Economic Liberalism and the Developmental State: Hong Kong and Singapore’s Post-war Development

365 Pages·2022·11.095 MB·English

by  Bryan Cheang

Economic Liberalism and
the Developmental State
Hong Kong and Singapore’s Post-War
Development
Bryan Cheang
Economic Liberalism and the Developmental State
“Bryan Cheang challenges two competing explanations for the phenomenal success of the
Singaporean economy since the 1960s—economic freedom and developmental state. The
former points to the top ranking of Singapore in the Economic Freedom Index; the latter to
the testimonies of Lee Kwan Yew, the founding father of independent Singapore. Against the
economic freedom school, Cheang provides detailed information to show that Singapore’s
high ranking is a misleading result of ignoring dominant government-linked corporations and
sovereign funds that have been powerful instruments of government controls and industrial
policies. Against the developmental state school, Cheang points to the comparable economic
performance of pre-1997 Hong Kong and its greater development of “creative industries”.
With survey results on social attitudes towards innovation, Cheang also highlights shortcom-
ings of the Singaporean developmental state model. Cheang has made important contribu-
tions to the field of economic development.”
—Young Back Choi, Professor of Economics, St John University, USA
“Developmental State and Economic Liberalism stakes out a bold new position that challenges
established views on both sides of the debate surrounding the merits and demerits of state
development planning. Cheang shows how macro economic statistics have misled advocates
of development planning into overstating successes. Meanwhile, he challenges claims of lib-
eral economists that successful East Asian economies were beacons of free markets. Future
debate surrounding the developmental state will have to grapple with the ideas in this book.”
—Benjamin Powell, Director, Free Market Institute, Texas Tech University, USA
“Cheang’s book provides an empirically rich account of the economic development of Hong
Kong and Singapore, and it sets out to rethink and challenge conventional wisdom in several
important respects. This is a very welcome addition to the literature and will be essential
reading to anyone interested in the developmental state, the economic history of Hong
Kong and Singapore or economic growth and development more generally.”
—Magnus Feldman, Senior Lecturer in Politics, Bristol University, UK
“Using holistic data analysis and thick description, this book overwhelmingly challenges
whether the on-going developmental state model of Singapore is sustainably viable. Looking
beyond the traditional measurements of economic performance, Dr. Bryan Cheang bril-
liantly focuses instead on factor markets and examines the discrete components of productiv-
ity, innovation, and entrepreneurship, all of which are relevant for the knowledge-based
economy. This timely book sheds a bright light for countries seeking to forge ahead toward
innovation-driven growth. For those who believe that the 21st century is of Asia, how to
thrive in the market for ideas will be imperative and this pioneering book is a must-read.”
—Ho-Don Yan, Professor of Economics, Feng Chia University, Taiwa
“The author revisits the respective contributions of the state and market to economic develop-
ment in Hong Kong and Singapore when both cities took off in the final forty years of the
twentieth century to achieve spectacular success. Singapore’s state approach and Hong Kong’s
market approach both succeeded as judged from hard data like national income. Bryan Cheang’s
analysis is more subtle in identifying the shortfalls of the state approach, its sacrifice of productiv-
ity, innovation and entrepreneurship that crowded out small and medium enterprises to the
detriment of sustainable economic vitality. While Hong Kong is beginning to pursue an innova-
tion and technology driven path to reindustrialization after experiencing state-society upheavals,
Singapore is exhibiting diminishing returns over time from its state-driven industrial policy.
Bryan Cheang’s book is a timely reminder that sustaining economic development is more than
a binary choice between the state and the market.”
—Richard Wong, Provost and Deputy Vice-Chancellor, Professor of Economics and Philip
Wong Kennedy Wong Professor in Political Economy, Hong Kong University, Hong Kong
“For many years, East Asia has drawn attention from development economists who search for
applicable lessons for developing countries. Hong Kong is often taken as an exceptional case
of market-led growth and Singapore, also a former British colony, is often compared as the
“tale of the two cities”. In this regard, Cheang’s book adds value to this debate. Challenging
the “developmental state model”, Cheang highlights how some scholars treat East Asia as
homogenous, ignoring significant differences among them. His reviews on the growth experi-
ences and strategies are illuminating, reminding us that the “development state” should be
used with care. This book pays close attention to differences in culture, institutions and entre-
preneurship and is an essential reader for scholars, policymakers and students in economic
development, comparative public policy and Asian studies. It is also a great reference for
practitioners interested in global development.”
—Tony Yu, Professor of Economics, Hong Kong Shue Yan University, Hong Kong
“If the Singapore establishment is smart, it will treat this book as a serious and sophisticated
critique of its model of economic development and social management, and engage fully
with its arguments and detailed analysis. If it is not so smart, it will dismiss it as an attempt
to tear down its legacy of achievements. In fact the achievements are acknowledged, but
placed in historical, theoretical and comparative perspectives that go beyond the headline
big-picture claims on which the ‘Third World to First’ mythology is built. Bryan Cheang
combines micro-statistical analysis of economic data with cultural evidence gleaned from
anything from contemporary censorship practices to pre-independence newspaper advertise-
ments to demonstrate the severe limitations of independent Singapore’s version of the devel-
opmental state. Notionally the book is using the contrast between the development patterns
of independent Singapore and pre-Carrie Lam Hong Kong to elicit lessons about the func-
tioning and limitations of East Asian developmental states. It does do this, but the lessons
about Singapore are worthy of study in their own right.”
—- Michael Barr, Associate Professor in International
Relations, Flinders University, Australia
“This book is essential reading for anyone interested in the developmental state and the
economic performance of East Asia. Bryan Cheang decisively moves the debate on from
what has at times become sterile, dichotomised ‘neoliberal’ vs ‘state-led’ caricatures, through
an approach rooted in deep empirical engagement with the political economy of the region.
He overturns conventional wisdom concerning the economic performance of Singapore and
Hong Kong and meticulously deconstructs the statistics used to support conventional wis-
dom. Along the way, Cheang makes a powerful case for integrating cultural elements into
economic analysis. This is an outstanding book that deserves to be widely read.”
—James Scott, Senior Lecturer in International Politics, King’s College London, UK
Bryan Cheang
Economic Liberalism
and the
Developmental State
Hong Kong and Singapore’s Post-war Development
Bryan Cheang
Department of Political Economy
King’s College London
London, UK
ISBN 978-3-031-08099-9 ISBN 978-3-031-08100-2 (eBook)
https://doi.org/10.1007/978-3-031-08100-2
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P
reface
This study is a product of my academic background and practical work
experience. For a long time, I have been interested in the importance of
market institutions and economic freedom in generating human progress
that liberal scholars have written about. Understandably, I wanted to
explore the role of the state in the development of East Asia, which expe-
rienced rapid growth in the late twentieth century. According to the lib-
eral viewpoint, East Asian success, and modern prosperity more broadly, is
a result of freedom.
However, my practical work experience as a civil servant in Singapore
suggested that economic freedom was very much overstated by classical
liberals, Western organisations, and foreign observers. Almost no one I
know in the administrative service and in the local academic scene agree
with the foreign characterisation of Singapore as a “free-market success
story”. East Asian scholars saw Singapore, Korea, Taiwan, and Japan as
part of a larger class of “developmental states”, where governments strate-
gically intervene in markets through industrial policy to catalyse growth.
I participated first-hand in the Singapore developmental state’s indus-
trial policy initiatives, and wondered how it was possible for a nation that
practises authoritarianism, interventionist economic policies, establishes
numerous government-linked corporations be both seen by liberals as a
market exemplar and others as a developmental state archetype? This
conundrum formed the initial inspiration behind this book, in which I
argue that Singapore’s economic freedom is overstated, especially when
put beside Hong Kong. I however also object to developmental state the-
orists who believe in the normative value of this model; I show that
v
vi PREFACE
pre-1997 liberal Hong Kong is more attractive than Singapore. This puts
me in between two camps, liberals and their critics.
What I have observed about capitalism in Singapore and Hong Kong is
the dichotomy between the formal institutions and the economic culture
they are embedded within. Even though both are generally capitalist in
orientation, the way residents and businesses thought about the role of
government in society could not be more different. Hong Kong citizens
have a healthy distrust of state power—which is understandable given
their increasing anxiety over China—while Singaporean citizens, for lack
of a better expression, are more compliant. Singaporean firms expect and
support government subsidies, while Hong Kong firms do not see much
value in them. Such cultural differences necessitated an exploration of
political development in both countries, where Singapore’s authoritarian-
ism stands in stark contrast to the decades of liberal freedom Hong Kong
enjoyed under the British.
Some may object to my negative portrayal of Singapore, as the follow-
ing pages will show. Given Hong Kong’s many domestic challenges in
recent years (social upheavals, COVID mismanagement, etc.), much of it
linked to concern over its place in China’s sphere of influence, why
wouldn’t the Singapore model be more attractive? In response, I will say
that those concerned about the problem of China in Hong Kong affairs
should realise that China’s leaders have long admired (and sought to emu-
late) Singapore’s governance.1 Given Singapore’s seeming ability to repress
political opposition but maintain economic growth, it is easy to see why.
This book is a cautionary tale on the ill effects of state repression, suggest-
ing that efforts to control citizens but yet achieve positive outcomes are
more difficult than assumed.
Some might question the larger value of this study. Isn’t the debate
over East Asia over? What is the larger relevance to political economy and
public policy? Singapore, Hong Kong, and East Asia experienced vast
transformations in the past decades, and the lessons drawn from their
experience are instructive for others. China’s increasing prominence on
the world stage also makes this study valuable, given the way it has
emulated Singapore’s authoritarianism but emasculated Hong Kong’s
liberalism.
1 Ortmann, S., & Thompson, M. R. (2018). Introduction: The “Singapore model” and
China’s Neo-Authoritarian Dream. The China Quarterly, 236, 930–945.
PREFACE vii
Such a body of work is not possible without having received construc-
tive feedback. For this I must thank Mark Pennington first and foremost,
as well as Samuel DeCanio and James Scott from the Department of
Political Economy at King’s College London, my academic home for the
past few years. I also wish to extend appreciation to the Institute for
Humane Studies and the Adam Smith Fellowship programme at the
Mercatus Center, for the various opportunities provided to present my
work and network with other scholars.
I am also grateful to Chandran Kukathas, Razeen Sally, and Christine
Henderson, for their support, both academic and personal. The sound
advice offered by Tom Palmer, Nigel Ashford, and Farhan Firdaus in vari-
ous areas have also kept me on target. Feedback from various reviewers on
earlier drafts is also greatly appreciated.
I would like to show my appreciation also to Jennifer Dodgson from
Vox Dei, for her expert advice on survey methodology, and her recom-
mendation to use Pollfish to collect survey responses. This saved tremen-
dous amounts of time and effort. Most significantly, I am grateful to
Hanniel Lim, Julian Lim, and Eugene Chia for their vital assistance with
editing, proofreading, and data collection.
London, UK Bryan Cheang
c
ontents
1 Developmental State and Economic Liberalism 1
2 Economic Freedom, Institutional Arrangements, and Local
Context 23
3 State Capitalism vs. Entrepreneurial Capitalism 71
4 Development Requires Freedom 115
5 Hong Kong and Singapore as an Anglo- Chinese Success
Story 153
6 Reassessing Relative Economic Performance 203
7 State and the Creative Class 249
8 Conclusion: Reconsidering Developmental State
Exceptionalism 297
ix
x CONTENTS
Methodological Appendix 315
Appendix 1: Statistics on Export and Import Volume in
Straits Settlements and Hong Kong from 1868 Onwards 325
Appendix 2: Measurement of Economic Freedom by Fraser
Institute 329
Appendix 3: Compilation of New Dataset for Revenue and
Expenditures of Singapore Statutory Boards Since 1994 331
Appendix 4: New Dataset on Singapore’s Government
Expenditure/Consumption (Including Statutory Boards
Previously Omitted) 333
Appendix 5: List of Tier 1 and Tier 2 Government-Linked
Corporations, as of August 2020 337
Appendix 6: List of Government-Linked Real Estate
Investment Trusts (GLREITs), as of 2019 347
Index 349