Leaving it to the market plus the rule of law

A quite interesting article that adds to our understanding of why China is in such a hurry to shut down Hong Kong: Why People in Hong Kong Have Incomes 5x Higher Than People in China’s Richest Province. It’s not long, but will give you quite an understanding of what has made the difference. But I particularly wanted to point out the principles that lie behind its success.

  1. Business Efficiency – The Hong Kong government established simple procedures for individuals to start their own enterprises. Entrepreneurs fill out a single page form and pay $25. That’s it. Businesses can open that very day.
  2. Small Government, Big Market– Per-capita spending on government in Hong Kong is less than half of what the average New Yorker spends to support the various levels of government.
  3. Open Trading Systems– Hong Kong has the world’s 10th largest trading economy, with no trade barriers or tariffs imposed on other countries.
  4. Low Taxes – A typical New Yorker loses about half his income to taxes. In Hong Kong, the government claims just 15 percent.
  5. Sound Money– As the U.S. undermines the dollar with dollar printing and years of quantitative easing, raising government debt to never before seen levels, Hong Kong maintains low debt and sound money. It carries a debt to GDP ratio of 38.67 percent compared to 104.17 percent in the U.S.
  6. Few Government Regs – While the U.S. has reactionary regulation with many business crushing consequences, Hong Kong has an environment of permissionless innovation that embraces the benefit of “innovation allowed,” which switches the burden of proof to those who favor preemptive regulation and requires them to explain why ongoing trial and error experimentation with new technologies or business models should be disallowed.
  7. Rule of Law–  The British, during their long rule over Hong Kong enforced, the “Rule of Law.” People who stole or killed were jailed, which left the people to flourish in a free law-abiding marketplace.

Most of it is about governments keeping out of the way, which was how we used to run our economies until modern macro rotted the minds of economic policy makers everywhere. Leaving it to the market plus the rule of law works wonders.