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Hong Kong doesn’t prove what you think it proves

Summary:
Conservatives often make the following argument: Both democracy and freedom are important, but freedom is more important. Look at Hong Kong. It has freedom but is not democratic. It does much better than many other places that have democracy but lack freedom (or lack the rule of law.) That’s certainly a defensible argument, but it’s weaker than it looks. I’m going to compare Hong Kong with the city that is most similar—Singapore. Both are city-states (although of course HK is technically a part of China.) Both have populations in the 5-7 million range, and very high per capita GDPs. Both are mostly ethnic Chinese. Both are financial and trading centers. They are #1 and #2 in every single index of economic freedom. But both have heavy government involvement in the housing

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Conservatives often make the following argument:

Both democracy and freedom are important, but freedom is more important. Look at Hong Kong. It has freedom but is not democratic. It does much better than many other places that have democracy but lack freedom (or lack the rule of law.)

That’s certainly a defensible argument, but it’s weaker than it looks.

I’m going to compare Hong Kong with the city that is most similar—Singapore. Both are city-states (although of course HK is technically a part of China.) Both have populations in the 5-7 million range, and very high per capita GDPs. Both are mostly ethnic Chinese. Both are financial and trading centers. They are #1 and #2 in every single index of economic freedom. But both have heavy government involvement in the housing sector.

However, there are key differences. While Singapore is far from being a perfect democracy, it’s certainly more democratic than Hong Kong. And while Hong Kong doesn’t have a perfect record on civil liberties, it’s freer than Singapore.

I’d like to suggest that Hong Kong’s current problems would not exist if it were even as democratic as Singapore. Singapore does tilt the playing field in favor of the ruling party, but the Singapore electorate is perfectly capable of voting them out if office if they get sufficiently angry. Importantly, the Singapore government knows this, and makes sure that the electorate doesn’t get sufficiently angry.

You may wonder why the Hong Kong protestors remain so angry, even as the Lam government has completely given in on their initial demand to abandon the extradition treaty with Mainland China. The anger seems fueled by many issues, but two stand out:

1. The lack of democracy in Hong Kong.
2. HK government policies that intentionally keep housing extremely expensive, and which dramatically reduce living standards for residents of Hong Kong.

In Singapore, the government allows elections as a sort of safety valve, and also as a way of gauging public sentiment. As the share of votes for the opposition party gets closer to 50%, they take steps that will be politically popular. They have much more pro-development housing policies:

Since the handover the [HK] tycoons have come to dominate not just the economy but also government, opposing calls for more democratic representation, a more generous welfare state and, of course, a programme to build mass, cheap housing of the kind that Singapore has long promoted (and used to keep voters quiescent). Part of the tycoons’ clout comes from their contribution to Hong Kong’s finances: 27% of government revenues come from land sales. Since the start of the crisis Hong Kong’s chief executive, Carrie Lam, has not met any democracy activists, but she has consulted with several plutocrats.

If Hong Kong were even as democratic as Singapore, the Lam government would have been forced to adopt a more expansionary housing policy, freeing up lots of new land for development. Although Hong Kong may seem crowded to tourists, there is actually plenty of land to house its population of 7 million, if the government were not artificially holding back development to boost the profits of property development firms.

Of course there are lots of other democracy comparisons one can make. The two Koreas. China vs. India. China vs. Taiwan. Etc. But if you want to use the example of Hong Kong to form your views on the relative importance of democracy and liberty (as many pundits have done), the actual lesson is that democracy is more important, more fundamental. Hong Kong’s closest comparison country, by far, is Singapore, which is somewhat less free and somewhat more democratic. And Singapore is also more successful than Hong Kong in providing a decent quality of life for its residents.

Hong Kong doesn’t prove what you think it proves

Look at the following picture.  Can you guess which part of the picture is Hong Kong and which part is Mainland China?

Hong Kong doesn’t prove what you think it proves


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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