Lion Rock 22, Hong Kong's early policies on free trade, zero income tax

I like this article by a friend since 2004, Andrew Pak Man Shuen, Director and Co-Founder of the Lion Rock Institute in Hong Kong. I thought it was Sir John Cowperthwaite who was the first engineer of HK free trade policy. Reposting, did not include the first four paragraphs. Photo I got from wiki.
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How Hong Kong’s Bond Villain Keep Invasion at Bay

13/09/2017

THE CONSERVATIVE | June 2017 | Issue 4 | Andrew Pak Man Shuen

… Sir Henry Pottinger was our first colonial governor. After the Opium War, he turned Hong Kong into an outpost of the British Empire so distant that Victorian parents would threaten to send unruly children there as a punishment.

He laid out the three basic governing tenets of Hong Kong. The first was that there must be no direct taxes: government revenue would come from land leases, licensing fees etc. The second was to “respect local customs”. Finally, Hong Kong would allow free trade, including with the enemies of the British Empire.

From the perspective of the 21st century, it is easy to conclude that Potting must have been a liberal. No direct taxes. Multiculturalism. Free trade. And all for a city built on commerce.

But, before celebrating, we must bear in mind that Pottinger was a hard-nosed colonialist. He and his colleagues had no qualms about butchering the “yellow peril” as they barrelled into Qing-dynasty China.

So why those three seemingly enlightened tenets? Remember that this was before the telegraph and the Suez Canal. Britain was not all that keen to hold a colony that was not only far away but surrounded by hostile powers. London sent the message to Potting that he would not be receiving much in the way of manpower or budget.

Hence it was out of realpolitik that Potting embraced those principles. First, the collection of direct taxes is extremely labour-intensive; without them, he could manage with a much smaller civil service. Second, although the Chinese of that era engaged in polygamy, female pedal mutilation and (perhaps most objectionable to the British) eating dogs, Pottinger knew that he was in no position to engage in mass behaviour-modification. If everything the Chinese were doing was allowed to stay legal, the police force could remain small and still be effective in the protection of property rights.

The decision to make Hong Kong a true free port where even the enemies of the British Empire could trade was a master-stroke. Pottinger understood that the colony would be hard to defend with military force.

To sail from Plymouth, the home port of the South China Sea fleet, round the Cape of Good Hope, across the Indian Ocean, through the Malacca Straits and then up the South China Sea was a logistical nightmare even in peacetime.

However, Pottinger also knew that, as Hong Kong possessed no natural resources to be pillaged, together with the fact that attacking any part of the British Empire would incur a cost for the invader, any assault must be part of a grander strategy for an invader in search of a prize other than this colonial outpost. If the would-be invader discovered that they could purchase whatever they coveted from Hong Kong, it was not worth the effort.

This explains what happened during the Korean War. The British colonial administration must have known about the smuggling activities of Henry Fok, who was transporting massive resources to Communist China. The latter had been placed by the United Nations under a total trade embargo. This meant that free-trade colony under British control was a lifeline for Mao, and far more useful than a Chinese-ruled Hong Kong.

As a result, Hong Kong remained British until 1997 – that is, 50 years longer than India. Its sovereignty was preserved because the power most likely to invade was protecting it. This makes Pottinger look like a geopolitical genius.

Of course, Hong Kong’s sovereignty did change hands once before 1997. In 1941, Japan invaded as it simultaneously rained bombs on Pearl Harbour, and we surrendered in three weeks. If Pottinger’s adoption of free trade was such a master-stroke, how come Hong Kong fell to the Imperial Japanese?

Next to the Yasukuni Shrine in Tokyo, which commemorates the war dead, there is a museum that is basically an attempt by the Japanese to explain what they did. One word is crucial: oil.

According to Pottinger’s theory, if the Japanese could have bought oil through Hong Kong, the Pacific War with the Allied forces might have been averted. Of course, this also means that Hitler would have never declared war on America. And that was not what Churchill wanted. That raises the question of why Hong Kong uncharacteristically participated in the oil embargo and suffered invasion – but we can leave that discussion for another day.

To conclude, the logic of “when goods don’t cross borders, soldiers will” that underpinned the Treaty of Rome was on full display in Hong Kong. Peace and sovereignty flow from the fountain of authentic free trade, even in the absence of soldiers and Ian Fleming’s secret agents. And, of course, there is another consequence of authentic free trade, which is massive and widely shared prosperity. That is also on full display in Hong Kong.

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See also: 
Lion Rock 19, Not enough capitalism in Hong Kong, May 12, 2016 
Lion Rock 20, Hong Kong's labor welfarism and rising unemployment, July 08, 2016 
Lion Rock 21, Dangers of Universal basic income (UBI) philosophy, August 11, 2017 
Hong Kong and John Cowperthwaite, Part 2, October 09, 2017

Hong Kong and John Cowperthwaite, Part 2

I have heard about Sir John Cowperthwaite for the first time about 2004 or 2005, from my friends at the Lion Rock Institute in Hong Kong and I was impressed of him. Prior to that, I thought that it was deliberate on the part of the British government to institute a free market colonial economy in HK after WW2. No, it was not the case. The man as Britain-appointed Administrator of HK simply has a firm conviction of positive non-interference by government in encouraging individual and enterprise innovation and entrepreneurship.

A book was recently published about the man and here are two of many book reviews.
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Adam Smith in the finance ministry

Meet the invisible hand behind Hong Kong’s rise

The Economist, October 5th 2017

Sir John Cowperthwaite is that most unlikely of things: a bureaucrat hero to libertarians

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

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.

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Another review is from the Adam Smith Institute.

ARCHITECT OF PROSPERITY

By Eamonn Butler

… the small cadre of civil servants, like Sir John, whose job it was to run Hong Kong, fixed on the objective of making it economically prosperous, and knew that the best way to do that was to do exactly the opposite of what the home country was doing—with its nationalisations, controls, economic planning, high taxes, trade barriers, deficit spending, and all the rest. The Hong Kong administrators by contrast rejected the idea of government planning and spending to invest, believing that entrepreneurs knew how and where to invest, and how to manage their businesses, better than any government officials. They kept the government’s books balanced for nearly every year; they resisted high taxes, believing that low taxes would encourage private investment and would expand the long-term tax base.

Cowperthwaite was the most important person behind these policies, as a new book by Neil Monnery, Architect of Prosperity, demonstrates. He ran the trade and industry department after the war then became financial secretary in Hong Kong—effectively the colony’s Chancellor—until he retired in 1971.

One thing the book demonstrates is just how hard it is for any government body to prevent itself from interfering in an economy—with the inevitably counterproductive results. Sir John, it shows, fought off many such attempts. There is a story that the British government, then pursuing a full interventionist policy, sent a group of civil servants over to Hong Kong to ask Sir John why he was not keeping unemployment statistics, and to make him do just that. Sir John, goes the story, put them on the next plane back home, explaining that entrepreneurs know the precise state of the labour market from day to day, never mind quarter to quarter, and that if he kept unemployment statistics, people would want him to produce some counterproductive intervention to boost unemployment.

The story is not true, but it is not far from the truth. Cowperthwaite had to fight over and over to resist ‘enlightened’ interference with the Hong Kong people’s lives and businesses, and to maintain his doughty view that economic statistics were a double-edged sword and you should only collect the ones that are really essential….

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See also:
John Cowperthwaite, Statistics and Central Planning, January 23, 2014
Free Trade 32: Hong Kong's Unilateral Trade Liberalization and John Cowperthwaite, February 12, 2014 
Hong Kong Democracy vs. China Dictatorship, September 25, 2014

Federalism or Disintegration of big countries: Catalonia, HK, Taiwan, other independence movements

A good model of citizen empowerment is that the size, taxes and regulations of the national/ central/ federal government should be as small as possible and allow the states or provinces to have their own set of taxes, agencies and regulations. If this is not possible as national or central planners think they are so bright, an alternative model is for a big country to disintegrate into many new, smaller countries. Long live independence movements in Catalonia -- and Hong Kong, Taiwan, Tibet, Macau, etc.

http://www.bworldonline.com/content.php?section=Opinion&title=what-if-the-philippines-splits-up-into-smaller-island-nation-states&id=120905

http://www.bworldonline.com/content.php?section=Opinion&title=Should-we-go-federal-or-not&id=139983

The rest of the country should be spared of madmen masquerading as statesmen, like the President from Davao. Federalism as currently designed by Du30 people will mean both huge federal/national and state governments. Very lousy and authoritarian combination.

Seasteading means more rule of law, less government

There is a good presentation by Joe Quirk of the Seasteading Institute at Dubai Freeport Zone a few months ago, Pitch: SustainableFloating Free Zones in Dubai. Below are some photos from his presentation showcasing the power of free market, competition and innovation, and relative freedom from intrusive politicians and the state.

Hong Kong, Shenzhen, and China overall.

Dubai, French Polynesia, global ecozones, and the very important role of the rule of law -- stability and certainty of application of the law to all, absence or minimum arbitrariness.

The speaker and his book, the two pioneers of the Institute, and various models of modular, detachable, floating cities and ecozones. Joe said that they can guarantee prosperity to host countries or economies that will allow these floating ecozones in relatively calmer sea near the shores. If their model is a failure, no worries, they can tow away these structures and move to other economies that are willing to host them.

I have read about the Institute since about four years ago but it was only in January 2015 when I personally heard and saw the presentation by the Executive Director of the Institute, Randy Hencken, during the 3rd Asia Liberty Forum (ALF) in Kathmandu, Nepal. The 2-days conference was sponsored by the CCS (India), Samriddhi (Nepal), Atlas (USA), and a few others.

Randy was very emphatic that the principle behind seasteading and its projects is to create future economies that are founded on the principles of free market, limited government and rule of law. Very lean government whose main function is to lay down very few laws and enforce them without favor and exemptions. Taxes and fees therefore will be few and small. Market competition and innovation will attract residents, business locators, multinational investors and tourists.

Very radical yet practical worldview. Instead of reforming existing countries towards smaller government (the success rate here I think is about close to zero), create small and new territories with some political independence from host countries, to evolve later into new countries.

I just saw in fb that today is Randy's birthday. Happy birthday man.

(See also ALF 3: Photos with Friends, Kathmandu Conference, January 20, 2015)

Lion Rock 20, Hong Kong's labor welfarism and rising unemployment

Another good article from Bill Stacey, former Chairman of the Lion Rock Institute (LRI) in Hong Kong. He observes that labor welfarism policies intended to protect labor actually discourages the hiring of more labor, especially the less skilled and new entrants.
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The war against work

Bill Stacey

(Next Magazine, 2016/6/2, A002, Second Opinion,)

When I first arrived in Hong Kong in 1989, I had the impression of an incredibly dynamic work environment. Unemployment was negligible and workers of all kinds were in demand. Employers constantly complained that they could not keep staff as they bounced from opportunity to opportunity. People not earning enough to get by might move to a new job, but might also take on a second job. There were still families that would take on piece work in the home for extra income.

A look at the unemployment chart shows that this was a time when unemployment rates were just 1%.

All this has changed. The unemployment rate is now three times as high, but as this is only a fraction of the disaster caused by the sclerotic labor markets in many other countries, the government complacently pats itself on the back.

In reality, our labor market is increasingly stagnant and struggling to adapt to changes in the way people work and the structure of industry. A “war on work” is underway, which starting with an ideology that does not value work is prosecuted by union and academic foot soldiers who use the heavy artillery of legislative power to destroy jobs.

The first battle was over the Mandatory Provident Fund. Far from being a benefit for employees, the MPF confiscates some of their earnings and creates administrative complexity for employee and employer, leaving many a small business preferring not to take on the responsibility of employing anyone at all. Meanwhile, the MPFA’s empire-building mission has left our workers with little competitive choice to invest their hard earned retirement savings.

Minimum wage was the next attack. It was sold as protection for workers, but has simply served to eliminate jobs for less competitive workers and reduce opportunities for the young to get a step on the ladder of opportunity. It is not so much that opportunities are not available, but that small and entrepreneurial companies that offer more excitement than money can no longer get started. Minimum wage laws mandate unemployment for those whose labor is less productive.

Working hours are the new front. Although the government has dragged the process of review and consultations, we are moving toward legislation that requires overtime payments for work beyond an arbitrary number of hours. There is nothing wrong with contractual overtime payments, which can be a valuable incentive. However, the proposed government rules dramatically reduce flexibility. They require employers to keep detailed records of hours worked and make more difficult arrangements like working from home, where hours cannot be monitored. Standard working hours make life tougher for working mums, people combining work and study, and those who want flexible work arrangements.

These are new rules, but old prohibitions on work are being enforced with typical bureaucratic diligence. Occupational licensing is an old scourge protecting vested interests from competition. Who knew, until this week when we learned that a widow was prohibited from taking up her late husband’s shoe shining license, that you needed a licence to polish shoes? Every rule like this shuts down a job and an opportunity. Too many big companies are content to go along with more stringent workplace rules. If it is more expensive to hire workers and create new businesses, then there is less competition.

It is not just government that is undermining work and opportunity. The blithe indifference of some so-called localists to reducing tourists impacts job opportunities and undermines our community. There are ivory tower academics and dreamy futurists that envision a world without traditional work, where we are all guaranteed a taxpayer-financed “living wage”, and traditional work is all done by robots with artificial intelligence. This is a future without the personal autonomy and freedom that most of us want. It imposes on the working few the burden to pay for an idle many. Yet that is the future our government will create if it does not end its war on work and enterprise.

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See also: 
Lion Rock 17: Photos and Discussions in Reading Club Salon 2014, November 25, 2014 
Lion Rock 18, Nick Smith as new Chairman of LRI, April 05, 2016 
Lion Rock 19, Not enough capitalism in Hong Kong, May 12, 2016

Lion Rock 19, Not enough capitalism in Hong Kong

A good article by Bill Stacey, former Chairman of Lion Rock Institute (LRI) in Hong Kong. Reposting here.

Not enough capitalism!

(Next Magazine, 2016/5/5, A002, Second Opinion, Bill Stacey)

Hong Kong has many contentious public issues, but the underlying source of our discontent is fifteen years of stagnant real wages. For many in Hong Kong we are simply not progressing and the upward mobility from a dynamic economy seems absent. After decades of some of the strongest growth in the world, why has this stagnation happened？

It is all too easy to blame China and the emergence of labor competition, but this would be wrong. Low cost wages were a factor in China well before our stagnation. Wages have been rising rapidly in China recently. China has enhanced our productivity and allowed our higher value added industries to take root. It would be fashionable, but equally wrong, to blame inequality.The real cause of stagnant wages is insufficient capitalism. Capital is the life blood of the economy. When entrepreneurs figure out new products and better ways of delivering goods and services that customers want, they must invest in machinery, equipment, and intellectual property development. Those investments allow workers to be more productive. In the jargon of economists, as the “marginal productivity of labor” increases, the wages that can be paid go up.

Highly productive labor can strike a better bargain with better terms and conditions. Very valuable labor negotiates better pensions and working hours or more money as they wish. It is important to understand that it is not just the skills and education of working people that determine their productivity; it is the interaction between their efforts and the capital that their efforts command. If capital is inadequate, business models archaic, or entrepreneurial innovation insufficient, the talents and education of the population will not be enough to deliver rising incomes.Let us take for granted that our people are at least as talented, skilled, and well educated today as they were 30 years ago. What hampered wage growth is our capitalism that is increasingly tied in regulatory knots as compared to the past. Last year our private capital investment shrank by 8%, whilst public capital investment grew by 7%.As the accompanying chart shows, periods of wage growth were preceded by periods when our private capital investment was much higher than our public capital investment. It can take years for private investments to lead to the advanced businesses that allow wages to rise. Our wealth today is built on the entrepreneurial investment of the past. However, when public capital investment is high compared to private investment, then wages tend to stagnate.

This is the opposite of the story that we are told by officials. They will say that when the private sector is weak, the public sector needs to step in to make up for the slack so as to keep the economy on track. Many will even argue that massive public investment in infrastructure is a vital precondition for the private sector to grow.The trouble is that public investment does not deliver on its promise. It needs to be funded by taxes, so higher public investment leads to higher expected future taxes and less private investment. Public investment is more wasteful as it crowds out cost-effective private sector investment. Public projects are prioritized by political decisions, not markets, so they are often chosen to gain votes rather than profits. More importantly, periods of high public investment are often times when there is enthusiasm for more regulation and government interventions, which are inimical to entrepreneurial investment.Why is private capital investment so weak that it is not supporting the same productivity and wages growth that we generated in the past? Regulation is part of the picture. Long term investments require you to know the rules of the game. Stable rule of law is a precondition for strong private investment. Incentives are vital. If bidding for a government privilege or subsidy is more profitable than investing in better capital, investments will not be made. Too many of our entrepreneurs are on an Ayn Randesque strike, so wages will not rise and our discontent will not pass until we rebuild our capitalist foundations.

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See also: 
Lion Rock 16: 10th Anniversary of LRI, November 07, 2014 
Lion Rock 17: Photos and Discussions in Reading Club Salon 2014, November 25, 2014 
Lion Rock 18, Nick Smith as new Chairman of LRI, April 05, 2016

EFN Asia 56, Conference 2014 in Hong Kong, part 1

The following are minutes and proceedings during the Economic Freedom Network (EFN) Asia Conference 2014, Hong Kong, on the theme, “Liberalism: Promoting Growth, Reducing Inequality”, November 2014. Major sponsors were the Friedrich Naumann Foundation for Freedom (FNF), a liberal political foundation based in Germany, and the Lion Rock Institute (LRI), a free market think tank in Hong  Kong.

These notes were made by Karthik Chandra of the Foundation for Democratic Reforms, INDIA. The 25-pages notes are posted in

http://efnasia.org/wp-content/uploads/2015/10/EFN-Asia-2014-Conference-Report.pdf

I am reposting them by major segments and  installments, plus my brief personal notes on each segment. Here’s the 1^st installment.

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Day 1: November 6, 2014

Introduction to the EFN 2014 Conference by MC, Wan Saiful Wan Jan

Chief Executive, Institute for Democracy and Economic Affairs (IDEAS), Malaysia

Welcoming Remarks

Bill Stacey, Chairman, LRI

• Welcome to Hong Kong! Given the recent developments (citizens’ demands and mobilization) in Hong Kong (HK) serving as the backdrop, this certainly is a good and clearly an interesting time for all the participants to assemble in Hong Kong, especially to discuss about inequality, liberty and freedom.

• There is an image of HK in some quarters of the media that capitalism here is of the crony variety and that there is no true economic freedom or liberty for its citizens. But the reality is that for a city of 7 million population, there is a lot of economic freedom and enterprise.

• At the heart of the current political developments seems to be a vigorous debate about two freedoms – economic and political. But, there is no conflict between the two. Those institutions that ensure economic freedoms in the form of greater equality, growth, prosperity and overall economic freedom also underpin the political freedoms. A few such institutions are free flow of information and rule of law.

• ‘Liberalism’ as understood in the traditional sense should not be viewed as an end in itself. There is a difference between treating people equally and keeping/ensuring that they remain equal.

Siegfried Herzog

Regional Director, FNF, Southeast and East Asia

• Welcome to Hong Kong EFN Conference. EFN Asia Conference has become a long established tradition, this event being the sixteenth one; this is my first one as a Regional Director. Thanks to the LRI and the Frasier Institute for being our partners. LRI is also celebrating its 10th anniversary; congratulations to them.

• Events such as the EFN 2014 greatly help institutionalize the ideas, research, debates and international experiences help them become a part of the political and academic discourse on economic freedoms.

• This event is being held in the background of the furious debate over political and economic freedoms of HK vis-a-vis China. HK has long served as the global leader of economic freedom. Now, the debate is about its political freedoms; about ensuring the rule of law and independence from political interference in HK.

• Currently, there is also a great debate on economic inequality. The idea of ‘economic equality’ retains a lot of appeal despite the fact that communism and socialism have repeatedly failed to ensure the same, based on our experiences in several countries.

• At the same time, this debate also touches upon the issue of social mobility and how crony capitalists and well-connected gamers have managed to subvert economic institutions and thereby gain undue benefits.

• This conference therefore is a valuable contribution towards helping settle the above debate because it provides a platform for sharing of knowledge and bringing new ideas into an area that has been traditionally dominated by left-leaning thinkers or misguided activists.

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Me: Right, the (classical) liberal definition of equality is equality before the law, equal  application of the law to unequal people, equality in access to opportunities with no exception or people giving exemptions. And inequality of outcome, of income and assets ownership, is the natural result because people have different attitudes in life. 

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See also:
EFN Asia 43: Day 1 of Conference 2014, November 06, 2014
EFN Asia 53, Successful Conference 2015 has ended, November 25, 2015 
EFN Asia 54, On Hong Kong and China, free trade and CEPA, January 27, 2016 
EFN Asia 55, Presentation by Tom Palmer in Bhutan 2015, February 03, 2016

BWorld 48, On unilateral trade liberalization

* This is my article in BusinessWorld last March11, 2016.

Free trade and voluntary exchange of goods and services by people across villages, cities, islands, countries and continents is the hallmark of modernization and improvement of human condition. Goods and services of certain quality and quantity that are not available locally are made available by liberalizing their entry from many parts of the world.

Protectionism and economic nationalism in various shades however, has limited the march of faster global economic integration. Thus, multilateral negotiations towards global free trade was invented via Uruguay round and its predecessors, and later via the World Trade Organization (WTO) since 1995.

This has proven to be a disappointment than a success in realizing global free trade as various types of non-tariff barriers (NTBs) were invented by many countries. So regional and bilateral free-trade agreements (FTAs) were invented to hasten the process.

So far, economies that have progressed and expanded faster than the average are those that embarked on unilateral trade liberalization. Yes, one-way liberalization without waiting for other countries and trade partners to liberalize and reduce tariff by the same amount. It may be a reduction from 20% to 10% or 4% in a span of few years, or down to zero.

There are many economies that embarked on unilateral liberalization, including the 10 ASEAN countries like the Philippines. The pace of tariff reduction in the past 2 decades were fast, much faster than tariff reduction in other regions of the world.

This paper will briefly review the experience of five economies: Hong Kong, Singapore, New Zealand, United Arab Emirates (UAE), and Chile. These countries have a small population of 7 million or less except Chile and UAE, thanks to expats and foreign workers that constitute about 85% of UAE current population (see Table 1).

1. Hong Kong. A small free port economy which thrives on free trade -- no barriers on trade, no tariff on imports or exports of goods. Its early open door policy made it one of the world’s largest trading economies, an international financial and commercial center in the Asia-Pacific region, at a time when many countries and economies have turned nationalist, protectionist and even socialist, years after World War II.

Import and export licensing are kept to the minimum, imposed only when there is real need like obligations to trading partners, or meet public health, safety or internal security concerns.

Literally, HK imports in thousands of container ships, and exports in hundreds of millions of shopping bags. Free trade attracts lots of visitors from other countries who think certain goods are not available in their countries or available but at higher prices. Any “losses” in import tax revenues are more than compensated by local tax revenues when millions of visitors and investors come to Hong Kong to spend. Major winners are the airlines, hotels, restaurants, theme parks, malls and shops, other players in the hospitality and tourism industry.

2. Singapore. Created only in 1965 after separation from Malaysia, the people embarked on an open, free, competitive economy, opening up lots of opportunities for the entrepreneurs. With a few exceptions, tariff is zero. Total merchandise trade is almost four times of GDP, FDI inflows are big. Import restrictions, if any, are based mainly on environmental, health, and public security concerns. Rice is subject to import licensing to ensure food security and price stability. Otherwise, international trade is highly encouraged.

But while Singapore has unilateral liberalization in goods, it practices protectionism of its services sector. Thus, many countries have arranged for bilateral and regional FTAs with Singapore, focusing on services liberalization. These include mutual recognition of standards, enhanced investment protection disciplines, protection of intellectual property rights (IPR), and elimination of anti-competitive practices, establishment of a competition policy.

3. New Zealand. Being so geographically detached from the rest of the world because of its location -- it is closer to Antarctica than mainland China -- the country has no choice but to engage in stronger global trade to enable it to procure many things and services that are not available locally.

In its mid-80s liberalization, tariffs were removed (zero rate) in a wide range of goods without domestic competitors, while reduced in others. Overall tariff has decreased from 27% to 7% in 1997. Import licensing was also gradually removed and other forms of export assistance were also greatly reduced (Grafton et al., 1997).

An editorial from the NZ International Business Forum (NZIBF) about two years ago summarized it this way: “History of trade in New Zealand is that our quality of life plummets when we are shut off to the global market. We do not get rich by selling to ourselves.”

4. Chile. The economy before the military take over in 1973 was characterized by high and dispersed import tariffs, import prohibitions, quantitative restrictions, and distortionary multiple exchange rate system. The fall of democracy in the country ironically paved the way for economic reforms which liberalized the country. First was reduction and simplification of trade barriers with more than 60% of tariffs removed and import restrictions eliminated.

In 1985, liberalization continued with the uniform tariff decreased to 20% and further to 15%. Reforms continued despite transitioning back to democracy. An independent central bank was established and the uniform tariff was again reduced. Currently, the country is pursuing several trade agreements (Edwards & Lederman, 1998).

A WTO annual report 2009 described it well, “Chile’s trade and investment regime continues to be characterized by openness, transparency, and predictability... Since the last review in 2003... modernize customs and facilitate trade, maintained a single MFN [Most Favored Nation] tariff rate of 6% with a few exceptions, abolished some import taxes and export subsidies...”

5. United Arab Emirates. Founded only in 1971, its seven emirates include world-famous cities like Abu Dhabi and Dubai. It is the second largest economy in the Gulf after Saudi Arabia. Its free-trade zones allow (a) 100% foreign ownership of enterprises, (b) 100% repatriation of capital and profits, (c) zero import and export tax, (d) zero corporate tax for up to 50 years, and (e) zero personal income tax.

Generally, it is heaven for global businesses that locate there. This change in policy, the rapid liberalization in goods and services allowed or necessited the entry of millions of expats and foreign workers, which now comprise around 85% of UAE’s total population.

Here is one summary of the performance of the five economies that embraced unilateral trade liberalization (see Table 2).

As a result of liberalization, these economies have expanded: 22 times for Singapore, eight to 12 times for UAE, Chile, and Hong Kong in just a span of 35 years. That is almost a miracle. New Zealand is a bit different because of its geography. Even if tariffs for all imports are zero, its distance from major economies in North America, Europe, and Japan necessarily makes shipment costs high. Which largely explains for its slower economic expansion.

The Philippines should pursue a policy of unilateral trade liberalization, in goods but more so in services and the practice of different profession. By opening up those professions to foreign competition, Filipino customers will have more choices, the Filipino professionals themselves will learn from their foreign allies and competitors, and the policy will earn benefits will that will open up opportunities for Filipino professionals to practice in more countries around the world.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of the South East Asia Network for Development (SEANET), and a member of the Economic Freedom Network (EFN) Asia. All the 3 entities advocate free trade. minimalgovernment@gmail.com

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See also:
BWorld 44, Why the Philippines should join the TPP, February 19, 2016 
BWorld 45, Asia Liberty Forum and property rights, February 20, 2016 
BWorld 46, China's debt, central planning and central crashes, February 27, 2016
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016

Free Trade 61, Unilateral liberalization in Pakistan, January 29, 2016
Free Trade 62, IDEAS supports TPP Agreement for Malaysia, January 30, 2016

Free Trade 63, Dealing with anti-trade lib, anti-TPP activists, February 06, 2016

EFN Asia 54, On Hong Kong and China, free trade and CEPA

I am reposting an interview by the Economic Freedom Network (EFN) Asia of Andrew Work (AW). Andrew is the Publisher and Editor-in-Chief of Harbour Times (HT), the flagship of New Work Media. Before creating the HT, he was the Exec. Director of The Canadian Chamber of Commerce in Hong Kong for a few years. And before that, he was a co-founder and founding Exec. Director of The Lion Rock Institute (LRI), Hong Kong’s first free market think tank, born in 2004.

Andrew holding a copy of the HT, thanks to Olaf K. for this photo. Andrew is a friend since 2004. Met him first time in Michigan for the Mackinac Leadership Conference, then at the Atlas Liberty Forum in Chicago, then in several meetings in Washington DC, then at the EFN Asia conference in Hong Kong, October 2004.

Here’s the interview. I omitted the first Q&A.

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EFN: World War II put an end to the opium trade. How did that affect Hong Kong?

AW: At that point Hong Kong had already established itself as an important Asian trade center and the people of Hong Kong, their jobs, incomes and prosperity very much depended on the flow of goods through the harbour. And this meant that Hong Kong’s DNA remained free of policies that, for example, aim to protect local industries from foreign competition through taxation. Hong Kong was always wide-open for trade, only few goods were subject to import duties. And in some cases abolishing such import duties has even proved beneficial.

EFN: For example?

AW: Well, a recent example would be the de facto elimination in 2008 of the import duty on wine. The duty was actually not abolished, but reduced from 60% to 0%. This has had a tremendous effect: Within only one year the total value of wine traded in Hong Kong doubled. Practically overnight the city became Asia’s trade and auction hub for fine wine. This has turned out to be immensely profitable and has led to the creation of new infrastructure – such as special warehouses – and jobs. In effect an entirely new industry sector has emerged within the blink of an eye.

EFN: In Europe we are witnessing a rather emotional debate about the Transatlantic Trade and Investment Partnership (TTIP). Here in Asia negotiations over the Trans-Pacific Partnership (TPP) were concluded last year. In how far are free trade agreements relevant to Hong Kong?

AW:  FTAs mainly deal, and I am simplifying a bit here, with the mutual dismantling of tariff and non-tariff trade barriers. There’s not much to dismantle in Hong Kong in that regard. But Hong Kong has negotiated a couple of FTAs during the past few years, for example the ones with EFTA and Chile, and the Closer Economic Partnership Agreement (CEPA) with China. While, on the face of it, signing CEPA didn’t make that much difference at first, its later iterations tackled some issues of importance to Hong Kong. One example would be the mutual recognition of academic titles and professional qualifications.

The reduction of barriers within the framework of CEPA could be beneficial – both for foreign professionals who want to settle in Hong Kong and for Hong Kongers who wish to offer services in mainland China.

Many restrictions remain on offering services in Hong Kong. The Medical Council of Hong Kong makes it very hard for foreign physicians to settle in Hong Kong and offer medical services. The same applies to foreign lawyers. In my view these are unnecessary restrictions that reduce consumer options.

As far as TPP is concerned, I am convinced that Hong Kong will profit immensely, even though it is not a part of the treaty. Hong Kong very much depends on world trade. If trade is flourishing, Hong Kong prospers.

EFN: What are the long-term prospects of Hong Kong?

AW: That very much depends on how Hong Kong will elect its Chief Executive (CE). Hong Kong’s constitution, the Basic Law, is in many regards a fantastic legal document. But unfortunately it vests the Chief Executive with a lot of power. Let me give you an example: Suppose you want to file a complaint against the police. You would then turn to the Independent Police Complaints Council. Its members are appointed by the Chief Executive. But he [the CE] also appoints the police chief and has the final say on nominations to the High Court. Furthermore, the Chief Executive appoints the head of Hong Kong’s anti-corruption commission. This goes to show that too many institutions depend on the CE, a person who in theory has two masters: The people of Hong Kong and Beijing. But ultimately all important decisions are made by Beijing.

EFN: So, in a manner of speaking, very much depends on whether China understands Hong Kong or not?

AW: Precisely; unfortunately right now it seems that the leadership in Beijing shows little understanding of Hong Kong. Beijing doesn’t appreciate that the more they meddle in Hong Kong’s affairs, the more opposition they will face. Some people might simply decide to pack their stuff and leave. And these are dire prospects. Hong Kong became rich because the city was always allowed to do what lay in its interest. Hong Kong experienced rapid economic growth and lifted millions out of poverty long before China started to catch up. But this is a view that is not shared on the mainland. In China, the perception prevails that Hong Kong owes its wealth to China alone. I have the feeling that, if in doubt, Beijing has more interest in exerting control over Hong Kong than seeing the city prosper. The thinking seems to be: If China isn’t perceived as being in full control of Hong Kong, other regions on the mainland might become restive as well.

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See also:
EFN Asia 50, New network member, Center for Indonesian Policy Studies, September 25, 2015 
EFN Asia 51, Draft program, Day 1 of Conference 2015, November 05, 2015 
EFN Asia 52, The 5 fishbowls of economic freedom in Asia, November 20, 2015 
EFN Asia 53, Successful Conference 2015 has ended, November 25, 2015

Top 10 News in 2014, Happy New Year 2015

Happy New Year friends.
May we be even happier in 2015 compared to 2014 and  previous years.
Well, there are reasons for optimism, and here is my list of the

Top 10 global news of 2014

1. Economics 1, Cheap  oil.

Thank you competitive capitalism for reasserting yourself. OPEC cartelization and cronyism is boink, shale oil and gas capitalism is cool. We have entered a world of rising abundance. The on-going cheap world oil further affirms that.

That's for the last five years. Here is the chart for the last 45 years.

2. Economics 2, Inequality de Piketty

Inequality is good and natural, and Piketty and the UN, WB, IMF, ADB, governments, socialists are wrong to complain about rising inequality. If my statement is wrong, then I demand that my income should be at least 1/10 that of Mark Zuckerberg or Bill Gates, even if I work only two hours a day and drink and party 10 hours a day. Today's poor are better off compared to the super-rich 100 or 50 years ago.

3. Economics 3, No fiscal crisis and low interest rates

This is from The Economist magazine, November 20th 2014 issue. Fiscal crisis by many fiscally irresponsible governments (FIGs) in Europe and elsewhere in 2014, all they do is spend-tax-borrow-borrow more. If supply of credit does not keep up with demand forl credit and debts, interest rates should go up. This did not happen. Which means capitalism worldwide is adjusting and getting  more efficient, producing  more surplus that it can  continue to bailout those FIGs with low interest rates even if they continue with their endless borrowings policy.

4. Politics Asia, Hong Kong protests and call for democratization

To hell with you communism, hehehe. China communism and dictatorship is lousy; to extend that dictatorship to a former British colony that championed free trade, yes, unilateral free trade, is lousy too. 

But as I argued repeatedly, freedom of expression should not curtail freedom of mobility of other people. Thus, I did not support prolonged occupation of HK's streets and thus, I support the clearing of those unoccupied tents that block major roads. 

5. Politics Mid-east, IS in Syria and Iraq

Lots of violence and intolerance. Their big problem is that people, including their fellow Muslims in many countries, are getting more intolerant with intolerance and  violence. Thus, while they gained prominence at the start, they later gained notoriety and condemnation later.

6. Politics Europe, Russia and Ukraine

Booo, Vladimir Putin. Military invasion and occupation is too taboo these days. Only dictators and insecure leaders would do that.

Now #1 above, cheap oil, is piercing huge holes on your dictatorial leadership. Fellow dictatorship in China is now bailing you out. 

7. Climate, Climate extortion

$500 B a year of climate money from rich countries to developing countries? wow. Actually some extortionists are joking. While they demanded $100 B a year in 2009, revised the estimates to $500 B a year, the UN climate spokesperson suggested $6 trillion a year. Wow.

Money money money, always sunny, in the climate alarmism and extortion world.

8. Health, MERS-CoV and Ebola

One of the many faces of MERS-CoV victims in the Middle East, my sister in law, Gemma B. Oplas, In this photo, she was holding my elder daughter while they were in Bacolod City in 2010, her lone kid Lois looking on. 

An ER nurse in a Saudi government hospital in Riyadh, she was taking care of a MERS patient who ironically survived, she was infected, she did not survive.

MERS-CoV, Ebola, dengue, HIV, H1N1 and other infectious diseases, are living and evolving microorganisms, They will keep evolving and spreading themselves. There is nothing we can  do about them except have proper isolation  system  of victims, and have evolving treatment to evolving diseases. More science, more innovator medicines, less politics.

9. Sports, World Cup

Horrible loss for Brazil, the host of 2014 soccer World Cup. After barreling its way to the championships, it lost to Germany 1-7, agghh!

But the common global excitement of Europe vs S. America in the Finals or semi-finals has been affirmed. I wish to see an Asian team in the finals someday.

10. My 2^nd book :-)

Published by FNF PH office, this book reaffirms the beauty of classical liberalism, rule of law (not rule of men) and more civil society (and less government, less coercion).

Happy new year guys.

Hong Kong Protests, Part 5

This afternoon, the Admiralty in Hong Kong has been cleared of protesters and their tents, other obstructions. I support the cause of the protesters -- greater political independence from China communist government. I support the street occupations, but only for a short period of time.

This morning, twitter photo from the Asian Correspondent.

Freedom of expression is good and noble, I support it, but it should not restrict or contradict freedom of mobility of other people. Street occupation for a few days or weeks is understandable. But for more than two months, I think it is wrong. Below, twitter pics from the Harbour Times.

I and some friends visited that site at the Admiralty last November 5, 2014. My immediate impression was that the protests have morphed to become a "tent movement" from the original "umbrella movement." So many tents with no one inside, except for a few tents at the protest center.

Four lanes each, total of eight lanes, were occupied by many tents and protestors at the Admiralty/ Many go home afterwards. People cannot live in tents for days or weeks -- no toilets, no showers. Portable toilets are good only for half-day or whole day rallies, but not for weeks and months.

There was "mass arrest" too. .I don't know the details why such action was done by the HK government. I think removing the tents and other obstructions should be enough.
 Poor Jimmy Lai. I heard him speak during the EFN Asia conference 2004 in Hong Kong. Very articulate, down to earth, and liberty-minded guy. Too bad that he is among those arrested.

I heard Emily Lau during the EFN Asia conference 2014 in Hong Kong, just last month. She too is a very articulate and passionate speaker.

Again, I support the cause of the protesters -- NO to more China communist government heavy hands in Hong Kong. But while the protesters have this freedom of expression, other people in HK, both locals and foreign visitors, also have the freedom of mobility to pass that busy road at the Admiralty, also in other occupied areas. The latter should not be sacrificed for many weeks and months at the altar of the former.
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See  also:
Hong Kong Democracy vs. China Dictatorship, Part 2, September 29, 2014
Lion Rock 13: LRI Position on the Hong Kong Protests, October 08, 2014
Hong Kong Democracy Vs. China Dictatorship, Part 3,October 14, 2014
Hong Kong Protests, Part 4, November 06, 2014