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Milton Friedman on How economics should be done

Economists and social scientists complain that we are at a disadvantage compared with physical and biological scientists because we cannot conduct controlled experiments. However, the experiments that nature throws up can be every bit as instructive as deliberately contrived experiments. Take the fifty-year experiment in economic policy provided by Hong Kong between the end of World War II and this past July, when Hong Kong reverted to China.

Context. From an article, written in 1997 after Hong Kong reverted to China, comparing fifty years of economic policy in Hong Kong, run on nearly laissez-faire lines, with Britain, Israel and the United States; reprinted in the Hoover Digest in 1998. He goes on to treat Hong Kong as the experimental case and Britain, Israel and the United States as the controls.

The Hong Kong Experiment
Column, 1998, Hoover Digest, 1998, no. 3; reprinted from National Review, December 31, 1997, where it ran as “The Real Lesson of Hong Kong.”
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Milton Friedman, “The Hong Kong Experiment” (Hoover Digest, 1998, no. 3; reprinted from National Review, December 31, 1997, where it ran as “The Real Lesson of Hong Kong.”, 1998). https://miltonfriedman.org/quotes/experiments-nature-throws-up-hong-kong-1998

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  1. In short, from 1960 to 1996, Hong Kong’s per capita income rose from about one-quarter of Britain’s to more than a third larger than Britain’s. It’s easy to state these figures. It is more difficult to realize their significance. Compare Britain—the birthplace of the Industrial Revolution, the nineteenth-century economic superpower on whose empire the sun never set—with Hong Kong, a spit of land, overcrowded, with no resources except for a great harbor. Yet within four decades the residents of this spit of overcrowded land had achieved a level of income one-third higher than that enjoyed by the residents of its former mother country. I believe that the only plausible explanation for the different rates of growth is socialism in Britain, free enterprise and free markets in Hong Kong.

    Context. From an article, written in 1997 after Hong Kong reverted to China, comparing fifty years of economic policy in Hong Kong, run on nearly laissez-faire lines, with Britain, Israel and the United States; reprinted in the Hoover Digest in 1998. Hong Kong was a British crown colony. While Britain moved toward socialism and the welfare state after World War II, its financial secretary in Hong Kong, John Cowperthwaite, kept the colony to free trade and low taxes.

    The Hong Kong Experiment
    Column, 1998, Hoover Digest, 1998, no. 3; reprinted from National Review, December 31, 1997, where it ran as “The Real Lesson of Hong Kong.”
    Checked against the sourceRead the source
  2. I first visited Hong Kong in 1955, shortly after the initial inflow of refugees. It was a miserable place for most of its inhabitants. The temporary dwellings that the government had thrown up to house the refugees were one-room cells in a multistory building that was open in the front: one family, one room. The fact that people would accept such miserable living quarters testified to the intensity of their desire to leave Red China.

    Context. From an article, written in 1997 after Hong Kong reverted to China, comparing fifty years of economic policy in Hong Kong, run on nearly laissez-faire lines, with Britain, Israel and the United States; reprinted in the Hoover Digest in 1998. After the Communists took mainland China, refugees poured into Hong Kong, whose population grew from about 600,000 at the end of World War II to more than six million by 1997.

    The Hong Kong Experiment
    Column, 1998, Hoover Digest, 1998, no. 3; reprinted from National Review, December 31, 1997, where it ran as “The Real Lesson of Hong Kong.”
    Checked against the sourceRead the source
  3. The real lesson of Hong Kong for the United States is that we’re using our resources inefficiently. Our government is spending our money to subsidize tobacco and to penalize smoking; to subsidize childbearing and to discourage childbearing; to build new housing and to tear down housing; to subsidize agriculture and to penalize agriculture; and on and on—not to mention converting square miles of forests into billions of paper forms and spending many man-years of labor filling them out and then filing them.

    Context. From an article, written in 1997 after Hong Kong reverted to China, comparing fifty years of economic policy in Hong Kong, run on nearly laissez-faire lines, with Britain, Israel and the United States; reprinted in the Hoover Digest in 1998. Just before, he notes that income per head in Hong Kong was almost the same as in the United States, while government spending took less than 15 percent of national income there and more than 40 percent in the United States.

    The Hong Kong Experiment
    Column, 1998, Hoover Digest, 1998, no. 3; reprinted from National Review, December 31, 1997, where it ran as “The Real Lesson of Hong Kong.”
    Checked against the sourceRead the source

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