Hong Kong: Roll Over, Adam Smith; The city's leader isn't changing, but his philosophy may be.

Byline: George Wehrfritz

In 1995, Hong Kong's then financial chief Donald Tsang defended the city's laissez-faire philosophy with a reference to Greek mythology. He cast the government as Odysseus, hero of the Trojan War, who defied the intoxicating voices of the Sirens attempting to lure his warship onto the rocks. Tsang, who last year took the helm as Hong Kong's second chief executive, warned of the blandishments of special interests eager to curry official favor--and pledged that, like Odysseus' crew, he would "put wax in my ears" so as not to be seduced by their songs.

A decade on, some are beginning to wonder: has the wax fallen out? On Sept. 11, Tsang suggested that Hong Kong's laissez-faire tradition was outdated. "Everybody says Hong Kong has a 'positive nonintervention policy'," Tsang told journalists after a conference on China's next five-year plan. But he said the policy was crafted "a long time ago" and claimed the government "had never said we'd made it a blueprint." Tsang's own writings and even Hong Kong's high-school textbooks speak otherwise. All of which suggests what some observers have feared since the end of British colonial rule in 1997: that Hong Kong is heading into a new era of bigger government.

Tsang's statements have cost him some public support, according to opinion polls. But he remains certain to retain his post in next year's scripted reappointment by 800 handpicked voters. Indeed, his main rival, "Iron Lady" Anson Chan last week announced that she would not challenge him because "the results are preordained." Yet a real debate on economic policy has begun. Already, a think-tank head has accused Tsang of "flirting with a socialist fantasy"; a pro-democracy political rival claims his comments could scare away international investors, and even Nobel laureate Milton Friedman, the economist who once hailed Hong Kong as a manifestation of his own free-market views, last week told the South China Morning Post that Tsang's statement "is a move in the wrong direction."

The debate illustrates just how far the city has veered from the free-market principles first set down by Sir John Cowperthwaite, colonial financial secretary in Hong Kong from 1961 to '71. He kept taxes low, encouraged entrepreneurship and refused to build a costly welfare system. Those concepts, which his successor dubbed "positive non-interventionism," kicked Hong Kong's manufacturing economy into self-propelled overdrive and quickly established an alternative to ...