[Vision2020] Is Hong Kong Actually a Free Market Shangrila?

nickgier at roadrunner.com nickgier at roadrunner.com
Thu Jul 29 09:04:44 PDT 2010


Good Morning Visionaries:

In order to celebrate the 11th anniversary of the return of Hong Kong to China I chose this topic for my weekly radio commentary/column. 

The fact that Hong Kongers enjoy the advantages of some of the best public education in the world, universal medical coverage that takes only 6 percent of GDP (U.S. at 16 percent), and government subsidized housing (the government owns all the land!) offers a different perspective than that given by Milton Friedman 30 years ago in "Freedom to Choose" (book and PBS series).

As I did a comparison to social democratic Singapore my words grew to the point where a separate column on this city state will be next week's topic.  The full essay on both is attached.

With regard to corruption I did not find any advantage for "Confucian" capitalism.  In fact European countries scored much higher than all the Asian countries with a strong Confucian tradition.

Yours for the Middle Way in Ethics and Economics (and everything else!),

Nick


IS HONG KONG ACTUALLY A FREE MARKET SHANGRILA?

Eleven years ago this month there was much anxiety when British authorities handed Hong Kong over to China, whose economic revival was dependent on this prosperous port city. The Communist government, while putting some controls on political freedom, has allowed the former colony an amazing amount of economic independence.

With the highest income tax rate at 17 percent Hong Kong appears to be a libertarian's dream.  There is no sales tax, no tax on capital gains, and corporations pay 17.5 percent on their earnings.  

During the Asian financial crisis of 1997-98, the Hong Kong government was forced to bail out its banks and it still holds $50 billion of their stocks. The most significant government intervention was a recent stimulus package that amounted to 5.2 percent of Gross Domestic Product (GDP), which compares to 6 percent for Obama’s stimulus.

Most people do not know that 85 percent of Hong Kongers receive their medical care from a system based on the British National Health Service. After the British system was taken over by the public Hong Kong Hospital Authority, the quality of care has increased and costs have come down. 

Hong Kong's public health system is amazing efficient in that it takes only 3 percent of the city state's GDP. The 15 percent who pay for premium private services add, incredibly enough, another 3 percent of GDP for their medical costs.  Comparable figures for the U.S. are 16 percent of GDP (highest in the world) and 10 percent for the Canadian equivalent of Medicare.  

Hong Kong has long had the top spot on the Economic Freedom Index, but Singapore, which takes upwards of 40 percent in taxes for defense (Hong Kong pays nothing), health insurance, public housing, and retirement, is a close second.  Four social democratic countries are ranked ahead of the U.S. and Denmark closely follows in 9th place.

Contrary to libertarian principles, the economy of Singapore has grown much faster than Hong Kong’s: 7.8 percent on average from 1965-2009 compared to 5.4 percent from 1962-2006. Unemployment in Singapore averaged 3.9 percent from 1995-2006 in contrast to Hong Kong’s 5.1 percent during the same period. 

Singapore spends even less on health care than Hong Kong does: only 3.7 percent of GDP vs. 6 percent for Hong Kong. The quality of care is just as high and the health statistics are impressive. Singapore's infant mortality rate is 2.3 per 1,000 births (2.1 in Hong Kong) while the U.S. rate is 6.4. Foreign workers make up 40 percent of Singapore’s population, so one cannot argue that America’s ethnic diversity is the reason for its high rate.  Universal medical care at a reasonable cost is the key.

Most of children in Hong Kong to public schools based on the British system, and most private schools receive government aid. This school system produces some of the best students in the world. In 2007 Hong Kong 4th graders scored the highest on international math exams with an average score of 607 compared to 550 for Americans of European extraction. 

About half of Hong Kong’s residents live in public housing with subsidized rents or ownership. While apartments and houses may be privately owned, all the land in Hong Kong, even before the Chinese take-over, is held by the government. This allows the government to keep land values at artificially high levels and then draw huge revenues from them. 

Much has been said about Confucian capitalism and how that it may be superior to Western models. Confucian culture, strong even in Buddhist countries such as South Korea, Japan, and Vietnam, rejects Euro-American individualism and focuses on family values and civic as well as personal virtues.
 
Surveys, however, simply do not support the claim that the Confucian tradition has made businesses or other institutions more moral. According to the rankings at NationMaster.com, the least corrupt countries in the world are in Europe, New Zealand, and Australia with scores 9.1 and above on a 10-point scale. The exception is Singapore with a 9.4 and Hong Kong received 8.3.  The other Confucian countries do poorly: Japan (7.3), Taiwan (5.9), South Korea (5), China (3.2), and Vietnam (2.6).  The U.S. score is a disappointing 7.6.

Perhaps the people at the World Bank has a simpler answer: "People in these economies have simply studied harder, worked harder, and saved more than people in other countries."

Nick Gier taught philosophy at the University of Idaho for 31 years. Read the full version at www.home.roadrunner.com/~nickgier/HKsing.pdf.
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