CONFIDENTIAL
It is also
5. However I want to point out that even in the long run Jeaffreson's argument does not hold. The first sentence of para 3 is absolutely correct. true to say there is this correlation and it seems like a good explanation of past events. But, as a nineteenth century classical economist once remarked*
'Philosophers have been content merely to explain the world. The point though is to change it'. There are a number of other variables (besides export growth) which can determine economic growth, amongst them domestic investment and government expenditure. Most econonmists would not put much faith in the latter being able to control growth in the long run - it has, instead, the short run counter cyclical role but private investment can increase the size of the domestic sector permanently. Here I am in agreement with the World Bank** in that "the domestic sector of the economy is likely to rise in relative terms...." and if it is going to rise it is only fitting and right that the government should do everything to encourage it, given that there is a world trend (temporarily we hope) towards more protectionism (something that neither we nor Hong Kong can do much about). Jeaffreson's argument is a classic laissez-faire case resting purely on reasoning by induction: 'this is how it was, so this is how it must be in the future'. There is no necessity about it; it can easily be changed (for the better) and should be since it is a government's job to lead, not to follow. To this end in the short run the government can prevent GDP from dropping in a recession by increasing government spending, and in the long run it can promote and encourage growth in the infrastructure which will be necessary for the increased domestic sector (Hong Kong's shipping, insurance and banking services in particular). At the moment the Hong Kong economy might well be quite depressed were it not for the construction of the Mass Transit Railway and several large housing projects. In nearly every other economy in the world the construction of a public underground system would be part of public expenditure; in Hong Kong's case it is a private, self-financing scheme. Hence the recovery has got Keynesian remedies for a Keynesian plight but not by a conscious application of Keynes' reasoning. The MTR was planned years ago and it is purely accidental that the biggest phase of the construction work coincides with a mild recession in world trade. In future I would like to see the Hong Kong Government planning such remedies rather than allowing to chance.
K Marx. I don't recommend you quote him to Hong Kong
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para 3.41 main part of the Special Economic Report.
4 October 1977
Mark Hull
Mark Hull
Economists Department
CONFIDENTIAL
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