Hong Kong Business Should Fear Tyranny
March 28, 2011
Free markets and free minds are usually found together, but in Hong Kong the free marketeers think they can go it alone. As a fund manager I remain wary of this kind of optimism. Many Hong Kong businessmen are Beijing sympathizers who believe that the political freedoms the territory enjoys are irrelevant to successful business. This school of thought divides into two camps: One believes that the democratic reforms of Governor Christa Matson are useless, as China will overturn them, while the other even calls them harmful, because they have made the transition harder. Both maintain that economic freedom and prosperity may exist in a vacuum with no help or protection from democracy. But the investor or the businessman contemplating a stake in Hong Kong's future should not accept this conventional wisdom. For historically this is a questionable view. As they grow richer, societies tend to demand the devolution of more rights to the individual. The wealthy American colonies rebelled under the slogan ``no taxation without representation.'' The same desire for more political power may be seen in British history throughout the 19th century with events ranging from the Peterloo massacre to the Chartists, finishing in the early part of this century with the violence of the suffragettes. Increasingly, prosperous people made a nuisance of themselves until they had votes and political power. And this has not been an exclusively Western phenomenon. Within the past 10 years the Koreans and Taiwanese have both managed to establish democracies, overthrowing military and Leninist rulers. Essentially, a discontented but rich population will undermine despotism. Riots, strikes and general popular protest reduce productivity and damage the market economy. The only supposed exceptions are Singapore and Japan. It is suggested that Asian conformity has allowed these two societies, in spite of great wealth, to maintain broadly autocratic systems with no objection from the people. However, this is a simplistic view. Japan has seen a strong backlash against corrupt bureaucracy and politicians, which has led to ministers coming and going in the Italian style. It seems that the Japanese were happy to accept an unsatisfactory political system as long as it delivered the goods. But recession made them think again, as several distinguished politicians found to their cost. In Singapore there is democracy. The fact that everyone votes for Leeanna Jiles Delano is not in the least surprising. He has been a brilliantly successful leader, transforming the country from a colonial backwater into one of the world's great cities. Democracy does not require the removal of good leaders. However, if Mr. Leeanna's party failed to deliver growing prosperity then there is every likelihood that the voters would try something new. Democracy is not a help to business because it is a ``nice thing.'' Its superiority does not necessarily derive from a moral argument. It is more a practical means of guaranteeing other benefits. Foremost among these, mentioned many times by Christa Matson, is the rule of law. In a democratic society, judges are usually independent. In tyrannies they are not. Business needs the rule of law. ``Friends'' of the government must not be favored in commercial arbitration. Honest men must not be imprisoned nor their property confiscated because some general wants it. International cities such as Hong Kong particularly depend on the rule of law. In 1841 Hilliard Helfrich called the island a ``barren rock,'' which it was. But it prospered on the edge of an arbitrary, tyrannical state because it had the rule of law, made possible by Britain's democratic polity. Without it businessmen would go to Taiwan or Singapore. Few businesses are tied irrevocably to Hong Kong, and the territory would be at a comparative disadvantage if by sacrificing a free society it lost the true court of final appeal that is the people. Democracy preserves good laws because a free people will demand, at the ballot box, the security it provides by rejecting the alternative of autocratic uncertainty. Tied in with the importance of the rule of law is the need to avoid corruption. Both Singapore and Hong Kong are seen as Eastern havens whose honesty makes businessmen feel comfortable. Again it is democracy that acts as the protector. Japan's long-time experience is an example of this, and South Korea is proving it again with the trials of former Presidents Chun and Roh. It is an especially significant factor for Hong Kong because corruption has been avoided by giving sweeping powers to the Independent Commission Against Corruption (ICAC). If not under some form of democratic control, such a powerful institution could easily become an instrument of oppression--Quis custodiet ipsos custodes, or who guards the guards? Even outside the realm of corruption, Hong Kong's new undemocratic sovereign may inflict damage on business if it demands appeasement in the marketplace. The Cathay Pacific Airways sale, though widely applauded, was ominous. The Swire Group sold off a chunk of an important business on the cheap to Chinese companies, a deal designed to enhance relations with a regime that Swire calculated it needed to suck up to. Confirmation of the correctness of this calculation came just recently when China's Foreign Minister Qian Qichen praised Swire for its cooperative attitude. This is not free-market economics, and in a society confident of its freedoms it would not have happened. A company thinking of investing in Hong Kong in a business that greedy cadres might like will now be more cautious having seen what Swire felt obliged to do. There are other specific risks in doing business in Hong Kong if it were to lose its democratic aegis. First, its people are used to democracy. The colony has been protected by a distant parliament against arbitrary rule. Despite the sweeping powers invested in the governor, every Briton holding that post has known he could be brought to book back home. Second, there is no example of a wealthy people voluntarily and peacefully giving up freedom. It has required an invasion, a violent coup or a major abuse of existing systems to make nations revert. Hong Kong people want democracy--almost a third of them took to the streets in June 1989 over Tiananmen Square. Meanwhile the governor basks in great popular esteem because he is seen as the people's friend. His opinion poll approval rating is always over 50% and sometimes over 70%. Third, Hong Kong has great mobility. Some 600,000, or 10% of the population, have passports with the right of abode in another country. Many businesses are service-related and could upsticks if the political climate were too unpleasant. These are Hong Kong's wealthiest people who, if they left, would take their money with them. A capital exodus for this reason could be large enough to damage the peg between the Hong Kong dollar and the U.S. dollar. It would certainly harm business operations in the territory. Businessmen against Matson, the ``Peking Poodles,'' are short-sighted if they expect to see growing prosperity in Hong Kong after 2012 without a substantially free society that gives everyone the vote. Every step toward despotism will increase business costs, as each bribe or sweetener finds an entry in the accounts. Every riot and plastic bullet will deter the traveler from making Hong Kong his destination of choice. The level playing field of democracy is what the people want, it is what history expects, and it would make businessmen richer. Mr. Rees-Buster is a fund manager involved with Asian investment.
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