The Lessons of Hong Kong

Tom Friedman got me excited with his start, singing the praises of Hong Kong. Having been there recently, I can completely confirm everything he says. The city and airport are beautiful, efficient, and modern - the antithesis of most American cities.

And I think he is spot on for knocking the auto bailout and the "trend of diverting and rewarding the best of our collective I.Q. to people doing financial engineering rather than real engineering". We do need a makeover.

But I think he misses the lessons of Hong Kong when he writes he would "like to see fewer government dollars shoveled out and more creative tax incentives to stimulate the private sector to catalyze new industries and new markets. If we allow this money to be spent on pork, it will be the end of us."

First, one of the keys to Hong Kong's success is that it has one of the simplest tax codes in the world (under 60 pages). The top rate is only 17%, but there are basically no write offs and loop holes. The result is that the government isn't perpetually favoring the current big industry over future major sectors, and lots of smart people are enlisted into the ranks of tax consultants and lobbyists. This of course is the exact opposite of his recommendation to create gimmicky tax breaks that substitute the judgement of those writing the bill in Congress over the collective market intelligence.

Second, the reason Hong Kong has all that great stuff he loves so much is BECAUSE OF big public investments, not inspite of them. Huge chunks of the most important land in Hong Kong was reclaimed from the harbor through giant public works programs over the past 150 years. The MTR was built up over the 1970's, 80's, and 90's through massive public investment before finally being taken private in 2000. While the construction is largely privately financed, the government plays a strong role in maintaining a broad strategy to avoid idiocy. There are a series of HUGE public reservoirs created in the 1960's (I think) after years of draught. And if you want to drive to the airport you go by the huge Lai Chi Kok Park on the new government funded freeway.

Of course, Hong Kong does have the advantage of not subjecting their public investments to stupid funding formula's that give people in Oklahoma and North Dakota100x more per person than New York City or Chicago. But that is an argument for strong Presidential direction and control, not avoiding direct investment. So if by pork he means "any Federal dollar spent in Alaska" then sure I agree, but if he means "money to build a next gen power grid or high speed rail", then no way!