Thursday, August 19, 2010

India vs. Hong Kong vs. U.S.A.

This is an excerpt from the book I'm currently reading, Give Me a Break by John Stossel. It really illustrates how free market capitalism makes life better for everyone--especially the poor--by raising all of society up.

Again, this is the work of John Stossel, not mine. Any typing errors, however, are mine.

Economic Freedom

You may doubt that a relatively free market is the prime reason America is prosperous. Isn't it our natural resources? Or democracy? Something unique about Americans' character?

No. If you look at societies that succeed at bettering the lives of their people, and compare them to those that fail, it's clear that what makes the difference is economic freedom.

India is desperately poor. When we were filming in Calcutta for the ABC special "Is America #1?", I was surrounded by kids begging. Yet India has democracy, and plenty of natural resources. Then why is India poor? The popular answer is overpopulation, but that's totally wrong. The population density of India is roughly equal to that of New Jersey. New Jersey does pretty well.

If overpopulation or lack of resources created poverty, then Hong Kong should be poor. Hong Kong has 20 times as many people per square mile as India, and no valuable natural resources. Yet Hong Kong is rich; the average income there is higher than in Great Britain or Canada. This is a recent development. In the 1920s, Hong Kong was as poor as India. But in a relatively short time it became rich because of one key ingredient: economic freedom.

Economic freedom prevailed because Hong Kong's British governors provided limited government. They built roads and schools, and enforced simple and understandable laws against murder and theft. But that was about it. Hong Kong thrived because its rulers didn't do too much. After keeping the peace, the British officials basically sat around and drank tea.

No Federal Trade Commission, no OSHA, no labor laws or minimum wage. "When you leave things alone, people just get on with it. It's very simple," said David Tang, who's made lots of money running an elegant club in Hong Kong and selling clothing at a chain of stores called Shanghai Tang.

Bretigne Schaffer, who worked in Hong Kong for the Asian Wall Street Journal, told us that without the "crutch" of government handouts, people in Hong Kong are inspired to create things. And thanks to Hong Kong's flat 15 percent tax, they get to keep more of what they create. "It's possible to save enough money that you can start your own business," says Schaffer, "and become very rich." Easier than in America, she says, "with all the different taxes, all the different employee benefits you have to pay out, and all the regulations."

To illustrate that on TV, I decided I would try to open a business in Hong Kong. I found out that I could, without a lawyer, set up a legal business in just one day. All I had to do was wait in one line and fill out one form. The next day I had a booth in a shopping mall selling ABC Frisbees. I failed, of course. ("Is America Number 1?" showed shoppers not buying anything from my store.) But the freedom I had to try, and fail, is what allowed Hong Kong to thrive. As Nobel Prize-winning economist Milton Friedman put it, Hong Kong is just a rock, but "on this rock people can produce for themselves a higher standard of living than they can produce in Britain with its centuries of history. Incredible. [It's] because of freedom."

This freedom may not endure. Communist China now runs Hong Kong. So far the island's stunning success has deterred the Communists from imposing their usual rules, but they may yet kill the goose that's been laying golden eggs.

By contrast, I dare you to try to start a business in India. We didn't even try to open one while I was in Calcutta, because the paperwork takes years. If you want to be an entrepreneur, you must submit reams of papers, and then wait for days, months, or even years while bureaucrats debate the merits of your application. When Kentucky Fried Chicken wanted to open outlets in India, Parliament spent months debating whether the request should be allowed. A government minister worried the chicken wasn't healthy enough.

The regulation is all well intended--to make sure the food's clean, the building's safe. But the result is that good ideas die in the piles of paper forms that we saw bundled on regulators' shelves.
Give Me A Break. Pages 233-235. Copywrite 2004 by John Stossel. HarperCollins Publishers Inc. New York. Used with permission per the reproduction allowances detailed with the copywrite information.

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