by Henry Oliner
Architect of Prosperity- Sir John Cowperthwaite and the Making of Hong Kong by Neil Monnery is a story about the economic development and success of Honk Kong, the policies and the leader who stubbornly executed them.
As Financial Secretary Cowperthwaite exercised control of the budget and the economic policies of the city. He was remembered for his commitment to a laisse fair attitude toward the economy. Taxes were kept low, regulations minimal, budgets were balanced, debt was shunned, and trade was kept free. Even when barriers were erected to Hong Kong’s goods by other trading partners, Cowperthwaite did not retaliate.
His commitment to economic freedom was rational; he was not an ideologue. When considerations for regulation emerged, usually in the face of a crisis, he carefully considered the industry involved and whether the state’s effort to make decisions would be more effective than the views and decisions of the owners of capital with skin in the game. While he usually concluded the state would be less effective, he reluctantly found the need to regulate banking. Most utilities were government licensed monopolies.
His tenure was not without stress. The devaluation of the British pound sterling, trade embargos, banking collapses, the rise of communist China and Nixon’s One China policy all provided challenges.
Besides his rational commitment to free markets Cowperthwaite as a matter of policy planned a steady increase in public spending rather than erratic programs based on revenues. Whenever possible he wanted services paid for by the people who used it. If the state was to build parking spaces the usage rate should reflect the complete cost.
He avoided the accumulation of economic data, believing the cost of accumulating it outweighed its value. He felt such data was used to enable economic planning which he opposed, and because it instilled a false sense of certainty about outcomes. Cowperthwaite governed from principles, not data.
He believed the value of debt over taxes was illusive. Markets reacted with more wisdom than expected- seeing debt as a source of future taxes.
Social policy did not suffer from his financial conservatism. Hong Kong enjoys the highest life span in the world and the education system ranks among the highest in math and sciences. Inequality is high, but the per capita GDP is also high.
He proved that a steady growth in government spending with strong and consistent economic growth provided much better outcomes than sacrificing growth for greater social spending.
Hong Kong is not a democracy. Leadership is appointed. The leaders can take a long-term approach and not be subject the whims of the voters. But if they are not sensitive to the long-term benefit of the populations they can still be held accountable to political pressure. They are a responsible elite.
Cowperthwaite was aware that Honk Kong was unique, and his policies were suitable to the culture and people of Hong Kong, and would not necessarily translate well into any political environment. He rejected Keynesianism and debt financing as inappropriate for Hong Kong, although he likely thought it was also inappropriate for other economies that favored it.
The success of Hong Kong is a testament to classical economics and conservative financial management. It is a model that is much easier to maintain than to recover.
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