restricted access 5: Why the Present Budget Policy Is Still the Most Sensible
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5 Why the Present Budget Policy Is Still the Most Sensible Since the time of John Cowperthwaite, financial secretary from 1961 to 1971, Hong Kong’s basic economic policy framework has been a commitment to a limited government. This still shapes our budgetary policy. In his first speech as financial secretary, Cowperthwaite revealed his world view, and some would say his wisdom. He stated: “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 centralized decisions of a government, and certainly the harm is likely to be counteracted faster.” Cowperthwaite’s policies attracted the attention of Milton Friedman, whose 1980 television series “Free to Choose” featured Hong Kong’s story as its inaugural episode. Friedman’s endorsement gave Hong Kong her most wellknown brand name as the freest economy in the world and its example inspired numerous nations to dismantle their dirigiste economies. The decision of Brazil, Russia, India, and China to abandon their failed economic policies, a move which benefited large segments of humanity, could not have occurred without the successful examples of the world’s free market economies. In this group Hong Kong stands tall. Cowperthwaite’s successors—Philip Haddon-Cave (1971–81), John Bremridge (1981–86), and Piers Jacobs (1986–91)—remained true to his vision. Haddon-Cave christened it “positive non-interventionism” and used it as an antidote against incessant lobbying for policy interventions. But their world was changing and the political system in Hong Kong was becoming more open, forcing the financial secretaries to respond to populist demands. Hamish Macleod (1991–95) characterized the Hong Kong model as consensus capitalism, and he was probably the last financial secretary to enjoy the luxury of reasonable consensus. 60 Starting Points Since Macleod, financial secretaries have found it necessary to articulate a new description of their policy approach. Donald Tsang (1995–2001) emphasized “maximum support, minimum intervention and fiscal prudence.” Antony Leung (2001–03) saw the government’s role as “a proactive market enabler.” Henry Tang (2003–07) upheld the principle of “market leads, government facilitates .” The commitment to a limited government was still present, although its tone was modified. This is perhaps unfortunate for those who believe in limited government, but totally understandable. That they have not further weakened the original policy framework reflects positively on their very considerable skill and wisdom. Hong Kong’s government is less limited today, but it remains more limited than most governments around the world. And for this stellar achievement, the financial secretaries of Hong Kong, since Cowperthwaite and Haddon-Cave, should all be congratulated for a difficult job well done. Cowperthwaite and Haddon-Cave have left a rich legacy for Hong Kong’s public administration, which has led to enormous benefits for the people. In what way has the Hong Kong government become less limited? And might this evolve into a deep contradiction? Will it threaten our economic vitality and trigger lower economic growth? I think it will, but let me explain. Economic Prosperity and the Size of Government Open markets and the rules and institutions that support them are critical for continuous economic prosperity. Markets may not always be perfect, but they often are, and they have served as the primary source of the global prosperity we have enjoyed over the past two-and-a-half centuries. Sixty years ago, many economists were lured into believing that a governmentdirected economy could work better than an open economy. But the collapse of the centrally planned economies of the Soviet Union, Eastern Europe, and China, as well as the failures of dirigiste policies in many developing countries, should now leave little doubt that open markets are powerful promoters of continuous prosperity. Some economists argue that governments play a positive role in advancing economic growth. To support their argument, they point to the success of some of the mixed economies. I think their argument is misplaced. China is still a mixed economy, but it owes its rapid growth in the past 30 years to its commitment to opening up its markets, rather than to more government control Why the Present Budget Policy Is Still the Most Sensible 61 and direction. A smaller public sector leads to a more efficient economy and better prospects for long-term growth. The success of many mixed economies like those in Europe, Japan, and South Korea would have been greater had their markets, especially service markets, become...