THE VIEW
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Capitalist and socialist rent-seekers eroding positive non-interventionism

Commitment to market capitalism still present in Hong Kong, but tone is shifting from saying no to saying yes

PUBLISHED : Tuesday, 03 November, 2015, 12:01pm
UPDATED : Tuesday, 03 November, 2015, 12:03pm

Positive non-interventionism, a policy implemented by Hong Kong in the 1970s under the financial secretary Philip Haddon-Cave, should be understood as a statement of both economic policy and governance strategy (or philosophy).

As economic policy, it upholds free market capitalism as official government policy. Hong Kong is known to the world as the freest economy and one of the great miracles of the second half of the 20th century.

This is not to say that the government limits itself only to upholding the rule of law, protecting private property rights, maintaining open competitive markets, low taxes, and free trade. There is a phenomenal amount of government intervention in the market that makes you wonder if Hong Kong’s reputation as a free market champion is well deserved. However, its imperfections have not diminished its status as the bastion of free market capitalism.

Hong Kong’s market oriented approach has spread to mainland China and elsewhere and had resounding success in the wake of rapid globalisation from 1980 to 2005 that showed free or less restrained markets could foster unprecedented prosperity.

The interests of the individual capitalist are best served when he does not have to compete in the market and receives the helping hand of government

Yet there are critics, in Hong Kong and elsewhere, who have obscured the true meaning and purpose of free markets and positive non-interventionism or perhaps want to push their own agendas.

One group points to the failure to share prosperity more equally – these are the socialists (meaning anyone who does not like capitalism). Often they want government to discriminate in favour of them or their cause, but they conveniently forget that positive discrimination in favour of one group always implies negative discrimination against all others.

The other group is the capitalists themselves. While market competition brings prosperity to all capitalists, the interests of the individual capitalist are best served when he does not have to compete in the market and receives the helping hand of government. Capitalists prefer to become rent-seekers if they can earn more by lobbying government rather than competing against each other in the market.

For this reason, positive non-interventionism is not merely an economic policy position, but also a governance strategy that says no to socialist and capitalist rent-seekers or lobbyists alike.

During colonial times, saying no was easier because the government did not have to fight at the ballot box to stay in power. Positive non-interventionism provided legitimacy because it kept the government accountable not to the electorate, but to the higher ideological order of free market capitalism, even as it introduced interventionist policies. As long as prosperity was delivered to most if not all and the broad public continued to accept a free market capitalist order, objections from the socialists could be ignored.

But political changes in the past three decades have made government more accountable to many socialist and capitalist lobbies. Positive non-interventionism as an economic policy position and a governance strategy is under attack from both sides.

The current financial secretary, John Tsang, speaks of a “big market, small government” approach even though he is setting aside increasingly large sums to back up activist government measures. The commitment to market capitalism is clearly still present in Hong Kong, but the tone is progressively shifting from saying no to saying yes.

There is risk in this. If positive non-interventionism ceases to represent the government’s economic and social policy position, then public policy choices could become the arbitrary outcomes of political horse-trading for which there will be neither logic nor moral purpose or value.

Under the Basic Law, the administration has the primary responsibility to come up with policy initiatives. But if public opinion is fragmented by a political system that gives disproportionate power to minority interests, and where policy differences cannot be resolved at the ballot box by universal suffrage, then the only institution that confers some accountability for government policies is the ideological coherence and consistency of positive non-interventionism.

If the government loses its ideological accountability, then governance becomes too naked for comfort. It becomes vulnerable as friends can no longer rally to its cause and everyone is a lobbyist and a rent-seeker. It is a political nightmare where government is beholden to a hundred populist causes that it cannot all please and everyone is frustrated. Without policy accountability, to either an electorate or to a higher ideology, government loses authority much faster and ultimately legitimacy. This is not good news for either defending free market capitalism or for effective political governance.

Richard Wong Yue-chim is Philip Wong Kennedy Wong Professor in Political Economy at the University of Hong Kong