Last year was another bonanza year for Hong Kong in snatching the top spots in indices of world economic freedom. Yet the institutions that compiled the indices, The Fraser Institute and The Heritage Foundation/Wall Street Journal, hinted strongly that Singapore was catching up fast. But that is neither surprising nor a cause for concern. The reasons are simple: first, actual economic performance is surely far more important than mere titles. As government data indicates, Hong Kong's gross domestic product managed to regain its 1997 level last year. What is there to celebrate if accolades for economic freedom were not underpinned by scintillating performance in growth? Second, it is clear from the annual reports of these institutes that Hong Kong was accorded the top honour mainly for ideological reasons. The Fraser Institute, which has ranked Hong Kong No1 in economic freedom since 1970, made it quite clear in its 2006 report that the ranking was inspired by the classical, free-market philosophy pursued by Sir John Cowperthwaite, a former Hong Kong financial secretary. Sir John's vigour in staving off attempts at interference - whether from Whitehall, Westminster or local businessmen - was admirable. But if his Scrooge-like approach towards managing public finances had persisted until today, the city would have an even larger spending deficit on education, skills upgrading and R&D. Hong Kong made a late start in introducing compulsory education up to the junior-secondary level. Among developed economies large and small, Hong Kong now stands out as paying the least attention to investing in R&D and stimulating technology and innovation. Such expenditures would be frowned on if Sir John remained in charge today. But the world is changing rapidly, and a creed that served us well in the 1960s and 1970s would not necessarily serve us equally well today. Third, although both institutes argue that all economies are evaluated against the same criteria, it is still mind-boggling that a place like Singapore - well known for pursuing a highly dirigiste, top-down approach to moulding its economy - could be closing in fast. Singapore's government does an enormous amount of social and economic engineering to build a state as envisioned by Minister Mentor Lee Kuan Yew, and never hesitates to interfere in the markets to achieve its goals. For example, Singapore decided that at least 25 per cent of its economy must be in manufacturing; so it pulled out all the stops to lure multinationals that could bring in technology and high-skilled jobs. We have always had a hard time competing with Singapore in enticing biotech or semiconductor manufacturing giants because of our inability to offer free land, direct investment or other subsidies. The Singapore government interferes heavily in the markets through its investment arm, Temasek. Temasek-linked companies are said to account for 60 per cent of GDP. Singapore is years ahead of Hong Kong in introducing a goods and services tax. A corporate tax cut announced in its latest budget will be balanced by a 2-per-cent GST increase, apparently because the government puts corporate investors ahead of the retail and tourism industries. The comparison is even more stunning in the legal and judicial areas. Whereas libel suits launched by Hong Kong officials are few and far between, Singapore ministers are never shy to do so, and the government rarely loses cases. So much for judicial independence. Even so, I would not be surprised if Singapore clinched the title next year, despite its highly interventionist government policies, its quasi-judicial independence and its political status as a democracy in name only. The city holds regular elections with universal suffrage, but western scholars have long decried its lack of genuine, competitive elections and political opposition. If all that doesn't undermine Singapore's title to economic 'freedom', maybe the Singapore model is one we should embrace. Regina Ip Lau Suk-yee is chairperson of the Savantas Policy Institute
