TCS Daily

Hong Kong's Nightwatchman

By Tim Worstall - February 1, 2006 12:00 AM

It's unusual for a bureaucrat to be praised by Milton Friedman. It's even more unusual for one to be mentioned by PJ O'Rourke without being verbally pummeled and insulted. Yet one man who died last week managed both, even to the point of actually being praised by the Peej and Uncle Miltie alike.

Sir John Cowperthwaite, a colonial civil servant, not the sort of man to excite O'Rourke's exceedingly republican (and Republican) sensibilities was the one who managed this unlikely double feat. He was sent out from London just after WWII to take over part of the administration of Hong Kong and would usually have been expected to implement the same sorts of programs that were going on back home. (Just as an aside I've had a number of relatives in similar work and believe me independence of mind and thought is not a highly prized attribute when viewed from London.)

However, given the distances and transport problems of the day it took him some time to actually make the trip and "Upon arrival, however," said a Far Eastern Economic Review article about Cowperthwaite, "he found it recovering quite nicely without him."

Our hero then decided to violate the most basic rule of all bureaucracies and governmental types. If people were doing OK on their own then he'd let them carry on doing so rather than making things worse by interfering. How marvelous it would be if one sunny day our own rulers and masters awoke to the same conclusion! Yet he did not do nothing, as if some latter-day King Log. Rather, he did the things which only government can do, the things which are necessarily done by such, and without which little else can be done. As O'Rourke put it:

"Quite a bit of government effort is required to create a system in which government leaves people alone. Hong Kong's colonial administration provided courts, contract enforcement, laws that applied to everyone, some measure of national defense..., an effective police force (Hong Kong's crime rate is lower than Tokyo's), and bureaucracy that was efficient and uncorrupt but not so hideously uncorrupt that it would not turn a blind eye on an occasional palm-greasing illegal refugee or unlicensed street vendor."

The result of this was astonishing. Laissez faire really works. As Milton Friedman points out:

" 1960, the earliest date for which I have been able to get them, the average per capita income in Hong Kong was 28 percent of that in Great Britain; by 1996, it had risen to 137 percent of that in Britain. In short, from 1960 to 1996, Hong Kong's per capita income rose from about one-quarter of Britain's to more than a third larger than Britain's. It's easy to state these figures. It is more difficult to realize their significance. Compare Britain -- the birthplace of the Industrial Revolution, the nineteenth-century economic superpower on whose empire the sun never set -- with Hong Kong, a spit of land, overcrowded, with no resources except for a great harbor. Yet within four decades the residents of this spit of overcrowded land had achieved a level of income one-third higher than that enjoyed by the residents of its former mother country. I believe that the only plausible explanation for the different rates of growth is socialism in Britain, free enterprise and free markets in Hong Kong. Has anybody got a better explanation? I'd be grateful for any suggestions."

Sir John's obituary is here in The Daily Telegraph (the running joke is that that paper spends so much time and effort on the obit pages because so many of its readers expect to be there shortly) and it is fulsome, as it should be, in its praise. A quite magnificent man who would never have been able to thrive in the bureaucracy back home in Britain. For example, he refused to release the GDP statistics. As O'Rourke points out:

"The Cubans won't let anyone get those figures, either. But Cowperthwaite forbade it for an opposite reason. He felt that these numbers were nobody's business and would only be misused by policy fools."

Or as the obituary puts it:

"As for the paucity of economic statistics for the colony, Cowperthwaite explained that he resisted requests to provide any, lest they be used as ammunition by those who wanted more government intervention."

The effects of doing only what had, absolutely, to be done and nothing else was significant. Friedman says:

"According to the latest figures I have, per capita income in Hong Kong is almost identical with that in the United States.

"That is close to incredible. Here we are -- a country of 260 million people that stretches from sea to shining sea, with enormous resources, and a two-hundred-year background of more or less steady growth, supposedly the strongest and richest country in the world, and yet six million people living on a tiny spit of land with negligible resources manage to produce as high a per capita income. How come?

"Direct government spending is less than 15 percent of national income in Hong Kong, more than 40 percent in the United States. Indirect government spending via regulations and mandates is negligible in Hong Kong but accounts for around 10 percent of national income in the United States.

"We are more productive than Hong Kong. But we have chosen, or been led by the vagaries of politics, to devote roughly half of our resources to activities to which Hong Kong devotes 15 or 20 percent. Our higher productivity means that we can produce with 50 percent of our resources the same per capita income as Hong Kong can produce with 80 to 85 percent of its resources.

"The real lesson of Hong Kong for the United States is that we're using our resources inefficiently. Our government is spending our money to subsidize tobacco and to penalize smoking; to subsidize childbearing and to discourage childbearing; to build new housing and to tear down housing; to subsidize agriculture and to penalize agriculture; and on and on -- not to mention converting square miles of forests into billions of paper forms and spending many man-years of labor filling them out and then filing them."

If you would like the justification of his entire philosophy, one which we should dearly wish our own rulers would comprehend (for expecting them to sideline themselves by actually adopting it is clearly beyond all hope) how about this from his first budget speech in 1961:

"In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government, and certainly the harm is likely to be counteracted faster."

Would that we could nail this speech to the foreheads of a few modern-day politicians.

While I've admired the man (from afar) for decades and am of course saddened by his passing, there is one point of even greater sorrow. Why was it impossible for such a man to stay at home and do the same for his native country?

There is also a certain rage. With this clear evidence in front of them, why do our rulers not follow his example and do the things that only they can do and then let the rest of us get on with everything else? In short, why don't they let us be free? For surely if they did we would all become rich.

Tim Worstall is a TCS Contributing Writer living in Europe. Find more of his writing here.

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