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Hong Kong's Miraculous Progress

September 2, 2014 in Economics

By Richard W. Rahn

Richard W. Rahn

How did this small city-state of 7.3 million people go from having a per-capita income of only a few hundred dollars per year to a per capita income that is equal to that of the United States in only 50 years? The simple answer is they had the British common law legal system, strong private property rights, competent, honest judges, a non-corrupt civil service, very low tax rates, free trade and a minimal amount of economic regulation. There was no big brother government looking after the people, so they had to work hard, but they could keep the fruits of their efforts.

Hong Kong became a British colony in 1842, and the adjacent “New Territories” were leased for 99 years in 1898. In 1997, Hong Kong was returned by the British to China, with an agreement that it would become a special administrative region — “one country, two systems.” Hong Kong retained the British legal system, most individual liberties, and a whigh degree of local autonomy, except for foreign policy and defense. The amount of democracy has been limited — with the British serving as the ideal benevolent dictator and the Chinese as a somewhat less benevolent dictator for the past 17 years.

Hong Kong is about as close to the ideal free-market capitalist model that you can find on the planet — which came about largely by accident. The Japanese had captured Hong Kong in World War II, but when the British regained control after the war, they were in no position to provide much in the way of economic assistance. The British basically left Hong Kong to fend for itself under a British governor with only a tiny military contingent. Hong Kong has virtually no natural resources other than an exceptionally fine harbor.

Hong Kong proves that you do not need to have democracy for prosperity and economic (and most individual) freedoms.”

As China turned communist, many poor refugees fled to Hong Kong , seeking freedom. There was no foreign aid and no welfare state — but there was a competent government that kept the peace, ran an honest court system with the rule of law, provided some basic infrastructure, and little more. Also, Hong Kong had economic freedom — for the last several decades, Hong Kong has been ranked as the freest economy in the world (according to Economic Freedom of the World Index). …read more

Source: OP-EDS

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