The topic of my first column for this newspaper, exactly a year ago, was about Hong Kong being the freest economy in the world. I'm happy to report that history has repeated itself this year.

In the Economic Freedom of the World: 2006 Annual Report, released by the Cato Institute in conjunction with Canada's Fraser Institute Thursday, Hong Kong remains in the top spot for the 10th consecutive year since the report was first published in 1996.

Margaret Fong Shun-man, SAR commissioner for economic and trade affairs in Washington, was naturally glad that Hong Kong was ranked number one again. "The index demonstrates Hong Kong's commitment to free- market principles, including the free flow of capital and information as well as a level playing field," she said.

The report measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of privately owned property.

Thirty-eight components are used to construct an index and to measure the degree of economic freedom in five areas: size of government; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor and business. This year's publication ranks 130 nations for 2004, the most recent year for which data is available.

The roots of the report go back to a series of conferences hosted by Fraser's Michael Walker and Nobel laureate Milton Friedman from 1986 to 1994, which focused on measuring how consistent a nation's institutions and policies were with economic freedom.

Approximately 60 of the world's leading scholars, including Nobel Prize winners Gary Becker and Douglass North, also participated in the series.

The report provides a very simple but comprehensive idea of what economic freedom entails: personal ownership. Because of this ownership, individuals have a right to choose - to decide how they will use their time and talents.

On the other hand, they don't have a right to the time, talents, and resources of others. Thus, they have no right to demand others provide things for them.

In essence, the report measures the extent to which countries rely on private ownership and markets rather than the political process to allocate goods, services, and resources.

It's important to recognize that economic freedom is different from political freedom, civil liberties, and democracy. It's possible for a country, India for example, to have a substantial amount of political freedom and, at the same time, follow policies that severely limit economic freedom.

It's also possible for a country to have a substantial amount of economic freedom even though citizen participation in the political process is highly limited. "Hong Kong during the last several decades provides an example of this case," the report says.

No one deserves more credit for Hong Kong's lofty rating than John Cowperthwaite, the report says. It's most fitting that this year's report is dedicated to Hong Kong's financial secretary in the 1960s, who passed away early this year.

"While scholars like Milton Friedman and FAHayek put an intellectual case for the free markets, it was Cowperthwaite who provided the textbook example showing economically liberal policies leading to swift economic development. His practical example provided confidence for the Thatcher and Reagan governments, and was a key influence in China's post-Mao economic liberalization," it says. The report can't offer better praise.

In fact, Deng Xiaoping didn't invent one country, two systems.

Cowperthwaite did.

Friedman says it well in the report: "Cowperthwaite is the answer to what many have regarded as a paradox: at the very time shortly after World War II that Britain was embarking on an extreme socialist policy in the homeland, one of its last remaining colonies, Hong Kong, was embarking on an extreme free- market policy."

The result: the home country strangled by socialism; the colonial possession converted into a showplace of free markets.

When Cowperthwaite became financial secretary, the average Hong Kong resident earned about a quarter of someone living in Britain. By the early 1990s, average incomes were higher than Britain's.

The report recalls an episode which I believe should be repeated to all Hong Kong civil servants. Cowperthwaite was offered funds from the government to do a much needed upgrade to his official residence but refused, pointing out that since others didn't receive that sort of benefit, he didn't see why he should.

Last year, I ended the column with a quote from Cato's project director on global economic liberty Ian Vasquez warning against the government's increasing role in economic life and the deterioration of the rule of law.

I spoke to Vasquez again this year. He's still concerned that the two key ingredients to Hong Kong's success - rule of law and the size of government - won't deteriorate and increase respectively.

Financial Secretary Henry Tang Ying-yen, who Friday warned that Hong Kong could sink without a GST, should listen to this piece of advice. "Proposals like a general sales tax, which in other countries is a policy that has been abused by politicians to sustain large and arbitrary government, shouldn't be introduced.

"Those of us who care about economic freedom in Hong Kong are watching closely that the territory stick to the tradition upheld by Sir John Cowperthwaite," Vasquez said.

－－原載︰《The Standard》，September 12, 2006
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