Lion Rock 25, A Man, A Plan, A Canal, Panama

Another good article from Nick Smith, Chairman of Lion Rock Institute, the only free market think tank in Hong Kong. Reposting in full, enjoy.
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A Man, A Plan, A Canal, Panama

Nick Sallnow-Smith 31/05/2018

I hope my title this month will at least intrigue you. This phrase is perhaps the longest palindrome ( it reads the same backwards as forwards) that has a meaning. It refers to the building of the Panama Canal over 100 years ago; perhaps referring to Ferdinand de Lesseps, whose attempt failed, or to Theodore Roosevelt, whose American led attempt succeeded. It can be argued that De Lesseps failed because he did not have a complete plan. (For example he had no plan to manage the flow of the Chagres River in the wet season. The Americans did.)

Why am I writing about planning? Central planning of a country, or indeed a city, should have been completely discredited by the Soviet “experiment” 100 years ago. One might have expected that the breakup of the Soviet Union in 1989 would have marked the last we would hear of central planning. Yet so called “liberal” economies move further and further towards planned economies today, with regulations and legislation controlling more and more economic activity. Why?

My guess is that the obvious need for each of us to plan our days to meet objectives, and for each enterprise to do the same, tempts the belief that what makes sense for an individual or company must also make sense for the entire community. Most citizens not only accept that the City should plan, but that it must plan. In other words, the Government is expected to plan. It must have an IT plan, a plan for youth, a plan for the elderly, a plan for everything.

But this makes no sense. Central plans don’t work for two main reasons. First, no Government can have enough currently applicable information to implement any plan effectively. (Moreover plans tend to be fixed while the world constantly changes.) Second, and more important, there is no single plan that can satisfy the myriad of different preferences and desires of the population. Laissez faire economies work because each of us can make our own decisions; about what to eat, where to live, what to read, who to befriend, etc. The outcome of millions of these daily decisions is not planned and cannot be planned. We each have our own plan based on our own knowledge of our needs and desires, as they change every day.

The city of “Hong Kong” is not a single entity. It is simply the aggregated outcome of what all of us living here decide to do every day. Yet so much debate of public policy seems to assume that a single “policy” can be discovered that represents what “Hong Kong” wants/needs. The administration continually searches for “public consensus” on such policies and seems surprised that it is so hard to build such a consensus. But with a population of 7 million people, this is a fool’s errand. There will never ever be a consensus on anything interventionist or coercive. This means if the social structure of Government is based on imposing single monolithic “policies” on all, there will always be division and discontent.

The only avenue that leads away from such a divided society is a free economy where each of us pursues his own preferences (as long as we don’t impose on our choices on others). Yet we have an administration that believes its mandate is to find solutions for all of “us”, instead of allowing citizens to find their own solutions. There one consensus that is possible. A laissez faire consensus that Government’s role is to defend citizens against coercive acts of others. That is, to provide for policing and the courts. It seems to me that when most citizens say how important the rule of law is, they are reflecting an underlying consensus of this type. But this is in effect a consensus that no one should coerce others. In complete contrast, Government today (globally, not only in Hong Kong) seems to involve a whole range of coercive acts where some members of the population are forced to accept a policy they dislike because the Government wants to implement its “Plan”.

Let’s look at a couple of examples to see where this approach leads. Education systems across the world demonstrate how consensus can never be achieved. Rather than restraining Government invention to redistributive taxation, to provide poorer citizens the means to buy education in the private sector, most governments operate the educational institutions themselves. This results in a monopolistic sector with the usual consequences of monopolies; poor service and high cost. It is ironic that all Governments rail against any monopoly in the private sector. Yet inside the public sector, the perils of monopolies are ignored. But beyond the inefficiencies of this, the lack of choice that results is perhaps even more insidious and damaging to public contentment.

Think of the constant debate in the media about curricula issues; national education and liberal studies to name only two. Because the school system is state owned and monolithic, all kids will receive the same form of teaching and curriculum. Some parents and children may like it,  some may not. But the latter group cannot vote with their feet and move to another school that teaches differently. All they can do is to move into the sphere of “politics” to seek ways to change Government “policy” on these matters. Those who lament how politics everywhere are always so aggressive and confrontational miss the point. Since the aim is to win power and force others to accept something they dislike, of course it will be confrontational. Politics is confrontation. Yet if the provision of education was left to the private sector, many different types of learning arrangements and content would be offered, precisely because there are differing demands. Parents could make their own choices and the supply side would adapt to this. No one would think of the Government deciding we should all eat pork and never chicken. No one would accept a Government “policy” for every dinner menu. Yet this is what happens in schools. The consequence is a never ending search for consensus where none exists, and endless discontent throughout society.

Let me take transport as another example. At first sight this industry appears to be in the private sector. The franchised buses, PLBs, taxis, ferries and even the MTR are run by private companies. But through regulation the Government control almost everything. Fares, routes, type of vehicle, are all subject to Government approval. You might think that bus routes should be decided by public demand, met by competing providers. Yet closing an unprofitable routes is subject to Government approval. The industry is prevented from responding to those countless individual travel “plans” we all might have every day, that I spoke about earlier. Routes are kept going because of “political” pressure even where demand is lacking.

As I noted earlier, the sad aspect of this for me is that citizens themselves do not see the value of the market. A few months ago there were proposals to run ferry services across the harbor between new locations. In the debate some commented that this should not be tried because it may not be wanted. Yet a market economy works precisely because it tests whether there is demand. If there is not, the business will fail. The correspondent writing to the newspaper took the view, however, that the Government should assess whether it thinks there will be demand and if it does not, the service will never even be trialled. In other words the Government should plan, and then implement their plan. The market test should never be tried. Free choice should not be tried.

More and more Government planning inevitably means that personal choices will be reduced. Next time you are tempted to demand the Government comes up with a “plan” for this or that, please remember the part of cost will be fewer choices for you as a citizen. Do you really want that?

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See also: 
Lion Rock 22, Hong Kong's early policies on free trade, zero income tax, October 24, 2017 

Lion Rock 23, Our “Should” “Must” Society, April 09, 2018 

Lion Rock 24, Is everything under control?, August 23, 2018