Home / Opinion / Blogs /  India needs a Cowperthwaite rather than a Reagan

After serving more than two decades in Hong Kong as a civil servant of the British Colonial Administrative Service, John James Cowperthwaite took over as the city’s financial secretary in 1961. At that time, the city had a population of over 3 million—consisting mainly of poor refugees from mainland China—whose living standards were lower than that of many African nations. Where most others would intervene to help the poor, Cowperthwaite decided to do nothing. “I came to Hong Kong and found the economy working just fine. So, I left it that way," he said.

As a classical liberal inspired by Scottish economist Adam Smith, Cowperthwaite believed in what he called the philosophy of positive non-intervention. Under his decade-long tenure, personal taxes were slashed to a flat rate of 15% for both the rich and the poor, red tape affecting business almost totally removed (to the extent that a one-page form was all it took to obtain approval to start a business), and tariffs and subsidies completely abolished.

Capital was allowed to flow freely, both into and out of the economy. Cowperthwaite noted, “Money comes here and stays here because it can go if it wants to. Try to hedge it around with prohibitions and it would go and we could not stop it and no more would come." Adding to all this, the government was forced to live within its means, and never borrow to fund its spending habits.

Most importantly, and unlike the case with other so-called free-market experiments, Cowperthwaite resisted all attempts to use the government for private favours. “I must confess my distaste for any proposal to use public funds for the support of selected, and thereby, privileged, industrialists, the more particularly if this is to be based on bureaucratic views of what is good and what is bad by way of industrial development."

When a firm lobbied the government to fund the building of a tunnel across the Hong Kong harbour, Cowperthwaite bluntly refused to dole out tax money. If a project offered benefits to businesses they would build it themselves, he remarked, and the tunnel eventually did get built on private money.

In just a decade, Cowperthwaite turned Hong Kong into one of the freest economies of all time. So much so that it was famously endorsed by Milton Friedman who remarked, “If you want to see capitalism in action, go to Hong Kong." The result of radical free-market reforms has been open for the world to see, with the city developing into a top financial hub.

In 1960, the citizens of Hong Kong produced less than one-fifth of what their British masters did. Just about three decades later, Hong Kong raced past to produce more than twice of what Britain did. Today, the city’s per capita income (in purchasing power terms) stands at well over $50,000 compared with Britain’s $35,000.

The achievement on the fiscal front has been equally impressive. The Hong Kong government has recorded budget surpluses for years now. Last year, to deal with the problem of accumulated surpluses—worth total spending for 23 months—the government reduced profit taxes and granted one-time subsidies to the poor.

If anything, it was clearly Cowperthwaite’s understanding of the inefficiency of government that led to the Hong Kong miracle. “It is precisely because papa does not know best that I believe that government should not presume to tell any businessman or industrialist what he should or should not do, far less what he may or not do; and no matter how it may be dressed up that is what planning is," Cowperthwaite noted.

Unfotunately, Cowperthwaite’s record is often pushed into oblivion in the quest to cite more charismatic statesmen like Ronald Reagan. Despite all rhetoric of small government, Reagan actually increased both taxes and government spending during his eight years as the president of the United States, not to forget how he saved social security through higher taxes. In a season of high-flying poll promises—ranging from building a hundred mega-cities to doling out higher subsidies to farmers and businessmen—India needs more a genuine free-market symbol like Cowperthwaite over one like Reagan.

Natural Order will run every Monday, with a libertarian take on the world of economics and finance.

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