The Umbrella Revolution and the War of Two Systems

By: Frank Yunker

Date: 2015-05-21

Hong Kong is well-known for its economic freedom index. It is one of the most economically-free regions of the world. It is difficult to say Hong Kong is a country since Chine claims ownership. But, China agreed to a “one country two economic systems” that essentially gives Hong Kong the freedom to conduct its own affairs.

Obviously, if the socialist utopian economic system of Communist China was working, there would be an outcry for Hong Kong and Macau to be absorbed into economic nirvana. The fact that Hong Kong and Macau still exist is simple proof of an economic truism: Capitalism beats Socialism. It’s not even close. It’s not even debatable.

I questioned a student at Hong Kong University last week. He was well aware that capitalism was a more beneficial economic system that that found in Mainland China. That simple concept may not be taught to American students at all. The particular student participated in the 2014 protests that have come to be known as the “Umbrella Revolution.”

Essentially, when Britain turned Hong Kong over to the Chinese it was with the stipulation that Hong Kong would enjoy a high degree of economic and political freedom. The plan was to allow the Hong Kong people to elect their leader in 2017. China agreed to this, but recently gave the plan a new twist. Hong Kong could elect their own leader but only from a list of carefully selected (by Beijing) candidates.

The student told me the protests were great. “People gave speeches. People sang songs,” he told me. It was, to him, a fun day at the park.

“Will there be more protests,” I asked. I should confess I was a little sorry the situation was so quiet. I would have loved to have been a part of history, too.

“Sure,” the student said. I asked “why?” and he explained “because the situation has not been resolved.”

I spoke also to a professor from Australia who was familiar with the protests. I stated you cannot have one country and two systems forever. He agreed.

However, the question to ask is “which system will conquer the other?” I believe that the economic system of Hong Kong is more likely to prevail throughout China than the other way around. I base my theory on the following evidence.
Since 1995 (or so), the Chinese government has pursued a policy of “State Capitalism” with regional or local governments borrowing capital to invest in infrastructure and businesses. Thus far it has been successful because it was only the government that could put up the collateral for capital and because there were so many obvious needs that nearly every venture was like harvesting low-hanging fruit. It was a sure thing.

Now, though, investments must be made in a more prudent fashion. Not every idea is a good one, so the risks become greater. This is precisely when an economy should convert from state-sponsored capitalism to individual-sponsored capitalism.