Hong Kong: Did Government Intervention Promote Its Growth?

Hat tip to Tyler Cowen for his post noting a discussion of Milton Friedman’s “romantic view of Hong Kong” from David Warsh. David links to this discussion:

So Friedman saw low taxes, private ownership of most utilities, no tariffs, no foreign exchange controls, no government intervention in industry. The low ratio of government spending to GDP in Hong Kong contrasted with that of its then-sovereign power, Britain, and explained much about the divergent economic performances of “socialist” Britain and “free” Hong Kong … At one time 60 percent of the people lived in subsidized housing, mostly rented cheaply from the government, and some in Home Ownership Scheme flats, provided with cheap land and sold to lower-middle-income households. Even now that public housing has low priority and the home ownership scheme has ended, some 50 percent of the people still benefit from this massive intervention in the marketplace. The intervention also partly accounts for the low apparent ratio of spending to gross domestic product. If the cost of the subsidized housing land were accounted for at market prices in the government budget, the ratio would be significantly higher. Hong Kong people have also enjoyed almost free medical treatment at government clinics and hospitals. Friedman was against “free” medicine elsewhere but failed to notice it in Hong Kong. Likewise, education, at least up to the secondary level has long been almost entirely funded by the government. In the days when Friedman was writing his praises for Hong Kong, the territory also had a relatively youthful workforce compared with western countries and thus less need for spending on pensions and help for the aged. Nor did Hong Kong have to spend anything significant on external security, the responsibility of London and now Beijing.

In other words, Hong Kong was not the laissez-faire beacon after all. Now if any liberal wants to use Hong Kong as an example of government intervention leading to rapid growth, I would beg to offer an alternative explanation.