A Glorious Chapter in British Rule

Sir John James Cowperthwaite was born in Edinburgh in 1915, ironically to a father who was a surveyor of taxes. Ironically because he would earn a reputation for keeping taxes low as part of his highly successful pro-growth strategy implemented as Financial Secretary of Hong Kong (1961-1971). He originally studied the classics at St. Andrews University and Christ’s College, Cambridge. But in 1940 he earned a 1st class degree in Economics from St. Andrews in a special one-year accelerated program. He then joined the Colonial Service and was assigned to Hong Kong in 1941. However, the Japanese soon invaded, and he was not able to truly start his stellar career in the British colony until 1945.

At St. Andrews, Cowperthwaite studied under James Wilkie Nisbet, a brilliant classical economist (he won a double first in economics and philosophy at the University of Glasgow), whose first book was entitled, The Case for Laissez-Faire and which incorporated a large dose of psychology to anchor free market economics in human nature. But he was a conservative with reformist ideas, not a mere libertarian. He commanded the Officer Training Corps and financed scholarships out of his own pocket for women who wanted to study economics (not a subject considered feminine in those days). His sense of duty influenced Cowperthwaite to enter the service of the Empire.

World War II and the Korean War largely destroyed Hong Kong’s traditional role as a transshipping and warehousing port. The Communist takeover of China closed off its major trading partner when sanctions were imposed during the Korean War. The colony-city also saw an influx of refugees fleeing the tyranny of the Mao Zedong regime. Hong Kong turned first to industry, and then finance to put its people to work and raise living standards. This fit with Cowperthwaite’s first assignment in the Department of Supplies, Trade and Industry. He then served for a decade as Deputy Finance Secretary before assuming the top post.

He resisted calls for direct government intervention to promote business expansion, feeling that private action was not only sufficient, but would find the best ways forward in more practical ways than could be derived by central planning. He called this “positive non-intervention” and it included cutting red tape to the bone. An exception is allowed, however, to insure there is competition in the market. Cowperthwaite also believed government had an obligation to help the destitute (as opposed to the prosperous who could take care of themselves). Growth, however, remains the best way to help the poor. During his tenure, the poverty rate fell by two-thirds and real wages increased by 50 percent.

Cowperthwaite did not just believe in private enterprise, but was also a fiscal conservative in terms of the public sector’s behavior. He kept personal taxes at 15 percent and still ran a surplus budget. He opposed government borrowing. Indeed, he believed the colony should have in reserve enough money to cover a year’s expenditures in case of trouble. Given that Hong Kong was a colony whose British administrators had great power with few checks other than their own character and wisdom, such restraint was remarkable. And the results were magnificent. The colony boomed, turning what had been called “a barren island” into one of the most prosperous of the “Asian tigers” long before the British tragically gave up their rule in 1997. While the “Handover” to Beijing reflected the change in the balance of power between the British and Chinese empires, the blow fell on arguably the most vibrant part of the otherwise “declining” UK realm.

Of course, any policy can be taken too far. Cowperthwaite’s frugality even applied to the traditional government role as provider of infrastructure. As congestion got worse, he opposed the construction of mass transit because of its high initial costs. However, such work was accomplished after he retired, and Hong Kong now has a very well-run system (I have used it), which reportedly earns a profit.

Author Neil Monnery presents Cowperthwaite’s story as a case study in support of classical economics and a critique of the neo-socialist/Keynesian policies that have plagued the UK itself, as well as Europe and America. He argues:

Studying Hong Kong should be valuable to economists both because of its success and because of the way in which it achieved its success. As early as 1974, [Y.C.] Jao wrote, “The Hong Kong economy is one of the very few surviving instances of largely unfettered laissez-faire and this fact alone provides a fascinating object for study.” [Milton] Friedman claimed that “If you want to see capitalism in action, go to Hong Kong.”

Milton Friedman met Cowperthwaite in Hong Kong in 1963 and was impressed by his intellect. In a speech given in 1997, summing up the success of the British colony as it was being turned over to the post-Mao but still Communist regime on the mainland, Friedman noted “From 1960 to 1996, per capita income in Hong Kong rose from about one-quarter of that in Britain to one third larger.” Thus was the accomplishment of an imperialism that focused on building up the potential of the territory under its control. Cowperthwaite was well rewarded for his work, gaining an OBE in 1960, a CMG in 1964 and finally knighted with the KBE in 1968. After leaving the Colonial Service, he served as an advisor to a Hong Kong investment bank until 1981 when he retired back to St. Andrews where he died in 2006.

Monnery’s book is both a biography and an economic study filled with data, graphs and tables. He also devotes serious attention to the intellectual side of economic theory and the debates that surround it. Though Monnery studied at Exeter and the Harvard Business School, he is not an academic but a man of business. The quality of his work shows, however, a high level of thought and research well above much of what passes for learned treatises in this field.

Monnery concentrates on economics, but is weak on culture. If a system based on private initiative is to work, the people must have the character to make good on the opportunities presented. That is largely a product of culture, and more than just smiling when driving by the Hong Kong Cricket Club. In his 2016 book Hong Kong and British Culture 1945-97, Mark Hampton notes:

When Chinese Hong Kong people, nearly two decades after the Handover, publicly articulated a civic identity, often in opposition to mainland Chinese, they frequently emphasised one or more categories that were, in fact, fundamental to Hong Kong Britishness: rule of law, anti-corruption, fair play, modernisation (including, for example, not eating dogs, lining up in queues correctly), efficient but minimal government, even democratisation….it remains difficult to articulate a Hong Kong identity without smuggling in a substantial dose of Britishness.

Cowperthwaite and his fellow Britons did not just make narrow policy; they set a broader tone that moved the entire society forward. Unfortunately, those cultural values are being squeezed out of Hong Kong by the Communist regime in Beijing; though not without resistance. Those cultural values are also under attack in their birth place and in other lands spawned by British civilization, like the United States, though also not without resistance. Time will tell whether Mooney’s book will help fuel a return to policies that have proven their worth, or whether it will simply be shelved as a work of history; a glorious chapter in an abandoned past.

William R. Hawkins, a former economics professor and Congressional staffer, is a consultant specializing in international economics and national security issues. He is a contributor to SFPPR News & Analysis of the conservative-online-journalism center at the Selous Foundation for Public Policy Research.