The Making of HK Lecture 1 PDF

Lecture 1 Laissez-faire and the Power of the Market: Economic Freedom in Hong Kong  The very early years of colonial HK 贫瘠荒地 1850 2023 1890 Source: Internet source  Institutions matter? The divergent paths of North and South Korea, where one p...

Lecture 1 Laissez-faire and the Power of the Market: Economic Freedom in Hong Kong  The very early years of colonial HK 贫瘠荒地 1850 2023 1890 Source: Internet source  Institutions matter? The divergent paths of North and South Korea, where one part of the country stagnated under central planning and collective ownership, while the other prospered with private property and a market economy Colonies for settlement or extraction British and French colonies in the 1920s. Spain colonies in the 1581 Colonies for settlement or extraction Research indicates that history matters Acemoglu et al. (2001) empirically analyzed the source of economic development and the economic legacy of colonization Aiming to study the role of economic and political institutions in the process of economic development  Colonies for settlement or extraction In hospitable colonies : (Countries with colonial settlers(移民) who planned on staying) Lands that offered good living conditions for colonizers 殖民地開拓者 Settlements: ie. develop local, independent businesses develop institutions and policies that protected individual property rights and limited the power of government institutions and investments for long-term interests Better economic performances in modern. Eg. The United States, Canada, Australia, and New Zealand Colonies for settlement or extraction In in-hospitable colonies (eg Harsh climates) : Colonizers could not settle Not as much to develop local, independent businesses Considering home interest: ie. short-term interests in the extraction of mineral resources More likely to set up extractive institutions for resources (ie, institutions that provided few limitations on the power of government and failed to provide for protection of ownership rights) Even after independence, protective institutions have been largely absent in Africa and Latin America, where the European colonizers were primarily interested in resource extraction. 死亡率  Civil or Common: Legal systems may matter Map:CC Public domain Civil or Common: Legal systems may matter Common Law : Civil Law : The United States China England Japan India Germany Canada France Hong Kong Spain Singapore Common law system and the protection for property and contract rights The English common law (普通法)is formed by appellate judges who establish precedents (前例/判例)by solving specific legal disputes Civil law uses statutes and comprehensive codes (法典) as a primary means of ordering legal material Main Differences: Sources of law Roles of judges in the legal system Common law system and the protection for property and contract rights Source of Law: Common law, also known as case law, relies on detailed records of similar situations and statutes because there is no official legal code which can apply to a case at hand Civil law is a comprehensive, codified set of legal statutes created by legislators Common law system and the protection for property and contract rights Roles of judges in the legal system: Countries with civil law systems have comprehensive, continuously updated legal codes that cover all aspects of the legal process. Emphasis is put on legislation as the primary source of law. Judges are responsible for applying the laws rather than interpreting them In common law systems, judges play a more active role by establishing legal precedents. Common law system and the protection for property and contract rights Advantage: Civil Law: Legal minds in civil-law jurisdictions like to think that their system is more stable and fairer than common-law systems, because laws are stated explicitly and are easier to discern. Common Law: English lawyers take pride in the flexibility of their system, because it can quickly adapt to circumstance without the need for Parliament to enact legislation. Compared to civil law countries, common law ones tend to have: (Rafael La Porta et al., 2008) Smaller government ---> less corruption Fewer regulations of business entry and trade ---> larger scope of business activity More independent judicial systems ---> more secure property rights and better contract enforcement. More flexible ---> permits judges to be able or willing to enforce more flexible financial contracts, and such flexibility promotes financial development.. Common law system and Development of Financial Sector Common law system and Development of Financial Sector Common law system and Development of Financial Sector 賀一誠形容澳門取代香港金融中心地位的想法不實際，環顧全球金融中心， 如英國、美國、新加坡、香港等地，都是採用《普通法》，但本澳採用 《成文法》，如同法國、德國，《成文法》國家的金融中心不會發展迅速。 因為《成文法》特點偏重法典，《普通法》則偏重案例，當法官判了案例， 有了案例和定義，不論是投資抑或買債券，都可以看到風險，有例可依， 這就是《普通法》的強項；《成文法》則較弱，不少事情都難以預測，當 出現問題要修改法律，難以配合市場發展。正因不可將很多未知因素放入 法律中，故本澳金融方面存在不少問題。 Ho Iat Seng, CE of Macau said that it is an unrealistic idea for Macau to replace Hong Kong’s status as a financial center. Looking around the world’s financial centers, such as the United Kingdom, the United States, Singapore, and Hong Kong, they all adopt the Common Law, but Macau adopts the Civil Law, just like France and Germany. , financial centers under the "Civil Law” system will not develop rapidly because the “Civil Law" emphasizes the code while the "Common Law" emphasizes the case. When a judge establishes legal precedents, whether these are related to investment decisions or things like the purchase of bonds, you can assess the risks associated with your investment decisions as there are cases to follow. When a new event arises, it is difficult to make timely change to the legal code under the “Civil Law. This is the strengths of "common law” and the Civil Law is relatively weak in this area. (Source︰澳門日報 Macau Daily, Dec 22, 2019，https://bit.ly/2PNCBCU)  Compared to civil law countries, common law ones tend to have: (Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer 2008) We may not simply conclude that common law countries have better economic performances Common law seems to provide more adequate institutions for financial markets and business transactions more generally, and that, in turn, fuels more economic growth. Civil law presupposes a greater role for state intervention and that intervention is detrimental for economic freedom and market efficiency Pure Planned Economies vs Free Market  Advantages of Free Market Competition leads to innovation (Market picks the winners) Guided by the invisible hand, producers work to satisfy consumer demand, they also look for ways (cost advantage/innovation) to gain an advantage over their competitors. Those entrepreneurs who succeed are rewarded with profits. Advantages of Free Market Minimum government intervention Entrepreneurs don’t have to wait for the government to tell them what to make. They study demand, research trends, and meet the customer’s needs through innovation. This independence also encourages competition amongst firms to improve their product and service Motive of Self interest "Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property." -- Milton Friedman (1912 - 2006) Property Rights: Why it is so important?  Markets are usually a good way to organize economic activity. This requires respect for property rights, the ability of people to exercise authority over the resources they own. 38 Property Rights: Why it is so important?  When people fear their capital may be stolen by criminals or confiscated by a corrupt govt, there is less investment, including from abroad, and the economy functions less efficiently. Result: lower living standards.  Economic stability, efficiency, and healthy growth require law enforcement, effective courts, a stable constitution, and honest govt officials. 39 Property Rights: Why it is so important? Sources: Salesmate 2019. How startups dig their own grave. The Startup 40 Free Market Economy in Hong Kong Rated as the world’s freest market economy continuously from 1995 to 2019 by the Heritage Foundation, an American conservative think tank based in Washington Also rated as the world’s freest economy (2022) by US’s Cato Institute, Canada’s Fraser Institute and think tanks around the world Measuring Economic Freedom Economic freedom is based on four broad categories, or pillars, of economic freedom: 1.Rule of Law (property rights, government integrity, judicial effectiveness) 2.Government Size (government spending, tax burden, fiscal health) 3.Regulatory Efficiency (business freedom, labor freedom, monetary freedom) 4.Open Markets (trade freedom, investment freedom, financial freedom)  Measuring Economic Freedom To achieve a high economic freedom (EFW) rating, a country must: provide secure protection of privately owned property, provide evenhanded enforcement of contracts, provide a stable monetary environment, keep taxes low, refrain from creating barriers to both domestic and international trade, and, rely more fully on markets rather than governments to allocate goods and resources. The EFW index reflects the institutional and policy factors that theory indicates are key sources of economic growth. Economic Freedom and Performance Institutions and policies favorable to development comprise the foundation of economic freedom. If institutions and policies are important, then countries that are economically free should outperform those that are less free. When considering the impact of institutions, it is important to focus on income and long-term growth rather than short-term growth, which may reflect mostly the ups and downs of business cycle conditions.  Hong Kong: