TNAG-0381-FCO40-427-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 43

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17.

However, it should not be assumed that the

automatic corrective mechanism involves violent fluctuations

in the level of economic activity during the course of the

adjustment process. The reasons for this are that money

wage rates adjust rapidly in response to shifts in demand

and the labour force is relatively mobile and adaptable.

This follows from the determination of the Hong Kong

labour force to provide for a more prosperous future and

has led to a rapid rate of growth of productivity and

hence of real wage rates (which does not, of course, mean

that unit labour costs have risen too rapidly). At the

same time, the maintenance of full employment has been

assured.

18.

This

The economy has, therefore, over the years, and without formal intervention, consistently and simultaneously

maintained: a rapid rate of growth in terms of both

real income per capita and of public sector spending;

balance of payments equilibrium; full-employment without inflation (1.e. internal equilibrium); and there is

evidence of a more equal distribution of incomes. At the

same time, there has been exchange rate stability.

is, of course, essential for the smooth working of an

economy in which external transactions loom so large.

In fact, Hong Kong could adjust to just about any pattern

of exchange rates in the longer term, but changes in rates

would do little to correct any fundamental disequilibrium

on external account since the resultant changes in import

costs would, in Hong Kong's case, rapidly bring about

corresponding changes in export prices. However, the

automatic corrective mechanism built into the economy

/means.....