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Live From Hong Kong:
Breaking News from the South China Sea: The free market works!
If one is looking for an example to support this fact, than one need not look further than where I am currently writing from, the southern coastline of ... China; on the tiny peninsula of Kowloon and the even smaller island of Hong Kong. These two combine, with other small outlying islands, to form the Special Administrative Region of Hong Kong: a beacon of hope and freedom on the edge of the Chinese Pearl River Delta on the South China Sea.
Hong Kong developed as a British colony from 1842 to 1997, when control was relinquished by the British to mainland China. However, as part of this deal, the economic, religious, speech and press freedoms that Hong Kong enjoyed as a colony of the Crown would remain in place for 50 years. In this time, and with such independence from the Chinese government, Hong Kong has flourished. This city state with nearly 8 million people from around the world holds many global positions of prominence. Hong Kong is consistently ranked one of highest in world for quality of life, health, life expectancy, property value, education, and competitiveness. Even the airport and mass transit systems are ranked as some of the finest and most efficient in the world. The only reason, in fact, that Hong Kong doesn’t hold the title for having the world’s tallest building is the fact that height restrictions based on the heights of surrounding mountains limited the International Commerce Center Tower to a height that only makes it the fourth tallest on the planet. Still has any building in the States beat. The only lows of note are the levels of corruption, (which are some of the lowest in the entire world, let alone Asia) and of course unemployment.
However there is one ranking that some people who push for greater government regulation of the market from Wall Street to Main Street care not to discuss:
Index of Economic Freedom: Hong Kong is ranked #1 out of 183... for well over a decade running.
Examples of this freedom are everywhere. I noticed a few just stepping off of the plane at the absolutely massive, yet immaculate, airport. Greeting me at the gate were numerous little electric carts and their drivers, offering to drive passengers down the dauntingly long terminal for a minimal fee. Now lots of airports around the world offer cart service, but what was unique here is that these drivers weren’t airport employees. They were business owners. The airport authority allowed for these people to offer a service in the airport and compete with one another, creating the need for these business people to price their service competitively and also offer the most comfortable ride to baggage claim in the world.
Upon arriving at Customs and Immigration and the gateway from the terminal to the rest of the airport, I noticed big signs and advertisements everywhere that said “Welcome to Hong Kong, a Level Playing Field for All.” I’ve been here over 6 weeks thus far, and this slogan has more than proven true.
I had a couple of different options as far as getting from the airport to downtown, which leads me into the marvel of Hong Kong’s mass transit system. The MTR is the Hong Kong equivalent of New York’s Subway or DC’s MetroRail. There are a few differences however. One obvious difference I encountered immediately was the quality of the ride. I’ve now been on both the DC and NYC systems, as well as the Hong Kong MTR, and it is apparent that the MTR is in a far better state of repair and upkeep than both of America’s largest systems. The trains are bright, cool, quiet, and most of all clean. No leftover newspapers, or gum covered carpets. Even the stations are spotless; and for those DC readers out there, the escalators at the MTR stations work flawlessly. The other beauty of the MTR, which probably goes unnoticed to the locals, is the fact that waiting more than 2 minutes for a train that isn’t on a specialty line during operating hours is almost unheard of at any station across the region. So in every sense its a superior transit system to anything found in the United States; but why? The answer is pretty clear. The NYC Subway and DC Metro are owned and operated entirely by government entities. The MTR on the other hand is a publicly traded corporation that, while the government of Hong Kong owns a majority of the shares, has almost a quarter of its shares owned by private investors. The trains are on time, the facilities are clean, and random stops between stations and broken escalators and elevators are unheard of. Its clear that this corporation that is held accountable by its shareholders has created an infinitely superior service than anything the government has created in the U.S. Not to mention it’s cheaper. An hour long trip on DC MetroRail costs me over $6 US, one way. A similar commute on the Hong Kong MTR costs about $1 US.
I chose the MTR to get me downtown, but I could have just as easily taken a bus. The only trouble there would be deciding which bus company to choose. So far I’ve counted 3 major bus companies that all offer clean, comfortable, and frequent service to all corners of the region. The competition has driven fares down to cents on the dollar.
The taxis are a similar situation. While all seem to be contracted by the same parent taxi company, it feels like over half of the cars on the roads around here are taxis. They are everywhere, and you could’ve guessed it... they are clean and cheap too. The government of Hong Kong makes obtaining business or service licenses a fairly easy and quick procedure with minimal red tape. This allows for many to be employed as taxi drivers. The competition among all the drivers has kept the fares fairly low compared to taxis in major US cities, which in turn creates a bigger market for taxis. While many would fear unqualified drivers because of relaxed licensing, the fact that the drivers operate in such a competitive service keeps recklessness in check. The market rewards the good drivers, and weeds out the bad, supplementing the need for burdensome government.
As mentioned, Hong Kong’s government makes it fairly easy to obtain a business license, and a stroll through any neighborhood in Hong Kong confirms this. Everywhere there is space to sell something, something is being sold. Street markets consume dozens of blocks in a row and small specialty shops spill out onto the sidewalks everywhere. Even the MTR stations look more like shopping malls than train stations, with 7/11 franchises right next to designer luggage stores. In Hong Kong, anyone can own a business and open up with little overhead costs or headaches with government forms and regulations. The plentiful nature and huge variety of stores has kept unemployment low. The Big Box Mart and Warehouse syndrome many complain about in the United States doesn’t exist here because government regulation doesn’t crush upstart small businesses.
Sure, the big brands and big stores do exist here. There are a few Ikea locations and McDonald’s is everywhere. However, these larger companies have to advertise relentlessly because they face stiff competition from smaller furniture stores and eateries. The headache of miles of red tape in the United States tends to favor the big fish, but here in Hong Kong the minnows and sardines can gang up on the sharks because the government isn’t forcing impossible standards and high taxes on them.
This brings us to the issue of taxes in Hong Kong. There is no sales tax. The price you see is the price you pay. The government doesn’t need the money, especially at the expense of driving up the prices of goods and services. Hong Kong also does not tax capital gains, which keeps Hong Kong a prominent global center of finance. Hong Kong does have an income tax, but nothing that resembles what exists in the United States. The income tax, or salary tax as it is known, is set at 2% for those earning less than HK$35,000 ($5,000 US) a year, 8% for HK$35,000-HK$70,000($5,000-$10,000 US), 14% for HK$70,000-HK$105,000($10,000-$15,000 US) and 20% for anything exceeding that. The corporate tax is also only 16% which is less than half of the 35% level in the United States. The tax system, while still a progressive model, still ensures that everyone pays, unlike in the United States where nearly 54% of the population pays absolutely no income tax, yet still enjoy (often times to a greater extent) many of services funded by tax dollars. In Hong Kong the government ensures that while the rich do pay more, precent and real dollar wise, that everyone has a stake in the system.
With such low rates compared to the United States and all the money the government spends on state of the art infrastructure like the artificial island the airport was built on or the Stone Cutters Bridge which is one of the largest suspension bridges in the world, Hong Kong must be broke right? Wrong. In fact this region of 8 million owns about $122 Billion US worth of the US Debt.
Those familiar with Hong Kong and in disagreement with the principles of this piece will likely point to the fact that 80% of the land that comprises the Hong Kong Special Administrative Region is undeveloped, and is owned and sold to developers by the government for profit, and that is an impossible source of revenue in the United States. To that argument I point to this map and study released by the Obama White House just this year:
The fact of the matter is that Hong Kong demonstrates the success of capitalism and the free market. The region’s success with such minimal government presence in the lives of people and their business is a testament to the detriment caused by heavy governments fueled by high taxes around the globe. We see examples of places around the world where countries have sought big government as solutions to economic woes. The Soviet Union is the most obvious example and the results are still being felt by the Russian people to this day. Many try and point to China as a success story of big government, but the fact of the matter is that hundreds of millions of Chinese live in extreme poverty while Beijing gloats off the success of a few major cities like Shanghai, that happen to contain free economic zones. Others will point to the quality of life index of many European nations with cradle to grave entitlement programs. To them I refer them back to the massive debt crisis and potential domino effect of sky high national debts that is ready to cripple the Eurozone, starting with Greece and the government healthcare system it could never afford.
The sad truth is that the United States is the final example or perfect juxtaposition to the success of Hong Kong. In Hong Kong there are low taxes and regulations. In the United States the corporate tax is one of the highest in the world, while over half the population pays no income tax at all; yet still insists that those being taxed at over 40% of their income aren’t paying their fare share. In Hong Kong everyone pays, and because of this no one, rich or poor is burdened by the need to fund government. Everyone has a stake in the system. The programs and infrastructure enjoyed by everyone is paid for by everyone to some extent, unlike the United States where entire classes pay nothing. The reality is that Hong Kong has freed the market, and in return market forces have created low unemployment, excellent schools, excellent infrastructure and transport systems, and have allowed major businesses and small business alike to employ millions in shimmering skyscrapers.
The market also eliminates the hypothetical dangers created by a lack of government. Businesses create safe, reliable, and cost-effective products and services not because they face the wrath of Big Brother, but rather they face the even stronger power of being driven out of business by competitors who will satisfy market demands. In the United States the government has grown into an overbearing monster, regulating into non-existence its very source of power, American entrepreneurs and workers making taxable incomes. The recent debt debate erases any suggestion that this isn’t the case.
Hong Kong is a testament, a bright shining example of the power of the entrepreneur, from the restaurant owner or the cab driver to the share holder of the transportation giant or the CEO of the financial firm. They have, in the absence of government, created a an environment where people are employed and hence have their healthcare and other needs satisfied. However, in the presence of the government in the United States, the growing cost of conducting business has driven people out of work and into the unemployment and other entitlement lines.
Hong Kong’s free economy stands as the only proof needed to cry out that more government is not the answer to the economic struggles of our time.