For much of the 20th century, Hong Kong’s success was predicated on the failure of mainland China and the city owes less to free institutions than it does to historical circumstance. The contrary argument, where Hong Kong is held up as a paragon of laissez-faire utopia typically glosses over these circumstances. This risks trivializing the challenges involved with creating sound and scalable legal and economic institutions (in some sense, historical circumstances made it much easier for Hong Kong leaders to do just that). Proponents of laissez-faire policies point to HK as an example which proves that all a nation needs to do is adopt free market policies in order to grow its wealth. After all, HK has no natural resources to speak of (aside from a deep water port).
While I’m all for laissez-faire utopias,* there’s a certain amount of qualification necessary when discussing Hong Kong’s success. Rapid growth in Singapore, Hong Kong and Taiwan occurred after 1949, when a lot of the formerly mainland bourgeoisie fled throughout the greater Chinese diaspora, taking with them their money,** and much more importantly, their skills. Today, people often hold up Hong Kong and Shanghai as rival cities, since the latter is attempting to become a regional/global financial hub. Many in Shanghai feel this would be the case already were it not for the half-decade of non-participation in the world economy that the mainland experienced after 1949; the fact that people went to Hong Kong was “because they couldn’t go to Shanghai.”
Examining average incomes in both cities, it becomes clear that the largest gaps existed during the height of the mainland’s various socialist experiments. Now that the mainland has stopped the crazy train, some of those who left after the revolution are heading back. Just as significantly, the mainland is able to tap into an (up until 1990) unrealized pool of talent and skill. This isn’t to suggest that all of Hong Kong’s success in the last fifty years has been due to the fact that it benefited from the lucky few who were able to escape the revolution (who were largely those with the wealth/network resources to do so), though it’s certainly a very important source of HK’s success (combined with the fact that, for the same period, it was the only route into China for limited trade).
Institutions alone aren’t the result of Hong Kong’s success, though it’s certain that without them the city would have languished, regardless of circumstance (a la Macau). Institutions are extremely important for wealth creation and, generally, there are several interrelated factors at work that are important for applying them outside of the very limited geographies in which they seem to work:
- if legal rules are codified without underlying capacity, they will be unenforceable [i.e.: making a law that everyone in the US should have 6 months of holiday every year for mental health reasons.]
- certain rules are required for social coordination. The best types of these rules seem to be idiosyncratic [decisions or rules that might not make logical sense but produce a positive outcome approaches that are successful and are replicated.] To some extent these can be imposed; though if an authority oversteps the constraints of item 1 they will find their authority quickly undermined
- people tend to achieve some basic level of coordination with or without a centralized legal structure. The exact nature of this matters, however, as it seems to be a continuum between mafia-anarchy and despotism. Best to have something a bit more benevolent, from the perspective of the participants.
Hong Kong’s history provides an interplay of all of these factors, since the British authorities were able to replicate rules and laws they knew were generally useful and produced positive outcomes. These were adapted for a local context, and the city simultaneously benefited greatly from geography and a windfall of talent after the Communist revolution. Currently, however, simply pointing at Hong Kong’s policies (which are outcomes of a particular process) and declaring that copying them would create prosperity is wishful thinking at best. A much more interesting project would be to determine the process that creates these policy outcomes, which are probably slightly different if one is dealing with a diverse set of national and cultural contexts.
More generally, the inner contrarian wonders whether democracy should be an explicit goal of aid or internal development policy. Singapore did just fine (for a certain class of people) without serious democratic reforms. The more I learn the more it seems that democracy is the result, and not the cause of, prosperity and free social systems. The success of the Chinese diaspora in places like Singapore and HK should fill China watchers with considerable hope for the future of the mainland, barring an asset price implosion. Beijing planners have explicitly used Singaporean and HK technocracies as a deliberate model, and it will be very interesting to see how extensively these systems can be replicated over a much larger and diverse population.