Freedom and Entrepreneurs Lead Economic Growth in Hong Kong
Occupied by the UK in 1841, Hong Kong was formally ceded by China the following year; various adjacent lands were added later in the 19th century. Pursuant to an agreement signed by China and the UK on 19 December 1984, Hong Kong became the Hong Kong Special Administrative Region (SAR) of the People’s Republic of China on 1 July 1997. In this agreement, China promised that, under its “one country, two systems” formula, China’s socialist economic system would not be imposed on Hong Kong and that Hong Kong would enjoy a “high degree of autonomy” in all matters except foreign and defense affairs for the subsequent 50 years.
Question: How did this small city-state of 7.3 million people go from having a per-capita income of only a few hundred dollars per year to a per capita income that is equal to that of the United States in only 50 years?
Answer: Hong Kong is about as close to the ideal free-market capitalist model that you can find on the planet.
As Adam Smith, Milton Friedman, and Friedrich Hayek have stressed, freedom of exchange and market coordination provide the fuel for economic progress.
For the last several decades, Hong Kong has been ranked as the freest economy in the world (according to Economic Freedom of the World Index). Economic freedom allowed the people to create an endless number of productive enterprises, and because they had free trade, they could import necessary goods and services to fuel these enterprises
More than 30 years ago, real per capita income was about half that of the United States and still well below that of France. Today, average real income has gained parity with the United States, and it will probably be double that of France in a couple of years. Along with Japan and Singapore, Hong Kong enjoys the highest life expectancy in the world, and comes out at or near the top on most indexes of human development.
Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. In 2012 mainland Chinese companies constituted about 46.6% of the firms listed on the Hong Kong Stock Exchange and accounted for about 57.4% of the Exchange’s market capitalization.
The United States, once considered a bastion of economic freedom, now ranks 17th in the world. Due to overspending, weakening rule of law, and increasing regulations on the part of the U.S. government, the United States has seen its economic freedom score plummet in recent years, compared to 2000 when it ranked second globally.
SOURCES: Cato.org, gcase.org, CIA.gov