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Ayn often said that 19th century America was the closest the world has ever come to full laissez-faire capitalism, is that still the case given Hong Kong's past few decades? I'm pretty new to economics and have begun studying Hazlitt, Mises and Reisman's works, but was wondering if someone with more knowledge of the subject could explain how modern Hong Kong compares to America's freest economic periods.

asked Feb 26 at 20:22

Kendal's gravatar image

Kendal
502

Do you already have information on Hong Kong's current political and legal system? If not, then this question is asking for that as a precondition to being able to compare it to 19th Century America. As far as I know, the political systems are still very different; my recollection is that the original reversion of Hong Kong to Chinese rule was touted as "one country [China], two systems." What would the second system be under what was Chinese communism at that time?

(Feb 27 at 21:09) Ideas for Life ♦ Ideas%20for%20Life's gravatar image

As I pointed out in my initial comment, this question calls for considerable knowledge about Hong Kong's current political and legal system. I suspect few, if any, Answer Providers who still post on this website (myself included) possess that degree of knowledge about Hong Kong. However, I found a very informative article on Wikipedia titled, "Hong Kong," which seems comprehensive enough to provide a rough starting point for the comparison that the question asks for.

I also checked the actual statements by Ayn Rand for the following formulation in the question: "19th century America was the closest the world has ever come to full laissez-faire capitalism...." This appears to be referring to the following excerpt from Ayn Rand's article, "Faith and Force: The Destroyers of the Modern World," reprinted in PWNI and also excerpted in The Ayn Rand Lexicon under the topic of "Capitalism," subtopic "History":

The nineteenth century was the ultimate product and expression of the intellectual trend of the Renaissance and the Age of Reason, which means: of a predominantly Aristotelian philosophy. And, for the first time in history, it created a new economic system, the necessary corollary of political freedom, a system of free trade on a free market: capitalism.

No, it was not a full, perfect, unregulated, totally laissez-faire capitalism -- as it should have been. Various degrees of government interference and control still remained, even in America -- and this is what led to the eventual destruction of capitalism. But the extent to which certain countries were free was the exact extent of their economic progress. America, the freest, achieved the most.

References to "freest" can also be found in the Lexicon topics of "America," "Renaissance," "War," "Statism" (same reference as in "War"), and especially "Freedom."

Note that capitalism is a comprehensive political system, not just an economic system or policy. In this respect, there are great differences in scale and political-philosophical context between 19th century America and modern Hong Kong. America, like Hong Kong, began under British Colonial rule. But America had a far stronger philosophical heritage from Britain, founded on such principles as "the rights of an Englishman" and the political philosophy of John Locke. The original settlers in the British colonies emigrated to America predominately from Britain. As Britain increasingly violated the rights of the Colonists, the Americans revolted, declared independence from Britain, and fought a Revolutionary War to secure their independence. In the 19th century, following another war with Britain (the War of 1812), America proceeded to spend the next 100 years producing, trading, and building a broad fabric of commerce and living in peace and freedom (including the elimination of slavery in a multi-year Civil War). By the early 20th century, capitalism was well established in America, though not quite full laissez-faire capitalism, as the excerpt by Ayn Rand above emphasizes. And the Americans did it themselves, independently of Great Britain or any other major world power.

The Wikipedia article explains that Great Britain took control of Hong Kong as a British colony in 1842 at the end of the First Opium War. The British territory of Hong Kong was soon expanded to include its present size of 1104 square km, consisting of Hong Kong Island, Kowloon Peninsula, and the New Territories. The present population of 7.2 million inhabitants is compressed into roughly 25% of this territory, with much of the other 75% being too hilly or mountainous for significant development or even farming. For about 156 years, from 1842 to 1997, Hong Kong remained a British colony or territory, except during World War II, when Hong Kong was occupied by the Japanese army. Following the defeat of Japan in 1945, Hong Kong reverted to British rule, which lasted for 52 years.

The British brought many important political principles to Hong Kong, including a wide range of individual rights, to which Hong Kong responded by eventually becoming highly and very competently industrious world traders, despite having few natural resources of their own to work with. The Wikipedia article explains:

[Since the late 1970s,] The territory has developed into a major global trade hub and financial centre.[16] The 44th-largest economy in the world,[17] Hong Kong ranks top 10 in GDP (PPP) per capita, but also has the most severe income inequality among advanced economies.

(The article consistently uses British spellings of words that are spelled a little differently in British English.) The description of income inequality as "severe" indicates a philosophical bias that Objectivism challenges, holding instead that income inequality under laissez-faire is highly beneficial to all who persistently strive to participate in the capitalist system for their own lives and happiness.

Hong Kong probably can be well described as "nurtured" by Britain, as against Britain's policies toward the American colonies in the preceding centuries. Out of concern for Hong Kong's long-term future, sharing a common land border with Communist China, Britain signed a Sino-British Joint Declaration in 1984, agreeing to hand Hong Kong over to China's control in 1997, on various conditions that basically amounted preserving Hong Kong's capitalist way of life for at least 50 years after the handover. "The territory became a special administrative region of China with a high degree of autonomy[13] on 1 July 1997 under the principle of one country, two systems.[14][15] Disputes over the perceived misapplication of this principle have contributed to popular protests, including the 2014 Umbrella Revolution."

The Wikipedia article explains that China, in compliance with the Joint Declaration, formulated "The Hong Kong Basic Law" to serve as Hong Kong's "quasi-constitution which empowers the region to develop relations and make agreements directly with foreign states and regions, as well as international organizations, in a broad range of appropriate fields.[22]" But the underlying tension between China's vision and agenda for Hong Kong and Britain's vision has persisted since the 1997 handover. This is a major difference between America and Hong Kong. America became an independent country; Hong Kong isn't. Americans control their own destiny; the people of Hong Kong do not (in the long term). For the time being, Britain evidently has remained adamant about China carrying out the terms of the Sino-British Joint Declaration and the Hong Kong Basic Law, and, at least until the 50-year time period expires, China has acquiesced. But that is not a formula for long-term survival of the level of capitalism Hong Kong has achieved. This is actually implicit in the fundamental principle of Chinese rule over Hong Kong: one country, two systems. It means two systems because the capitalist system is in conflict with the mainland system. Still, if one looks primarily at the shorter range, it's clear that Hong Kong is booming. (Independence alone isn't a formula for the long-term survival of the level of capitalism that America achieved in the 19th century, as the 20th and 21st centuries so far have demonstrated. But America is being betrayed by its own intellectuals.)

In terms of a more economic-centered perspective, the Wikipedia article explains (in the section on "Economy"):

As one of the world's leading international financial centres, Hong Kong has a major capitalist service economy characterised by low taxation and free trade. The currency, Hong Kong dollar, is the eighth most traded currency in the world as of 2010.[21] Hong Kong was once described by Milton Friedman as the world's greatest experiment in laissez-faire capitalism, but has since instituted a regime of regulations including a minimum wage.[139] It maintains a highly developed capitalist economy, ranked the freest in the world by the Index of Economic Freedom every year since 1995.[140][141][142] It is an important centre for international finance and trade, with one of the greatest concentrations of corporate headquarters in the Asia-Pacific region,[143] and is known as one of the Four Asian Tigers [Hong Kong, Singapore, South Korea, Taiwan] for its high growth rates and rapid development from the 1960s to the 1990s....

The Hong Kong Government has traditionally played a mostly passive role in the economy, with little by way of industrial policy and almost no import or export controls. Market forces and the private sector were allowed to determine practical development. Under the official policy of "positive non-interventionism", Hong Kong is often cited as an example of laissez-faire capitalism. Following the Second World War, Hong Kong industrialised rapidly as a manufacturing centre driven by exports, and then underwent a rapid transition to a service-based economy in the 1980s.[150] Since then, it has grown to become a leading centre for management, financial, IT, business consultation and professional services....

Government intervention, initiated by the later colonial governments and continued since 1997, has steadily increased, with the introduction of export credit guarantees, a compulsory pension scheme, a minimum wage, anti-discrimination laws, and a state mortgage backer.[139]

And then there is this remarkable observation in the article:

Hong Kong is ranked No. 1 in the world in the Crony Capitalism Index by the Economist.[163]

From the Wikipedia article on "Crony Capitalism," the term refers to "an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.[1][2]" So much for claims of laissez-faire; government controls breed cronies.

Given that most of Hong Kong's impressive economic development has occurred in the later decades of the 20th century, after Ayn Rand's death, she would not have had the opportunity to evaluate capitalism in 20th century Hong Kong. But in purely economic terms, discounting the political cloud hanging over Hong Kong's future, Hong Kong certainly does seem to rank on a par with 19th century American economic development. Yet the fundamental underlying credit for Hong Kong's success, as I see it, rests with Great Britain and the policy of individual rights that Britain implemented in Hong Kong.

answered Mar 12 at 00:35

Ideas%20for%20Life's gravatar image

Ideas for Life ♦
467718

edited Apr 26 at 21:57

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Asked: Feb 26 at 20:22

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Last updated: Apr 26 at 21:57