An Almost Laboratory Experiment: John Cowperthwaite and Hong Kong's Economic Prosperity

Abstract

Milton Friedman, in the 1960s, was convinced that the British government official in charge of Hong Kong's economic policy — John Cowperthwaite — was largely responsible for running the most radical experiment in economic history. Cowperthwaite, a classical liberal enrolled in the British civil service, aggressively resisted attempts to intervene in Hong Kong's economic policy as he believed that free markets fueled growth. Because of factors inherent to British domestic politics and the nature of colonial rule in Hong Kong, Cowperthwaite's views and personality made him a singularly influential figure. In this paper, we use the synthetic control method to test whether Cowperthwaite really did constrain Hong Kong's government and whether his policies fueled economic growth. We find evidence that he did constrain the growth of government but there were no visible effects on growth. We tie these results to the role of Hong Kong's land policies and how it impacts the meaningfulness of the size of government results.

Keywords: Economic Growth; Milton Friedman; John Cowperthwaite; Hong Kong; Size of Government

JEL Classification: O13, N11, N51