It owns all the land. . . It controls 
rents in part of the public housing market and supplies subsidised 
public housing to roughly half the population, thereby helping to 
keep down the cost of labour. And its ability to increase or decrease 
the flow of immigrants from China also gives it a way of affecting 
labour costs."</i> [<b>Ibid.</b>]
<p>
Wade notes that <i>"its economic growth is a function of its service
role in a wider regional economy, as entrepot trader, regional 
headquarters for multinational companies, and refuge for nervous 
money."</i> [<b>Op. Cit.</b>, p. 331]. In other words, an essential part of 
its success is that it gets surplus value produced elsewhere in
the world. Handling other people's money is a sure-fire way of 
getting rich (see Henwood's <b>Wall Street</b> to get an idea of the 
sums involved) and this will have a nice impact on per-capita 
income figures (as will selling goods produced sweat-shops in 
dictatorships like China).
<p>
By 1995, Hong Kong was the world's 10th largest exporter of services with
the industry embracing everything from accounting and legal services,
insurance and maritime to telecommunications and media. The contribution of
the services sectors as a whole to GDP increased from 60 per cent in 1970 to
83 per cent in 1994. Manufacturing industry has moved to low wage countries
such as southern China (by the end of the 1970's, Hong Kong's manufacturing
base was less competitive, facing increasing costs in land and labour -- in
other words, workers were starting to benefit from economic growth and so
capital moved elsewhere). The economic reforms introduced by Deng Xiaoping 
in southern China in 1978 where important, as this allowed capital access
to labour living under a dictatorship (just as American capitalists invested
heavily in Nazi Germany -- labour rights were null, profits were high). It 
is estimated about 42,000 enterprises in the province have Hong Kong
participation and 4,000,000 workers (nine times larger than the territory's
own manufacturing workforce) are now directly or indirectly employed by Hong
Kong companies. In the late 1980's Hong Kong trading and manufacturing 
companies began to expand further afield than just southern China. By
the mid 1990's they were operating across Asia, in Eastern Europe and 
Central America.
<p>
The gradual shift in economic direction to a more service-oriented economy
has stamped Hong Kong as one of the world's foremost financial centres. 
This highly developed sector is served by some 565 banks and deposit-taking
companies from over 40 countries, including 85 of the world's top 100 in
terms of assets. In addition, it is the 8th largest stock market in the 
world (in terms of capitalisation) and the 2nd largest in Asia.
<p>
Therefore it is pretty clear that Hong Kong does not really show the 
benefits of "free market" capitalism. Wade indicates that we can consider 
Hong Kong as a <i>"special case or as a less successful variant of the 
authoritarian-capitalist state."</i> [<b>Op. Cit.</b>, p. 333] Its success 
lies in the fact that it has access to the surplus value produced elsewhere
in the world (particularly that from the workers under the dictatorship 
in China and from the stock market) which gives its economy a nice boost. 
<p>
Given that everywhere cannot be such a service provider, it does not 
provide much of an indication of how "free market" capitalism would 
work in, say, the United States. And as there is in fact extensive 
(if informal) economic management and that the state owns all the 
land and subsidies rent and health care, how can it be even considered 
an example of "capitalism in action"?
<p>
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