Slow Economic Growth?
Perspectives from China, the West and Hong Kong
August 9, 2011
As we saw with the Dodd-Frank legislation and the Consumer Financial Protection Bureau, the question underlying the debate over financial regulation is whether it stifles economic growth. Leo F. Goodstadt’s book, Reluctant Regulators, provides useful insights from the experiences of Hong Kong and China. It also causes us to ponder whether our measurement of economic growth is fundamentally flawed.
Americans are astonishingly provincial. They know little about the world outside the US and Europe. Stories about the financial crisis and its aftermath center on New York, London and other European capitals. Dozens of books about what Australians call the GFC – the 2007-2009 Global Financial Crisis – focus on events in offices and boardrooms in New York, Washington and Europe to some extent. How many are about why Canada’s crisis was so mild? How many are about what happened in Hong Kong?
Yet as Goodstadt demonstrates, Hong Kong’s story is a very important one. It played, and continues to play, a central and crucial role in China’s economic miracle and therefore in the world’s economy.
Goodstadt’s book bears the intriguing subtitle “How the West Created and How China Survived the Global Financial Crisis.” Goodstadt – formerly head of the Hong Kong Government’s Central Policy Unit – first criticizes Western financial regulatory culture for its ideology-driven mythology and laxity in the face of foreseeable structural problems. Then, he critiques Chinese regional governments’ endemic practice of forcing banks to make bad loans for policy or relationship reasons. Finally, one place comes out smelling like a rose by stark comparison: Hong Kong.
Hong Kong’s experience gives the lie to the conventional wisdom that ongoing government intervention in financial markets slows economic growth. And as I’ll opine at the end of this article, the experience of the financial crisis should cause us to question whether we even have a coherent definition of economic growth.
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