1Two, Three, Many Hong Kongs


Hong Kong

When Peter Thiel spoke of a world of a thousand nations, it was not speculation—it was a business plan. He was presenting at an event for an institute he funded that had the goal of drastically increasing the number of the world’s territories. Details came from the man who joined him at the lectern, a Google software engineer in his early thirties. “So, the future,” he began, and riffed on his plans for turning political sovereignty into a for-profit enterprise.1 Since time immemorial, he wrote elsewhere, there had been only one way to create a new nation: break up an existing one, subdivide the land, and rename it. It was a hard business to get into. You often needed to fight a war. But what if you could make a polity where none existed before?2 What if unclaimed space was out there somewhere, waiting? His proposal: repurpose offshore oil rig technology and set up settlements beyond the jurisdiction of terrestrial states, homesteading the high seas.3 Beyond the “exclusive economic zone” that stretches two hundred miles out from every country’s shore, the open ocean was free for private exploitation and political experimentation. “Seasteads” would escape the taxing and regulating state, declare independence, and spark what he dubbed a “Cambrian Explosion in government.”4 In the jargon of Silicon Valley, these would be start-up nations.

The man onstage was Patri Friedman. He had a famous grandfather, perhaps the century’s most notorious economist, both lionized and reviled for his role in offering intellectual scaffolding for ever more radical forms of capitalism and for his sideline in advising dictators: Milton Friedman. The two shared a basic lack of commitment to democracy. “Democracy is not the answer,” Patri wrote, it is merely “the current industry standard.”5 His ideal communities would be modeled on corporations. “You just get more effective products from corporations competing with each other for customers than you get from democratic systems,” he said.6 In the fortieth-anniversary edition of his bestselling Capitalism and Freedom, published in 2002, Milton agreed. “While economic freedom is a necessary condition for civil and political freedom,” he wrote, “political freedom, desirable though it may be, is not a necessary condition for economic and civil freedom.”7

Milton cited his favorite example: Hong Kong. More than anything, Hong Kong had persuaded him that capitalist freedom could be secured without the ballot box. Standing onstage, Patri echoed his grandfather, saying that what he wanted to see was a “floating Hong Kong.”8 The header for his blog included a slogan adapted from Mao Zedong—“Let a Thousand Nations Bloom”—but the image was of Hong Kong, and the logo looked suspiciously like a sinuous version of the bauhinia flower on Hong Kong’s flag.9 What was it about the territory that made it the perfect template? To understand the Friedmans’ enthusiasm, we must travel decades earlier to when Milton fell for his colonial capitalist paradise.

1.

In late 1978, inflation was high and rising in the United States. Britain was entering its own “winter of discontent,” a record-breaking number of labor actions helping to spawn a backlash that culminated with union-buster Margaret Thatcher’s rise to power. Unrest rumbled in Iran, where revolutionary leftist students joined with their no less revolutionary religious counterparts to overthrow the government, speaking in the name of God and the people with fists in the air. The three largest countries in South America languished under military rule. Vietnam invaded Cambodia, and China prepared to invade Vietnam. The world was in the grip of what a group of political scientists, including Samuel Huntington, described in an influential report as a “crisis of democracy.” The authors wondered if the world had become “ungovernable,” whether social life had become too complex and popular pressures too great for governments to adequately respond. They quoted the West German chancellor Willy Brandt’s prediction that “Western Europe has only twenty or thirty more years of democracy left in it.”10 The cover of the report showed a national flag in a rifle’s crosshairs.

Doom ruled the world, but the sun shone in Hong Kong. In late September 1978, Milton Friedman smiled as he gestured at the city spiked with white skyscrapers glittering in the South China Sea behind him. Here, he promised, was a solution to the crisis, a place far from the paroxysms of popular sovereignty. Perhaps this place, he suggested, might be the desirable end state for global capitalism. Perhaps the ideas of national self-determination; one man, one vote; and the power of the people were so many detours, cloverleafing roads to serfdom, and this impeccable vessel for commerce and finance—armored against the demands of the population but nimbly responsive to the demands of the market, a capitalist juggernaut at full throttle—was the future. What if we needed to short-circuit the chaos of democracy to ensure the success of the market? What if the flag in the crosshairs actually had to be shot to make the world governable again? What if the era when the nation-state dominated political aspirations, from the end of the First World War to the 1970s, was no more than a blip? “I believe a relatively free economy is a necessary condition for a democratic society,” Friedman would say in an interview in 1988. “But I also believe there is evidence that a democratic society, once established, destroys a free economy.”11

Hong Kong’s origins tell a story about how Friedman’s ideal state was created—at the barrel of a gun. The British claimed Hong Kong Island in perpetuity as the spoils of the First Opium War with the Treaty of Nanking in 1842. Blessed with a deep and wide harbor protected from typhoons by a mountain left over from a Mesozoic supervolcanic explosion, its city was named Victoria after the monarch and turned into an entrepôt free of customs duties with the economy driven by the drug trade—the through traffic of opium grown and processed in India and shipped on to Chinese consumers.

The British hoped that trade would unite the Chinese “in amicable intercourse” with “the more active and enterprising inhabitants of what we are accustomed to call the civilized world” (meaning themselves), but the intercourse was less than amicable and they were less than civilized.12 Britain and France instigated the Second Opium War, which led to the British acquisition of Kowloon, across the harbor, in 1860. In 1898, the Japanese defeated China and took Taiwan as their booty. Smelling weakness, other European powers began a “scramble for concessions,” turning the Chinese coast into a Swiss cheese of more than eighty treaty ports, concessions, and international settlements.13

Ceded to foreign powers on leases ranging from a quarter century to perpetuity, the coastal concessions were both of China and outside of it—states of exception, or zones. The foreigners inhabiting the zones were extraterritorial. Even on Chinese land, they were governed by their own laws, and their crimes were tried by their own courts.14 Hong Kong itself was a mixed entity. While the island and Kowloon were possessions of the British, the agricultural hinterland of the New Territories was leased to Britain for ninety-nine years in 1898, expanding the colonial footprint tenfold. The broader Chinese economy was also forced open by law. While its sovereignty was left formally intact, treaties bound the government to a low tariff policy. The “most-favored-nation” principle meant that the privileges granted one power, say the United States, were immediately granted to the Russians, the Germans, the French, and so on.

These laws were remembered as the “unequal treaties”—the core of China’s “century of humiliation.” A leading Chinese diplomat referred to them in 1912 as secured “with the aid of the sword.”15 Less often observed is how the combination of violence, territory, and law helped set the template for the economic globalization in the century that would follow. Zones created patchworks of semi-sovereignty: container ports and military bases were ceded on long-term leases; trade organizations like the WTO worked on the most-favored-nation principle; and treaties allowed foreign investors to be governed by their own courts. Far from the relic of a sepia-tinted past, the constellation of enclaves was a preview of the future.

Hong Kong thrived in the new legal landscape. Beginning as a trading port, it accelerated into manufacturing for global markets after the 1949 victory of the Communist Red Army drove people into the city, to be funneled into the small workshops and factories popping up everywhere. Around one million refugees and migrants—more than the colony’s total population when the British retook it from the Japanese in 1945—brought labor and capital, especially from the commercial center of Shanghai. Hong Kong’s population quadrupled from 1945 to 1956.16 Its factories were small, informally organized, and responsive to changes in consumer demand. Workshops would pop up and close down as needed with many located in six-story “flatted factories” built by the government to boost trade.17 Hong Kong focused on the downstream end of the value chain, making cheap goods for export—consumer products for the postwar baby boom, from textiles and clothing to plastic flowers, dolls, and packaged foods.18 By 1972, the colony was the world’s biggest exporter of toys.19 By the late 1970s, it was the world’s top exporter of clothing.20 A territory of less than five hundred square miles, it was the twentieth-largest global exporter, with its economy growing at 10 percent a year.21 It had also gone from a manufacturing center to rapidly become the financial center of Asia.22 The number of banks more than doubled in the 1970s and their assets grew by six times.23

This was the moment when Friedman touched down in Hong Kong. Funded by conservative donors, including the Getty Oil company and the Sarah Scaife Foundation, he was there to film the first episode of what would be his wildly popular PBS series Free to Choose.24 In his midsixties, Friedman was nearing the end of his academic career and reaching the height of his fame. His regular Newsweek column was already read in the homes of millions of Americans, and his star rose further when he won the Nobel Memorial Prize in Economics in 1976. The series would broadcast into homes all over the United States and eventually in Britain, accompanied by a book version, which spent an astounding fifty-one weeks on the New York Times bestseller list as the top-selling nonfiction book of 1980. For $4,800 (around $17,000 in today’s money), you could enjoy videotapes of the man whom Time called Uncle Miltie at home or in the classroom.25 “By now,” one journalist wrote, “the cherubic countenance and gnome-like figure of economist Milton Friedman are standard features on the American intellectual landscape.”26

In Friedman’s Hong Kong scenes on-screen, the impish economist ambled past vegetable stalls and fishmongers, and the camera grazed over curbside tinkers and back-alley ivory ateliers. Transitioning from footage of New York’s Chinatown, Friedman praised the sweatshop, reminiscing about his own mother’s previous work under similar conditions. The libertarian magazine Reason celebrated the hire-and-fire model in Hong Kong: small factories would take on employees for a job as short as a month and terminate them thereafter.27 In what one journalist called “Milton Friedman’s dream world,” “labor is obliged to go wherever capital directs it, for whatever it chooses to pay.”28 Friedman himself dubbed Hong Kong “an almost laboratory experiment in what happens when government is limited to its proper function”: people know that when people fail, “they bear the cost.”29

The episode was titled “The Power of the Market,” but it was really about finding shackles for the state. How could one prevent governments from expanding welfare programs, extending social entitlements, and spending more on new areas like environmental protection, health care, public education, and energy conservation? It was these many demands, among others, that Friedman held responsible for the spike of inflation and unemployment in the 1970s. He saw Hong Kong as a breath of fresh air in a decade dragged to ruin by the demands of popular sovereignty in both the Global North and the Global South. People’s choice to divorce, have children out of wedlock, or loll around on university campuses studying Herbert Marcuse and Karl Marx had strained government budgets.30 There was no such mollycoddling in Hong Kong.

What made such discipline possible was first and foremost the absence of democracy. No labor unions or popular elections meant no leverage for workers or citizens. Hong Kong’s financial secretary was more important than its colonial governor.31 The British colony was run more like a “joint stock corporation” than a nation, as an admirer put it.32 One of Friedman’s colleagues at the conservative Hoover Institution, Alvin Rabushka, praised Hong Kong as an “approximation to the textbook model” of neoclassical economics “made possible by the absence of an electorate.”33 Policymakers were “free from the ever-present electoral pressures that prevail in economic decision-making in most democratic polities.”34 Rabushka celebrated Hong Kong’s model of “administrative absolutism” and the “no-party administrative state.”35 It was the very “absence of politics,” he wrote, that allowed for “economic freedom.”36 The result? Not always a comfortable or secure life but rather one where “working people here in Hong Kong accept the verdict of market forces.”37 Rabushka also noted that the free enterprise system depended upon “the fact of continued colonial status.”38 Hong Kong had been permitted by London to set its own trade and taxation policy since the late 1950s.39 This decoupled it from the construction of the welfare state in postwar Britain while the disenfranchisement of the local population as subjects rather than citizens prevented disruptive moves to self-determination. The colonial governor kept taxes low and tariffs nonexistent. In 1978, the top rate of income tax in the UK was 83 percent and in the United States it was 70 percent. Meanwhile Hong Kong had no taxes on capital gains or inheritance and a flat income tax of 15 percent. The secret to making Hong Kong “the last truly capitalist place on earth,” as the director of the Hong Kong Chamber of Commerce called it, was that it succumbed to neither the siren song of decolonization nor democracy.40

Friedman filmed the scenes for Free to Choose while he was in Hong Kong for another occasion: the biennial general meeting of the Mont Pelerin Society. Founded by the Austrian-British economist Friedrich Hayek in 1947 to defend against the threat of creeping socialism and the welfare state, the MPS was a private club of intellectuals, politicians, think tankers, and journalists. (Friedman himself was a founding member and the society’s president in the early 1970s.) Its members called themselves neoliberals into the 1950s.41 Although the term has many definitions, this book uses neoliberal as a helpful shorthand for those associated with the MPS and its affiliated think tanks.

Within the neoliberal group, there were thinkers of different shades but they were united by the belief that capitalism had to be protected from democracy in the age of mass democracy. There were a few main groups of thinkers. Those that concern us most in this book would recognize themselves in the term libertarian. Although libertarianism contains many schools and tendencies, they are united by the belief that the state’s role is to protect the market, not to own property, manage resources, direct companies, or deliver services like health care, housing, utilities, or infrastructure. Maintenance of inner and outer security, the protection of private property, and the sanctity of contract: these should be the main role of the government. The main difference, as we will see, is between those who believe in a minimal state (sometimes called minarchists) and those who believe in no state at all (known as anarcho-capitalists).42

It must have been easy to fall in love with Hong Kong when the society met there in 1978. The weather was balmy and the sky was not yet clouded by the haze from the coal furnaces of Shenzhen that would later become the norm. MPS conference attendees were housed at two of the city’s most luxurious hotels, the Excelsior and the Mandarin.43 A striking hexagon of over forty stories of beveled windows, the Excelsior was built on “Lot Number One”—the first plot of land auctioned off after the British took possession of the island. The Mandarin, meanwhile, was the city’s first five-star hotel and the first in Asia to have bathtubs and direct-dial telephones in every room.44 It was so iconic as a destination for the jet set that a journalist quipped later that you could “write an insider’s London political column” from the lobby.45

Both hotels were owned by the British firm Jardine Matheson, also known as Jardines. One of the original Hong Kong merchant houses, it had made its start selling opium to the Chinese in the 1830s. Later it pivoted into retail, shipping, and hospitality, getting into China early (with joint ventures there in 1979) and getting out early too—switching its base of operations to Bermuda, where the tax rate hovered at an attractive zero percent.46 A couple of years after the Mont Pelerin meeting, Jardines would become widely known under the alias Noble House, the company at the center of James Clavell’s 1,200-page eponymous novel—a “four-pound love letter to Hong Kong”—which sold half a million hardcover copies in 1981 and sat atop the New York Times bestseller list for months. “Overcrowded, with everyone except the very rich living cheek by jowl, Hong Kong is a metaphor for the modern world,” wrote one reviewer.47 National Review declared the book an “Atlas Shrugged of the Eighties” and praised its glorification of capitalist competition and individualism.48 Clavell would have been pleased—he sent a copy with a warm dedication to Ayn Rand, “the goddess of the market” herself.49 NBC broadcast an adaptation of Noble House across four nights during sweeps week of 1988, starring Pierce Brosnan as a “supreme leader,” or taipan, glowering at his corporate rivals from the penthouse of Jardine House. Town & Country called Hong Kong “this moment’s most dazzling boom town.”50

Visitors had a memorable arrival at Kai Tak Airport, a strip of reclaimed land that jutted out from the densely populated Kowloon Peninsula—the Brooklyn to Hong Kong Island’s Manhattan. As their stomachs dropped on descent, passengers could peer into the windows of the multistory collections of flats and workshops that housed the city’s ballooning population. Dealing with the influx of newcomers into squatter encampments (and placating social demands after violent protests in 1967) drove the government into the public housing business along with the public education and basic health service it already provided; state expenditure grew by half from 1970 to 1972.51 By 1973, almost a third of Hong Kong’s 4.2 million residents lived in government housing.52 This was one of the many ways Hong Kong was in fact far less than a pure model of libertarianism. The syndicated columnist John Chamberlain wrote from Hong Kong in 1978 that “some of the Mont Pelerin purists were distressed to learn from a paper presented at their meeting that Hong Kong has rent control and a fair amount of government housing.”53

Of greater concern, however, was Hong Kong’s uncertain future. The ninety-nine-year lease on the New Territories was set to run out in 1997, less than twenty years from when the Mont Pelerinians met. Its status as a colony was becoming more of an anomaly from year to year. Over the previous century, Britain had devolved control to its overseas territories, starting with the “white dominions,” such as Canada, Australia, and New Zealand. In India, the empire’s crown jewel, many internal affairs were conducted by an elected national government by the 1920s. In 1947, India was let go altogether, followed by other countries in Asia and Africa. The number of new sovereign states swelled in the middle decades of the twentieth century. Most of Britain’s Caribbean and African colonies gained their independence by the mid-1960s. By the late 1970s, Hong Kong had gone from being one star of many in the firmament of overseas European empires to one of the last lonely satellites in an era of postcolonial nationalism. Hong Kong was, as a common phrase went, “living on borrowed time in a borrowed place.”54

The neoliberals were anxious. Would the heirs of Mao Zedong kill the goose that laid the golden eggs? China previewed its intentions already in 1971, when it had the United Nations remove Hong Kong from its list of colonies.55 The implication was that Hong Kong had always been Chinese sovereign territory and would become so again. Hong Kong was a place out of joint.56 It was a colony in a time of nation-states and a tiny territory in the time of Great Powers. Yet the neoliberals saw it as a harbinger of the future. “Instead of being a 19th century anachronism,” Chamberlain wrote from the conference, Hong Kong was “something to be cherished and extended.”57 But how to do so? Was it possible to extend the Hong Kong experiment in colonial capitalism in an era defined by the common sense of decolonization?

The Mont Pelerinians came to praise Hong Kong, but many were also there to smuggle its essence out in their luggage ahead of what they feared was its imminent demise. In the years and decades afterward, Friedman and his collaborators created a Portable Hong Kong, miniaturized and stripped of internal contradictions, complexity, and differences of class and culture. They turned it into a mobile template, untethered from place and freed for realization elsewhere. As a model zone, Hong Kong held out the prospect of an escape from the dilemmas and pressures of midcentury democracy. In 1967, at the high point of anti-colonial rebellion, when the nation was still the horizon of liberation, Che Guevara had called for “two, three, many Vietnams.” In 1979, Reason winked and revised the slogan into one for national termination, calling for “two, three, many Hong Kongs.”58


Copyright © 2023 by Quinn Slobodian