Economic Freedom Number 1 v Number 115

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Last night, the Fraser Institute reported on the results of the 2014 Economic Freedom Index (using available 2012 data) at the 10th Anniversary of Lion Rock Institute. Hong Kong is still Number 1.

Fred McMahon of the Fraser Institute drew a direct line from Beijing choosing the CE to the CE choosing judges and the rule of law. While lauding Hong Kong on many other fronts (“It’s the best place in the world!!!”), he raised concerns that rule of law could be threatened and linked it to the dissatisfaction driving the Umbrella Movement.

In a room packed with free market activists from around the world, local corporate grandees, a host of academic economists and government and political leaders, it was a tense, and frank moment.

John Tsang responds

The guest of honour was Acting Chief Executive and Financial Secretary, John Tsang. He was introdcued by this author, who made only a sideways reference to stamp duties while commending work on the HK-Shanghai Connect, staying on message regarding long-term fiscal prudence and planning, rolling back post-financial crisis measures and a projected decrease in government spending as a percentage of GDP.

The FS gave a wide ranging speech and staked out a clear commitment to the instituions that protect economic freedoms. Answering questions about rule of law, he noted “the Basic Law provides clear rules concerning the appointment and removal of judges as well as the appointment of senior judges from other common law jurisdictions to sit and make judgments on cases in our own Court of Final Appeal. That is something unique. That no other jurisdictions have the same kind of arrangement.”

On other aspects of rule of law and protesters, he had this to say

The continuing protests clearly demonstrate the freedom of speech, freedom of assembly and other fundamental human rights are protected here and are protected by the Basic Law. We shall uphold the rule of law relentlessly because it represents our core principal and serves as the cornerstone of Hong Kong’s prosperity. Moreover, our vocal and unfettered media, many of them are present here today, have always been a powerful guardian of our rule of law. They articulate their concerns without fear or favour over any apparent sign of deterioration in this area.

As to those who have been challenging the rule of law by charging the cordon line and ignoring the court injunctions in the name of civil disobedience, we shall in our usual way follow the due process in dealing with all the individual case concerned after collecting the necessary evidence.

The partisan, free market audience wasn’t so happy with minimum wage. But the deep-thinking FS tacked back to Ricardo on free trade and referred to keeping politicians’ ‘sticky fingers’ off bond proceeds, much to the amusement of the audience.

The debate about Hong Kong’s free market characteristics is alive and well and was hotly debated last night. Local and international players demonstrated commitment and concern about the practicalities surrounding the institutions that maintain freedom in Hong Kong.

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Foreward to the Economic Freedom of the World Index 2014: Hong Kong edition

by Andrew Work

The Freedom of the World Index, since it inception has seen Hong Kong sit at the top of the tables in the number one position. It is always there, relentlessly pursued by regional rival Singapore, the perennial bridesmaid, never a bride, in the rankings.

How do they do it
For those who live in such places, the ranking sometime seem a mystery. Resident economists know the local blemishes and peculiarities of government intervention, but not those of other jurisdictions. Knowing the beam in their own eye, they can’t see the mote in others.

Indices give them pause to examine their relative status to understand how special they are. Yes, both jurisdictions may be blighted by massive public housing sectors that deprive locals of opportunities in home ownership, but their tax structures and lower government spending levels (as a percentage of GDP) are marvels admired by free market enthusiasts the world over.

These places, however, also pose a conundrum, along with top 10 finalists Jordan and the UAE, about how economic and political freedoms work together. Hong Kong is about to find out how long it can maintain its number one position in economic freedom while the city struggles with how to organise its political structure.

Check, balance

To be sure, Hong Kong is in many ways possessing of the political checks and balances that enable a free market. Sound and impartial courts allow for confidence in rule of law to resolve contract disputes. A capable and prudent financial bureaucracy (rare, globally) holds the line on government spending. After yet another year of surplus the Financial Secretary announced departments needed to cut costs by 1% across the board, fearing future runaway expenditure due to difficult demographics.

While labour regulation has crept up, with a minimum wage introduced that will impact future Index results, it is still relatively flexible compared to regional rivals. Of course, Hong Kong remains unparalled in freedom of movement of capital making it a global financial powerhouse alongside London and New York.

Only the future matters

But that was 2012, which the numbers in this report reflect. Since then, the people of Hong Kong have become more concerned about guarantees of fundamental freedoms that underpin the economic freedoms that have made the city great. In 2014, the city has been rocked by conflict over the citizen’s right to choose their own leaders who will preserve these fundamentals against an encroaching China.

China ranks 115th on the list, scoring lower than Hong Kong in every category. While many of the factors influencing economic freedom scores have been little impacted by Chinese rule, the populace is concerned about the underlying fundamentals and have taken to the streets. At the time of writing this foreword, they blocked major intersections around the city demanding a voice and dialogue to negotiate a change in political structure. They demand a say in choosing the leaders that guarantee the institutions that enable economic freedom.

Rule of law is enforced by the courts and the Chief Executive chooses the judges. The Independent Commissioner Against Corruption defends against corruption and its head is chosen by the Chief Executive. Business regulations are directed by the Secretary for Commerce and Economic Development, chosen by the Chief Executive. The size of government, and concurrently taxation, is determined by the Financial Secretary, chosen by the Chief Executive. Credit market regulations, labour regulations and business regulations are set based on advice from appointees chosen by the Chief Executive.

We’re number 1! They’re number 115….

The people of Hong Kong have for some time feared a Chief Executive who would direct his underlings to make decisions inimical to the political and economic freedom of the people, making Hong Kong more like China #115 to Hong Kong’s #1. While few Hong Kong people would articulate their concerns in terms of economic freedoms, they do cite a degradation of the institutions that guarantee economic freedom as a major driver of their discontent.

At the time of drafting, the resolution of the so-called Occupy Central, aka Umbrella Movement, is unknown. What is known is that Hong Kong’s number one position owes much to its historical practices of a judiciary dedicated to serving the law (not man nor state), an impartial bureaucracy, prudent Financial Secretaries, and a people with a fierce sense of justice.

All that is being tested now. The 2012 numbers reported herein reflect Hong Kong’s history and its continuing source of strength. Its future will be determined to how it is able to enable changes to build on its assets while resisting the creeping dominance and degradation of its institutions by its lowly ranked parent-nation. The young people of Hong Kong have led their elders into the street to defend the fundamentals that made economic freedom possible for previous generations. Where it will lead will not be known for years to come, but will determine the future for all Hong Kong’s people.