ABSTRACT
Nicholas Owen's widely read article, "Economic Policy in Hong Kong", is renowned for its critique on the functioning of the self-regulating market in the colony (Owen 1971b). A less noted aspect, however, is the discussion on the relation between industrial upgrading and export-oriented industrialization (EOI), and the inconsistency in Owen's treatment of Hong Kong. Typical of his generation of writers, Owen was unreservedly optimistic about EOI. His optimism was founded on the argument that this form of industrialization provided "the opportunity of 'manufacturing up', that is moving into the better quality end of a product range through experience, better design and improved quality control" (p. 153). But in a later section of the same article, he contradicted his own expectation by providing a list of figures showing that industrial deepening had not taken place in Hong Kong. He concluded that,
we would expect industry to become more capital-intensive as the economy develops ... the surprising result ... is that there is no evidence of any capital deepening in the seven-year period 1960-7. (pp. 189-190, emphasis in the original)
Although Owen did not explain why there was no capital deepening, it should be pointed out that his expectation of a more mature industrial structure for Hong Kong was largely justifiable and widely shared.1 By the time of his writing, Hong Kong had gone through two full decades of rapid industrialization, and signals for the need for industrial upgrading, such as labor shortage, protectionism and foreign competition, had been flashing for almost ten years since the end of the 1950s. But why was the industrial structure of Hong Kong so stubbornly entrenched in the labor-intensive stage? Why had all the signals for upgrading been ignored? Before tackling this puzzle, it is necessary to review two theories on industrial development
— free marketism and interventionism — which have to a great extent shaped many people's conception of industrial restructuring.
