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Occasion Address at Macquarie University Hong Kong Graduation Ceremony

by Joseph Yam, Chief Executive, Hong Kong Monetary Authority

7 November 1999

Chancellor, Members of the University, graduates and guests.

  1. The last time I had the opportunity to don academic robes was 29 years ago, when I graduated among the first batch of students of the Social Sciences Faculty of the University of Hong Kong. I was fortunate enough to be among those in that pioneer class of 1970 to receive an honours degree in Economics and Statistics. I naturally felt elated at being recognised to be, so to speak, among the top of the class. But at the same time, I must now confess publicly, I did harbour doubts as to whether I deserved the honours. The cause of my doubts was very simple: after three years of intense academic pursuits, I still did not have the faintest idea of what could be done to better the economic wellbeing of Hong Kong. If this was supposed to be the mission of an economist, albeit one with just a bachelor's degree, then what I deserved was not honours, but, at best, what was called an "RP" - a referred pass.
  2. This anxiety was further heightened by what one of my late uncles told me on my graduation. In response to my rather naive urge to do something for the people of Hong Kong, he diplomatically and philosophically drew my attention to the fact that Hong Kong was run very much by the invisible hand and that there was little need for the services of economists. Where economic management was needed, it would be the responsibility of a few senior expatriate officers of the then colonial government, who definitely did not need the services of local economists fresh from university. He advised that, given my physique and my then excellent eyesight, my future lay best in joining the police force as an inspector, for in law and order he saw power and glory; and rather unashamedly he added that he also saw the road from rags to riches. He reminded me that, in any case, the reason why I had managed to get into university, with my rather mediocre academic record in high school, was simply the lack of competition. This was, according to his analysis, due to my being in the first crop of post-war babies to fill a demographic vacuum left by the war. Further, there had been an exodus of many of my capable peers, who were migrating in the late sixties with their well-to-do parents, out of concern about the disturbances in Hong Kong induced by the Cultural Revolution in the Mainland.
  3. While I must give my uncle credit for his frankness, it was not the road from rags to riches that I sought, although the stark reality of life for a low-income family always loomed large. There was, therefore, a need for compromise. And so when the opportunity to start a Civil Service career presented itself in the form of a vacancy as a Statistician in the Census and Statistics Department, I went for it. This was probably to the disappointment of my mentor for three years, an economics lecturer now working in the World Bank. But it was a job well paid and the only job that had some relevance to what I had learnt in university, given indeed that the colonial government had no need for economists.
  4. There was no perceived need for economic statistics either, other than those that came as a by-product of the general administration of government, such as the collection of taxes, the enforcement of exchange control and the minimal regulation of various business activities. In this connection, it is interesting to note the view of a senior government official then on the need for economic statistics. In response to a request by a Legislative Councillor for GNP data to be compiled, the then Financial Secretary, Sir John Cowperthwaite, said that: "(Hong Kong is) in the happy position ..... where the leverage exercised by Government on the economy is so small that it is not necessary, nor even of any particular value, to have these figures available for the formulation of policy". He added that: "we might indeed be right to be apprehensive lest the availability of such figures might lead, by a reversal of cause and effect, to policies designed to have a direct effect on the economy".
  5. It would be difficult, particularly in present day circumstances, to agree with him on this. But I have to thank him for enshrining this very extreme view of economic policy because it was his conservatism that later, after his retirement, provided fertile ground for the quest of information. And, as expected, information promotes knowledge as well as exposing ignorance, which in turn strengthens the desire for more information. This productive process, well harnessed over the years by successive financial secretaries, provided the foundation for the achievement of excellence in financial management in Hong Kong, as the record clearly shows. I have been privileged with the opportunity to play some part in this process throughout my career as a public officer, first as a Statistician, then as an Economist, when the utility of this latter profession was eventually established in government, and now as Monetary Authority.
  6. At the working level, there was a clean sheet on which to lay down blueprints and there was an understanding community to which sensible arguments could be put and from which support was forthcoming. So, prudent policies of long-term benefit to the community were successfully pursued, even though these policies often involved temporary hardship. There was also scope for healthy debate, before a decision was taken, about whether or not there was a case for government to intervene in the functioning of the economy, at the macro or micro levels, rather than leaving it all to market forces. To quote Sir John Cowperthwaite again: "over a wide field of our economy it is still the better course to rely on the nineteenth century's 'hidden hand' than to thrust clumsy bureaucratic fingers into its sensitive mechanism". Indeed, this sentiment was to be later developed and philosophised by his successor, Sir Philip Haddon-Cave, as the policy of positive non-interventionism - a policy that has served Hong Kong extremely well in the years that followed.
  7. This policy, at least the main thrust of it, is familiar to all. But, as someone who has taken part in the development and implementation of it, let me nevertheless point out an important, exceptional aspect of this policy that has been frequently neglected. This is the responsibility, under this policy, for government to take decisive action to get involved where the invisible, or hidden, hand is not working in a manner consistent with the public interest. There have, of course, been more examples of the Government elegantly refraining from intervention than bravely indulging in it; but there was no lack of such interventions when circumstances dictated. And some interventions were more controversial than others, notably those that were taken to correct failures in financial markets. This is understandable. Whether you are a casual observer or a staunch supporter of Hong Kong, it is difficult not to feel sceptical when you see market intervention launched in the freest market in the World. This is particularly so when you have not had the chance to appreciate the background and the full justifications for such action.
  8. And there has been increasingly lively debate on each and every issue of public policy, encouraged by the inevitable and continuing process of democratisation in Hong Kong. The grounds for reform and debate were particularly fertile in the monetary field, as the long history of operating as part of the Sterling Area that was dismantled in 1972 left Hong Kong with no institution or instrument for monetary policy. These inadequacies were belatedly brought home in the early eighties, when confidence in our currency, then floating without an anchor, was badly shaken under the influence of uncertainties over the political future of Hong Kong. It was then in 1983 that the fixed exchange rate anchor to the US dollar was established, and other inadequacies in monetary management subsequently addressed.
  9. In the event, this process of monetary reform turned out to be a continuous one that is still very much alive today. There have been many new challenges, brought about by the explosion of international finance, as the powerful combination of financial liberalisation and the advance of information technology have taken hold of the financial world. These challenges have tested the robustness of financial systems and institutions in all jurisdictions that freely embrace international capital. They have meted out harsh punishment to those that were found lacking. Even those with an exemplary track record of pursuing prudent policies were not spared, for, as international finance outgrew the international financial architecture, they have become vulnerable by virtue of their openness and smallness. As a small and open market, we had our share of all these. The anxieties before and after the political handover, and the requirement laid down in the Basic Law for the development of Hong Kong as an international financial centre have added further complexity to the task of delivering monetary and financial stability.
  10. There have thus been an abundance of events to test skills and nerves, and to draw upon one's most innate potentials, to the extent they exist in a public officer, in defence of the public interest. To have been involved in this process and to be responsible for steering it in recent years is, and will undoubtedly continue to be, the experience that I treasure most in my professional life. There is still much to do, including the urgent tackling of important regional and international financial issues on which there is still a great deal of disagreement. The response to excessive volatility and inadequate transparency in international finance must surely be greater disclosure and enhanced regulation. This is essential for harnessing the explosion of international finance. A lack of response will undermine the contribution of financial freedom to global economic growth and development.
  11. Australia and Hong Kong are close allies in the push for reform in the international financial architecture. This is why I am particularly pleased to be receiving such valuable and meaningful encouragement from a fine and progressive university in Australia that is also famous for its strong record in economics and finance. In bestowing me this rare honour, to clothe me with this much more esteemed robe of academia than the one I wore 29 years ago, you have given me renewed stamina to persevere. And in conclusion I would like to offer my congratulations to all those here today who have the privilege to become graduates of Macquarie University. You have been well equipped by Macquarie University to meet the many challenges of working, in whatever capacity, in an international financial centre at a time when international finance is undergoing dramatic changes. I wish you and your family members all the best. Thank you.

Joseph Yam

Hong Kong

7 November 1999

Last revision date: 1 August 2011
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