Benign neglect may win over Marxist principles

Singapore these days can claim better title than any country on earth to having achieved communism in the classic Marxist sense.

It is not quite what Marx had in mind, of course, but try to find any other country with so much of its resources held in the public sector hands.

Chances are that if you could build a time machine to plop Marx down in the middle of Raffles Place today, the first thing he would say is: "See? I told you it could be done" even if he might later decide it was not quite his sort of proletarian dictatorship.

Then you have Hong Kong which, aside from a few aberrations like Cyberport, has for many years been administered on the principle of "positive non-interventionism", a fancy way of saying "Benign neglect" and just the sort of thing on which free markets thrive.

Which economic model is the more successful? The answer clearly has to be Singapore's.

Since the last big recession in the mid-1980s Singapore has achieved an average growth rate of 7.3 percent for gross domestic product while Hong Kong has managed only a paltry 4.8 percent. The last quarterly growth score is plus 1.17 percent for Singapore and minus 3.5 for Hong Kong.

Head to the bookstore, friends, to order your copy of Das Kapital or that version of I Did It My Way written by Singapore's elder statesman, Lee Kuan Yew.

Over the same period take the nominal GDP of the two places (prices of the day rather than deflated prices) and, for comparison purposes, put them into US dollar terms and state them as indices where 1985 equals 100. What you then get is a figure for both at the end of last year (the latest nominal figures available) of 477.

In fact, Hong Kong's is slightly higher. Strange, isn't it? How can two ways of looking at essentially the same thing produce such widely different results? Let's put it into perspective.

GDP estimates (that's the word they use) are inexact by nature. They rely on surveys which are particularly suspect in small economies and they depend hugely on getting an inflation estimate just right for all components.

There has not been much advance in the techniques used since they were devised in the 1920s. They don't call economics the dismal science for nothing.

But, more to the point, in a centrally planned economy like Singapore's much more can be done than in a free market economy such as Hong Kong's to boost growth rates out of recession in the short term.

The cost is that some of the necessary adjustments which a recession tells you must be made never are. Our deeper plunge than Singapore in this recession only reflects that Hong Kong's adjustment process has gone much deeper and we are likely to be the better for it in the long term.