It was only a few weeks ago that Milton Friedman was commenting on the Education Vouchers for Nursery Schools fiasco, and at the time I was slightly surprised that he was still alive and kicking. He died on November 16, 2006, aged 94.
The Economist described him as the "most influential economist of the second half of the 20th century" (A heavyweight champ, at five foot two), and I'm sure they're correct. My problem here is that monetarism, the policy which he persuaded several governments to adopt, simply didn't work. Instead, central banks have proved far more adept at controlling inflation than he expected - though to be fair, I don't think anyone could have anticipated the way that inflation has been brought under control in recent times.
He was also wrong about Hong Kong (as most people are):
If Mr Friedman had a favourite economy, it was Hong Kong. Its astonishing economic success convinced him that although economic freedom was necessary for political freedom, the converse was not true: political liberty, though desirable, was not needed for economies to be free. Why, he asked, had Hong Kong thrived when Britain, which controlled it until 1997, was so statist by comparison? He greatly admired Sir John Cowperthwaite, the colony's financial secretary in the 1960s, “a Scotsman...a disciple of Adam Smith, his ancient countryman”. And how much more, Mr Friedman wondered, might America have thrived had it kept its government as small, relative to its economy, as the island entrepot had done?
There was an article last week on Asia Sentinel, explaining some of the ways Friedman got it wrong about Hong Kong:
What Friedman cared not to notice about the Hong Kong of the era of Cowperthwaite and later was that in three key areas of policy affecting the people the government was more socialist than its UK counterpart.
At one time 60 percent of the people lived in subsidized housing, mostly rented cheaply from the government, and some in Home Ownership Scheme flats, provided with cheap land and sold to lower-middle-income households. Even now that public housing has low priority and the home ownership scheme has ended, some 50 percent of the people still benefit from this massive intervention in the marketplace.
The intervention also partly accounts for the low apparent ratio of spending to gross domestic product. If the cost of the subsidized housing land were accounted for at market prices in the government budget, the ratio would be significantly higher.
Hong Kong people have also enjoyed almost free medical treatment at government clinics and hospitals. Friedman was against “free” medicine elsewhere but failed to notice it in Hong Kong. Likewise, education, at least up to the secondary level has long been almost entirely funded by the government.
Well, I have to disagree about medical treatment. There certainly are government clinics, but the reality is that most people here pay for their visits to the doctor (or at least their employers pay), whereas in the UK the overwhelming majority rely on the NHS. However, the point about housing is valid, and I'm afraid that anyone who doesn't understand the implications of this policy simply doesn't understand how the Hong Kong economy works.
It's not surprising that the simplistic view of Hong Kong (as a place with low taxation and 'small government) is so widely held, but it's puzzling that a brilliant, world-renowned economist should fail to dig a bit deeper and understand the full story.