Hong Kong has a long history of economic freedom, largely due to historical accidents:
The truth is, that Hong Kong was rather like Gertrude Stein’s Oakland: There was no There, There. Until Britain took over the barren rock in the 1840s, there were only a few fishing villages. There was no long established substantial civilization on Hong Kong with a legacy of entrenched institutions and interests. Everybody who came to Hong Kong was an opportunist or refugee. It started with a clean slate. It was established as a British trading post just at the time when Britain itself was scrapping agricultural protectionism and moving to free trade. It was formed just at the right moment in the tide of political fashion.
From the beginning it was a free trade port. Hong Kong has a deep water natural harbour. The ocean currents flush through the harbour, keeping it crystal blue, in sharp contrast to the muddy brown effluent of the Pearl River which flows out to sea just a few miles to the west. Hong Kong means ‘Fragrant Harbour’ in Chinese, and it was an excellent anchorage for British trading ships.
Apart from that it had little else going for it. Hong Kong Island and the neighboring mainland are mountainous: there was virtually no flat land at all when the island was acquired by the British ‘in perpetuity’ in 1842. (What flat land there was was promptly set aside for the cricket pitch and the race course). There were a few fishing villages, but not much else. London didn’t really want it at all, grumbling that their local man on the spot had exceeded his authority in adding it to the British Empire.
In 1844, the British colonial treasurer in Hong Kong, Robert Montgomery Martin, predicted, “There does not appear the slightest probability that, under any circumstances, Hong Kong will ever become a place of trade.” His miscalculation was to overlook the importance of the rule of law and other institutions that have made Hong Kong the freest economy in the world. He looked only at physical resources at the time.
One of the first proclamations of the British administration promised that Hong Kong’s inhabitants would be ‘secured in the free exercise of their religious rites, ceremonies and social customs.’ And all Chinese trade was to be exempt from any charge or duty of any kind to the British government.
Almost immediately real estate speculation developed. Property protected by British Law in a free trade port had obvious attractions. Not only British merchants but also thousands of Chinese rushed in. In a matter of months more than 12,000 Chinese were living on the island attracted by the construction boom.
Over the next hundred years Hong Kong grew and prospered, an island of civility and stability next to turbulent China. In 1862 a small piece of the mainland was added, the Kowloon peninsula, and in 1898 a much larger chunk, the New Territories, was leased from China for 99 years. Even with these additions it came to just over 400 square miles (making it only 40% of the size of Rhode Island.)
As mainland China became increasingly unstable, more and more people moved into Hong Kong. The population of the colony doubled in the nineteen thirties, to over 1.6 million people.
The Japanese occupied Hong Kong during World War 2 and by the time a British military administration was re-established in the summer of 1945 the population had fallen to only 600,000. Within months the people of southern China were flocking back into the British territory, obviously relieved to be out of the Great East Asia Co-Prosperity Sphere and back under the yoke of Western colonial exploitation once more.
Which brings me to the second historical accident which contributed to Hong Kong’s freedom. At a time when the intellectual fashion in the mother country was swinging strongly towards socialism, under Clement Atlee’s Labour party, Hong Kong was being swamped with refugees. In the late forties as the Communist swept southward the flow of Chinese refugees into Hong Kong became a tidal wave. By 1948 the population had risen back up to 1.8 million.
Austin Coates, the writer, was a young British government official arriving 1949. He described the scene:
Hong Kong presented and extraordinary spectacle… The place was already overcrowded when the communist putsch began. In the past few weeks, about half a million refugees had poured in from China by air, by train, by steamer and junk, and on foot: and as the months passed, well over another half- million arrived. By early 1950 the population stood at the alarming figure of 2,350,000.
It really seemed as if half Shanghai had descended upon the place, together with all the gold bars in China. Money was flying about… Apartment blocks, shops and houses, many of them illegal and sub-standard, were going up at staggering speed, but still not fast enough. All over the rocky hillsides near the urban area, tens of thousands of ramshackle little huts were sprouting day and night, built of packing cases, sacks, kerosene tins, linoleum, worn-out rubber tyres, anything anyone could lay their hands on, tied together with bits of wire and even with rice straw.
Entire shanty towns were going up in a matter of days. In the streets… Hundreds of maimed and wounded Nationalist soldiers, who had somehow managed to beg their way south, hobbled or lay about begging alms, sleeping at night where they lay by day, many of them unable to speak Cantonese, utterly uncared for, futureless and helpless… it was a situation verging on the chaotic.
(and) Nowhere, as I quickly discovered, was the state of crisis more apparent than in the offices of the government, most of which were severely understaffed to meet the extraordinary conditions prevailing…
The red tide of communism swept all before it. In the autumn of 1949 Canton fell, and a few days later contingents of the Chinese Red Army reached the Hong Kong border.
And there, they stopped. The unexpected happened. The communist regime left Hong Kong alone. They sealed the border and relations between Hong Kong and the mainland became virtually non-existent. Air communications with China, formerly excellent, came to a stop, as did river steamer services to Canton. Trains were no longer allowed to run through from Kowloon to Canton, as they once had.
There was an eerie silence.
Hong Kong was left in peace, but also in terrible isolation. I say terrible isolation because Hong Kong was now deprived of its original raison d’ etre, to be a trading post for China. So there they sat, two and a half million people, barely believing they had survived and were alive, but wondering what on earth they were going to do next.
You can understand from all this that in the post war period the Hong Kong government was simply not capable of grand socialist designs. It was totally overwhelmed by a demographic deluge..
“All of a sudden, you had the best people shoved into this tiny place,” said Daniel Ng, executive chairman of McDonald’s Restaurants (Hong Kong). “I suppose we are fortunate the government didn’t have time to react. It was simply overwhelmed.”
Even if the British Government had sought to impose grand New Society plans on Hong Kong in the post war period, its administration was so stretched and resources so scarce that it was out of the question. In fact the British government didn’t even try. Colonies were things to be got rid of, to be ashamed of, not places for ideological ambition. Socialism began and ended at home. The British government was financially overstretched as it was, so the only thing it required of Hong Kong was that it not be a drain on the mother country. Fortunately Hong Kong readily obliged. The Hong Kong administration was financially self sufficient by 1947. Although the Hong Kong people were desperately poor and undoubtedly worthy of foreign aid, the only amount of money they ever received was $44 million – but not from Britain- from the United States.
So, at key moments in Hong Kong’s history, when it was established in the 1840s and when free markets were ideologically most under threat in the nineteen forties, Hong Kong squeaked through unscathed.