Nations, Leaders and their Decisions (Part 5)

Architect of Prosperity

Neil Monnery has written a biography of Cowperthwaite entitled “Architect of Prosperity”. In an Econtalk conversation with Russ Roberts, he says:

At various points, people in government, or people in business, suggested that it would be good to have some top-down planning to see which sectors they wanted to move into, or whether or not they’d grown certain sectors too far, and therefore they should be constrained in some way. And really, that was the battle of ideas that Cowperthwaite was so strong on, and really set the course for Hong Kong. Not doing that in a top-down fashion, but rather allowing the various entrepreneurs, the people who were deploying their own capital to make those decisions as to where to invest. Some of which worked. Some of which didn’t work. But very much a bottom-up entrepreneurial system. And also very much allowing the greater destruction of those industries that no longer were competitively advantaged, because Cowperthwaite was always being assailed by various people who wanted to enter into supporting one sector or another; and he pretty much always turned them away, and said, ‘If it’s a good industry it will work; if it’s a bad industry, it won’t work.’ ‘But it has really nothing to do with me.’ And that was a very powerful stance through that period of the 1950s, 1960s, and so on afterwards.

He was passionately concerned with helping the most needy in society, but was very worried that if that started creeping in to providing a lot of support for middle-income people, that would both create incentive problems but would also slow the growth rate. And his logic went something like this: which is, Hong Kong is clearly over this period a developing economy. He believes that if entrepreneurs are left with enough income to [?] surplus to reinvest in new opportunities, that will push up the growth rate going forward. And therefore if he starts taxing that in order to provide free education for the middle classes, then that will be at the expense of future growth, which he sees as central to his mission, if you like to try and push the growth rate up in Hong Kong. So, education is actually in a way the most dramatic, because he at one point says he believes education is a very good thing; but even good things have to be paid for. And so his strong preference is not to provide universal, universally-free education or indeed anything else, but rather to charge market prices and then to give complete subsidies to the most needy. So that there’s very targeted use of state funds–taxation is very well targeted onto those needing it the most.

Marian Tupy, writing at CapX, quotes Cowperthwaite:

I would like to say a few words about some of the principles involved in the question of planning the overall economic development of the colony.

I must, I am afraid, begin by expressing my deep-seated dislike and distrust of anything of this sort in Hong Kong. Official opposition to overall economic planning and planning controls has been characterised in a recent editorial as ‘Papa knows best.’ But it is precisely because Papa does not know best that I believe that Government should not presume to tell any businessman or industrialist what he should or should not do, far less what he may or may not do; and no matter how it may be dressed up that is what planning is.

…An economy can be planned, I will not say how effectively, when there are unused resources and a finite, captive, domestic market, that is, when there is a possibility of control of both production and consumption, of both supply and demand. These are not our circumstances; control of these factors lies outside our borders. For us a multiplicity of individual decisions by businessmen and industrialists will still, I am convinced, produce a better and wiser result than a single decision by a Government or by a board with its inevitably limited knowledge of the myriad factors involved, and its inflexibility.

Leaders make nations. Cowperthwaite made Hong Kong with his decisions.

Tomorrow: Part 6

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.