2311-1Performance - Economic Success Lecture I Economic freedom Overview of Development Performance Problems and Challenges of Hong Kong Laissez-faire

Overview of Development, Performance, Problems and Challenges of Hong Kong Lecture I Prepared by Wai-hin Yan, Department of Economics, C.U.H.K. Economic Success Economic freedom Laissez-faire Market capitalist economy Big Market and small government Strong Structural Foundation or Fundamentals Social, Business and Legal Environment Communication and Transportation Banking and Financial Services Human Resources and Education Rights and Privileges Appropriate Policy Orientation – Minimum Distortion Sound Ethical Behaviour and Attitude Confucianism Religion Position of Hong Kong Conducive Domestic Economic Conditions Economic openness is a necessary condition for growth. Domestic stability is a sufficient condition for growth. Improvements in domestic economic conditions are both necessary and sufficient. Foreign investments can come and go; to make them stay require conducive domestic conditions. Changing Comparative Advantage Economic openness and conducive domestic conditions invite foreign direct investment that are export-oriented. Comparative advantages in exports and trade follow the world pattern of demand. Foreign direct investment helps change comparative advantage over time. Income Equity and Poverty Rewards are based on endowments, disparity or inequality is inevitable. Lorenz Curve or Gini Coefficient gives static measurement. Inter-personal comparison vs. Intra-personal comparison Deterioration in inequality is likely in a recessed economy. East Asian economies do not support a continuous improvement of equality as GDP rises. Role of Government Hong Kong government intervened “ positively ” when needed. “ Diffusion-oriented ” strategy adopted in industrialization. Total public expenditure in GDP has been low. Larger expenditures include education and health.

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Pro-Growth Regime Politics is linked to economic in the process of distribution. Economics is used in political platform. Political outcome tends to be short term. Economic growth tends to be long term. Economism produces an economic floor, so that growth depends on stage of the economic cycle. Equal opportunity allows people to engage in self-centered activities and pursue intra-comparison in income. Other social paradigms often produce absolute, win-or- lose, or live-or-die outcomes. Peace & stability can be maintained No matter how a regime is selected/elected, a regime should take a pro-growth approach, giving high priority to economic activities. Sovereignty Reversion Hong Kong became an SAR on 1 July 1997 under the “ one country, two systems ” framework. Governed by the Basic Law that maintained Hong Kong ’ s capitalist economy. Self-rule principle ensures local autonomy except in areas of sovereignty, diplomacy and military deployment.