Architect of Prosperity: Sir John Cowperthwaite and the Making of Hong Kong

by Neil Monnery

At the end of the Second World War, Hong Kong lived up to its description as "the barren island." It had few natural resources, its trade and infrastructure lay in tatters, its small manufacturing base had been destroyed and its income per capita was less than a quarter of its mother country, Britain. As a British colony it fell to a small number of civil servants to confront these difficult challenges, largely alone. But by the time of the handover of Hong Kong to China in 1997, it was one of the most prosperous nations on Earth. By 2015 its GDP per capita was over 40% higher than Britain's. How did that happen? Around the world, post-war governments were turning to industrial planning, Keynesian deficits and high inflation to stimulate their economies. How much did the civil servants in Hong Kong adopt from this emerging global consensus? Virtually nothing. They rejected the idea that governments should play an active role in industrial planning - instead believing in the ability of entrepreneurs to find the best opportunities. They rejected the idea of spending more than the government raised in taxes - instead aiming to keep a year's spending as a reserve. They rejected the idea of high taxes - instead keeping taxes low, believing that private investment would earn high returns, and expand the long-term tax base. This strategy was created and implemented by no more than a handful of men over a fifty-year period. Perhaps the most important of them all was John Cowperthwaite, who ran the trade and industry department after the war and then spent twenty years as deputy and then actual Financial Secretary before his retirement in 1971. He, more than anyone, shaped the economic policies of Hong Kong for the quarter century after the war and set the stage for a remarkable economic expansion. His resolve was tested constantly over his period in office, and it was only due to his determination, independence, and intellectual rigor that he was not diverted from the path in which he believed so strongly. This book examines the man behind the story, and the successful economic policies that he and others crafted with the people of Hong Kong.

Genres: History, Economics, Biography, China, Nonfiction, Cities, Asia

320 pages, Hardcover

First published August 8, 2017

Reviews

[Robert Muller · Rating 5 out of 5]

Architect of Prosperity, the story of Sir John Cowperthwaite and also the story of how he and his predecessors built the government and economy of Hong Kong, is a terrific read (if you're into economic history, of course :) ). The protagonist is the Crown Colony; the antagonist is the Britain that has faded away since the fifties. The book doesn't explain the loss of Empire, but it does show how it affected one colony, and it isn't a pretty picture. Fortunately, Hong Kong was able to pretty much ignore Britain's folly.

The history is also a textbook on laissez faire economics--not Friedman's monetarism or Laffer's supply side, but the real thing. It explains very well how Hong Kong developed in specific ways that made laissez fair work--culture (China, trading, and piracy as a way of life), politics (none of that silly democracy stuff, and lets keep the government where it belongs, thank you very much), history (China, Japan's invasion and dismantling of the colony, Britain's colonial hand in defense and finance), and economics (1+1=2, and don't do anything that interferes with that equation, and for God's sake use common sense, reading Cowperthwaite's comments to the Legislative Council when they proposed silly spending ideas like free education for all).

I would have liked more statistics on things like inflation, unemployment, social justice, inequality, and so on; the book focuses largely on revenue, GNP, and growth. (Interesting trivia, Cowperthwaite believed GNP was completely unreliable as a measure of anything, so he refused to collect the statistics; they've since been reverse engineered.) There are hints of the social unrest and lack of political freedom, but also a full spotlight on what economic freedom means. But it's also clear why this would never work in the US (or Britain, for that matter)--we're too big, we are not completely founded on export trading, and we already have Big Government and can't get rid of it, we're addicted.

There's also an interesting sub-plot around the two major banking failures (1961 and 1965) and why Cowperthwaite dealt with them badly; it turns out banks are too piratical even for laissez-faire Hong Kong and needed (badly needed) regulation to work correctly. I think that lesson applies double in the US. Banks (and financial companies) don't work the same way manufacturing and service companies do, mainly because they are their own customers (and they get the profit and pass on the risk to others, see "Hedge Fund" for details).

[Peter Chapman · Rating 4 out of 5]

I read this several months ago. I have up half way through because it was getting bogged down in detail. The early chapters on the history of Hong King were very interesting. The chapters on the regaining and running of Hong Kong after the defeat of Japan in WW2 was fascinating and made me wonder about the purpose of the empire. A group of British civil servants took control of the finances of the c0lony, ignored conventions, and turned Hong Kong into the booming city it now is. They refused to borrow money and made the budget balance every year. They encouraged immigration and capital investment and tolerated a big gap between rich and poor. It was not clear to me that the UK benefitted in any way.

[Frank Stein · Rating 4 out of 5]

This book offers a peculiar view on Hong Kong and the British empire. By looking at John Cowperthwaite, the deputy financial secretary and then financial security of the city from 1951 to 1971, the book looks at how Hong Kong's leaders kept its economic policy laissez-faire and its economy thriving in the years after World War II. It shows that Hong Kong skillfully transitioned from a collapsed economy, whose population fell by almost two-thirds from it's pre-Japanese occupation era, then grew from 600,000 to almost 4 million by the time Cowperthwaite left. After the Communist revolution, it had lost it's main purpose as an entrepot to China's market, but the tiny land quickly shifted to an industrial powerhouse, one which at one point captured about 10% of the global textile market (for a while it also survived off plastic flowers and wigs) and held a quarter of the British sterling's foreign balances. It's GDP per capita's passed Britain's not long after he left, and it was, until recently, ranked as one of the most economically free places on Earth.

The book unfortunately frog marches the reader through 20-plus years of annual budget reports from Cowperthwaite and the administration. These give Cowperthwaite and his predecessor, Arthur Clarke, some chance to display good economic sense against the Keynesian consensus of the time, but the basic story is the 12.5% tax on big salaries, rent, and profits was kept in place for almost the entirety of their reign, and almost nothing happened at the budget except them warding off new spending plans, although, in one big exception, they did use government funds to house 1 million people in public housing. The more interesting parts of the story are Cowperthwaite's international discussions, especially about what to do after Britain devalued sterling in 1967. The UK allowed Hong Kong to devalue too, and they first followed it, but then went part of the way back within days. Cowperthwaite helped negotiate a deal with the British government to keep some of their reserves in sterling and for the UK to guarantee them against a fall, which helped cement the Basel Agreement in 1968 that guaranteed a handful of sterling holders 90% of their reserves in dollar value. (In 1972 Hong Kong finally switched to the US dollar as a reserve.)

This book can be far too long-winded, but it does give a reader a look at the strange world of the British Colonial Service (with its elite "Hong Kong Cadets" organization, along with a governor, colonial secretary representing Britain, financial secretary, general secretariat for central decisions, and varied departments) and of Hong Kong itself, which turned from a worthless rock to one of the richest places in the world, by contrasting itself as much as humanly possible with the communist nightmare that was falling apart right next door, and which now seems determined to return the island to the rock it once was.

[Rob · Rating 3 out of 5]

A necessary book, but that doesn't necessarily make it a gripping one, unless the budgeting process, as well as the official minutes in which officials debate that process, is your idea of a good read. Still, a laudable effort to reveal the nature of Hong Kong's transformation, and to my knowledge the only book written about Cowperthwaite's governance. This alone makes it a useful counterpoint to the idea that an authoritarian figure such as Lee Kuan Yew, Deng Xiaoping or Park Chung-hee is needed to work (economic) miracles.

Although it may be argued that the reason little has been said about Cowperthwaite's case is because their is little to say: other than having a classical education and a long career as a civil servant there is not much about his life that calls for a biography, and his "genius" as a leader was in how little he did - and how staunchly he resisted pressure to "do something" - namely raise taxes, institute tariffs and plan industries. Those looking for a reason to discredit him on libertarian grounds will find a reason to do so: under Cowperthwaite Hong Kong did institute taxes, intervene in the financial sector (due to its secondary effects on the economy) and ban communist publications, but by and large Cowperthwaite did put his liberal education, based on the ideas of Adam Smith, into effect. And in the process, he presided over the creation of a market economy so vital the Communist Party has left it largely alone (even if it is far more inventionist in Hong Kong's politics).

But to truly tell the story of Hong Kong's economy, we really need the story of aggregate decision-making by the Hong Kong public during this time. They are the true architects who built Hong Kong; Cowperthwaite's contribution was staying out of the way. I guess that's a project for another book.

[Melvin John · Rating 5 out of 5]

"I still believe that, in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgement in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster. Our economic medicine may be painful but it is fast and powerful because it can act freely." -- John Cowperthwaite

Neil Monnery did a fantastic job shedding light on a man who combined top-down frameworks (free markets/ laissez-faire) with bottoms-up analysis on specific issues and policies that impacted growth in Hong Kong.

[Monkey D Dragon · Rating 5 out of 5]

First, when I studied the ideas of Milton Friedman about economics, he always mentioned how, in this world now, just Hong Kong suits his concept of liberal economics. In this book, I now understand why he says that, because most of his core ideas fit with the policy in Hong Kong and show how much benefit they have gained from that. I think we should consider reading this book, despite our opposition to a liberal economic system or not, because the approach of policy in this book, which was made by Coperthwaite, can be our preference to solve the nation's problems now.

[Ostap · Rating 3 out of 5]

I was waiting for a John Cowperthwaite biography for many years and was quite excited when it had been finally published. Unfortunately, it has been a major disappointment. The only source Mr.Monnery draws upon is Hong Kong colonial government official minutes, so we learn about Cowperthaite life not from private letters and diaries written by himself or his friends, relatives or colleagues, not by interviews with any of them, but exclusively from Sir Cowperthwaite government speaches (mostly when delivering annual budgets) and official letters. Those are quoted excessively, but it makes the book all the more monotonous and boring. We do not find out how Cowperthwaite became the man he was, nor how and why his views evolved. We see some official objections to his policies but we learn almost nothing of the difficulties he faced while trying to defend them. We learn nothing about his biggest foes and his best allies. We get only superficial knowledge of his private life. To sum it up, the book totally lucks narrative and we do not see any character development. It's tedious. It's a biography written by an accountant. Such a pity.
It should be 2 stars, but I give Mr.Monnery one extra for being the first person who wrote Cowperthwaite biography, without him we'd have none. I still hope someone else will do it properly.