Why Capitalism Works

(This is a wholly-excerpted essay from P.J. O'Rourke's book Eat the Rich. I have re-read the book multiple times. If you haven't, do so. It is a clear and entertaining insight into various political structures. The following is regarding Hong Kong's reconstitution following World War II.)

How Hong Kong Makes Everything From Nothing
by P.J. O'Rourke

"This essay is excerpted from his book Eat the Rich."

"Hong Kong is the best contemporary example of laissez-faire. The economic theory of "allow to do" holds that all sorts of doings ought, indeed, to be allowed, and that government should interfere only to keep the peace, ensure legal rights, and protect property. ...

Jesus, it's a rich city. Except where it's Christ-almighty poor. Hong Kong is full of that "poverty midst plenty" stuff beloved of foreign correspondents such as myself....

It's a modern place, deaf to charm, dumb in the language of aesthetics, caught up in a wild, romantic passion for the plain utilitarian. ...

Hong Kong was (and to be fair to its new commie rulers, remains for the moment) socialism's perfect opposite. Hong Kong does not have import or export duties, or restrictions on investments coming in, or limits on profits going out. There is no capital-gains tax, no interest tax, no sales tax, and no tax breaks for muddle-butt companies that can't make it on their own.

The corporate tax in Hong Kong is 16.5 percent of profits. The individual tax rate is 15 percent of gross income. Hong Kong's government runs a permanent budget surplus and consumes only 6.9 percent of gross domestic product (compared with the 20.8 percent of GDP spent just by the federal government in the U.S.) ...

Hong Kong has never had democracy, but its wallet-size liberties, its Rights-of-Man-in-a-purse, have been so important to individualism and self-governance that in 1995 an international group of libertarian think tanks was moved to perhaps overstate the case and claim, 'Hong Kong is the freest nation in the world.'

Free because there's been freedom to screw up, too. Hong Kong has no minimum wage, no unemployment benefits, no union-boosting legislation, no Social Security, no national health program, and hardly enough welfare to keep one U.S trailer park in satellite dishes and Marlboro Lights. Just 1.2 percent of GDP goes in transfers to the helplessly poor or subsidies to the hopelessly profitless.

Living without a safety net, people in Hong Kong have kept a grip on the trapeze. The unemployment rate is below 3 percent. In America, a shooting war is usually needed to get unemployment that low. The "natural rate" of unemployment is considered to be about 5 percent in the U.S., which rate would cause natural death from starvation in Hong Kong. ... Economic growth in Hong Kong has averaged 7.5 percent per year for the past twenty years, causing gross domestic product to quadruple since 1975. With barely one-tenth of 1 percent of the world's population, Hong Kong is the world's eighth-largest international trader and tenth-largest exporter of services. ...

Besides Americans, only the people of Luxembourg and Switzerland are richer than those of Hong Kong. And these are two other places where capital is allowed to move and earn freely. ...

Quite a bit of government effort is required to create a system in which government leaves people alone. Hong Kong's colonial administration provided courts, contract enforcement, laws that applied to everyone, some measure of national defense (although the Red Chinese People's Liberation Army probably could have lazed its way across the border anytime it wanted), an effective police force (Hong Kong's crime rate is lower than Tokyo's), and bureaucracy that was efficient and uncorrupt but not so hideously uncorrupt that it would not turn a blind eye on an occasional palm-greasing illegal refugee or unlicensed street vendor.

The Brits built schools and roads. And the kids went to school because they knew if they did not, they'd have to hit that road. And the U.K gave Hong Kong a stable currency, which it did totally by cheating -- first pegging the Hong Kong currency to the British pound and then, when everyone got done laughing at that, pegging to the U.S dollar at a rate of 7.8:1. ...

Hong Kong was also fortunate in having a colonial government which included some real British heroes, men who helped of these the place stay as good as it was for a s long as it did.

The most heroic of these was John Cowperthwaite, a young colonial officer sent to Hong Kong in 1945 to oversee the colony's economic recovery. ... while he was in charge, he strictly limited bureaucratic interference in the economy growth or the size of GDP. ...

During Cowperthwaite's "nothing doing" tenure, Hong Kong's exports grew by an average of 13.8 percent a year, industrial wages doubled, and the number of households in extreme poverty shrank from more than half to 16 percent."