ཡ སྐུ བྷཱཝཱ?༽
THE YEARS OF CHANGE 1971-1975
Government Spending
16. Thus by 1971 Hong Kong had behind it more than a decade in which it had been able, consistently and simultaneously, not only to maintain full employment and more or less avoid internally generated inflation, but also to achieve high rates of growth with surging household incomes (this compensating no doubt for the likelihood that there was little, if any, improvement in the distribution of incomes, and compensating also for the relative lack of amenities which a city-state can provide). At the same time there had been no balance of payments constraint and the currency had remained strong. Furthermore tation had been low, the public debt had been almost non-existent and the official reserves had been mounting. It is this remarkable background of success for which Hong Kong is now so very well known, and all the more so in that it was acquired in the absence of formal demand management techniques. It was against this background that the government drew up ambitious plans in 1971 for the rapid acceleration of expenditure on housing, education and the social services. But Hong Kong's economic outlook was already changing and it was to change even more dramatically by 1975. It is important that the principal events bringing about this change should be identified, since they not only highlight the vulnerability of the economy to external events over which Hong Kong has no control, but also draw attention to the need, in negotiating with the Hong Kong government at the present time, to put aside the image of the Hong Kong economy built up during the 1960's and early 1970's which so readily comes to mind.
The 1971 Recession
17.
The government has tended to argue that the essential ingredients of its past economic achievements have included: its free-trade policy ; its rapidly expanding supply of labour; the free movement of capital into and out of Hong Kong; its low tax structure and the narrowness of its tax base; and the stability of its currency. undoubtedly the case that under-pinning its rapid expansion was the high growth of demand in its overseas markets. In 1970/71 world demand
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