An Unsavory Political Struggle Will Determine the Fate of the Six Million People of Hong Kong
Chatham House • 1996 • 208 pages • $25.00 cloth; $17.95 paperback
For decades, Hong Kong has been a favorite subject among those of us who teach economics. To demonstrate the importance of private property, economic liberty, and minimal, noncoercive government, Hong Kong was simply ideal. Here we have a small, rocky, resource-poor bit of land where the above conditions prevailed. Next door is the resource-rich colossus of the misnamed People’s Republic of China (PRC) where you find statism, corrupt autocratic rule, and pervasive hostility to personal liberty. (As the authors note, prior to the assault on pro-freedom demonstrators in Tiananmen Square in 1989, the rallying cry of the Communist Party was Oppose Liberalism.) The wealth and progress enjoyed by the people of Hong Kong stands in dramatic contrast to the backwardness and poverty that characterizes life in the PRC.
Alas, this wonderful experiment in the importance of freedom is jeopardized by the impending transfer of control over Hong Kong from the British to the communist rulers in Beijing. On July 1, 1997, British governance ends and the least authoritarian government on the planet (according to Heritage Foundation’s 1997 Index of Economic Freedom) will be replaced by. . . . By what? The PRC has promised to allow Hong Kong to continue its free-market economic system and liberal society; it has promised free elections and a high degree of autonomy for Hong Kong. But will it abide by these promises?
That is the crucial question that the authors explore in Red Flag Over Hong Kong. They conclude that the takeover by Beijing is a grave threat to the free and prosperous little enclave: Hong Kong is in for a rocky road in the years ahead. Future treatment of Hong Kong will be caught up in the political competition for control of China. Victims of that competition will include the free press, academic freedom, open and fair elections, and some portion of market freedom. Hong Kong will not be as tightly controlled as the rest of China, but neither will it be the free and vivacious place it has been for the past half a century. The political and economic landscape will be filled with uncertainty, cronyism, lost freedoms, and more corruption than has been known in the recent past. It is a bleak picture indeed. They make a persuasive case for their pessimistic outlook.
Hong Kong predicting has become a thriving mini-industry (proving again how politics can alter the allocation of resources) and Bueno de Mesquita, Rabushka (both of the Hoover Institution), and Newman (of Lingnan College) readily acknowledge that a case for optimism can and has been made, but, after a careful examination of the political and economic realities in China, find it to be much more likely that things will deteriorate significantly.
The optimists argue that China needs a thriving Hong Kong for its own economic growth and therefore will refrain from tampering with it. The authors counter that there are many contending factions in China—which is apt to become a more fragmented country in the years ahead—and that those that are threatened by the bourgeois liberalism of Hong Kong are more likely to prevail.
The Chinese military, for instance, will play an important role in the future development of the PRC. Many readers will be surprised to find out that the People’s Liberation Army (PLA) is thoroughly immersed in profit-making business. Much of the transportation of goods takes place in military vehicles. The navy is thought responsible for much of the piracy that takes place in the waters off China. But, the authors say, The gravy train enjoyed by the military can persist only as long as China is ruled by corruption instead of law. Some members of the PLA, therefore, have strong interests in protecting the status quo. A free Hong Kong, showing the results of an economy based on contract rather than power would be regarded as a dangerous anomaly by many PLA officers.
Also, there are many Communist Party officials who retain the Maoist hatred of capitalist ideas. They ordered the massacre in Tiananmen Square and persist in arresting people who have the temerity to speak out against their regime. These tyrants may not hold on to power in the long run, but they certainly can and probably will reshape Hong Kong to please them as long as they have it.
In fact, the Chinese attack on Hong Kong’s freedom has already begun, well in advance of the transfer date. The authors give numerous telling examples, such as Beijing’s declaration that the Hong Kong press should practice self-discipline and be respectful of the sentiments of the Chinese rulers. That’s a hint not likely to be missed. Even more evidence of Beijing’s hostility to freedom in Hong Kong has surfaced since the publication of the book. (See, e.g., Hitting on Hong Kong, the Wall Street Journal, January 22, 1997, p. A1 4.)
The authors remind us how remarkably free Hong Kong has been. The government consumes less than 20 percent of the Gross Domestic Product (compared to over 40 percent in the United States). It imposes no minimum wage law. There are no business subsidies or pointless regulations. There is a flat 15 percent tax on salaries, and no tax on interest, dividends, or capital gains. The currency is stable. Those are virtual laboratory conditions for a demonstration of the creative power of capitalism, but, sadly, they are about to be altered for the worse, the authors contend. Hong Kong may still provide us with useful economic lessons, but the comparison will be between the old, free Hong Kong and the new, more regimented Hong Kong under Beijing’s thumb.
Red Flag Over Hong Kong is a fascinating book, revealing the unsavory political struggle that will determine the fate of the six million people of Hong Kong. Congratulations to the authors on a job well done.
