Freest economy? It may be overrated
Hong Kong advertises itself as the world's freest economy, but imagine that you want to start a business here. There may indeed be less red tape than in many other locations and the low rate of profits tax is also attractive. However, the latter benefit only materialises once you begin to make a profit.
Before then, you must set yourself up, and at that point you are confronted with the high cost of renting an office. And it is high in large part because the government controls all land, and likes to keep land prices up - and, in consequence, property prices - to feed its coffers.
And so, in what is claimed to be the freest economy, one of the largest and most important components - the property market - is far from free of official interference.
The government proclaims a 'hands-off' philosophy. That claim is supported, statistically, by the fact that its accounts show relatively little by way of spending on subsidies to particular sectors or businesses. However, the most common means of government support for favoured activities is to provide them with land at subsidised prices. In such cases, there is no additional budgetary expenditure.
But that does not mean it is costless. Revenue, which would otherwise accrue from selling the land at the market price, and which could then be used for other purposes, is forgone. This sacrifice is never recorded.
Over the years, this policy has been helpful, for example, to all those businesses able to satisfy the criteria to take space on the three industrial estates, the Science and Technology Parks, or Cyberport. Elements of the tourist industry, such as Disneyland, have received similar favours.
Certain official intervention in the economy, such as the provision of schools, hospitals, roads, police and so on, is of course necessary and welcome. But support for specific sectors is more contentious.
The acid test is whether the economy, and society as a whole, can be shown to have benefited. Unfortunately, despite the hype which has surrounded a range of hi-tech activities, the value added which they have generated has been minimal in comparison to that from Hong Kong's core businesses such as finance and trade.
A case can be made for an economy maintaining a degree of diversity in its activities. But that is hardly a feasible or necessary strategy for Hong Kong, which has no scope for, or has long ago abandoned, agriculture, heavy industry and most manufacturing. It is better to leave market forces to delineate and develop the strengths.
Another consequence of high land prices is that about half the population still lives in public housing. Many would aspire to be a home-owner, if only they could afford it. Not only is a social divide being perpetuated but so also is a wealth divide, as the policy of nurturing property prices favours those who already own homes. It is ironic that, in the world's so-called freest economy, half the population do not, in effect, enjoy the freedom to own their own home.
The antidote to all such concerns is the plain fact that Hong Kong has a flourishing economy overall. All the same, claims about such things as economic freedom and 'hands-off' government deserve a measure of scepticism. It is dangerous to believe too uncritically in one's own propaganda.
Tony Latter is the author of Hands On or Hands Off? - the Nature and Process of Economic Policy in Hong Kong
