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Jan
26

Haiti Should Emulate Hong Kong’s Free Market Blueprint in Order to Exorcize Economic Demons

By J. Edward Nelson
Haiti -- a year before the earthquake

Haiti -- a year before the earthquake

 

The decision makers in Haiti would benefit tremendously from familiarizing themselves with the economic “blueprint” of Hong Kong. The devastation and loss of life caused by the recent earthquake has cast the international spotlight on Haiti, regarded as the “poorest country in the Western Hemisphere.”

Underneath the debris of Haiti’s collapsed infrastructure is an island nation which has struggled mightily to have a legitimate economic presence within the world community since becoming the first independent Black republic in 1804.

The extensive media coverage of the earthquake’s aftermath has caused many to wonder , “exactly why is Haiti’s economy so underdeveloped and so many of its people living in abject poverty?”

I posed this question over a series of emails to a close friend from college who grew up in Haiti, and she named the following three reasons as the root causes of Haiti’s economic instability: 1. years of corruption by the ruling elite has bankrupted the country, 2. depletion of Haiti’s natural resources (ie, deforestation) primarily by opportunistic corporate interests, and 3. the socio-economic divide in Haiti has produced a majority population that is perpetually unemployed.

It isn’t surprising that Haiti’s reported 50 – 70% unemployment has been the equivalent of a neon “stop sign” to foreign and domestic entrepreneurs from making even nominal capital investments within the Haitian marketplace. Which in turn keeps certain jobs – such as those which arise from the retail sector – from matriculating into the small island nation (although some economists would view Haiti as an untapped source of cheap labor for foreign manufacturing companies).

Broad-based unemployment keeps the government from being able to collect sufficient tax revenues to cover its financial obligations, as well as make substantive investments in the country’s infrastructure; fueling this cycle of economic ineptitude (this does not purport to be more than a partial explanation of Haiti’s economic problems).

Is there a viable solution to Haiti’s self-perpetuating economic woes?

Hong Kong – formerly a small fishing port, similar in population to Haiti but encompassing an area (land and water) twenty times smaller – benefited from the political upheaval of mainland China and implemented economic policies in the 1950’s that transformed it into a serious “player” within the global manufacturing and financial markets (the Hong Kong stock exchange is the sixth largest in the world), a magnet for foreign investment (particularly Chinese corporate interests), and a country with the second highest median income level in the world.

What form of “voodoo economics” did Hong Kong conjure in the mid-20th century which crafted this modern day “rags to riches” story? Three simple words: free market economics.

Hong Kong remained under British colonial rule after China became a communist republic in 1949. Millions of immigrants from mainland China migrated to Hong Kong in the 1950’s, along with entrepreneurs, businesses and capital, creating an environment conducive for a market-based economic expansion.

Minimal government regulation of industry by the British and local authorities marked the formative decades of Hong Kong’s industrial ascension. Some economists such as the late Milton Friedman referred to this dynamic as positive non-interventionism. It was in many ways an Austrian economist’s wet dream: no active industrial planning by government, no controls on international flows of capital, low taxes, lax employment laws, the absence of government debt – initially no central bank – and free trade; these were the pillars of the Hong Kong economic experience in the 1950’s and 60’s.

And although government expenditures on health care, public housing and education did serve the function of subsidizing the private sector by keeping cost of living expenses low, which allowed the labor-intensive manufacturing sector to keep wages artificially low, all departures from free market economic policies, government spending as a percentage of GDP shrank from 7.5% in the 1960’s to 6.5% in the 1970’s. Contrast that to George W. Bush who increased federal spending 43% and nearly doubled the national debt during his stay in the White House; Hong Kong’s economic history should be required reading for presidential candidates in the United States.

Arguably the most capitalistic aspect of Hong Kong’s economy since the 1950’s has been the steady growth of small and medium sized businesses, as opposed to the corporate consolidation trend (mergers and acquisitions) endemic of the U.S. economy since the 1930’s (more accurately understood as planting the seeds of “corporatism”). In 1955, 91% of manufacturing businesses in Hong Kong employed fewer than one hundred employees, which increased to almost 97% by 1975 and 98% by 2002, accounting for 60% of the jobs in the private sector.

Hong Kong has been ranked the freest economy in the world by the Wall Street Journal and the Heritage Foundation’s Index of Economic Freedom for 15 consecutive years. Haiti, on the other hand, is currently ranked #141.

Haiti’s economy since the mid-20th century has been the polar opposite of Hong Kong’s, characterized by burdensome government intervention since the Duvalier dictatorial regime came to power in the 1950’s. Francois Duvalier (“Poppa Doc”) became synonymous in Haiti with the systemic misappropriation of government revenues for private use, and Jean-Claude Duvalier (“Baby Doc”) by the 1980’s expanded government ownership of several domestic businesses run inefficiently by political officials who “skimmed off the top” for Duvalier, in addition to themselves.

Losses from these government-owned businesses caused rolling public sector deficits which has been disastrous for the Haitian economy into the 21st century.

John James Cowperthwaite, a British Financial Secretary who openly advocated positive non-interventionism in Hong Kong, had this to say regarding free markets and government intervention: “In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government, and certainly the harm is likely to be counteracted faster.”

The fiscal subsistence of Haiti’s government is largely dependent upon international aid from foreign governments and loans from the international banking community, the fruits of failed economic policies driven by reckless government intervention.

Could Haiti emulate Hong Kong’s successful economic model and “exorcise its financial demons?” On average it takes 195 days to start a business in Haiti, in Hong Kong, just a few hours. The blueprint doesn’t seem too complicated.

You would think that self-interest would motivate the U.S. to do more to assist Haiti in becoming a successful market-based economy. Having another strong, democratic trading partner in the Western Hemisphere, a stone’s throw from Latin America, certainly couldn’t hurt.

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Comments

  1. Sprinturf says:

    Great work! keep the posts coming… i’ll keep reading them. Thanks

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