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The World Needs a Dozen Hong Kongs

Communist China’s decision to join the global economy triggered the greatest contraction of poverty in world history. Yet amazingly, the indispensable impetus to that transformation—its inspiration and guide, the source of much of its talent and capital—has been widely overlooked, and never replicated. The model of Hong Kong has been hiding in plain sight.

Hong Kong was always different than other colonies. It began in 1842 as a minor trading post, surrounded by empty territory. Like the United States, most of Hong Kong’s citizens were drawn there for freedom and opportunity. As Milton Friedman noted, after WWII Britain allowed Hong Kong to pursue a classical liberal, free market policy. Even during its own dalliance with socialism, Britain allowed capital to move freely in Hong Kong. Taxes were kept low and there were no exchange or trade restrictions. The results were spectacular. Despite absorbing millions of impoverished refugees, Hong Kong’s per capita income rose from about a quarter of Britain’s to more than a third larger in just four decades.

In 1984 Margaret Thatcher’s UK signed an agreement with China that promised to continue Hong Kong’s unique role for another 50 years. Post-colonial Hong Kong became a free city inside China, with its own laws, democratic legislature and independent judiciary. It kept its free market economy, its low rate tax system, and its separate, convertible currency. China traded a negligible dilution of its sovereignty for the enormous benefits it derives from a free Hong Kong. It calls this arrangement "One Country, Two Systems."

With billions of people still trapped in poverty today, why shouldn’t we build new Hong Kongs? Why shouldn’t other developing countries and regions have vibrant outposts of freedom like Hong Kong?

The United States should create a Free Cities Program that would build treaty-based "Hong Kongs" in countries that genuinely want democracy, prosperity and a way to outflank corruption. These new Cities would be joint ventures between the United States, an international financial institution like the World Bank, and the host governments. The U.S. would negotiate 50-year bilateral treaties with the host countries, authorizing the joint venture to purchase undeveloped plots the size of Hong Kong, establish property registries, and institute a complete set of Western freedoms and responsibilities.

Treaty-based Free Cities would offer democracy, low taxes, rule of law, limited government, reliable prosecution of corruption, freedom of faith, speech and press, multiethnic meritocracy, and free trade. They would exemplify free market globalization, rather than the economic exploitation of protectionist colonial mercantilism. Like Hong Kong, these tiny places would become safe havens for investors and entrepreneurs. They’d allow citizens to raise capital, attract the skills they need from abroad, and create thousands of new jobs where there are none today.

This strategy would be inexpensive, yet philosophically revolutionary. In a Free City development wouldn’t be a problem at all. Investors and workers will absolutely flock to places where there is freedom, secure property rights and the rule of law—thereby reversing the brain drain that hobbles every developing country.

The joint venture would only have to build the Free Cities’ public infrastructure, and that would be financed by resale of City land, City taxes and bonds. The global private sector would gladly develop everything else because they’d be able to reap the rewards of their own enterprise.

The people attracted to Free Cities would become stakeholders who would resist aggressively any interference with their freedoms, as the citizens of Hong Kong have. And the host country’s ruling elite would learn quickly, as China’s did, that they can earn much more from their Free City than they’d ever be able to pocket from foreign aid or "squeeze."

This strategy could change the focus of America’s official development programs from government-to-government to people-to-people. Free Cities would mobilize the private sector, NGOs and the faith community, to build first world economies in destitute places. In the process, it could stimulate a profound new American engagement with the poor of the world.

A Free Cities program would appeal powerfully to the idealism and generosity of the American people—and to the friends of freedom around the world. It would put the U.S. on the offensive in the worldwide war of ideas. And it would put dictators, kleptocrats, and terrorists on the defensive.

The world needs at least a dozen new Hong Kongs. The United States should lead the way and begin building Free Cities in Eastern Europe, Africa, Latin America, and Asia in the next five years.

Ken Hagerty is Chairman and Founder of the Global Venture Investors Foundation; Theodore Roosevelt Malloch is Chairman and Founder of the Spiritual Enterprise Institute



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