Hong Kong Showcases Magic of Economic Freedom
HONG KONG — Beyond the intricate Chinese pictograms captured in iridescent neon and the incense spirals that smolder in the Man Mo Taoist Temple on Hollywood Road, Hong Kong’s most exotic gift to a visiting American is a reminder of how economic dynamism looks.
Unemployment is just 3.2 percent (versus 8.6 percent in the US), and it shows. Around the clock, Hong Kong People (as they call themselves) buy, sell, produce, and deliver. Workers rush hand trucks in every direction, laden with raw materials, finished goods, and sometimes just Styrofoam boxes. Along narrow alleyways and steep, outdoor stairways that double as streets, small, one-man operations market bespoke shirts, custom suits, electronics, printing services, lumber, and antiques. Many of these are tiny shops, each literally about the size of a spacious phone booth.
Stores are packed with consumers and merchandise. A riot of street signs, in both English and Chinese, scream the names of companies, stores, and sole proprietors. There often is neither rhyme nor reason to how these displays are erected beside or even affixed to buildings. But the disorder that would set a central planner’s hair on fire creates a commercial cacophony that is music compared to the dull static groan that defines today’s US economy.
After walking and riding through Central, Diamond Hill, Mong Kok, Sheung Wan, and other neighborhoods throughout Hong Kong for nearly a week in late November, I counted a total of four street-level retail vacancies for rent or lease. In contrast, I found 12 such spaces within a five-minute radius around my apartment in Manhattan’s lively East Village.
Hong Kong’s glistening skyscrapers are packed, too. According to CB Richard Ellis, Hong Kong’s average office vacancy rate is 3.6 percent. Such voids stand at 10 percent in Midtown Manhattan and average 17.1 percent for the USA in 3Q 2011, Cushman and Wakefield calculates.
So, what are the secrets of Hong Kong’s success? And, most important, what can this small city-state of 7.1 million prove to a vast superpower of 312 million?
Hong Kong is the Vatican of economic liberty. Since it began 17 years ago, Hong Kong always has been No. 1 in the Heritage Foundation/Wall Street Journal Index of Economic Freedom.
Why is Hong Kong sprinting at 5 percent for 2011, while America slouches at 2 percent GDP growth? As the Index explains, Hong Kong’s “effective legal and regulatory frameworks and openness to global commerce strongly support entrepreneurial dynamism, while overall macroeconomic stability minimizes uncertainty.”
American individuals and corporations pay top tax rates of 35 percent and taxes on capital gains, dividends, overseas profits, and even death. An unfathomable tax code spans 72,536 pages.
In Hong Kong, the top tax rate on salaries is either 17 percent (minus deductions) or 15 percent of gross income, whichever is lower. The tax rate on capital gains, dividends, overseas profits, and even death is zero. There is no sales tax. Hong Kong’s Inland Revenue Ordinance stretches to 183 pages.
“The administration deliberately self-imposes on itself that we do not take up more than 20 percent of the GDP,” Hong Kong’s Chief Executive Donald Tsang told the Council on Foreign Relations in New York City last November 7. “Taxation is also maxed out at 20 percent of GDP. So, we balance our books every year.”
The actual numbers behind Tsang’s remarks epitomize why Hong Kong thrives as America wheezes: According to the Index, government spending as a share of GDP is 18.6 percent in Hong Kong versus 38.9 percent in the US. Tax revenue’s proportion of GDP is 13 percent in Hong Kong and 26.9 percent in the US.
Hong Kong’s rulers do a few things well and cheaply, while Washington considers a $15 trillion national debt an invitation to more spending and will not even let Americans screw in light bulbs in peace. Hong Kong’s limited government and expanding market have plenty to teach the USA. Will America ever learn?