Hong Kong: no free market paradise

Hong Kong is often cited by the right as an example of the success of free markets. Look beneath the surface, however, and things aren't quite so rosy.

While some on the left who are more than a little naive in their appraisals of the Cuban Revolution, the right are equally guilty of seeing only what they want to see when it comes to certain versions of the free market.

The latest journalist to notice only Potempkin villages and full stomachs is the Times columnist Matt Ridley.

In an interesting piece (£) on China in today’s Times, Ridley essentially says that political freedom is overrated. Not that it isn’t important, just that economic freedom is more so. Or at least that’s what he seems to be implying.

For Ridley, economic freedom is characterised by “no tariffs, no subsidies, low taxes and a very simple and speedy bureaucracy”.

Despite the article being largely concerned with China, Ridley cites Hong Kong as an example of what free market prosperity looks like.

And Ridley is not the first to do so: Hong Kong is something of a Randian free-market paradise, with low taxes, light regulation, and even a leader selected exclusively by the city’s elite. Corporation tax is set at the low rate of 16.5 per cent (compared with the US’s 35 per cent), and personal taxation is just 20 per cent for the highest earners.

The city has no sales tax, no capital gains tax, no VAT, and there are plans in the pipeline to get rid of stamp duty.

Look beneath the surface, however, and things look somewhat less rosy.

According to recent figures, a fifth of Hong Kong’s residents live in extreme poverty. Ever increasing land values have also resulted in blue collar workers living, like livestock, in four foot tall cage houses, which are essentially no more than bunk beds with a metal door attached. A single bathroom is shared by around 1,000 people.

Hong Kong is the perfect free market pupil. It cuts, it hardly taxes and it barely spends. As if to drive the point home, in 2011 it was voted the second most business-friendly city in the world after Singapore.

When it comes to providing its citizens with their most basic needs, however, Hong Kong fails miserably, and struggles even to provide thousands of workers with the bare minimum: a decent place to sleep.

For many of Hong Kong’s residents, a bit more of Matt Ridley’s much-hated ‘red tape’ would probably be very welcome.

“If you want to see capitalism in action, go to Hong Kong” – Milton Friedman.

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