Meet the invisible hand behind HK’s rise

07-Oct-2017 Intellasia | The Economist | 6:00 AM Print This Post

Architect of Prosperity: Sir John Cowperthwaite and the Making of Hong Kong. By Neil Monnery. London Publishing Partnership; 337 pages; GBP 24.50.

DURING the 1960s, governments were responding to political unrest and economic challenges with nationalisation, centralised planning and public spending (financed by heavy taxes and debt). There was intense pressure for Sir John Cowperthwaite, the financial secretary of Hong Kong, to join the crowd.

Civil servants in Whitehall had been urging their counterparts in Hong Kong to introduce high taxes for some time. Locals demanded spending to address a lack of housing for crowds of poor immigrants fleeing the horrors of post-revolutionary China, and a territory-wide shortage of drinkable water. Meanwhile, the territory’s export-driven economy was threatened by rising global tariffs, prompting demands for public incentives to reorient production towards the domestic market.

A new biography of Cowperthwaite by Neil Monnery, a former management consultant, tells of a man who replied to these demands with a qualified “no”, and in the process became that most unusual of things: a bureaucrat hero to libertarians. His approach would subsequently be labelled “positive non-interventionism”, meaning governance stopping just short of laissez-faire. Public housing would be funded, but only for tiny flats; reservoirs would be built, but users would be charged. Much of the rest was left to individuals and businesses to sort out, unfettered by government directives. “Money,” Cowperthwaite said, should be left “to fructify in the pockets of taxpayers”.

Cowperthwaite’s ability to resist bigger government was born in a lost era. He was educated in classics and economics at a time when the insights of Adam Smith prevailed. That gave him the foundation to debate with free-spending colleagues influenced by John Maynard Keynes.

In 1945, he arrived in a Hong Kong in ruins from a brutal Japanese occupation. A combined military-colonial administration engaged heavily in economic management, and Cowperthwaite’s early jobs included managing the trade in food and raw materials and administering price controls, roles that defined a heavy government hand. But he knew that the territory’s lack of natural resources meant that post-crisis prosperity depended on its ability to attract entrepreneurs and capital.

That meant government’s role was to provide freedom rather than help. Requests by industry for subsidies were routinely rejected. So too was deficit government financing, which could merely push costs to a future generation and make the territory vulnerable to financial upheaval. Some of his ideas were radical: to ensure that temporary fluctuations in business conditions were not used to justify government controls, he banned the collection of macroeconomic statistics.

“We suffer a great deal today from the bogus certainties and precisions of the pseudo-sciences which include all the social sciences including economics,” was his blunt appraisal. “I myself tend to mistrust the judgment of anyone not involved in the actual process of risk-taking.” This faith was rewarded. As industries such as cotton spinning, enamelware and wigs declined and Cowperthwaite declined to offer assistance, businesses shifted their attention to promising areas such as toy and electronics production, and then finance. Migrants found work in the expanding industries, becoming a cog in a productive engine rather than merely a cost.

When Cowperthwaite stood down in 1971 his tenure was reckoned a huge success, but that provided only limited protection for his policies. The embargo on data collection was reversed by his successor. Subsequent administrations, both British and Chinese, whittled away the restraints on government intervention.

One persistent objection to limited government particularly rankled Cowperthwaite — that it was callous. He was convinced that “the rapid growth of the economy…produces a rapid and substantial redistribution of income [and] makes it possible to assist more generously those who are not, from misfortune temporary or permanent, sharing in the general advance. The history [of Hong Kong] demonstrates this conclusively.” As that history becomes increasingly remote, a biography of a key architect becomes ever more valuable. There are few other examples.


Category: Hong Kong

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