For the 25th consecutive year, the Heritage Foundation has rated Hong Kong as the freest economy among the 186 economies surveyed. The index of economic freedom is calculated based on four categories: Rule of law (property rights, government integrity, judicial effectiveness); government size (government spending, tax burden, fiscal health); regulatory efficiency (business freedom, labor freedom, monetary freedom); open markets (trade freedom, investment freedom and financial freedom).
The Heritage Foundation believes a market that is fair, open, and less interfered with by the government is the key to economic prosperity and entrepreneurship. Hong Kong received 90.2 index points and is rated as the most open and freest economy in the world. In fact, the economic miracle created by Hong Kong since World War II was largely due to the investor-friendly business environment, an efficient administration and low tax rates. All of these enable business leaders from all over the world to operate on equal terms, which underpins Hong Kong’s success. Owing to a high degree of economic freedom, the SAR is able to adapt to changes in the external environment and implement timely adjustments to our industries.
Leveraging the economic recovery in Europe and the United States in the 1960s and 1970s, Hong Kong exported processed goods produced by its light industries to these countries to become one of the “Four Asian Tigers”. As a result of this flexible approach to business, Hong Kong’s manufacturers successfully captured many market opportunities. As the free market can supply sufficient workers fairly quickly, it is easy for processing and light industries to transform and adapt. The government adopted a low tax rate system at that time and implemented a favorable housing policy; this offered affordable and stable housing to the public.
In the 1980s, the situation of insufficient factors of production began to constrain Hong Kong’s manufacturing industry. There was initially an inadequate supply of labor, and land supply shortages also began to emerge later on. Fortunately, the reform and opening-up on the mainland offered a solution to Hong Kong’s industrial sector. Within a few years, our city’s processing and light industries shifted to the Pearl River Delta region and continued to enjoy robust economic growth until the city’s return to the motherland.
After the turn of the new century, although Hong Kong still enjoys economic freedom, economic growth has slowed due to a lack of effective policies to help the city adapt to the new global landscape. However, our education system has not been modified to specifically promote industrial upgrading, nor has the government amended regulations to introduce foreign workers to tackle the problem of labor shortages. In recent years, Hong Kong has also been battling a shortage of land and housing supply, thus struggling with rising business operating costs. Hong Kong’s economic transformation remains stagnant and can only rely on the financial sector and the influx of mainland tourists to sustain growth. At this point in time, it is difficult to promote an economic transformation and to upgrade industries by simply maintaining a free market.
Let us compare the performance of other economies mentioned in the Heritage Foundation report. The countries that have the most robust economic development did not make it to the top of the rankings. The United States was ranked 12th, China 100th, India 129th, Vietnam 128th, Germany 24th and South Korea 29th. Even though Singapore adopted a political system far different from that of the West, the Heritage Foundation and the mainstream media do not disregard Singapore. Instead, they believe Singapore’s economic freedom is second only to Hong Kong. On the other hand, the West constantly takes issue with the Chinese mainland. This shows that the status of the freest economy is not necessarily that important!
What I want to point out is that the title of the “freest economy in the world” does not guarantee success in every endeavor. There are some internal issues that will require the government to take proactive action, otherwise problems will ensue. These problems include the widely known issue of insufficient planning in land use, the failure of the education system to meet the needs of social and economic development and a lack of an international perspective among young people, etc. There are also social problems derived from the above issues, such as polarization between the rich and poor.
Despite very limited space in our city, Hong Kong ranks No 8 in the world in terms of having the largest “super-rich” population, which is comparable to a large country. This is not a healthy sign, which shows that the government has not done that well in resource allocation and in wealth distribution. At present it is not easy to reverse this undesirable situation. Nevertheless, if the wealth gap problem is not addressed properly, our city will not be able to maintain prosperity and stability despite having “superior” economic freedom.
This is an excerpt translation of the author’s Chinese article published in Wen Wei Po.
The author is a former Hong Kong deputy to the National People’s Congress.
HONG KONG NEWS