Positive non-intervention
A five-minute primer on an issue making headlines
Hong Kong no longer follows a policy of 'positive non-intervention', Chief Executive Donald Tsang Yam-kuen said at a gathering of officials and bigwigs last week. The comments piqued the interest of Canadian free-market think-tank the Fraser Institute, which says it will monitor whether this signals a change in economic policy. The Cato Institute also says it is concerned with the change of rhetoric, and that the more the government intervenes, the less free Hong Kong's economy will become.
What exactly is it?
The term is used to define an economic policy whereby business decisions are left to the private sector. The government will generally not intervene - through subsidies and direct provision of services, for example - and when it does, does so only in ways that will make the economy more efficient, effective and fair. With a few notable exceptions, including Hong Kong Disneyland and Cyberport, the policy is very much still the rule. Such intervention as takes place these days - in housing, land use, public utilities, and especially infrastructure (such as the Closer Economic Partnership Arrangement with the mainland) - is regarded as being within the bounds of positive non-intervention.
Who started this policy?
There has been some confusion over whether positive non-intervention was the brainchild of Hong Kong's fifth financial secretary, Sir John Cowperthwaite, or his successor, Sir Philip Haddon-Cave. Sir John believed that the government should concern itself with only minimal intervention on behalf of the most needy and keep its fingers out of business. It is said that when he was asked in 1945 for government help to speed the post-war economic revival, he found the economy was swiftly recovering without government intervention and took the lesson to heart.
Why is it so important?
The laissez-faire policy has been trumpeted as the source of Hong Kong's post-war economic success. During Sir John's tenure as finance chief, real wages rose 50 per cent, the number of households in acute poverty fell by two-thirds, and exports rose by 14 per cent each year.
What is 'big market, small government' and how does that differ from positive non-interventionism?
The difference is subtle. An administration based on 'big market, small government', which is usually paired with another term 'market leads, government facilitates', essentially adheres to the principle of intervening in business matters only when necessary, but the wording is meant to place special emphasis on keeping government expenditure and the size of the civil service under control. It was coined during the 1990s, when government spending as a proportion of gross domestic product was growing.
What effects have Mr Tsang's comments had?
The Cato Institute, which publishes the annual Economic Freedom of the World Index, has consistently named Hong Kong as the freest economy. Ian Vasquez, director of the institute's global economic liberty project, last week said that any increase in meddling in the private sector by the government would be reflected in its index. The economic freedom report would continue to be based on the actual policies that were implemented, not rhetoric. But the chief executive's comments were 'a worrisome sign', Mr Vasquez said.
