Saturday, November 26, 2005

Hong Kong-The Unknown Ideal

Virtually unnoticed not only by the Swedish media but by all the mayor international news sites too was the news that Hong Kong's economy grew at an annual rate of more than 11% in the third quarter of this year, taking year over year growth up to 8.2%. Moreover, second quarter year over year growth was revised up to 7.3% from the previous estimate of 6.8%.

This is in part driven by strong productivity growth but is also reflected in very strong job growth, with employment increasing 2.7% and full-time employment increasing 3.4%.

Aother positive factor is that this strong growth happened "despite" the fact that government consumption was reduced by 3.3%. Hong Kong had a very low level of government consumption (Does not include welfare and other government transfer payments, but this is much less extensive in Hong Kong than in the west too) to begin with at less than 10% of GDP versus nearly 20% in the United States and nearly 30% in Sweden, yet they still manage to reduce it, not just relative to GDP but in absolute terms too. Even so, the leader of the Moderate Party (Who is supposed to be the "anti-statist" party) in Sweden , Fredrik Reinfeldt, still claims that somehow government services need to have sharply increased funding even though they already costed more than 3 times than in Hong Kong. And as have been discussed here before, a similar story can be seen with the Republicans in the United States. Government consumption was only 8.5% of GDP during the third quarter, yet Hong Kong does seem to have a fully functioning infrastruture and health care and its students have top scores in international comparisons. So how can it be maintained that it is necessary to spend 30%?

This means that the Hong Kong boom have a sound basis and that Hong Kong can eliminate its budget deficit while keeping its by western standards extremely low tax rates.

Hong Kong's economic success illustrates the benefits of free market economics. When the economic success of countries like Latvia and Estonia this is sometimes dismissed as being merely a "catch-up" effect as they with their low initial income level can benefit from existing technology and markets in rich countries. But Hong Kong cannot be as easily dismissed as they already were the richest country in Asia, having a higher per capita income than countries like Japan, Sweden and Hong Kong's former colonial power, the United Kingdom.

Yet they still manage to maintain extremely high growth. The reason for this is of course that Hong Kong is the economy in the world that comes closest to the laissez faire ideal, with its very low levels of government spending and taxation, its low regulatory burden, its consistent free trade policies and its lack of a independent monetary policy.


Anonymous Simon said...

I doubt you've ever been to HK.

The per capita income of HK is not higher than the UK's, Japan's or Sweden's. Perhaps you refer to PPP weighted incomes, but that just shows the problem with PPP estimates. PPP is just a weighted index obtained from a limited basket of goods. If you're going to buy an apartment you'll need real HK$, not PPP weighted HK$.

Well, at least you can eat cheap.

5:36 PM  

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