Laissez-faire vs interventionism

Updated: 2013-01-15 05:49

By Kui-Wai Li(HK Edition)

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For decades prior to 1997, the free port status of Hong Kong has meant that a freer economic policy of "laissez-faire" has been the practice. While economic freedom allowed individuals to pursue their own economic goals, the government before 1997 served as a "referee" that softened various societal conflicts, provided relevant infrastructure suitable to growth and development, and implemented adequate and needed social policies. However, laissez-faire economy did not operate in a vacuum, as the Hong Kong government intervened crucially in a number of economic areas, including the supply of water, rescue of commercial banks from financial crises on various occasions, provision of public housing for the households whose members had only low skills, for public utilities, and negotiations in the textile export trade.

In the 1970s, the financial secretary of the day coined the term "positive non-interventionism" to articulate Hong Kong's economic policy. "Non-intervention" probably referred to a system of capitalist economy, while "positive" would mean that the government would be "hands off" in the local economy as much as possible.

Being a free market and open and a small city economy, it was appropriate for Hong Kong to pursue a more flexible policy so that economic growth would flow along with the rest of the world. Thus, popular requests in much of the 1970s and 1980s for the government to become involved in R&D and to engage in a more proactive industrial policy similar to that of Singapore and South Korea was not entertained. Looking back, GDP development in Hong Kong was not weakened when compared to other "dragon economies" in East Asia.

Since the turn of the century, the Hong Kong economy has suffered unprecedented economic recession, after the outbreak of the Asian financial crisis in 1998. Various short-term, demand-driven economic policies were pursued in order to rescue the Hong Kong economy.

While Hong Kong experienced unprecedented fiscal deficits in some years and there were calls for fiscal restructuring, the fiscal system by and large remained unchanged, probably protected under various articles of the Basic Law. The more recent terminology has been "small government, large private sector" to indicate the "backseat" feature of the government in economic affairs. Since 1984, welfare expenditures in Hong Kong had been increasing, and exacerbated by the rapid rise in income and economic overheating in much of the 1990s. As such, due to the frequent occurrence of fiscal surpluses, laissez-faire economic policy coexisted with a handsome welfare policy in Hong Kong.

The term "positive non-interventionism" may be conceptually confusing, as "non-intervention" should imply inaction and that could not be positive or negative. Instead, what has happened is that the government has for decades been "positively intervening" the economy in order to promote growth, rescue economic crises, assisted the needy and to stabilize the macro-economy in order to avoid extreme hardship.

Economic freedom has permitted individuals to progress, businesses to prosper and economy to grow. The principle of "laissez-faire" has not been implemented only as a policy, but has been accepted as an attitude that most people in Hong Kong have adopted, as it has been as successful in bringing peace, prosperity and upward mobility to people from all walks of life in Hong Kong.

Despite the occasional call for more "intervention", there is indeed a need to make a distinction between "assistance" and "intervention" in the freest economy here in Hong Kong. "Intervention" implies the unneeded action by government officials on the private lives of individual households and families, even though they are the recipients of social welfare. What Hong Kong needs is a strong and effective welfare system that provides assistance to needy families, who should equally be given the right to decide on their use of the assistance, and not intervention and duplicated welfare assistance. It is the effective system that Hong Kong cherishes, but it should exclude people with vested-interest in public decisions and personality-driven behavior. In short, it is welfare assistance that is provided, and severe economic "intervention" in the life of private individuals, households and businesses should best be avoided.

Economic development is a long-term affair, and growth requires consistency and sustainability in economic policies, though politicians and welfare activists do use economic tools for their short-term political goals. The attitude of a laissez-faire policy has become part of daily life in Hong Kong, and this should not be politicized into an instrument of ideological divide. Economic instruments that have led Hong Kong to its past achievement should best be kept.

The author is an associate professor of the Department of Economics and Finance at City University of Hong Kong.

(HK Edition 01/15/2013 page3)