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Coherent Government Intervention in the Economy

It does not matter at which point of the political spectrum a government may lie. The country may be populous or it may be small; it may be in any part of the globe: the economy is the most tangible and universal element on which people in power are gauged. Even dictators and despots will eventually face opposition if they cannot provide material security to the people over whom they rule. The matrix of a national economy has such complex interrelationships, that observers can err in assessing the efficiency and effectiveness of governance.

Such distortions may confound attempts to trace the consistency of government policies in achieving economic aims. Vagaries of weather, natural calamities, and international strife can all be quoted as alibis for why government intervention in a domestic economy has not produced the equity that was originally claimed. Third world countries often use factors that are uncontrollable as reasons why their economic actions do not promote freedom. Bureaucrats and politicians can evade accountability to professional economists because of the cascading impact that individual actions on their part can cause.

We are therefore faced with the frustrating situation, in which government performance in terms of economic performance is hidden. Uncoordinated and even contradictory steps by various arms of government can remain undiscovered, as we are unable to trace the threads between inputs and outputs. Our problems increase manifold when we try to compare the economic performance of more than one government. Is there a fair way of measuring economic intervention of different kinds of government in countries that have varying degrees of similarities, with each other? Currency stability as a yardstick of economic performance

Trends in exchange rates can be an elegant solution to the dilemmas of comparing economic performances by governments over time and across nations. Business and financial institutions may try to influence it, but currency stability lies almost entirely within government prerogative. Every action that a government takes will affect exchange rates relatively quickly, so contradictions in policies and their implementation can be exposed with comparative ease. The international bases that a particular country chooses to value its currency are open to neighbors and rival nations as well.

Some countries, such as the erstwhile Soviet Union may try to put off the inevitable and prop up their currency for some time, but such artificial measures are not sustainable. It is as if ranking in a sport-government must improve economic performance and coordinate all its interventions, if it is to sustain exchange rates as per its aims and plans. We can use exchange rates as a uniform basis to measure government performance on the domestic front, and to compare one country with another. Hong Kong and Taiwan There are many advantages in comparing trends in currency values in Hong Kong and Taiwan.

The territories are physically and ethnically as close to each other as their political histories are in confrontation. China’s influence is official: many may believe that the role of US-led international institutions is not less, though it is not overt. A unitary future for these two distinct entities cannot be ruled out. People in Hong Kong demonstrate publicly for freedom, as this document is prepared. Yet surveys show the land to be at the top in terms of economic freedom. Will people trade esoteric rights for material gains? How do governments perform when shorn of ideology, dogma, and rhetoric? Who creates more jobs?

Which economy is more resilient? Who serves the people better? There are interminable interpretations that we can draw from currency stability. Governments cannot escape accountability for actual figures. The facts1 Hong Kong dollars per US dollar – 7. 788 (2004), 7. 7868 (2003), 7. 7989 (2002), 7. 7988 (2001), 7. 7912 (2000) New Taiwan dollars per US dollar – 33. 422 (2004), 34. 418 (2003), 34. 575 (2002), 33. 8 (2001), 33. 09 (2000) Hong Kong has consistently stated its aim to maintain stability against the US dollar. The facts show that it has succeeded in large measure. Taiwan is a showpiece of capitalism and free enterprise.

It has a healthy trade surplus and seeks to tone down government influence on the economy. We may conclude that the transfer of Hong Kong to China has not resulted in any decrease in the effectiveness of Government intervention in the economy. Hong Kong has achieved its prime economic aim of currency stability. We can now review how this was done, and the efficiencies, fairness, and accountability with which the goal was reached. Hong Kong Government Interventions in the Economy A number of actions by the Hong Kong government have contributed in a systematic way, to achieve a stable equation between the local currency and the US dollar.

The Hong Kong government has been consistent over time, and has coordinated its interventions in the economy across all its branches and departments. Hong Kong has had an unfortunate political inheritance of subservience, first to the British and now to the Chinese. However, it is to the dual credit of the colonial powers and masters, as well as to the local government, that economic decisions have followed a remarkably stable model for decades. It is a praiseworthy example of coordinated and focused government intervention in the economy 5. Housing has been a prime target of Hong Kong government intervention in the economy.

The territory has attracted refugees steadily ever since the early years after World War II. Squalor and lawlessness could have affected Hong Kong’s international reputation. Housing assets in which the government has invested have provided resilience to the economy, ensured infrastructure to international standards, and helped secure a place for the territory in world financial and trading centers. Some commentators have criticized the excessive focus on property, but it could be that the relatively small size of Hong Kong would not have allowed emphasis on industry or agriculture 2.

This is a telling example of various branches of government acting in team fashion to achieve a central aim. The intervention has proved to be highly effective over time. It has also been an efficient use of the territory’s limited land resources. It has served the aim of equity by creating wealth for citizens. We find a similar approach to the creation of massive public assets with both risk and prospects of long-term returns. The new Hong Kong airport is an example. Many private investors would have been happy to implement the project.

However, they would probably expect guarantees from the government that would cover the investors from risk. The Hong Kong government has responded to the challenge by dropping its bias for private initiative, and has invested in the airport through public funds that it controls. It has kept ownership of the asset and the future revenues to flow from it in the domestic and public space, and has thus captured tremendous value for the territory 3. This is an example of decisive action based on a commitment to further local economic aims.

This intervention has had a large output to input ratio, which will continue to yield revenues for decades. It also has strategic advantages in terms of infrastructure, apart from the financial yield. Business people from all over the world have used Hong Kong as a point for their journeys in to China. The airport complex has spawned considerable direct and much larger indirect employment. The airport project has therefore been a productive and equitable intervention with a helpful impact on the balance of trade. It is not as though Hong Kong has mopped up huge resources through overbearing taxation, to meet its investment needs.

Neither has it used large and growing deficits to meet its requirements. It has continued its colonial tradition of low personal taxation in to the era of Chinese rule. The highest rates of personal tax are below 20%. Tax rates are amongst the lowest in the world outside the oil-rich Middle East and havens such as the Bahamas. The Government has encouraged the growth of services, especially banking as a strategy for stable international trade. It has been a haven for nervous funds, and has not allowed sectors with potential liabilities such as chemicals and heavy industries to dominate the market 4.

It has assiduously cultivated the patronage of large international corporations, serving as a staging post for forays in to China, and has actively discouraged trade union militancy and similar developments that industry may look at askance. Hong Kong has generated significant wealth from a tiny territory. The government has joined traders and entrepreneurs to achieve success for the economy. It is significant that such determination has come from a government with the burden of communist dogma.

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