Skip to content

Milton Friedman’s Favorite Economy: Hong Kong in the Neoliberal Imagination


Jamie Peck is Professor of Geography and Canada Research Chair In Urban And Regional Political Economy at the University of British Columbia.

This post is part of a symposium highlighting the second issue of the Journal of Law and Political Economy. All of our posts highlighting releases of JLPE issue releases are here.

Hong Kong was Milton Friedman’s favorite economy. From a first encounter in the mid-1950s, all the way through to the end of his life, the economist regarded Hong Kong as a kind of free-market utopia. He loved the variety of freebooting capitalism that had been established there under British colonial rule, the entrepreneurial spirit of its residents, the official deference to free-market ideals and common-law principles, and the disciplined commitment to tight-fisted social policies. The Hong Kong style of laissez-faire governance, he understood, should not be mistaken for a do-nothing policy:  what became known as “positive non-interventionism” entailed the rigorous defence of free-market rule. And so it was to Hong Kong that Friedman went to shoot the opening scenes for the widely watched TV series, Free to Choose, aired in 1980, which did so much to popularize his ascendant brand of monetarist economics and neoliberal policy advocacy.  Speaking directly to camera, with a panoramic view of Victoria Harbour in the background, Friedman declared, “if you want to see how the free market really works, this is the place to come.”

Now, the discrepancies between Friedman’s selective, stylized, and idealized reading of Hong Kong and the actually existing realities of the city-state, before and after the return of the former colony to China, have been thoroughly documented by political economists like Tak-Wing Ngo and Alvin So, as well as by well-placed insiders like the late Leo Goodstadt.  Friedman himself would however remain largely impervious to (and incurious about) such facts on the ground, opting instead to recirculate an ideologically stylized narrative of “free-market” Hong Kong, in the service of pro-market policy advice. My paper in the second issue of JLPE explores how this prescriptive story of Hong Kong was assembled, stabilized, and recirculated. The impact of Free to Choose played an important role here.  So too, in a quite different way, did a fateful meeting between Friedman and the colony’s Financial Secretary, (Sir) John Cowperthwaite, in the early 1960s, which would rise to folkloric status in the affirmative stories that free-market policy advocates like to share among themselves. On the other hand, those critical genealogies of the free-market movement that have been proliferating in recent years, will often ascribe a central role to the Mont Pèlerin Society, formed by F. A. Hayek after the Second World War, the nucleus of what has been dubbed the “neoliberal thought collective.”  There is a Hong Kong connection here too, the society having convened its 1978 meeting in Hong Kong, on the cusp of the seismic elections of Margaret Thatcher and Ronald Reagan—an historic turning point that this club of free-market true believers had long anticipated, but which few actually saw coming. 

Chance Encounter

It was during a stopover in Hong Kong in 1963 that Friedman first met Cowperthwaite. The two men could hardly have been more different—the voluble, diminutive American academic and the standoffish senior bureaucrat—but they quickly found common ground.  A fiscal conservative by temperament as well as training, Cowperthwaite used the language of classical economics, having no time for the “new economics” of Keynesiaism. In what has since become a go-to anecdote in neoliberal circles, the Financial Secretary flatly refused to publish or even collect macroeconomic data, lest this provide rationales for industrial intervention or social programming. As Friedman recalled, Cowperthwaite presented from the time of their first meeting as a “true disciple” of Adam Smith. The Financial Secretary, who even in the hands of an indulgent biographer comes across as a dry and one-dimensional character, has since become a most unlikely cult hero among free-market thinkers and policy advocates, from P. J. O’Rourke to the Economist magazine and the Cato Institute. Hong Kong media magnate Jimmy Lai, an outspoken champion of economic freedom (and one of the first to be arrested under the recently imposed national security law) even commissioned busts of Cowperthwaite as gifts for prominent friends.

When Friedman and his fellow Mont Pèlerinians came to Hong Kong for their general meeting in 1978, they were gathering for the first time outside the society’s postwar staging grounds of Europe and North America.

The outsized role assigned to Cowperthwaite in the received (and frequently repeated) stories of free-market Hong Kong was to remain something of a puzzle even to the man himself. In fact, the Financial Secretary had acted more out of prudence, conservatism, and expedience (mediated by an aloof disposition), rather than from doctrinaire loyalty to free-market economics, notwithstanding his undergraduate training in the sacred texts. The almost ritual incantation of the Cowperthwaite myth—as the principled defender of a determinate policy of laissez-faire, standing against the world—says more about the tellers and audiences of these tales than it does about either the Financial Secretary or Hong Kong’s colonial economy. It is a story that neoliberals, libertarians, and small-state conservatives want and need to believe—about the repression of interventionist urges, about fiscal restraint as the elixir of growth, and about an unmeasured economy doing just fine, spared the meddling hands of regulators and the interfering gaze of “statistical government.” 

Free-Market Melancholia

When Friedman and his fellow Mont Pèlerinians came to Hong Kong for their general meeting in 1978, they were gathering for the first time outside the society’s postwar staging grounds of Europe and North America. There had been several years of squabbling over the organization’s purpose and direction, including consideration of a proposal that it was time to disband. In the end, there was a decision to continue, so as to “defend the books,” to keep the torch of economic liberty alight, and to counter the apparently ever-rising tides of statism and interventionism. Sir John, who had become a member of the society in his retirement from the colonial service, chaired the opening session of the Hong Kong meeting, featuring none other than Hayek himself, soon to celebrate his 80th birthday. The invitation-only meeting also included a presentation from Cowperthwaite’s successor as Financial Secretary, Sir Philip Haddon-Cave, in the form of an extended, post hoc defense of the colony’s governing philosophy, official labeled here as positive non-interventionism. This required that economic growth always came first, and certainly prior to public-spending commitments, a default adherence to fiscal austerity that was combined with an aversion to planning. As Cowperthwaite liked to say, this was the only policy that made any sense for Hong Kong’s trade-exposed, open economy, which he portrayed as distinctively “un-Keynesian.”

Yet under the governorship of Murray MacLehose, since 1971, policy in Hong Kong had been drifting in a Keynesian-welfarist direction, in line with changing guidance from London, including a major expansion of public housing and investments in public transportation and social services. As much as the Mont Pèlerinians may have appreciated Haddon-Cave’s statement of free-market fealty, the ambient sense was that history, even Hong Kong’s history, was not going their way. While they had been happy to make the most of the shopping and dining opportunities in Hong Kong, the Mont Pèlerinians were far from optimistic. As George Stigler’s presidential address would ask, “Why have the socialists been winning?”  His argument was that the continued growth of the state, the signal development of the 20th century, was an inexorable outcome of democratization, which had empowered special interests, invited pressures for income redistribution, and facilitated invasive levels of taxation. 

Stigler’s gloomy prognosis presented the defenders of the free-market with a wrenching choice: either join the collectivists, as apologists for “market socialism,” or turn against democracy itself, for example by restricting the franchise. Finding neither option especially palatable, Stigler speculated (presciently) that something resembling a neoliberal third way could conceivably open up, should it be possible to engineer radical decentralizations of political life in such a way as to create an ongoing drag on government growth (for example, through tax competition between jurisdictions). Friedman, Hayek, and company may have been convinced that they had won the battle of ideas against the socialists and statists, but they remained gripped by the fear that the war against creeping governmentalization was being lost. 

Less of a truth spot, colonial Hong Kong remains a faith spot for the small-state doctrine of market fundamentalism. 

Now, the neoliberal (counter)revolution that was to take shape in the years to come, for all its other consequences, never did bring about a generalized shrinkage of the state, as Friedman repeatedly pointed out. The struggle against Leviathan would prove to be an ongoing one, one in which actually existing neoliberals would never explicitly declare victory. In the process, the spinning of nostalgic tales about a proto-neoliberal Hong Kong that never really was became, if anything, more important. For Friedman, the Hong Kong model would forever remain “Cowperthwaite’s achievement.”  Furthermore, the arch-neoliberal project to create and propagate indices of “economic freedom,” which was born at the 1984 meeting of the Mont Pèlerin Society and initiated by Friedman, was for more than 25 years literally indexed to Hong Kong, as the so-called “freest economies in the world.” (At least that was before the Heritage Foundation took the decision, in March 2021, to remove the special administrative region from its version of the list altogether.)

Hong Kong—or an image of Hong Kong—has duly come to serve as a site of verification and validation for what Pierre Bourdieu once called the “strong discourse” of neoliberalism, understood as a utopian project of market-facing transformation. Less of a truth spot, colonial Hong Kong remains a faith spot for the small-state doctrine of market fundamentalism. The received narrative of free-market Hong Kong was indeed too good to be true, but it remains a necessary fantasy for advocates of neoliberal transformation. As Friedman once reflected, “Hong Kong has been very useful to me.”