As China turned communist, many poor refugees fled to Hong Kong , seeking freedom. There was no foreign aid and no welfare state — but there was a competent government that kept the peace, ran an honest court system with the rule of law, provided some basic infrastructure, and little more. Also, Hong Kong had economic freedom — for the last several decades, Hong Kong has been ranked as the freest economy in the world (according to Economic Freedom of the World Index). Economic freedom allowed the people to create an endless number of productive enterprises, and because they had free trade, they could import necessary goods and services to fuel these enterprises. Initially, Hong Kong had the comparative advantage of low‐cost labor for manufacturing and textiles, but as it became richer, it started producing more and more sophisticated goods and services. Now it is a major financial center with a very robust high‐tech service economy.
My first trip to Hong Kong was more than 30 years ago. Even though by then Hong Kong had made considerable progress, there were still many with low incomes. Real per capita income was about half that of the United States and still well below that of France. Today, average real income has gained parity with the United States, and it will probably be double that of France in a couple of years. Along with Japan and Singapore, Hong Kong enjoys the highest life expectancy in the world, and comes out at or near the top on most indexes of human development.
The accompanying chart shows the growth in per capita income in Hong Kong, France and the United States. Each country pursued very different economic models. France greatly enlarged government (56 percent of gross domestic product) along with very high taxes and extensive regulation, while the U.S. somewhat increased the size of government and the regulatory state. (To illustrate the virtues of small government, please watch a very short and fun video “Hotnomics: Government Knockout” produced by Emerald Robinson and available on the websites of The Washington Times and of the Center for Freedom and Prosperity Foundation.)
Hong Kong proves that you do not need to have democracy for prosperity and economic (and most individual) freedoms. In fact, democracy is often an impediment to economic prosperity because people tend to vote themselves benefits (which must be paid by someone else) rather than working for benefits as most people do in Hong Kong. A problem with the Hong Kong governance model is that the benevolent dictator tends to become less benevolent over time, and as the people become richer, they want their individual freedoms enlarged, not curtailed. The demands for more freedom and democracy in Hong Kong are growing, and the Chinese are resisting. However, those in the Chinese government, having achieved rapid economic growth by copying much of the Hong Kong model, also realize that their own people, as they get richer, will be demanding more freedom and more democracy. We all watch with fascination as the dance continues.