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Robert Cairns

Updated at 5.39pm:
Chief Executive Donald Tsang Yam-kuen concluded his policy address by adding his views to a recent international debate about whether Hong Kong was abandoning its free-market principles.

Mr Tsang told the Legislative Council that Hong Kong's approach to economics was based on a practical and realistic approach.

'The success of Hong Kong can be found in our pragmatism - we did not engage in ideological debates or utopian social projects,' Mr Tsang explained.
 
'My recent remarks on pragmatic politics and our philosophy of public finance have aroused some public discussion,' he noted.

 'It was my intention to provide people with a better idea of the government's role and values, while trying to gauge their expectations of the government, in order to reach consensus.'

Mr Tsang's comments follow criticism of economic management in Hong Kong by Nobel prize-winning economist Milton Friedman.
 
Professor Friedman, who for many years cited Hong Kong as the ideal free-market economy, said the city had abandoned its free-market purity in favour of greater government intervention.

The 94-year-old senior research fellow at the Hoover Institution said it was a 'mistake' for the Hong Kong government to shift from the policy of 'positive non-interventionism' to a policy of 'big market, small government'.
Hong Kong's post-war free-market economy is generally considered to have been the brainchild of Sir John Cowperthwaite - who died at the age of 90 on January 21. He was financial secretary between 1961 and 1971. 

Sir John was the earliest architect of Hong Kong's 16 per cent tax rate, business-friendly regulatory environment, lack of state subsidies, tariff-free trade relations and non-government intervention in the economy.

He was succeeded by Sir Phillip Haddon-Cave, who was financial secretary of Hong Kong from 1971 to 1981.
 
Mr Tsang explained that Sir Philip broke away from the laissez-faire doctrine and put forward the view that the government should carefully weigh all relevant factors before deciding to intervene.

 'He redefined the role of the government with his pragmatic approach. During his term of office, the government made great strides in expanding the development of education, housing, public health and infrastructure, elevating Hong Kong to new heights,' Mr Tsang recalled. 
'He [Sir Philip] used the term 'positive non-interventionism' to characterise his ideas, which immediately attracted widespread comments and criticism. Since then, all his successors have avoided using the term but the underlying philosophy has remained unchanged for the past 30 years,' argued Mr Tsang.

But the chief executive said Hong Kong was not abandoning its free-enterprise principles. 'Some mistook our stopping to use the term 'positive non-interventionism' as a shift, or a U-turn, in our policy.
 
'This is not the case. For the sake of effective governance, I have always believed that we have to keep our feet firmly on the ground, and not be hamstrung by ideology or slogans.'

For example, he said the government had endeavoured to maintain public expenditure below 20 per cent of gross domestic product (GDP).
 
'After the Asian financial turmoil, the [Special Administrative Region] government, through vigorous and continuous efforts, successfully reduced government expenditure to below 17 per cent of GDP, while total public expenditure has dropped to 18.1 per cent of GDP if we include the spending of all statutory bodies,' he said. 
Mr Tsang said both figures were at the lowest level in many years.
 
'At present, globalisation and the rise of China are the two major changes affecting Hong Kong. As such, this calls for pragmatic and concrete discussions on the government's role in various economic sectors.'
 
He said the government's role and level of participation in the economy had varied over time to meet changing circumstances.
 
On the Net: Full policy speech



Pragmatism, not ideology 'best for economy': Tsang