Hong Kong has prided itself as being the freest economy in the world, but last week Chief Executive CY Leung pronounced that the “positive nonintervention” policy is outdated. 

Is this the end of the laissez-faire philosophy that has served Hong Kong successfully for the last half century? 

The phrase “positive nonintervention” was attributed to Sir John Cowperthwaite, a financial secretary from 1961-71 and a Scotsman who inherited the moral philosophy of his countryman Adam Smith. His first speech as financial secretary marked his approach to markets: “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.”

Whether one likes it or not, history has shown that Sir John was more right than wrong. Notice that he did not say that investors might not panic (as in recent share crashes) or that governments do not have a role in markets. He was simply making a statement that decision-making in a world of uncertainty is better made by markets. That philosophy is also built into the Third Plenum where the Chinese planners recognize that markets are better at innovation, job creation and resource allocation than the state. State-owned enterprises are good at building infrastructure where there was none, but in terms of product and service generation and profits, the markets beat state-run institutions. 

In the debate between state and market, there has been too much of a tendency to see the issue as black and white, whereas Sir John’s dictum of positive noninterventionism fitted the Chinese dialectic philosophy of you wei-wu wei (intervention vs. self-order). There is always room for intervention, even if the natural order of markets follows the Tao.

First, the philosophy was eminently realistic, practical and efficient. The British colonial government in the 1960s had limited resources and limited skills, whereas the Hong Kong entrepreneurs were hungry, creative, hardworking and risk-taking in abundance. By running balanced budgets, sound money and fair markets, he simply let loose the entrepreneurial spirit to find new markets and sources of profits. 

Second, positive nonintervention did not mean no intervention. The fact that Hong Kong had good transport infrastructure with one-third of the population in public housing, with heavily subsidized health care and education was real state intervention. 

Third, the state worked hand in hand with the market, not against it.

The counter examples against the Hong Kong philosophy are Singapore and South Korea. These examples fail to point out that the comparative advantages were very different. Both countries saw their survival as geopolitical, with a need to spend hugely on defense, which necessitated quick wins in industrialization, with the Koreans moving very rapidly in heavy engineering and technology through chaebol, family-run conglomerates. Singapore relied more on government-linked companies to drive investment and growth, while welcoming multinationals. On the other hand, Hong Kong had more than its fair share of homegrown entrepreneurs as well as an open door to external talent.  

What the three economies shared in common was heavy state funding of education, health care and infrastructure. 

The difference between Hong Kong and the other two civil services was one of philosophy. The Hong Kong civil service understood in its bones that the market was smarter and you did not fix it if it ain’t broke. The other two had to intervene because of geopolitical needs. 

What has changed in Hong Kong is the politics post-1997. The polarization of political views has meant that the Hong Kong government became paralyzed in exactly its areas of previous strength: education, innovation (technological catch-up) and infrastructure (still good, but creaking at the seams). The civil service is now caught between the politics, social media and genuine social needs. When top civil servants have to spend more time answering questions in the Legislative Council of Hong Kong and the media, rather than getting on with the job, are we surprised that the mentality is switching from one of “can-do” to one of “no-do, no mistakes, wait for retirement?”

Positive noninterventionism is not wrong — it’s just that the context has changed, whereas the politics have not. With strong reserves, openness to global talent, but high costs, the business community is asking whether they can concentrate their resources on business or should they be worried about more state intervention? If the latter, can the Hong Kong government deliver for them more business-friendly incentives than competing governments elsewhere?  

The long game for Hong Kong is structural — how can Hong Kong build up its talent into positively benefiting from the Internet Age, rather than negatively protesting against anything that moves? While Hong Kong citizens are still debating who is right or wrong, its competitors are already upping the game. The center of gravity is shifting outside Hong Kong — Shenzhen, Singapore, Shanghai, Seoul and Sydney are vigorously becoming alternative centers of culture, innovation and creativity.  

Thus, the issue is still about local politics, not about business. To blame the civil service for not being in sync with the leadership is the wrong game. Even if the bureaucracy is willing to follow the new change in philosophy, it can’t get past the current meat grinder of a political process. 

Politics in Hong Kong is in a quagmire because both sides see issues in black and white. One thinks that democracy is all about one person, one vote, and the other thinks that it’s possible to do business as usual.  

John Cowperthwaite was the right man at the right time, because he melded Scottish moral philosophy with Chinese dialectic pragmatism. To get anything done, the Chinese philosophy has always been about three things: timing, geography and social unity. With Hong Kong geographically located in still the fastest growing region in the world, the only thing that is lacking to move forward is social unity. 

And how to get social unity is clearly the responsibility of Hong Kong’s leadership, at all levels. 

By Andrew Sheng

Andrew Sheng writes on Asian issues. ― Ed.

(Asia News Network)