7.2 Hong Kong's free-market growth
Hong Kong after the Second World War is one of the closest historical examples of a lightly regulated market economy producing exceptional long-term growth. It was not an unregulated economy. Its government enforced property and contracts, administered a currency, owned the land, regulated particular industries, built infrastructure and operated large education, health and housing programs. Its economic policy nevertheless combined free trade, low and relatively simple taxation, unrestricted movement of capital and little government direction of private production or investment.
Economic performance
World Bank data show that Hong Kong's real GDP per person, expressed in constant 2015 US dollars, increased from $3,956 in 1961 to $6,783 in 1970, $12,553 in 1980, $21,357 in 1990 and $26,632 in 1997. The 1961–97 increase was a factor of 6.7, equivalent to compound growth of approximately 5.4% per person per year over 36 years. Source
A World Bank review reported that Hong Kong's real GDP expanded by approximately 12% per year from 1961 to 1965. It identified Hong Kong as one of the five fastest-growing developing economies of the period and reported that its real GDP per person had increased by approximately 140% to 150% since 1960 by the time of the study. In 1997, the final year of British administration, Hong Kong's real GDP grew by 5.3% and nominal GDP per person was approximately US$27,000. World Bank historical study 1997 source
Economic policy
Hong Kong developed as a free port and did not use tariffs or import quotas to protect domestic manufacturers. The government did not select industries for production subsidies or direct private capital through an industrial plan. Businesses decided what to produce and could move money into and out of the territory. Government expenditure and taxation remained low relative to most developed economies, and budgets were generally constrained by the objective of maintaining fiscal reserves and avoiding persistent deficits.
The approach became known as positive non-interventionism. The term did not mean that the government never intervened. It meant that intervention required a conscious justification, while officials ordinarily left production, prices and investment to businesses and consumers. Academic comparisons describe Hong Kong as following a laissez-faire approach while Singapore achieved comparable growth with extensive state ownership, directed investment and industrial policy. Hong Kong government explanation Hong Kong and Singapore comparison
Limits of the example
The Hong Kong government owned almost all land and controlled the quantity and timing of land released under leases. Land premiums and lease revenue allowed the government to collect revenue while keeping conventional tax rates low, but made the state a major participant in the property market. Restrictions on the supply and use of land also contributed to land scarcity and high property costs.
The government began a large public-housing program in 1954. The public-estate population reached one million in 1965 and two million in 1981. In 1972 the government announced a ten-year program intended to provide improved housing for 1.8 million people. It also established the Home Ownership Scheme in 1976 to sell subsidised homes to lower- and middle-income households and public-housing tenants. Hong Kong Housing Authority history
Hong Kong therefore does not show how a market without government or regulation would perform. It provides evidence about a narrower institutional combination: secure property and contracts, open international trade, freely moving capital, low taxes and limited discretionary interference in private enterprise, alongside extensive government control of land and substantial public provision of housing and infrastructure. Its growth record can establish that this combination coincided with rapid development; it cannot isolate the effect of low economic regulation from migration, geography, access to international markets, institutional inheritance, education and capital accumulation.