In 1980 the great economist Milton Friedman
published “Free to Choose”. In it, he extolled the virtues of free-market
Capitalism — its ability to lift hard-working families out of poverty, modernize entire
economies, and raise the standard of living for everyone. The United States, he and his wife explained,
was among the finest examples of what’s possible when a government simply takes its
hand off the wheel. His Utopia, however, was not the U.S., but
rather somewhere halfway across the globe — Hong Kong — quote “the modern exemplar
of free markets and limited government”. So enamored was he with its faithful application
of Capitalism that Friedman devoted many of his remaining years delivering talks, writing
articles, and traveling the world telling its story. It was such a textbook rags-to-riches example
in part thanks to its physical transformation… This is Victoria Harbor around 1890 — a
barren coastline the British government was once indifferent to,
Here it is in the early 1960s, And finally, this is Hong Kong, in all its
vertical glory, at the end of the twentieth century. Today, with 70% more skyscrapers than New
York, it just exudes abundance. Its GDP per capita — already formidable
on its own — becomes nothing short of miraculous when compared to its once-colonial master. And while the U.S. is more closely associated
with Capitalism thanks to its size, in some ways it more closely resembles Finland, Sweden,
or Denmark than Hong Kong. According to the Fraser Institute and Heritage
Foundation, there’s no place on earth with more private ownership, lower public expenditure,
simpler tax law, or less regulation. Its leader is even called the Chief Executive. The very first of which was, quite fittingly,
Tung Chee-hwa, the billionaire CEO of a shipping company. But what appears to be an almost religious
adherence to Capitalism may have been, in fact, more historical happenstance. The great economist may have been wrong all
along. Sponsored by CuriosityStream and Nebula — where
you can watch the bonus video which accompanies this one for just $15 bucks a year. During the British Empire, colonial bureaucrats
were not sent directly from London, as you might expect, but rather hopped between Crown
Colonies. Sir Denys Roberts, for example, began his
career in the Army, before being posted to Nyasaland, a British protectorate in Africa,
followed by Gibraltar, and then as the Chief Justice of Hong Kong. Because of this, by the time the sun finally
set on the Empire with Hong Kong as the last major holdout, there had developed a great
difference in style and philosophy between London and its distant colonies. Milton Friedman called this an “economic
experiment”. Britain and Hong Kong — although both “British”
in name — pursued two very different economic systems: one hands-on and the other, off. The reason, in the free-market narrative,
was a man named Sir John James Cowperthwaite. Cowperthwaite was the Financial Secretary
during the 60s. He believed government intervention did more
harm than good; and, in any case, was too hard to predict. He accidentally became a kind of Capitalist
hero after Friedman met him during a brief stopover. When asked about the local economy, Cowperthwaite
replied that he honestly didn’t know the answer — he was philosophically opposed
to keeping any records as it might give the government grounds to “interfere”. His successor gave this do-nothing approach
an academic-sounding name: “Positive Non-Interventionism” and the rest is history. The true story, however, is quite different. The first reason Hong Kong was so financially
prudent was that it had to be. Britain expected that quote “the local revenue
will be adequate to defray . . . all the . . . expenses of the government of Hong Kong.” London even made the city pay for most of
the British Garrison — a giant, intimidating 30-story military base in the middle of the
city's financial district. Second, with financial independence came administrative
independence. The British elite in Hong Kong had no desire
to cede control to London, who would surely attach conditions to further funding. By spending so little, the colony remained
self-sufficient and the rich could enjoy their autonomy, without needing to beg the Queen
for help. They also worried generous social welfare
would attract too many migrants from up North. And so, between 1948 and 97, Hong Kong ran
a deficit for just seven of fifty years. Finally, and most disturbingly, free-market
ideology both distracted from Britain’s failures and justified its ethnic discrimination. Contrary to what many believe, Hong Kong was
never democratic. Bureaucrats were appointed from 5,000 miles
away, and never by popular vote. The supposed meritocracy of the “invisible
hand” of the free-market was a convenient scapegoat. It also provided the colonial government with
some source of legitimacy. It was supposed to be “above” politics,
composed merely of neutral technicians allowing citizens to prosper. In reality, zoning laws, elite schools, and
favoritism all gave the 1% British population an unfair advantage. As you can see, Capitalist policies were driven
less by ideology and more by historical circumstances. And while its lack of natural resources is
often cited as further evidence of its miraculous transformation, this argument relies on a
very narrow definition of “natural resources” Is strategically-located geography like that
of Hong Kong or Singapore not the best and least corruptible of resources? But regardless of why it adopted the policies
that it did, the Hong Kong of today is either not an accurate example of Capitalism in practice,
or a striking example of its perils. The list of monopolies is long… - At its one and only container port, the
world’s 8th largest, just two companies: Hutchinson and Modern together control 21
of its 24 berths — 87%. - The privately-owned Jockey Club is granted
a total monopoly on gambling, which, in exchange, sprays charity around the city at a rate only
guilt could explain. - The government carefully regulates both
the number of public buses and bus companies — resulting in only two major players: KMB
and New World First Bus. - There are just two electric companies: China
Light and Power, and HongKong Electric, which serve different areas. - In a city of nearly 8 million, every last
pound of fresh beef comes from one private company: Ng Fung Hong — who has a complete
monopoly on the license to import cattle. - Likewise, consumers have only one source
of gas. But all this pales in comparison to the hidden
retail duopoly. Just two conglomerates, through a tangled
mess of subsidiaries, own so many retail stores that it would be nearly impossible for someone
living in Hong Kong not to patronize at least one. On one side is Jardine Matheson, which owns
Dairy Farm International, which owns every local Mannings, IKEA, Wellcome, Pizza Hut,
Market Place by Jasons, Starbucks, KFC, Maxim’s, and the city’s 900 7-Eleven’s. On the other side is CK Hutchison Holdings,
founded by Hong Kong’s richest man, Li Ka-shing. Hutchinson owns A.S. Watson Group, which owns Three, Fusion, Watsons,
PARKnSHOP, TaSTE, and Fortress. Watsons and Mannings control nearly the entire
personal care market, while PARKnSHOP and Wellcome are the two largest grocery stores. It should be no surprise, then, that groceries
are more expensive in Hong Kong than Tokyo, Singapore, or the UK. And then there are the hidden taxes. While Hong Kong has no capital gains, sales,
withholding, or value-added tax, it charges a very high stamp duty on homes. Locals pay a standard 15% tax on homes after
their first. Non-permanent residents pay 30% — effectively
preventing any foreigner from ever buying a home. But at least the government gets out of the
way, letting the free market run its course, right? How else could it be ranked the most economically
free place on earth, for decades? To answer this question, one need only look
to the Food Truck Pilot Scheme. In 2015, the Hong Kong government decided
food trucks, at this point already popular in cities around the world, might attract
tourists. After 9 months of “study” and one year
of “preparation”, a Pilot Scheme was launched. Only eight trucks would be allowed for a city
of eight million. Then there were the rules: Kitchens needed
to be at least 65 square feet, trucks required a 32-gallon water tank, and the sink had to
be 1.5 feet long, to name just a few. To meet these requirements, restaurant owners
had to invest in entirely new and costly vehicles. Changing any part of the menu required approval
from the government, and no tables, chairs, or tents were allowed. But, they did make an app! It conveniently shows the location of each
food truck — oh except they aren’t allowed to move. The trucks must stay in the same location
and pay no less than 15% of gross revenue on parking. Ironically, food trucks are perhaps the best
illustration of free-market Capitalism — the bad quickly fail while the good remain, chefs
are free to experiment with new dishes with low risk, and there are few barriers to entry. A perfect competitive environment that benefits
the consumer. So, why so much regulation? What explains Hong Kong’s laissez-faire
attitude when it comes to groceries, utilities, and busses, and yet its micromanaging of food
trucks? In reality, its bias is not in the direction
of free-markets, or non-intervention in general, but in maintaining the status quo — one
that benefits the largest corporations. Hong Kong appears to be a free-market paradise
because it allows large corporations free reign, until only those large corporations
remain. But wherever there are small businesses — food
trucks, for example — it suddenly doesn’t seem so ideologically strict. The only pattern to its behavior is pro-business: One third of employees work more than 48 hours
a week, making it the most “overworked” city on earth. It has a low minimum wage, and some CEOs are
even allowed to bypass its COVID travel quarantine — one of the strictest in the world. A more accurate word might be “corporatocracy”
— rule by corporation. And there’s a very good reason for this. In any country, corporations are afforded
some of the same rights as we are: the ability to sign contracts and sue others in court,
for example. Some countries even describe corporations
as legal “people”. But in Hong Kong, corporations actually vote. That’s not hyperbole for political influence. No, corporations legally, cast ballots. The Hong Kong election system is deliberately
complicated and difficult to understand, which is why I explain How Corporations Vote in
Hong Kong in a separate, unaffected-by-the-Youtube-algorithm video on Nebula. About every other PolyMatter video has bonus
or extended content available on Nebula, as do many of your favorite channels, including
entire Nebula-exclusive Originals like Sam from Wendover’s documentary on Alaska, Tom
Scott’s gameshow, or TierZoo’s “Let’s Play Outside”. For just $15 bucks a year — not a month
but a year — you also get access to CuriosityStream, home to great documentaries like this one,
exploring Hong Kong as a traveler, or this one about how the tallest building in the
world works. Sign up with the link in the description and
watch the bonus video about Hong Kong’s election system over on Nebula.
