Sunday, May 29, 2011

Positive non-intervention

Positive non-intervention is a contradictory term in itself. It can be found nowhere but in Hong Kong invented by John Cowperthwaite, followed up by Philip Haddon-Cave. It is often mistaken as an economic theory, or a public policy. But both these men are not economists, nor politicians. They were civil servants in a colonial government. The core value of such practice is the mentality of bureaucrats of doing nothing and be proud of it.

Non-intervention is an inaction, like standing in the sideline just watching. But watching is now disguised as a positive action, as if there is some supernatural power to be conveyed by eyesight. You may notice that there is an underlying line that government may intervene the economy in some circumstances. You may even call those the effect of negative non-intervention.

Whether the government should intervene or not intervene the economy is a long standing debate for several decades between the schools of John Keynes and Milton Friedman. Both theories are supported by sound arguments commensurate with certain economic conditions. When the market is prospering and full of opportunities, the market force itself will maintain a momentum of growth. Under that situation, the market is best left to itself and the market mechanism will complement itself on fair trade and growth. However, the market is not perfect and there are always noises arising from scarcity, incomplete information and externalities. When these noises disturb the market to a certain extent, the government can intervene and regain market balance by kick-starting it with infrastructure projects, or by regulating unfair practices. The world is not static and we have seen the economy going through boom and bust several times. As a result, we have also seen the theories of Keynes or Friedman becoming the favourite in successive governments. Such alternation will likely go on.

Promoting positive non-intervention is like riding the fence of Keynes and Friedman. It best suits civil servants. In the 60s and 70s when the economy of Hong Kong is growing, civil servants were happily just watching. Later on when some government actions were forced to be taken on the economy, it was still said that those were only exceptions to non-intervention. With the close of the colonial era, such matters were lifted to the political arena with more exposure to the political limelight. Non-intervention is gradually regarded as government inaction and is getting out of favour. In 2006, the Chief Executive mentioned in the Economic Summit that such policy was no longer applicable. There goes an era of economic illusion.

The minimum wage saga is a case in point. Wage level could be left entirely to the market should the supply and demand of labour and the reward system are healthy and fair. When the market is distorted, some regulations are required to put it on the right track by providing minimum protection. This is beneficial to a healthy labour market. Even the employers are aware of this and thus the law was passed with great support on both sides.

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