Hong Kong's Economic Growth Due To Economic Freedom

July 8, 1997

Nobel Prize-winning economist Milton Friedman notes how close Hong Kong has come to equaling the U.S. in gross domestic product per capita. In 1950, he reports, the U.S. had a per capita GDP nearly six times that of Hong Kong. Last year, ours was only 7 percent higher.

If growth continues in both countries at present rates, Hong Kong will surpass us in GDP per capita in less than five years.

Friedman believes Hong Kong's unprecedented success can be explained simply by considering the limited role of its government.

  • Direct government spending there is less than 15 percent of national income, versus 40 percent here.
  • Indirect government spending via regulations and mandates on private individuals and businesses is negligible in Hong Kong but absorbs around 10 percent of national income here.
  • While we are still more productive than the tiny former British territory, we devote roughly half of our productive capacity to activities to which Hong Kong devotes some 15 percent to 20 percent.

Friedman contends that the most basic functions of government -- the protection of persons and property and the maintenance of rule of law -- are being carried out here less effectively and efficiently than they are in Hong Kong. "Our government is doing so many things that it has no business doing," he argues, "that it is doing those things it should be doing badly -- less well than it did in the past when spending was lower."

Pointing out that the proposed tax cut represents a "trivial" one-quarter of 1 percent of national income, Friedman estimates that if the cut were financed by reduced spending -- and were to be repeated year after year -- it would still take us more than 60 years to bring the share of national income controlled by government down to the same level as in Hong Kong today.

Source: Milton Friedman (Hoover Institution), "If Only the U.S. Where as Free as Hong Kong," Wall Street Journal, July 8, 1997.

 

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