Sir John Cowperthwaite, who died on January 21 aged 90, was Financial Secretary of Hong Kong throughout the 1960s; his extreme laissez-faire economic policies created conditions for very rapid growth, laying the foundations of the colony’s prosperity as an international business centre.
The present administration in the UK could learn much from this approach, creating a vibrant and successful economy, the foundations of which survive to this day.
Cowperthwaite was a classical free-trader in the tradition which stretched from Adam Smith to John Stuart Mill and Gladstone, rather than a modern monetarist. He was also a seasoned colonial administrator, with a strong streak of common sense. But his achievement in Hong Kong was hailed by Milton Friedman and other free-market economists as a shining example of the potency of laissez-faire when carried through to its logical conclusions in almost every aspect of government. The Right-wing American commentator PJ O’Rourke called Cowperthwaite “a master of simplicities”.
Cowperthwaite himself called his approach “positive non-intervention”. Personal taxes were kept at a maximum of 15 per cent; government borrowing was wholly unacceptable; there were no tariffs or subsidies. Red tape was so reduced that a new company could be registered with a one-page form.
Cowperthwaite believed that government should concern itself with only minimal intervention on behalf of the most needy, and should not interfere in business. In his first budget speech he said: “In the long run, the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralised decisions of a government, and certainly the harm is likely to be counteracted faster.”
From 1961 to 1971 Cowperthwaite exercised almost complete control of the colony’s finances under successive governors, Sir Robert Black and Sir David Trench, who were sympathetic to his philosophy and content to give him his head. Among his peers in the Hong Kong government, it was said that only Claude Burgess, the colonial secretary, could keep him in line. “His brilliance and argumentation prevailed, and he thus made policy by ruling on all items of expenditure,” said one colleague. But Cowperthwaite summed up his part in the colony’s success over the decade with some modesty: “I did very little. All I did was to try to prevent some of the things that might undo it.”
The measure of that success was a 50 per cent rise in real wages, and a two-thirds fall in the number of households in acute poverty. Exports rose by 14 per cent a year, as Hong Kong evolved from a trading post to a major regional hub and manufacturing base.
Cowperthwaite’s style was polished and amusing, but his intellect was razor sharp. Once his mind was made up on an issue, he was not to be shifted. His refusal to compromise was such that it was often said he would not have lasted five minutes in any equivalent post in the Home Civil Service. Denis Healey, as Labour’s Defence Minister, tried several times to persuade him that Hong Kong taxpayers should contribute more towards the British military presence in the colony. “I always retired hurt from my encounters with the redoubtable Financial Secretary,” he recalled.
Another aspect of Cowperthwaite’s modus operandi was a habit of holding his cards very close to his chest. When Milton Friedman asked him, in 1963, to explain the mechanism which kept the Hong Kong dollar pegged to the pound, Cowperthwaite remarked that even the management of the Hong Kong & Shanghai Bank (through which the peg was operated) did not understand it – “Better they shouldn’t. They would mess it up.” As for the paucity of economic statistics for the colony, Cowperthwaite explained that he resisted requests to provide any, lest they be used as ammunition by those who wanted more government intervention.
The only real constraint on him was the requirement that he should hold the colony’s credit balances in sterling. The arrangement was to cost Hong Kong dear when the chronic weakness of the British economy – shaped, it might be said, by interventionist, high-tax policies diametrically opposite to his own – forced the devaluation of the pound in 1967, resulting in a loss of some £30 million to Hong Kong’s reserves.
The unfettered Hong Kong economy took that blow in its stride, however, just as it had recovered from a crisis of confidence in local banks in 1965 and withstood the destabilising impact of Mao’s Cultural Revolution. In its annual report for 1971, the year of Cowperthwaite’s retirement, the government was able to boast that Hong Kong had become a “stable and increasingly affluent society comparable with the developed world in nearly every respect”.
If there were critics who doubted that claim, few were to be found within Hong Kong itself, where hundreds of thousands of industrious Chinese refugees were grateful for the opportunities such an open economy offered. Seen from the perspective of the British welfare state, however, Hong Kong’s social provision looked harshly inadequate. There were those who argued that the colony’s prosperity was driven by its inhabitants’ undiluted dedication to money-making, rather than by its style of government, and that a little more expenditure on education and health might have generated an ever faster growth rate.
Others pointed out that even the modest sums Cowperthwaite did allocate to these areas were regularly underspent by a wide margin: in 1970-71, for example, health services – budgeted at little more than a pound per head of population – undershot by more than a quarter.
But statistics for mortality and disease showed steady improvement, and, despite its parsimony, the government maintained an ambitious refugee rehousing programme. Cowperthwaite himself had a Gladstonian sense of obligation towards the least fortunate: he rejected the notion of tax relief on mortgage interest because it would have benefited the better-off and might have prejudiced “our maximum housing effort at the lower end of the scale”.
To the extent that he left stark gaps in Hong Kong’s social provision, the balance was partially rectified during the interventionist governorship of Sir Murray (later Lord) MacLehose in the 1970s. But Cowperthwaite’s successors in the Financial Secretary’s office adhered to his principles, funding increased public expenditure through land sales rather than from tax or borrowing.
John James Cowperthwaite was born on April 25 1915 and educated at Merchiston Castle School in Edinburgh. He went on to study Economics at St Andrews University and Christ’s College, Cambridge, before joining the Colonial Administrative service in Hong Kong in 1941. During the Japanese occupation he was seconded to Sierra Leone.
Returning to Hong Kong in 1945, he was asked to find ways in which the government could boost post-war economic revival; but he found the economy recovering swiftly without intervention, and took the lesson to heart.
He was appointed OBE in 1960, CMG in 1964 and knighted in 1968.
After leaving the government, Cowperthwaite was international adviser to Jardine Fleming, the Hong Kong-based investment bank, until 1981. He retired to St Andrews, where he was a member of the Royal & Ancient.
He married, in 1941, Sheila Thomson; their son, the architect Hamish Cowperthwaite, predeceased him.
From The Daily Telegraph
