Pacific Sociological Association

The Economic Success of Hong Kong: Insights from a World-System Perspective

Author(s): Alvin Y. So
Source: Sociological Perspectives, Vol. 29, No. 2 (Apr., 1986), pp. 241-258
Published by: University of California Press
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 THE ECONOMIC SUCCESS OF HONG KONG
Insightsfroma World-SystemPerspective

ALVIN Y. SO
of Hawaii at Manoa
University

Thisarticlestudiestheoriginsand developmentof theeconomicsuc-

cessofHongKong.After pointingouttheproblems ofthefree-market
explanationand theauthoritarianstateexplanation,thisarticleturns
to theworld-system fornewinsights.
perspective It is arguedthatthe
historical
development of HongKongis shapedbothbythecapitalist
world-system and bytheinteractionsbetweensocialistChinaand the
powerblocbetween
capitalist the1950sandthe1970s.Thisarticlecon-
tributes
byshowing howtheseworld-systemdynamics haveaffected the
HongKongpoliticaleconomyoverthepastthreedecades.

The economic success of Hong Kong is well-known.From a

fishingvillagein the nineteenth
centuryand an entrepOt in the
early twentiethcentury,Hong Kong is now one of the most
promising industrial states of the world. It is reported
thatHong Kong's Gross National Product increasedat a rate
of around 10Woper yearin the late 1970s,thatHong Kong ex-
portsmore commoditiesthan the entirenation of India, that
Hong Kong has thethirdlargestcontainerportof theworld,that
Hong Kong is the thirdlargestfinancialcenterof the world,
and so on (Howe, 1983; Chung,1983). Examiningtheseimpres-
sive figures,thequestionsthatthisarticleraisesare the follow-
AUTHOR'S NOTE: This articlewas presentedto theannual meetingof the
AmericanSociologicalAssociation,Washington, D.C., 1985. I wantto thank
Daniel Kwok, Chair of the Centerof Chinese Studies at the University of
Hawaii, for arrangingtravelmoneyto attendtheASA meeting.I also want
to thankMilton Bloombaum, Harry Ball, HerbertBarringer,Heather-Jo
Hammer,Hagen Koo, and Philip McMichaelfor theirinsightful comments
on an earlydraftof thisarticle.The suggestionsof BernardFarberand three
anonymousreviewerswerealso veryhelpfulin revisingthearticle.I bear the
of any errorin thisarticle.
sole responsibility

SOCIOLOGICAL PERSPECTIVES, Vol. 29 No. 2, April 1986241-258

? 1986PacificSociologicalAssn.

241

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242 SOCIOLOGICALPERSPECTIVES / APRIL 1986

ing: Whatare thefactorsleadingto theeconomicsuccessof

HongKong?How canweexplaintheparticular patternofHong
Kongdevelopment? And in whatwaysdo thetheoriesin the
development literatureshednewlighton thisissue?
In themodernization theexplanations
literature, givenforthe
economicsuccessofHongKongareNeo-Confucianism (Kahn,
1979)and freemarket forces(Gibson,1984).It is asserted that
Neo-Confucianism encouragesindividualcommitment to the
workethicand loyaltyto thecompany, and itsfamilism helps
topullresources andcapital together through kinship networks.
Fromthisperspective, HongKonghasdeveloped becauseofits
Neo-Confucian tradition.The freemarketexplanation argues
thatHongKongisa capitalist paradise.Thecapitalistsarefreeto
invest,createnewproducts, competewithothercapitalists, hire
andfireworkers, andthusarefreetodeveloptheir entrepreneurial
potential.SurelyNeo-Confucianism andfreemarket forcesare
important factors,but by themselves theyare insufficient to
explaintheparticular pattern ofHongKongdevelopment. For
example,theydo notexplainwhyHongKongindustrialization
tookplaceonlyafterWorldWarII andwhyittookthepathof
A broaderperspective
export-industrialization. is neededto put
thecultural/market forcesinthepropercontext.
Theneo-Marxist literaturehasrecently putforward an authori-
tarianstateexplanation toaccountfortherapidindustrialization
of East Asian countries (Halliday,1980;Koo, forthcoming).
Dealingmostly withSouthKoreaandTaiwan,ithasshownthat
whenthestateis strong andauthoritarian (withmilitarygovern-
ment,one-party rule,andsuppression ofdissent), andwhenthe
statemanagers arecommitted to theprogram ofmodernization,
thestatecan quicklybuildup infrastructure, imposeimport-
substitution,prevent foreign intrusion intothedomesticmar-
ket,and promoteexport-industrialization. This authoritarian
stateexplanation is quitecorrect forTaiwanand SouthKorea,
butit is notapplicableto Hong Kong. Insteadof an author-
itarianstate,thestatein HongKongis liberalas it allowsthe
coexistenceofopposing ideologiesanditseldomsuppresses dissi-

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 So / ECONOMIC SUCCESS OF HONGKONG 243

dents.Moreover, insteadofactiveintervention intotheeconomy,

thestateinHongKongadoptsa laissez-faire policyofminimum
intervention. ThusthestateinHongKongisneither authoritarian
noran activemodernizer.
Withrespectto theDependency literature, it provideslittle
discussion on theeconomic successofHongKong.OnlyGunder
Frank(1982)writesa shortarticlearguingthatHong Kong's
case is an exclusive modelthatcannotpossiblybe repeatedin
otherThirdWorldcountries.It seemsthatthe Dependency
theory is at itsbestin explaining economicstagnation, fluctua-
tion, and bankruptcy, but it does not venture intothestudyof
economicsuccess.
So far,thereis no satisfactory explanation fortheeconomic
successofHongKong.Thisis whythisarticle turnsto therecent
world-system perspectiveforinsights (HopkinsandWallerstein,
1982;Wallerstein, 1979,1983).Thedifferent waysofaddressing
historical development froma world-system perspective mayhelp
to shednewlighton ourHongKongcase. Firstof all, theunit
ofanalysis oftheworld-system perspective is theentire capitalist
world-system, nota nationor a society.Fromthispremise, it
is necessary to studythechanging natureofthecapitalist world-
system beforewecanunderstand theparticular patternofHong
Kong development.
Second,theholisticframework oftheworld-system perspec-
tivedrawsattention to interactionsbetween thecapitalist world-
system andtheemerging socialiststates.Thisinsight hasledus
to examinehowthehistorical emergence of thesocialiststate
in Chinaaffected thepathof HongKongdevelopment. Third,
an agendain theworld-system perspective is to tracethepro-
cessesin whichthecapitalist world-system alterstheclassrela-
tionsin a periphery. To followthislineofthought, we needto
studytheinteraction betweenworld-system and domestic class
forcesin theHong Kongsociety.
The following discussion willapplytheaboveinsights ofthe
world-system perspectiveto studythehistorical development of
HongKong.Wewillfirst studytheorigins oftheindustrial revo-
lutionin the1950s;thenwe willexaminethedevelopments in

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244 SOCIOLOGICALPERSPECTIVES / APRIL 1986

the1970srelatingto diversification
andfinancial this
expansion;
is followedby a conclusion.

THE INDUSTRIAL REVOLUTION

IN HONG KONG

In orderto understand whytheindustrial revolution inHong

Kongstartedin the1950s,we needto knowthenatureof the
world-system
capitalist in thatperiod.The 1950swas a decade
ofpost-War forthecorecountries,
recovery andthere wasa large
demandforconsumer goodsandcheaprawmaterials. Moreover,
in
laborcosts thecorecountries beganto riseas a result ofunion-
izationandhighstandard ofliving.Consequently, therewasthe
trendoftransferring someofthelabor-intensive production pro-
cessesfrom thecoretotheperiphery. Brown(1973:12)pointsout
thatbigBritish buyersoftextilesexpended considerable effort
in
assistingHong Kong factoriesto developtheirproduction
capacity;and overseasproducers cameto HongKongto have
products assembled from thepartstheysupplied. Thisworldwide
trendlaidtheconditions fortheriseofthetextileandclothing
industriesin Hong Kong (Lin et al., 1980;Chen,1983a: 13;
Cheng,1984:8).
In additionto thechanging natureof thecapitalistworld-
system, theinteractionbetween theemergent socialiststateand
thecapitalist worldpoweralso unintentionally promoted Hong
Kong'sindustrialization. AftertheChineseCommunist Revolu-
tionin 1949,manyShanghai fledfromChinato Hong
capitalists
Konginorderto avoidCommunist rule.Theybrought withthem
notonlytechnical expertiseandmanagerial skillsbutalso capi-
talandmachinery. Thepoliticaluncertainty andtheflight from
Communist at thattimealsodrovemanySouthChina
mentality
urbanmassesto HongKongto seeka living.It was thiscon-
juncture of refugeecapitaland refugee laborthatprovidedthe
impetusforHongKongindustrialization in theearly1950s.It
looksas ifthebestof socialistChina'sassetsintermsofcapital
andlaborhadsuddenly beentransplanted to HongKongto reap

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 So / ECONOMIC SUCCESS OF HONGKONG 245

the benefitsof the economic upswingof the capitalist

world-system.
This voluntary flightfromsocialism,however,was onlya
partof thelargerconflict betweenthecapitalist world-system
andtheemergent Chinesesocialiststate.In themidstoftheCold
War,U.S. policymakers, in theiranti-Communist zeal,triedto
containCommunist expansion bysupporting theTaiwangovern-
ment,by sendingtroopsto Korea,and by economicblockade
(Kraus,1979:253). Suchheightened hostilitywiththecapitalist
powerblocexplained whysocialistChinadidnottakebackcon-
trolofHongKongright aftertheCommunist Revolution. Hong
KongwastheonlyportwhereChinacouldgainforeign currency
to buythenecessary foreign equipment. Chinawas
As a result,
verywillingto supplyfoodproducts, rawmaterials, and even
waterto Hong Kongin exchangefortheneededforeign cur-
rency.It is estimated thatChinahadbeenearning 30Wo to 40Wo
of itsforeign currency fromtheHongKongtrade(Pye,1983:
461).
Observing thispeculiarpolicyof China,Kraus(1979: 256)
insightfully remarksthat"geographical isolationpermitsthe
People'sRepublicof Chinato benefit frombourgeois skills[of
Hong Kong]withoutsustaining thecostof internal capitalist
institutions."This"unequalexchange"between thecheapfood
of socialistChinaandtheHongKongcurrency also subsidized
theHongKongeconomy, lowered Hong Kong's costof living,
and strengthened thecompetitive powerof HongKongin the
worldmarket(Brown,1973;Youngson,1983).
Thisintense conflictbetween Chinaandthecapitalist
socialist
powerbloc also explainedthelackof politicalunrestin Hong
Konginthe1950s.Thesuddeninflux ofcapitalistsandlaborers
in thisperioddid notarouseanytensionbetweentheChinese
populationand theBritishrulingclass in Hong Kong. Being
immigrants fleeingfromCommunist rule,theChinesecapital-
iststoleratedthe Britishmonopolyof the Hong Kong state
machinery so as notto rocktheboat.TheChineseworking class
wasalsofairly withtheexisting
satisfied Whereas
situation. critics
observedterrible working conditions in HongKong(Halliday,

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246 SOCIOLOGICALPERSPECTIVES / APRIL 1986

1974),immigrant laborersperceived insteadimproved statusas

comparedto theirpreviousworksituationin China.
Of course,therewereunionsand therewerestrikes.But
unionstendedto be smalland ideologically dividedbetween
thepro-Socialist andthepro-Nationalist factions,and Chinais
reported to have heldback the radicaldemandsof thepro-
Socialisttradeunionsso as notto riskanydisturbance of its
substantialforeign exchange earning (Turner etal., 1981).Con-
sequently, strikes werefewin numberand seriousstrikes were
almostunknown (T.Y. Cheng,1982:277-283).Thisabsenceof
intensive class struggle further enhancedtheindustrialization
process, witheconomic output,employment, andexportfigures
in the1950stending to doubleand treblein a shortspanof a
fewyears(Youngson,1982: 1-5).
Thisfavorable world-market situation
andthelackofdomes-
tic classstruggle helpto explaintheliberaland thenoninter-
vention policyoftheHongKongstate.UnliketheTaiwanand
SouthKoreanstate,theHongKongstatedidnotneedto mili-
tarizeitselfin orderto stopthespreadof Communism or to
strengthen itspoliceforcesto suppresslocal oppositions. The
Hong Kongstatealso did not needto involveitselfwiththe
promotion ofimport substitutionor exportindustrializationbe-
causetheChinesecapitalists werealreadyperforming so well
in theworld-market.
Furthermore, theseniorstatemanagers of HongKongwere
mostly Britishexpatriates; andthecentral organsofHongKong
government, Exco and Legco, were controlledby British
businesspeopleand bankers.The British community in Hong
Kong,whichcomprised directorsand topmanagers fromgiant
corporations suchas the Hong Kong and ShanghaiBanking
Corporation, Jardine, Matheson & Co. Ltd.,Butterfield& Swire
Ltd., had monopolizedthe bankingindustry and the public
utilities
business ofHongKong(Rear,1971:72,79; T.L. Cheng,
1982:345). BecausetheBritishbusinesspeople'sinterest was
inthefinancial sector,theydidnotwantstateinterference into
the financialworldto limittheirfreedom.Subsequently, the
HongKongstatecontinued to carryouttheold coloniallaissez-

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 So / ECONOMIC SUCCESS OF HONGKONG 247

fairepolicyeventhoughHongKonghad entereda newphase

of export-industrialization
sincethe 1950s.
Thustheworld-system perspective
provides to explain
insights
theoriginsoftheindustrial
revolutionandthelaissez-faire
state
policyof HongKong.Butmorethanthat,thisperspective also
helpsilluminate
theimpetus towarddiversification
andtechnical
in the 1970s.
sophistication

TOWARD DIVERSIFICATION AND

TECHNOLOGICAL SOPHISTICATION
Beginning in thelate 1960s,theU.S. hegemonic domination
of thecapitalistworld-system was over.The UnitedStateswas
challenged in theVietnamWar and therewerenewindustrial
statesof JapanandWestGermany to competeforindustrialsu-
premacy. Justas inotherperiodsofdeclining hegemonic power,
theideologyof freetradewas replacedbytheideologyof pro-
tectionism.Importrestrictions weretightenedandtradequotas
werequicklysetup. Thisnewwaveof protectionism poseda
threatto theexpanding exporteconomyof HongKong(Chen,
1983a: 15; Cheng,1979; TheBulletin,1983a: 14).
Anotherthreatto theHong Kongeconomywas peripheral
competition. The 1960ssawtheriseof otherindustrial periph-
eriessuchas Taiwanand SouthKoreathatalso engagedin ex-
Theselatecomers
port-industrialization. werekeencompetitors
in Hong Kong's exportmarketsbecausetheycould produce
good qualityproductsat low prices(Cheng,1984:14; Brown,
1973: 14).
One morethreatto theHong Kongeconomywas fromthe
Chinesesocialiststate.Afterstabilizingitspoliticalpower,the
Chinesesocialiststatehad stoppedthe influxof immigrant
laborto Hong Kong. Lackinganyexternal laborsupply,the
Hong Kong economyin the 1960sfrequently ran intolabor
shortages, withjob vacancyalwaysbetween4Woand 9Woof
thelaborforceduringtheeconomicboom. Thus housewives
wereattracted to becomefactory workers; theputting-outsys-

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248 SOCIOLOGICALPERSPECTIVES / APRIL 1986

temwas revivedso as to utilizethehomelaborof theelderly

and children;and fringebenefits suchas freetransportation
weregivenso as to keepworkersstaying in a factory longer.
This intensecompetition of labor amongthe factories drove
up thewagesofHongKongworkers, withrealwagesdoubling
between1973and 1980. Indeed,Hong Kongworkers'wages
wereno longercheapcomparedto thoseof otherperipheral
workers(Howe,1983:515;T.L. Cheng,1982:292-301, 1984:19).
Facingthetriplethreat ofprotectionism, peripheral competi-
tion,and risinglaborcost,how did capitalists in Hong Kong
respond?Theyrespondedby dynamicadaptationto theever-
changing marketand bydiversification of theirproducts.For
instance,whentherewasa cutdownofquotason cheapquality
clothingandplasticflowers, theHongKongcapitalists diversi-
fiedtheirenergy to producehigh-class garments andflowers of
cloth.Through theirconstant innovations intechnology, design,
and advertisement, HongKonggarments losttheirbad reputa-
tionofthe1970sofbeing"cheapbutrather nasty."Therewas
intootherkindsofindustry
alsodiversification suchas electronics
andwatch-making, withtheirshareoftotalexports risingfrom
3Woin 1961to 22Woin 1979.Furthermore, therewas diversifi-
cationintoothereconomicsectors.Beginning inthelate1960s,
therewas theriseof thetouristindustry, thedevelopment of
a shippingindustry, and thegrowing importance of entrepot
trade(T. L. Cheng,1982:104,1984:24; Youngson,1982:24).
The dynamism of theHongKongcapitalists was a resultof
thesmallsize of theirfirms.Mostof Hong Kong'sindustrial
firmsweresmall;over90o of thememployedfewerthan50
workers.Beingsmall,thesefirms wereobstructed lessbybureau-
craticredtape,weremoreadaptableto thenewmarkets and
to rushorders,moreable to trynewmethodsof production,
andnecessitateda smallamountofcapitalto getstarted (Asian
Business,1983;The Bulletin,1984;Sit,1982).As such,theeco-
nomicsuccessof Hong Kongwas mainlytheresultof efforts
by theHong Kongcapitalists. The stateof Hong Kongtook
someinitiativesin buildingup theinfrastructure suchas free-
waysand tunnels, but it took a much less active rolein pro-
motingtechnological researchand international marketing.

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 So / ECONOMIC SUCCESS OF HONGKONG 249

Withoutthebackingof the state,smallfirmswerealways

beingputon trialbythechanging worldmarket.Althoughas
a wholethe Hong Kong economyhad prospered, therewere
and casualtiesduringthedownward
fluctuations swingof the
world-economy.
capitalist The oil crisisin theearly1970s,for
instance,caused a sharpdrop in the stockmarket,closed
numerous smallfirms,andproducedan unexpected highunem-
ployment rateof 9%o(Cheng,1984:24). Seenin thislight,the
HongKongeconomy shouldbe conceptualized as a stateofflux
ofconstantlyrising smallfirms
and falling ratherthanas a state
of unilinearsuccessforall firms.

BECOMING A WORLD FINANCIAL CENTER

Occurring simultaneously withdiversification was therapid

expansionof the financialsectorin Hong Kong, withthe
numberof banksrisingfrom431 in 1971 to 1,043in 1980
(T. L. Cheng,1982:419).In particular, almosteverygiantbank
oftheleadingcorecountries hasa branchsetup inHongKong.
Beginning in thelate 1970sHongKonghad becomethefinan-
cial capitalof Asia and thethirdlargestfinancial centerof the
world,exceededonlybyNewYorkand London(Chung,1983;
Jao, 1979).
Theriseto worldfinancial centralitycanagainbe tracedback
to thechangingnatureof thecapitalistworld-system. In the
1970s,therewas theopeningup of Asia as an area of invest-
mentforcorefinanciers. LatinAmericahadincurred too much
debt,Africawastoo remote, theMiddleEastwastoopolitically
unstable,and Asia thereby becamethebestinvestment forthe
financial giants of Japan and the United States.Furthermore,
thelowering of profitratesin thecoreand therelocationof
industriesintheperiphery also calledfora newfinancial center
outsideNew York and London (Cheng,1984: 18; Halliday,
1980: 11).
Theriseintoa worldfinancial centeris also relatedto there-
incorporation Chinaintothecapitalist
ofsocialist world-system.
In thelate1970s,Chinachangeditspolicyfromself-reliance to

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250 SOCIOLOGICALPERSPECTIVES / APRIL 1986

open-door.The aimwasto haveactiveintroduction of foreign

capital,foreign technology, and foreignexpertise in orderto
achievethefourmodernizations. China'sspecialeconomic zones
andjoint-ventured oil fieldexplorations weretypicalexamples
to lureforeign investment. Thesenewdevelopments in China
enhancedthepossibility of establishing a newfinancial center
thatwas closeto itsterritory, as socialistChinasuddenly be-
cameanother center ofinvestment forthecorefinanciers (Chen,
1983b;Chung,1983).
ButwhywasHongKongchosenas a worldcenter rather than
Taiwanor Japan?Thismaybe relatedto theliberalstatepolicy
of HongKong.As Chung(1983: 181)explains,"Hong Kong
is theonlyplace in Asia wherethereis absolutely no control
on theinternational flowofmoneyandno discrimination against
foreign operators. Taxesin HongKongarefewand simple....
The overalleffective to a maximum
rateis restricted of 15per-
centofgrossincome.Interest taxforlocalcurrency depositsis
10 percent andthereis no withholding taxforforeign currency
deposits."Subsequently, corecapitalists preferredto setup the
financialcenter in HongKong,whichis closeto Chinaandsitu-
atesin thecenterof East Asia, rather thanin otherplacesthat
havestrong government interference(Chung,1983;Jao,1979).
The statusof a worldfinancial centerhad enormous effects
To
on theHongKongeconomy. beginwith,investment capital
startedto flowintoHongKong.Thefloating capitalwasmostly
invested in stocksand realestate,causinga suddenrealestate
boomat theendofthe1970s.HongKonglandpricesroseagain
and again,oftendoublingand trebling in a fewyears.Having
toomuchidlecapitalaround,thebanksinHongKonglentfuel
to thisrealestateboombyeasycreditpolicies.The resultwas
landspeculation. Therewereconstant buying andselling ofland
propertyfor the sake of short-term profitratherthan for
long-term investment. An exampleof thisextraordinary risein
landvaluewas thata pieceof property in HongKongCentral
businessdistrict was sold in 1978by Jardines to Hong Kong
Land forHK$ 715million.HongKongLandsubsequently sold
thebuilding forHK$ 998 millionto CarrianInvestments, which

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 So / ECONOMIC SUCCESS OF HONGKONG 251

laterwasreported to resellthepropertyat a priceofHK$ 1,680

million(Howe, 1983:519; Jao, 1979).
The stateof HongKongdid nothing to haltthislandspecu-
lation.Instead,it further speededit up byrapidlyplacingthe
bestcrownlandin thecolonyforauction.The statebenefited
fromthislandboomby hugeearningsfromtheland sale. In
thelate1970s,therevenue fromlandsalescomposedone-fourth
to one-third of thestate'stotalrevenue(The Bulletin,1983b;
Howe, 1983:525). In fact,thissuddeninflowof revenuefrom
land sale so strengthened thefinanceof thestatethatit could
carryoutconstruction ofmassiveinfrastructureprojects without
evenraisingtaxeshigherthan15%o.
The stateof Hong Kong,therefore, tried"walkingon two
legs" in the 1970s.On theone hand,it promotedexportin-
dustrialization by buildinginfrastructure. On theotherhand,
it stroveto setup Hong Kongas a worldfinancialcenterby
promoting itslaissez-faire
policies.Fromthestate'sviewpoint,
this"twolegs"policyappearedtoworkinthelate1970s.Trans-
forming Hong Kongintoa financialcenterattracted foreign
capitalinvestment, escalatedlandvalue,increasedrevenueto
the statethroughpublicland auction,and providedfunds
necessary to promoteexport-industrialization.
However,thispolicyalso createdproblems of development.
The expansionof thefinancialsectoroccurredat theexpense
of theindustrial sector.Risinglandpricescausedrisingprices
in services,food, and transportation, leadingto a highrate
of inflation and highcostof living.HongKongexperienced a
doubledigitinflation ratein thelate 1970s.Moreover,rising
landpricesalso meanthigher rentandmoreexpensive industrial
sites.Thisledto therising costofproduction fortheindustrial-
ists,decreasing theirprofitand theircompetitive edgein the
worldexportmarket.
Whentheindustrialists' interests
wereat variancewiththose
of thefinanciers, theytriedto influence thestate'spolicyto
theiradvantages. Buttheconflict between theindustrialists
and
thefinanciers wasoftenmixedwiththeconflict between Chinese
capitaland Britishcapital.Due to threedecadesof economic

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252 SOCIOLOGICALPERSPECTIVES / APRIL 1986

success,manyChinesebusinessmen in Hong Konghad accu-

mulatedenoughcapitalto challengetheBritishcorporations.
By thelate 1970s,"Sittingon capitalizations of severalbillion
HongKongdollars,Chineseentrepreneurs werecorporately ap-
proaching thescaleofthetraditional, British-managed compa-
nies,... Thistrendwas revealedfirst in thetransfer to Chinese
interests ofsharesinthereconstructed Hutchinson Group,and
thenin a bid by SirY.K. Pao fortheHongKongWharfand
GodownCompany"(Howe, 1983:520).
AfterChinesecapitalists had exertedpowerin themarket,
theybeganto maketheirinfluence feltintheHongKongstate.
Theearly1980sobserved a growing proportion ofChinesemem-
bersinExcoandLegco-thegovernment organsofHongKong.
Thishas led Hook (1983: 508) to remarkthat"the European
hongshavebeento someextent eclipsedbythegrowth oftheir
Chinesecompetitors." BecausethebigChinesecapitalists were,
bythemselves, too smalla groupto exercisepoliticalhegemony,
thebigChinesecapitalists frequentlysoughtsupportfromthe
smallChineseindustrialists byrepresenting theirinterests to the
HongKongstate.Thisexplainswhythestategradually changed
itsnonintervention industrialpolicyinthelate1970s.TheHong
Kongstatehad setup a Committee on Diversification, propos-
ingtheacceleration oftechnicaleducation, thebuilding of new
industrial towns,theexploration of overseasmarkets, and the
transfer of advancedtechnology to Hong Kong(Chen,1980:
41). However,without thesupportof theBritishand Chinese
financiers, thestateof HongKongwas reluctant to changeits
nonintervention policy on interestrates,bank regulations, and
land sales (Howe, 1983:526; Cheng,1979;Jao, 1979).
In additiontointensifyingtheconflictbetween industrial and
financial capital,the"twolegs" policyoftheHongKongstate
has linkedtheHongKongeconomy morecloselyto thecapital-
istworld-system thanbefore. thelate 1970s,notonlywas
In
HongKonglinkedto theworldexportmarket, it also became
a partof theworldfinancialmarket.Thereafter, Hong Kong
was responding to twokindsof fluctuations: an economicone
relating to worldsupplyand demandand a financialone that

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 So / ECONOMIC SUCCESS OF HONGKONG 253

is usuallypolitically
cultivated.
Thesedoublelinkageshavein-
creasedHongKong'svulnerability to thecyclicaltrendsin the
capitalist
world-system. Forinstance,
theeconomicrecession in
1980reducedHongKong'sexports, whilethepoliticalprospect
of beingtakenoverby socialistChinaresultedin a plungeof
therealestatemarket,a sharpdropin Hong Kongcurrency,
a drasticfallof theHang Sengstockindex,thebankruptcy of
giantfinancialcompaniesand banks,thesuddenoutflowof
capitalto theUnitedStates,and increasingpoliticalunrestin
theearly1980s(Hong Kong BusinessToday, 1983;Tam,1983).

INSIGHTS FROM A WORLD-SYSTEMPERSPECTIVE

In whatwayshastheworld-system perspective offered a better
explanation of theeconomicsuccessof Hong Kong?
The meritof a world-system perspectiveis thatit has raised
severalissuesthatare neglected byotherperspectives. First,it
directs
us to examine thechanging natureofthecapitalist world-
systeminexplaining theoriginsanddevelopment ofHongKong
In the1950s,thepostwar
industrialization. economicboomand
therelocation ofmanufacturing industriesfromthecoreto the
periphery laid thebase fortheriseof HongKongindustry. In
the1960s,thespreadofprotectionism and peripheral competi-
tionstimulated theHongKongeconomyto undergodiversifi-
cationand technological innovation.Andin the1970s,turning
to Asia for financialinvestmentspromoted HongKongto be-
comea worldfinancial center.
Second,theworld-system perspectiveleadsus to studyhow
interactions betweensocialistChinaand thecapitalistworld-
systemaffectedHong Kong's historical development. In the
1950s,as a resultof theChineseCommunist Revolution, the
suddeninflux ofrefugee andrefugee
capitalists laborers directly
sparked offtheindustrial revolution
inHongKong.In the1960s,
thelackof a newsourceof immigrant laborfromChinaindi-
led to theupgrading
rectly of HongKongindustry to produce
highqualitygoods. In the 1970s,thereopening of China to

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254 SOCIOLOGICALPERSPECTIVES / APRIL 1986

foreigninvestment playeda role in expandingHong Kong's

financialsector.
Third,thecyclical conceptionofhistory from theworld-system
perspective has led us to studyHongKong'sdevelopment as a
processof transformation fromone phaseto another.As a re-
sultof thechanging natureof thecapitalist world-system and
thechanging interaction betweensocialistChinaand thecapi-
talistworld-system, HongKonghasundergone metamorphoses
froman entrepOt to an industrial
statespecializinginexporting
cheapclothing, thento an industrial stateproducing highqual-
itygoods and services,and thenfurther to a worldfinancial
center.In conceptualizing Hong Kongdevelopment as a state
of flux,we havepointedoutthatit is notunproblematic. The
downswing ofthecapitalist world-system intheearly1970ssent
manysmallfirms inHongKongintobankruptcy; therealestate
boomin thelate1970sthreatened theinterestsoftheindustrial
capitalists;and theprospectof beingtakenoverby socialist
Chinain theearly1980snearlycauseda collapseof theHong
Kongcurrency.
Fourth,in following theprocessofhowworld-system forces
haveworkedtheirwayintothelocaleconomy, ithelpsto draw
ourattention to studytheshapingofHongKongclassrelations
byworld-system dynamics. Forinstance, theprospect ofindus-
trializationandthementality of fleeingfromCommunism help
to explainthelackof capital/labor classstruggle and thelack
of Chinesecapitalist/British rulingclassstruggle in the1950s.
Theintrusion offoreign financial
capitalists
intotheHongKong
economyin thelate1970shelpsto explaintheriseofintraclass
struggle betweenthefinancial and industrial capitalto control
thestatepolicy.And the 1997issueof socialistChinataking
overHongKonghasledagaintotheflight ofcapitalfromHong
Kongto theUnitedStatesintheearly1980s.To pointoutthese
facts,ofcourse,doesnotimplythatdomestic classrelations are
alwaysshapedbyworld-system forces. Whenthedomestic ruling
classis strongandhighly organized,itcanchangetherate,scope,
andpathofincorporation intothecapitalistworld-economy (So,
1984,1986);butin ourHongKongcase,itssocialclassesjust

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 So / ECONOMICSUCCESS OF HONGKONG 255

do nothavethecapacityto do that.TheChinesecapitalist class

in HongKongtendsto adjustitselfto world-system dynamics
insteadof transforming them.
This world-system explanation of theeconomicsuccessof
Hong Kong shouldbe moresatisfactory thanthemoderniza-
tionperspective explanation, whichstressesthe role of Neo-
Confucianism andfreemarket forces.Surely Neo-Confucianism
and freemarket forcesareimportant considerations inexplain-
ingthedynamism of smallfirmsin Hong Kong,but theex-
planatory powerof theseculturaland marketfactorshaveto
be examined underthehistorical context ofthecapitalist world-
system. Without the favorable market in the upswing of the
world-system,
capitalist andwithout theinjection ofcapitaland
laborintoHongKong as a resultof theCommunist Revolu-
tion, Neo-Confucianism and freemarketforcescould not
possiblyhavehad a roleto playin Hong Kongindustrializa-
tionbecausetheseculturalvaluesand freemarketforceshad
existedinHongKongsincethenineteenth century. Furthermore,
thefreemarketimpulseshouldnotbe interpreted as theborn
instinctof HongKongcapitalists; insteadit is justa historical
heritage of theBritishcoloniallaissez-faire policy,and itsex-
istenceowedmuchto thepeculiar positionofHongKong,which
actedas a breathingspacebetween Chinaandthehostile
socialist
capitalistpowerbloc betweenthe 1950sand the 1970s.
Finally,thisarticleis intendedto be a pioneercase studyof
theeconomicsuccessof East Asian states.We hope thatthe
issuesraisedby thisstudywill arousefurther researches by
applying theworld-system to thestudyofSingapore,
perspective
Taiwan,SouthKorea,andJapan.To attainthisgoal,thisstudy
suggeststhatwe needto examinethechangingnatureof the
capitalistworld-system, theinteractions between socialiststates
and the capitalistworld-system, the transformation of local
economyfromone phaseto another,and theprocessof how
world-system forceshave workedtheirway into the local
economy.Onlywhenthereare enoughstudiesalongthisline
can we accumulatesufficient knowledgeabout the richness
and complexity of East Asianindustrialization, and onlythen

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256 SOCIOLOGICALPERSPECTIVES / APRIL 1986

of economicsuccessof East
can we,it is hoped,buildtheories
Asianstates.

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Alvin Y. So receivedhis Ph.D. insociologyfromUCLA. He is AssistantProfessor

at the Universityof Hawaii at Manoa. His researchinterestsincludethehistorical
and contemporary development ofChinaand Hong Kong. His book,SouthChina
and theCapitalistWorld-System, is goingto be publishedby theSUNY Pressin
1986.

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