Milton Friedman’s Hong Kong misconceptions

From Asia Sentinel (via Economic Principals),

The late economist saw what he wanted to see and ignored some fundamental accommodations in Hong Kong’s laisser-faire economy…

So Friedman saw low taxes, private ownership of most utilities, no tariffs, no foreign exchange controls, no government intervention in industry. The low ratio of government spending to GDP in Hong Kong contrasted with that of its then-sovereign power, Britain, and explained much about the divergent economic performances of “socialist” Britain and “free” Hong Kong…

What Friedman cared not to notice about the Hong Kong of the era of Cowperthwaite and later was that in three key areas of policy affecting the people the government was more socialist than its UK counterpart…

At one time 60 percent of the people lived in subsidized housing, mostly rented cheaply from the government, and some in Home Ownership Scheme flats, provided with cheap land and sold to lower-middle-income households. Even now that public housing has low priority and the home ownership scheme has ended, some 50 percent of the people still benefit from this massive intervention in the marketplace…

Hong Kong people have also enjoyed almost free medical treatment at government clinics and hospitals. Friedman was against “free” medicine elsewhere but failed to notice it in Hong Kong. Likewise, education, at least up to the secondary level has long been almost entirely funded by the government.

In the days when Friedman was writing his praises for Hong Kong, the territory also had a relatively youthful workforce compared with western countries and thus less need for spending on pensions and help for the aged. Nor did Hong Kong have to spend anything significant on external security, the responsibility of London and now Beijing…

Nor did Friedman pay any attention to the lack of competition in many areas of the domestic economy and the high returns given to competition-free utility companies. Presumably it was oversight rather than a belief in freedom to extort was behind this lapse…

Incidentally, Asia Sentinel looks intelligent and well-written, but I can’t see how it can make money. What is the business model?


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