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Hong Kong
[Milton] Friedman routinely overlooked three key facts about the city in the years of its rapid growth: as much 50 percent of its housing receives a substantial government subsidy; its citizens enjoy almost free medical treatment at government clinics and hospitals; and the cost of its defense has been borne entirely by the United Kingdom and now China. Mark these services to their market prices, said the Sentinel, and the famously low share of government spending in GDP climbs sharply.
That is David Warsh. Here is more, including also a discussion of the sale of Paul Romer's on-line Aplia to Thomson.
Posted by Tyler Cowen on March 4, 2007 at 06:39 AM in History | Permalink
Comments
Noooo! I so wanted to believe, but I had an inkling it was too good to be true.
Posted by: Caravaggio at Mar 4, 2007 7:50:12 AM
Should we assume that housing subsidies and free medical services are paid from some secret accounts funded by secret taxes (established to deceive Friedman) and not included in the regular budget?
Posted by: Boris Lvin at Mar 4, 2007 10:36:11 AM
The article quoted doesn't make a lot of sense to me. I recently experienced the private medical system that
" is so expensive that instead of being a money earner for Hong Kong, as it is for Singapore, it is often cheaper to fly to Sydney or Singapore..."
Despite the fact that my local friends were astounded that I would go to such an expensive hospital (they claimed Advent hospital had a rep as one of the most expensive in Hong Kong), I found that staying there with full nursing coverage was cheaper than my hotel. I also got to stay there for several days instead of being kicked out after a few hours as I would have been in the US.
Perhaps the difference between essentially free and a months wages (for a typical Hong Konger) seems like a lot.
One interesting difference between Hong Kong and the US is that your doctor and operating room cost is more if you pick a higher priced room. Thus I paid more for my surgery (to reattach a retina) because I opted for a semi private room than I would have paid if I had been willing to stay in a ward.
They were uninterested in my blue cross card and demanded cash on the barrelhead, which was provided by my companies gold amex...
I then got to enjoy Hong Kong for 8 weeks before the doctors would clear me to fly.
Getting back to the article, I would also disput the point about the UK and China providing security being a cost cutting feature. This vaunted security didn't help at all in the one instance that it mattered. The Japanese brushed it aside with little effort even though the UK spent many of its own and commonwealth lives. Since then, it was more the Chinese desire to keep Hong Kong as it was and is than any British efforts that kept it secure.
Imagine that Hong Kong were truly independent...what motivation would they have for any significant army or navy. Of what possible use would they be? I doubt that Lichtenstien spends much on a standing army either.
Posted by: Robb Lutton at Mar 4, 2007 10:41:47 AM
One other curious item, not unconnected with the housing subsidies
issue, is that land is completely owned by the state in Hong Kong.
Posted by: Barkley Rosser at Mar 4, 2007 10:52:31 AM
why would you add national defense if they didn't, in fact, pay for it?
Posted by: josh at Mar 4, 2007 10:59:38 AM
I too am less than convinced that adding in HK's "free" defense makes them free riders. I don't really see anyone invading them anyway.
But if "we" insist on doing so, then we also need to add in western Europe's (and Japan, and South Korea)free riding on US defense during the cold war (and beyond?). True, all these countries had some defense capabilities of their own, but with the exception of France and the UK's nukes, they would likely not have sufficed to act as a credible enough of a deterrent against the Soviets.
And we may as well subtract such generousity on the US's part and realize we would have grown even faster if not for our defense of European "social democracy". A point indirectly made by everyone who is complaining (justly, in my opinion) that the war in Iraq is a drag on the US economy.
Posted by: happyjuggler0 at Mar 4, 2007 1:25:24 PM
Government spending is a lousy measure of economic freedom. That was Friedman's point with, say, the negative income tax! These do sound like great distortions of housing and health care, but that need not impede economic freedom in other sectors.
Posted by: Douglas Knight at Mar 4, 2007 2:57:32 PM
1. As Barkley Rosser says, land in Hong Kong is owned by the govt. Hence people had to build shacks & large shantytowns developed. As these had no piped water supply, there were devastating fires. So govt officials took the only way out that _they_ could see: govt-built housing.
2. The HK govt makes quite a bit from auctioning land for private development. Govt officials make no capital gains/losses, nor do they make operating profits/losses. So the supply of 'building' land is determined arbitrarily. Naturally the resulting congestion, high rents, etc are the result of unbridled capitalism -- no?
3. A number of HK businessmen asked Sir John Cowperthwaite, the Financial Secretary to the HK govt during the 1960s, for cheap land for factories. Sir John refused. At least he was consistent.
Posted by: Sudha Shenoy at Mar 5, 2007 5:24:00 AM
One other curious item, not unconnected with the housing subsidies issue, is that land is completely owned by the state in Hong Kong.
The duration of land tenure in HK is longer than the average person's life span and easy to sell. The practical difference between HK land tenure and freeholding is somewhere between slim and none.
Posted by: Steve at Mar 5, 2007 6:02:47 AM
As almost all the land is Crown Land, as above, and it is rented out, then Hong Kong actually comes quite close to being Georgist. Maybe that's why they do so well?
Posted by: Tim Worstall at Mar 5, 2007 11:08:19 AM
Tim_Worstall: I'm not familiar with exactly how it works in HK, but if the lease prices (upfront and periodic)
are determined only at the beginning of each 99 year period, Georgists can't consider that a test of their
theories, since the rental re-assessment happens far too infrequently to capture any kind of approximation
of the site rental.
Posted by: Person at Mar 5, 2007 1:58:34 PM
"Should we assume that housing subsidies and free medical services are paid from some secret accounts funded by secret taxes (established to deceive Friedman) and not included in the regular budget?"
Umm actually yes, Hong Kong government has an absolute monopoly on all the land. Only 10% of the land of HK is urbanized but the government owns the rest. It chooses to lease out small portions a year to large developers for hundreds of billions. It also promotes sea reclamation which gives the govt' more revenue than traditional land sales. The secret tax is the high housing rent prices Hong Kongers must pay.
Posted by: Ethan at Mar 5, 2007 4:56:57 PM
Wait I'm still confused. How does the Government supplying housing and health care LOWER government spending as a % of GDP?
Posted by: Bill at Mar 5, 2007 8:20:48 PM
Let me see. The government takes a huge chunk (was it 90%?) of the land off the table, thereby driving up prices for the remaining land and housing, and then uses the income from leasing its land to subsidize housing to counteract the effects of its land policies. Sounds like this is not a pure benefit. In any case, I bet Friedman was aware of this arrangement. In the end, HK did have very low taxes and few bars to starting businesses - and it did very well.
Posted by: Rich Berger at Mar 8, 2007 9:33:23 AM
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