Category: Economics

Sam Bidwell writes on Argentina’s nascent recovery.

In 2023, after decades of turmoil, Argentinians elected maverick libertarian Javier Milei as President.  Milei promised to cut tax and spending, fire government employees, and get the economy moving again. 1 year on, it seems to be working.

But first, some context.  In the early 20th century, Argentina had one of the highest per capita GDPs in the world – ahead of countries like France and Italy.  Thanks to decades of mismanagement, the economy is now in turmoil – in relative terms, it has declined steeply.

In January, year-on-year inflation had soared to an incredible 211 percent.  The country’s rapid inflation is largely the result of public spending. For years, the country has run large deficits, despite sluggish growth, in order to appease the public.

When the Government has been unable to cover the costs of this spending, it has borrowed or printed more money – resulting in inflation.  For ordinary Argentinians, this has driven up the cost of essential goods and created an environment in which businesses struggle to grow.

Because of this borrowing and printing, the country has entered into a vicious cycle of debt defaults.  Since 1980, it has defaulted on its debt five times – with the latest default coming in 2020.  This is an incredible decline for one of the world’s most promising economies.

Enter Javier Milei.

Milei is an economics professor, and a self-described anarcho-capitalist, who was first elected to Congress in 2021.  He is known for his combative style, and for his contempt for the state. Incredibly, he also owns four clones of his beloved dog, Conan.

Milei emerged as a surprise candidate in the October 2023 Presidential race.  After a close first-round, Milei beat establishment politician Sergio Massa to triumph in the final ballot, on 19th November 2023. So what has the maverick libertarian achieved so far?

• First, he has cut state spending – aggressively.
• He has reduced the number of government departments in the country from 19 to 10.
• His new Ministry of Human Capital merges the previous departments of Social Development, Education, Culture, and Labour.
• He’s also fired thousands of government workers.

When he took office, the Argentinian state had about 341,000 employees – today, that figure stands at 317,000, with thousands more cuts to come in the next few years.  Retained employees have seen pay freezes or cuts. 

He’s ended costly subsidies for energy, rent, and transport, while cutting non-essential local government funding.  He’s vetoed Congressional plans to introduce an ‘inflation lock’ on pensions in the country, and to increase funding for public universities.  And he’s also taken action on immigration.

He’s ending provision of free healthcare to immigrants in Argentina and introduced new fees for foreign university students.  He has also proposed plans to automatically deport foreign criminals from the country.

For Milei, Argentina is a country that needs to learn to live within its means, after decades of inflationary borrowing and spending.  With inflation under control, the country should be able to win back international investors, and grow the economy.

But is it working?

Well, the country’s budget deficit has finally turned into a surplus – meaning that Argentina has begun to get its debt repayments under control.  Month-to-month, the Argentinian government now spends less than its earns, setting the country back on the road to recovery.

As a result, inflation has started to fall.  For ordinary Argentinians, the price of everyday goods has begun to stabilise.  For international investors, falling inflation is a sign that Argentina can once again be trusted as a place to spend money and grow businesses.

The country’s most important stock index, the S&P MERVAL, tracks the performance of major Argentinian companies.  Since Milei took office, the MERVAL has reached record highs – indicating that investors are beginning to return to Argentina.

Meanwhile, the country’s risk profile has begun to fall, meaning that it could soon enjoy the same premiums as its South American neighbours. The country’s bonds have also hit record highs on international markets, again signalling growing investor confidence in the country.

According to the IMF, Argentina is projected to grow 5% in 2025 and 4.7% in 2026.  That’s compared to 3% in neighbouring Brazil, and 2.1% in Chile – signalling that Argentina could truly be about to fulfil its enormous economic potential.

For many ordinary Argentinians, life is beginning to improve.  Milei ended rent controls across the country early in his tenure – and since that time, the supply of apartments in Buenos Aires has risen by 170%, while rents have fallen by 40%.  As a result, Milei is popular.

Despite his ‘shock therapy’, his party is leading in the polls for the 2025 legislative elections – and his approval rating stands at around 48%. Economic optimism is also on the rise and stands at the highest level since 2015. 

Of course, with three years left as President, Milei still has significant challenges ahead of him. Argentina’s incredible “Milei boom” shows what politicians can achieve with sufficient commitment.  It also shows us what can happen when the state gets out of the way.

By cutting burdensome regulations, reducing unnecessary spending, and challenging political orthodoxy, Milei looks set to turn around Argentina’s ailing economy.  Politicians across the world could learn from Milei’s example – we should all dare to challenge received wisdom.

Reproduced with kind permission of Sam Bidwell, Director of the Next Generation Centre at the Adam Smith Institute, Associate Fellow at the Henry Jackson Society, although views are his own.  Sam can be found on X/Twitter, on Substack, and can be contacted at s.bidwell.gb@gmail.com.  This article was originally published as a X/Twitter Thread at https://x.com/sam_bidwell/status/1866594098964005206

Sam Bidwell writes on the success of Singapore.

Today, Singapore is: – the safest city in the world – the world’s freest economy – #1 in the Ease of Doing Business Index But why has Singapore been so successful, and why is it such a great place for businesses? A on the reasons for the Lion City’s remarkable success.

First, some history. In 1819, Singapore was founded by Sir Stamford Raffles, a British official who believed that the site was perfect for a trading post. The city grew quickly, attracting traders from across the region who were drawn to the city’s ‘free port’ status.

Singapore was governed by the British until 1963, when the city became independent as part of the ‘Federation of Malaya’. However, the union was not a harmonious one. Due to political disputes – including race riots in 1964 -, Singapore was expelled from Malaya in 1965.

And so, Singapore was born – a poor city state, surrounded by enemies, and with no natural resources of its own. Yet today, Singapore is one of the world’s richest and most successful nations, thanks largely to the work of its visionary founding father, Lee Kuan Yew.

A graduate of the University of Cambridge, Lee had initially tried to make a success of Singapore’s position within Malaya. But with independence forced upon him, he worked to build the ideal “start-up” nation in Singapore, using the city’s natural strengths to his advantage.

He was ruthlessly pragmatic in pursuit of his vision. His decisions were guided by empiricism rather than ideology. As a result, Singapore grew from an obscure post-colonial backwater into a world-leading city. What exactly did Lee do?

First, he recognised that Singapore’s openness to business and trade could be one of its greatest strengths. Over 99 percent of all imports to Singapore are duty free. Corporation tax is charged at a flat rate of 17%, and the city has no capital gains tax.

Thanks to efficient processes, it takes an average of 1.5 days to set up a business in Singapore, and just 15 minutes to register a company online. That’s alongside strong IP protections and light-touch regulation – many businesses have their Asia-Pacific hub in Singapore.

In order to make Singapore attractive to global businesses, Lee Kuan Yew insisted that English would be the main language of administration in the city. Alongside English, Singaporeans also learn a ‘mother tongue’ – Mandarin, Malay, or Tamil – depending on their heritage.

But low taxes and English proficiency alone would not be enough to guarantee Singapore’s success. The city also has world-leading infrastructure, designed with comfort and ease in mind. Singapore’s port is the second busiest in the world in terms of total shipping tonnage.

Meanwhile the city’s airport, Changi, is consistently rated as one of the best in the world. Changi Airport serves more than 100 airlines flying to more than 400 cities worldwide. It is clean, comfortable, and modern, designed to ensure efficient layovers and speedy boarding.

Within the city itself, travellers can get around using the fully automated Mass Rapid Transit network – a clean and comprehensive urban transit system, complete with functional Wi-Fi. Meanwhile the city’s roads are rated as amongst the best in the world.

Much of this infrastructure is funded and maintained by Temasek, an investment firm owned by the Singapore Government. Alongside GIC, Singapore’s other sovereign wealth fund, Temasek operates like a private company, managing many of the Government’s assets.

Temasek uses private sector incentives in the public interest. “One of the tragic illusions that many countries of the Third World entertain is the notion that politicians and civil servants can perform entrepreneurial functions.” – Dr Goh Keng Swee, 1st Finance Minister

Singapore also has a zero-tolerance approach to crime, with impartial and efficient enforcement of strict laws. Chewing gum is banned in the country, and littering can result in an on-the-spot fine. Vandalism and drug use can result in harsh penalties, including caning.

These laws, alongside an efficient system of municipal government, makes Singapore the world’s cleanest and safest city. Singaporeans regularly leave their phones as placeholders in public places – a civic culture of cleanliness and orderliness is extolled at every level.

Singapore also invests in its people and maintains genuinely meritocratic systems for hiring and firing. The Government consistently invests in education. At schools, at universities, and in public life, Singaporeans venerate intellectual ability and promote those who succeed.

Its political system is meritocratic too, prizing stability and talent. Though Singapore holds free multiparty elections, the Government maintains control over the political process. Protest is strictly controlled, and the press is regulated to prevent seditious acts and speech.

The result is the most stable political system in Asia, and amongst the most stable countries in the world. The People’s Action Party, founded by Lee Kuan Yew, has led Singapore since 1965, ensuring stability and continuity across the decades.

Public figures – civil servants and politicians – are paid well, to ensure that the best and brightest are attracted into Government. The Prime Minister of Singapore earns about ten times more than the UK’s Prime Minister, and about four times as much as the US President.

But Singapore also has a zero-tolerance approach to corruption. Public officials who take bribes while in office are removed from their post, fined, and often jailed. Just this week, the country’s former Transport Minister has been convicted of receiving gifts while in office.

Stability, low taxes, an efficient state, and an uncompromising approach to public order. These are the roots of Singapore’s success. In building Singapore, Lee Kuan Yew was not guided by ideology, but by what works. He was a pragmatic empiricist through and through.

Lee’s story is a reminder that national success is largely the product of pragmatism, competence, and vision. By studying what works in practice and implementing it, we can change society for the better. No obstacle is too big if we set our minds to the task of national revival.

The great man himself puts it best: The lessons of Singapore and Lee Kuan Yew should inspire us all.

Reproduced with kind permission of Sam Bidwell, Director of the Next Generation Centre at the Adam Smith Institute, Associate Fellow at the Henry Jackson Society, although views are his own.  Sam can be found on X/Twitter, on Substack, and can be contacted at s.bidwell.gb@gmail.com.  This article was originally published as a X/Twitter Thread at https://x.com/sam_bidwell/status/1839676939444875461?s=46.

In just fifty years, Dubai has transformed from an obscure fishing village into a city of global significance.

Despite popular misconceptions, oil revenues contribute less than 1% of Dubai’s GDP today.  You read that right – unlike nearby Abu Dhabi, Dubai’s economy is not powered by oil revenues. In fact, Dubai’s remarkable growth is the product of shrewd investments, business-friendly tax and regulatory rules, and an uncompromising approach to political stability.

Modern Dubai was founded as a fishing village on the Persian Gulf at some point in the 18th century. Throughout the early 19th century, Dubai – as well as other neighbouring Gulf states – fell under British influence. In 1820, these small Gulf states fell under a British protectorate.

As early as 1900, Dubai began to emerge as an important port. Its location at the mouth of the Persian Gulf made it ideal for trading into the Middle East, India, and East Africa. This geographic advantage, and its openness to commerce, has been the secret to Dubai’s success.

In 1901, Sheikh Makhtoum bin Hasher Al Makhtoum established Dubai as a free port, with no tariffs on imports or exports. Merchants, particularly those working in the pearl industry, were given parcels of land, guarantees of protection, and religious toleration.

In the first half of the 20th century, Dubai grew in importance as a hub for trade with Persia and India. However, the city’s position was supercharged with the emergence of a new leader. In 1957, Rashid bin Saeed Al Makhtoum succeeded his father to become ruler of Dubai.

Sheikh Rashid understood the young city’s potential. He set about transforming Dubai from a small coastal settlement into a modern port city. He also understood the keys to Dubai’s success – openness to trade, infrastructure investments, stability and order.

He set about creating private companies to build and operate infrastructure. In 1959, he established Dubai’s first telephone company; by 1961, it had rolled out an operational network. The city’s private water company established a regular supply of piped water by 1968.

By 1960, the city’s airport had opened, with flights operating across the Middle East. In 1963, the Sheikh opened the first bridge across Dubai Creek, paid for by tolls. The airport was expanded in 1965 to enable long-haul flights and was expanded again in 1970.

By the late 1960s, Dubai was also a hub for the global gold trade – much of which was based on the illegal sale of gold to India. In 1966, more gold was shipped from London to Dubai than almost anywhere in the world (only France and Switzerland took more).

And again, this is all before the discovery of oil. By the time that Dubai struck it rich in 1966, it was already a growing port, with a solid base of infrastructure and a low-tax, pro-business environment. Of course, the discovery of oil supercharged Sheikh Rashid’s vision.

But Sheikh Rashid had the foresight to know that one day, the oil would run out. He understood that one day, the city would need to survive without oil – and so set about making Dubai a world-leading hub for regional and international commerce.

In 1972, Port Rashid was constructed and in 1979, it was followed by the Port of Jebel Ali, today the busiest in the Middle East. In 1978, Sheikh Rashid opened the Dubai World Trade Centre. Dubai Creek was dredged and widened in the early 1970s. In 1983, Dubai Drydocks opened.

Meanwhile the city’s airport was expanded, and hotels were opened for business travellers. Roads, bridges, hospitals, and schools were constructed in a construction glut which propelled Dubai’s economy through the 1980s. As the old saying goes, build it and they will come.

This infrastructure-first approach was the foundational principle of Dubai’s pro-business policy environment. By leveraging the city’s geography and encouraging businesses to invest, Dubai made itself into one of the Middle East’s leading trade entrepôts.

The city sits at the mouth of the oil-rich Persian Gulf, with convenient maritime connections to Asia, Europe, and Africa. By air, more than 50% of the world’s population is 7 hours or less from Dubai – again, ideal geography for an international business hub.

However, it’s not just geography and infrastructure. Dubai has no income tax. Corporation tax is low at 9% – and in 26 free trade zones, companies enjoy a 50-year corporation tax exemption, and no international tariffs. Many of these free trade zones use English common law.

These zones create an extremely business-friendly environment – many international businesses have their regional or global HQs in Dubai. At the same time, the state invests in the infrastructure – roads, schools, hospitals – needed to keep business travellers coming.

And speaking of business travellers, Dubai – and the rest of the United Arab Emirates – is home to a large number of foreigners. In fact, 88% of the UAE’s population are expats. The territory’s tax-free status and world-leading infrastructure attracts high net-worth individuals.

However, unlike in Europe, immigrants in Dubai live under strict conditions. They do not benefit from state welfare and can be deported at any time. It is almost impossible to become a naturalised citizen. In return, migrants get to make far more money than they would at home.

This is particularly true for low-skilled migrants, often from South Asia, who come to the country under the so-called ‘kafala system’. Under the kafala system, all migrant workers need to have an Emirati sponsor – if their employment ends, so does their residence.

Which brings me onto the final aspect of Dubai’s success – law and order. The city has a zero-tolerance approach to crime and public disorder. The Dubai Police employs drones and has an average emergency response time of 2 minutes and 24 seconds, as of Q3 2023.

Sheikh Rashid passed away in 1990. He was succeeded by his son, Maktoum, who ruled until 2006. In turn, Maktoum was succeeded by his brother Mohammed, who rules Dubai to this day. Though Dubai has grown considerably since Sheikh Rashid’s time, the basic principles are the same.

In many ways, the principles that built modern Dubai are the same as those that built Hong Kong, Singapore – or even, historically, London.

• Openness to business
• Ideal strategic positioning
• Shrewd investments in infrastructure
• Pragmatic governance
• Law and order

Whatever you think of Dubai, the city’s growth is one of the most incredible stories of the 20th century.  Despite popular misconceptions, its rapid rise owes just as much to sensible policymaking as to oil. Not everybody can turn a patch of desert into a global megacity!

Yes, it really is true – as of today, less than 1% of Dubai’s GDP is generated by oil revenues. In fact, it’s commerce, financial services, real estate, and transportation that are the biggest drivers. The ultimate service economy!

Reproduced with kind permission of Sam Bidwell, Director of the Next Generation Centre at the Adam Smith Institute, Associate Fellow at the Henry Jackson Society, although views are his own.  Sam can be found on X/Twitter, on Substack, and can be contacted at s.bidwell.gb@gmail.com.  This article was originally published as a X/Twitter Thread at https://x.com/sam_bidwell/status/1827802745740337507

In the 20th century, Hong Kong transformed from a second-rate port city into a global centre of finance and commerce. But how did it achieve this? An overview of the use of ‘positive non-interventionism’, the economic philosophy which powered Hong Kong’s rise to greatness.

Hong Kong Island was ceded to Britain in 1842, in the wake of the First Opium War. Its strategic location was ideal for projecting British military and economic power into south China.  At the time, it was home to around 5,000 people, spread across several small fishing villages.

The city grew quickly, powered by trade with China and British financial interests in East Asia. By 1859, the island was home to some 85,000 Chinese residents, alongside 1,600 foreigners.  In 1865, the now world-famous HSBC was founded in Hong Kong.

The Kowloon Peninsula was added to the territory in 1860, and the so-called ‘New Territories’ were obtained in 1898 under a 99-year lease.  Thanks to the legal and political stability offered by the British, Hong Kong’s role as a trade entrepot continued to grow.

By the outbreak of the Second World War in 1939, Hong Kong was central to British interests in East Asia. The territory operated as a free port, with no tariffs on imports, which attracted merchants from China and Europe alike.  And then came the Japanese.

In 1941, Hong Kong was occupied by the Japanese after eighteen days of fierce fighting.  Japanese occupation was brutal. Civilians were regularly targeted for mass execution, banking assets and factories were seized, and a harsh rationing regime was imposed on the territory.

On August 30th 1945, Hong Kong was liberated, and British control was restored. This is where Hong Kong’s remarkable rise really begins.  In 1946, Sir Geoffrey Follows was appointed as the territory’s Financial Secretary and charged with recovering from the occupation.

Follows oversaw a rapid short-term recovery of Hong Kong’s fortunes. In October 1948, he ensured that Hong Kong was granted financial autonomy from the UK, giving HK more freedom to make its own policy. He also resisted calls for a centrally planned industrial strategy.

In 1949, the Communist Party of China emerged victorious from the Chinese Civil War. Capitalists, Chinese nationalists, and political dissidents who feared communist rule fled to Hong Kong.  From 1945 to 1951, the territory’s population increased from 600,000 to 2.1 million.  Follows’ emphasis on free trade and stability, alongside the cheap labour and expertise of these new migrants, laid the groundwork for Hong Kong’s economic miracle.

What was the ‘positive non-interventionism’ which shaped the approach of the next three Financial Secretaries?  In short, ‘positive non-interventionism’ starts from the observation that Government efforts to shape resource allocation are usually damaging to growth, particularly in the private sector.

That’s the ‘non-interventionism’ – but what about the ‘positive’?  Successive Hong Kong Governments recognised that the state can take positive steps to ensure improved market function – such as investing in infrastructure, maintaining law and order, and providing legal and political stability.  That’s the ‘positive’ part.

What did this look like in practice?

The territory’s next Financial Secretary was Arthur Grenfell Clarke (1952-61). Clarke refused to introduce regulation of the Hong Kong Stock Exchange, and the territory operated without a central bank or monetary policy.

The territory had no income tax, and instead raised revenue through land value capture.

At the same time, Clarke worked with his colleagues in Government to expand Kai Tak Airport, improve the Hong Kong Police Force, and crack down on triad-led gang crime.

Yet the real star of the show is John James Cowperthwaite, the city’s Financial Secretary from 1961 to 1971.   From 1961 to 1971, Government spending as a percentage of GDP fell from 7.5% to 6.5%. At the same time, real wages rose by 50% and acute poverty fell from 50% to 15%.

Under Cowperthwaite, the territory imposed no controls at all on international capital flows. He refused to collect GDP statistics, fearing that these would only be used to enable economic planning.  Taxes were kept low, and Government focused on basic infrastructure delivery.

Hong Kong grew rapidly, powered by manufacturing, shipping, finance, and construction. The number of factories in the territory increased from 3,000 to 10,000 over Cowperthwaite’s tenure, while the number of foreign companies registered in HK almost doubled.

This approach was continued by Cowperthwaite’s successor, Philip Haddon-Cave. Indeed, Haddon-Cave coined the term ‘positive non-interventionism’ in 1980.  In 1975, Hong Kong emerged as the world’s freest economy, a position that it held continually in 2019.

Haddon-Cave worked with Governor Murray MacLehose to improve services without increasing taxes, tariffs, or regulation.  The pair agreed that Government should focus on delivering a few basic services, and should draw on private sector expertise for delivery of major projects.

With this approach, the duo clamped down on corruption and launched the famous Mass Transit Railway.  They also managed Hong Kong’s rapid transition from a manufacturing economy to a services economy – prompted, in large part, by a major change just over the border.

In 1978, Chinese premier Deng Xiaoping launched the Open Door Policy, which saw China open up to foreign businesses.  In 1980, Deng designated the small city of Shenzhen, just across the border from Hong Kong, as a ‘Special Economic Zone’, in order to encourage foreign trade.  Like Hong Kong, Shenzhen would boom in the coming decades.

In the 1980s, its growth was powered by manufacturing. The city’s low labour costs and high regulatory flexibility made it attractive for businesses looking to reduce their costs – including firms in Hong Kong.

Rather than damaging Hong Kong, the growth of cheap manufacturing in China allowed the territory to transform into a hub for financial and legal services, with immediate access to cheap goods and cheap labour from China. Costs remained low and growth remained steady.

For those wanting to access the lucrative Chinese market, Hong Kong was a perfect entry-point. The stability of Britain’s common law system and HK’s light touch regulation gave foreign businesses confidence that their investments would be protected.

Hong Kong’s remarkable growth continued throughout the 1980s and 1990s, guided by positive non-interventionism.  In 1997, HK was returned to China, after more than 150 years of British rule. Nevertheless, positive non-interventionism has continued to shape HK’s economic policies.

Though HK faces challenges today, it continues to stand as a global hub for financial and legal services.  Its remarkable story is testament to the power of free markets – but also to the importance of limited, effective government which focuses on stability and order.

Reproduced with kind permission of Sam Bidwell, Director of the Next Generation Centre at the Adam Smith Institute, Associate Fellow at the Henry Jackson Society, although views are his own.  Sam can be found on X/Twitter, on Substack, and can be contacted at s.bidwell.gb@gmail.com.  This article was originally published as a X/Twitter Thread at https://x.com/sam_bidwell/status/1817279031345352801