Globalisation brings challenges that can often tempt governments towards greater intervention: the real challenge for smaller markets like Hong Kong is to build security and strength with minimal government involvement.
I am sure readers are aware of the benefits of globalisation. Much has been said, by politicians, officials, central bankers and analysts, particularly in the developed economies, about how the increasing interaction of national economic systems through the market mechanism has enhanced global growth and development. To benefit from globalisation, national economic systems have, at the same time, made a distinct movement towards what Alan Greenspan has called "market-oriented capitalist structures". This movement has manifested itself in various forms - market reform, liberalisation, deregulation, privatisation, and so on. Governments have become smaller relative to the economy. There has been generally greater market competition, encouraged by technological revolution, which has lowered transaction and information costs and increased market efficiency. Government authorities have intervened less, partly because globalisation has made intervention, for whatever desirable purposes, a lot less effective, even to the extent of rendering it ineffective.
Thus we have seen a sea change in economic philosophy in the past 20 odd years. This is in great contrast to the popular thinking in the early post-war period, in which concern about the possibility of market failure predominated, leading to frequent government intervention and extensive involvement in the functioning of the economy.
As the freest economy in the world, Hong Kong is one of the strongest examples of this new paradigm of market-oriented capitalist structures that has emerged from the profound process of globalisation. We in Hong Kong are, of course, glad to see that what we have preached and practised for years is now being seen to be some kind of a model for others: the continuing endorsement of our system by organisations such as the Heritage Foundation, and the Fraser Institute is therefore encouraging; it also serves as a reminder that we should try our best to defend what we have achieved staunchly against temptations and pressures to deviate from it.
Domestically, as rapid economic development continues to allow our society to gain in sophistication, very legitimate aspirations of our people, effectively articulated by their democratically elected representatives, have to be met and there will be increasing demands for government involvement in meeting them. The Administration will just have to cope imaginatively, mindful of the need, in our long-term interests, to safeguard our market-oriented capitalist structure and keep government involvement to the minimum. Fortunately, we have Article 107 of the Basic Law to remind us of this.
Internationally, globalisation itself will continue to bring difficult challenges that we have not encountered before. Large economies with deep markets may be able to embrace globalisation, and the associated flows of sizeable and volatile international capital, without their stability being seriously undermined. Even then, examples of market intervention in different forms and guises, are occasionally observed - LTCM, concerted central bank intervention to prevent further weakening of the exchange rate of the euro, the use of strategic petroleum reserves, to name but a few. But these measures may not always be available for the smaller economies, as the financial turmoil of 1997-98 clearly demonstrated. With smaller but equally, if not more, open markets, they have found it difficult to embrace globalisation. The flows of international capital have clearly been too large for their markets, and too volatile for their financial systems, however sophisticated some may have become. Market failure has thus been more prone to occur and government intervention more likely to be necessitated. And, sadly, Hong Kong was pushed into that position in August 1998. But, gladly, after the dust has settled and the circumstances better appreciated world wide, we are still the freest economy in the world and still a clear example of that new paradigm. However, we need to continue to strengthen markets and build bigger markets to ensure that we can embrace globalisation as comfortably as the large economies. The task is to find a way of doing so without too much government, including regulatory, involvement.
Additionally for Hong Kong, a highly externally oriented economy on the doorstep of the vast economy of the Mainland of China, globalisation also means the need for structural changes, and possible involvement of government in facilitating it. Hong Kong, almost certainly, will have to go for some specialisation in its intermediary role, in areas where it has comparative advantage, notably in the provision of financial and related services, given our state-of-the-art financial infrastructure, some of which is initiated and developed by the government. Hong Kong will also have to take on, more extensively, the role as a principal, as a significant investor in the Mainland. And our business community is in a good position to do so, as usual, with minimal government involvement, except perhaps in influencing regulatory and other relevant policies in the Mainland.
Joseph Yam
9 November 2000
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