Hong Kong's Populist Turn

Hong Kong's prosperity was built on its economic freedom—"positive noninterventionism," in the famous phrase of its colonial British mandarins. So it's alarming to see the territory's leaders turning their backs on that tradition so often these days.

The legislature last week approved a minimum wage law that empowers a government-appointed committee to set a pay floor. This risks making it uneconomical to hire low-skilled workers, contributing to unemployment.

The government has also proposed a competition law, which would import the kind of antitrust regime already in place in the U.S. and Europe. By giving a new Competition Commission a say over the legality of commercial arrangements, the law is carte blanche for bureaucrats to meddle in the economy. The law will impose significant compliance burdens on businesses for little gain in what is already one of the most competitive economies in the world.

These initiatives are part of a broader pattern. Chief Executive Donald Tsang has often repeated the phrase "big market, small government" to sum up his economic philosophy, and he may believe that. But in practice this has become a gradual slide toward a more bureaucratic state and politicized economy.

The government has offered subsidies on everything from electric utility bills to home Internet access. It launched a program to subsidize youth internships and other government-funded employment opportunities. In the midst of the global financial crisis, policy makers inserted themselves into a dispute between local banks and investors over settling so-called "minibonds," risky retail investment products that had plunged in value. And so on.

Hong Kong is fortunate that its government has been able to afford these measures while maintaining its ultra-low corporate and individual tax rates. But low taxes aren't inevitable, and when bureaucrats start thinking they can spend money better than the private sector, hold onto your wallet.

Blame misguided populism. Mr. Tsang isn't directly elected, but he still faces a mandate from Beijing to keep protesters out of Hong Kong streets. He appears to be calculating that these laws are a way to assuage small but noisy numbers of activists.

He should keep in mind that prosperity has to be earned every day, especially for small countries with few advantages save their human capital and sensible policies.

Writing in these pages in 2006, Milton Friedman recounted that "At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's. By 1997, when sovereignty was transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period. That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests."

Hong Kong became wealthy by resisting the statist fashions of the postwar West. It would be tragic if it adopted those fashions just as we are re-learning (see above) the damage they can do.

Printed in The Wall Street Journal, page A16