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Hong Kong – The Rise and the Decline of a Great City

By Marc Faber

That the world’s economic geography changes from time to time is nothing new and has been a common feature of human progress and development throughout the ages. Herodotus already observed in the 5th century BC that, “the cities that were formerly great, have most of them become insignificant; and such as are at present powerful, were weak in olden times”. In fact, it is remarkable how uneven economic development has been since ancient times with a great number of cities, countries and civilizations having flourished and decayed – but at different times and in different regions of the world.

In early history the major clusters of wealth such as Thebes, Babylon, Persepolis Nineveh, Bactria, and Samarkand were mostly located around the Nile, Euphrates and Tigris rivers and along the Silk Road. However, with the rise of the seafaring Phoenician trading empire a shift in the centers of prosperity and power toward the Mediterranean Sea took place, which led at different times to the rise of cities like Athens, Tyre, Carthage, Alexandria, Rome, and Constantinople, and finally culminated in the 15th century with the first centers of capitalism – the Italian trading cities of Venice, Florence, Pisa and Genoa. But, when the Portuguese Vasco de Gama discovered in 1498 a new trading route to Asia around the Cape of Good Hope and with the Spanish conquest of the Americas, trading routes shifted away from the Silk Road and the Mediterranean Sea, and threw Venice, as Montesquieu observed, into a corner of the world where it has remained. With the rise of the Portuguese and Spanish Empires and later with the Dutch trading hegemony the clusters of wealth shifted to cities like Lisbon, Cadiz, Antwerp and Amsterdam in Europe, to Goa, Malacca, Macao and Batavia in the East, and to Mexico City, Potosi, Lima, Bahia and Havana in the Americas.

The Industrial Revolution and the rise of the British Empire in the late 18th and early 19th century brought once again huge changes in the world’s economic geography as cities such as London, Manchester, Birmingham, Lancaster and Liverpool in England, and Calcutta in the East displaced the old centers of commerce, which had flourished under either Spanish, Portuguese or Dutch rule. Then, in the late 19th century and especially in the 20th century, the rise of industrial and commercial centers in the US - first all located along the east coast but then shifting to the Great Lakes region and the west coast displaced the early English manufacturing centers.

Clearly, throughout the ages, economic growth and development has been extremely uneven whereby major changes in the world’s economic geography were driven by new inventions, discoveries and social events. New inventions such as the compass, shifted trading routes from land to sea and led in the 15th century to the discovery voyages, which enlarged the world’s economic sphere several-fold and relegated the until then rich Mediterranean cities into a backwater. The construction of canals and the invention of the steam engine, steel, railroads, tractors, cars and electricity permitted the opening of landlocked territories for agriculture and industries, which led to the rapid rise of many totally new manufacturing and commercial centers, which were landlocked, in the 20th century. New industries frequently also increased the demand for commodities, which brought prosperity to cities near large resource deposits such as Manaus for rubber, and to Houston and Dallas for oil.

But throughout history cities did not only become rich because of a favorable location, which was conducive to trade, the proximity to skilled labor and abundant resources, which facilitated industrialization and the exploitation of natural resource, and in the case of Rome through sheer military power. What were also required were a skilled administration, a well-established legal and commercial infrastructure, low taxes, and most of all religious tolerance and freedom, which attracted dynamic minority groups, and scientists, artists, teachers, philosopher and inventors. Conversely cities decayed because of internal and social strive, costly military campaigns in order to maintain their trading empires or other commercial interests, protectionism, their inability to adapt to changing economic conditions, and intolerance towards minority groups, which led merchant families or religious minorities to leave.

Competition from the opening of new territories or from new industries as well as infectious diseases was also frequently an important factor. The Black Death caused by the Pasteurella pestis, which made its first appearance in Europe at the port city of Kaffa in 1346 when it was besieged by the Mongol leader Kipchak Khan Janibeg who catapulted dead bodies into the city (the first recorded case of biological warfare) quickly spread to all the port cities of the Mediterranean and European trading centers and reduced in the second half of the 14th century the European population by close to 40%. The death toll from the plague was naturally far higher in densely populated trading ports and accelerated their economic decline. In fact it was only in 1550, more than 200 years after the outbreak of the pest at Kaffa, that Europe’s population again reached pre-plague figures, whereby renewed plague epidemics ravaged Venice also in 1575 and 1630. Or consider the economic and social impact of the infectious diseases, such smallpox and influenza, which were brought along to the Americas by the conquistadors. Prior to the conquest by Cortez the Mexican civilization numbered over 20 million, but the Aztecs lacking any acquired immunities to the new infectious organisms were decimated within 50 years to just 3 million!

We can therefore, see that Hong Kong suffers at present from both a structural shift in the world’s economic geography and a plague, about whose virulence and duration little is known. Following the breakdown of the socialist and communist ideology in China and the Soviet Union, and the end policies of self-reliance and isolation on the Indian subcontinent the world’s economic sphere was enlarged by as much as at the time of the discovery voyages, since more than 3 billion people joined the global market economy and capitalistic system. This means new competitors for more recent centers of prosperity, such as Hong Kong, Taiwan, South Korea and Japan, which benefited for as long as China was a closed society under socialist policies. The same way manufacturing shifted in the US from the East Coast to the Great Lakes following the construction of canals and railroads in the 19th century, the opening of China will lead to a massive relocation of production, commerce and financial markets to the mainland with Shanghai likely to regain the pivotal position it enjoyed before the communist takeover, and other provinces undermining the manufacturing sector of the Taiwanese, South Korean, Japanese and Hong Kong economy.

In addition to this ongoing major change in the world’s economic geography, which is also taking place in Europe as a result of the breakdown of the Soviet Union, Hong Kong is now increasingly vulnerable to infectious diseases whose most fertile breeding ground is located in Southern China where humans mingle densely with wild and domestic birds, and livestock. Fortunate in the case of the 1997 bird flu, which could not jump from human to human, and was, therefore, contained by killing a million chicken, Hong Kong is now faced with its most serious crisis since the 1967 riots due to the SARS causing virus, which most likely jumped from pigs to humans but can now also be transmitted among humans. Surely, Hong Kong will survive both the increased competition from a large number of new commercial centers in China and the SARS pandemic. But, these two major outside shocks, which in the case of the increased competition from China will not go away, and in the case of infectious diseases may recur from time to time will likely reinforce the relative decline of Hong Kong’ economic and financial power compared to other cities in Asia and in particular in China.

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Jane Hughes, Marc Faber, Jonathan Lemco, Russell Smith, Andrew Thorson and Robert Windorf

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