“I, Pencil” by Read Leonard and its relevance in Hong Kong`s Economic Prosperity

“I, Pencil” by Read Leonard and its relevance in Hong Kong`s Economic Prosperity

“I,Pencil” by Read Leonard and its relevance in Hong Kong’s EconomicProsperity


LeonardRead tells a story &quotI, Pencil&quot to explain the importance ofa free economy to a nation. From Read`s story, there is enoughevidence illustrating the inefficiencies associated with a plannedeconomy. Pencil is a simple item, but no single person can produceit. Therefore, no single centrally placed authority or governmentagency can plan and manage an economy efficiently. Read argues thatgovernment should avoid interfering with production and investmentsto enable them explore their maximum potential. The arguments fromread`s paper are confirmed in the prosperity of Hong Kong, after herimplementation of a free economy several years ago. Hong Kong`sgovernment has implemented policies of a free economy to open itsland to local, national and international investors. Instead ofregulating the mode of production and investment, Hong Kong`sgovernment implements strategies that create a business-friendlyincome. Hong Kong is reaping many benefits from free economy such aseconomic growth, improved infrastructure and technology, improvedemployment rate and minimized income disparity between the rich andthe poor.

Listof Tables

Table1. Indicatorsof economic growth in HongKong………………………………………….7

Tableof Contents

Executive Summary 2

List of Tables 2

Introduction 4

The paper’s main arguments 4

Free economy vs. planned economy 4

Inefficiencies associated with planned economy 5

Importance of free economy 5

The relevance of read’s arguments in Hong Kong’s economic prosperity 6

Advantages of free economy to Hong Kong 6

Economic growth 6

Technology growth and good infrastructure 7

Reduced unemployment rate 8

Reduced income disparity 8

Conclusion 8

References 9


“I,Pencil” by Read Leonard explains in the form of a story theshortcomings associated with central planning and the benefitsderived from a free economy. Read chooses simple item pencil andillustrates the various processes and expertise required in producingit. From his arguments, he argued that it is challenging to plan aneconomy and central planning derails the progress of an economy.According to Tracy, a planned economy is one in which all productionlines and investments are governed by a central authority, usually agovernment agency or body. On the other hand, a free economy is aneconomy that embraces market in which there are free investments, thegoverning authorities protect free competitions and investors andpeople. According to Read, as many individuals come together andshare ideas and expertise to make a pencil so will they do so in afree market to meet all their basic need and enable a nation`seconomic growth (2008). The paper will discuss in detail the mainarguments of the Read`s paper &quotI, Pencil.&quot The paper willthen discuss the relevance of Read`s arguments in the economicprosperity of Hong Kong.

Thepaper’s main argumentsFreeeconomy vs. planned economy

Organizationof thoughts to write down a compelling story can successfully bringout relevant arguments. From the story of “I, Pencil”, anordinary item that almost every person on earth has used, Readpresents relevant arguments on free economy and central planning. Theauthor uses pencil, a small thing and explains the processes,different groups of people and resources used in its production. Inthis paper, Read describes the challenges encountered by a centrallyplanned economy and the importance of a free economy. Readcould have chosen more complex items rather than a simple pencil suchas “I marine vessel” or “I electric train”.Instead, he chooses a pencil to show that despite being a simpleitem, many categories of people, processes and resources are involvedin its production, leave a complex thing like a marine vesselalone. &quotSimple? Yet,&nbspnota single person on the face of this earth knows how to make me”. In this particular sentence, Read explicitly discourages the idea ofcentral planning.

Inefficienciesassociated with planned economy

Throughthe story of the pencil, Read teaches the ineffectiveness of acentrally planned economy. A planned economy is in which all means ofproduction and investments are controlled by decisions made by onesingle authority, which is usually a government agency. Read conveysthe message that economies can hardly be planned. If there is nosingle person with the skills, knowledge and know-how to produce asingle pencil, then no one can plan and control an economy from acentral point. In a planned economy, people are governed andrestricted in terms of production and investment and hence cannotachieve their potential. From Read’s paper, it is difficult for thecentral controlling body to make decisions that are suitable andappropriate for all the sectors of an economy.

Importanceof free economy

Readportrays the governments that supports central planning asmisinformed business owners who think can successfully run a chain ofenterprises without involving the line managers and all otheremployees. On the contrary to a planned economy, a free economy givesthe people the freedom to invest and indulge in various productionprocesses. The primary lesson from the reading is that resourcefulenergies be left unrestrained (Read, 2008). The legal bodies withinthe society should not strive to organize but to eliminate all theobstacles to investment and creative expertise to flow freely toenhance the economy. Governments should learn from the experience ofother successful nations and adopt free economy to achieve itsbenefit

Therelevance of read’s arguments in Hong Kong’s economic prosperityAdvantagesof free economy to Hong Kong

Fordecades, HongKong has been categorized as the most open economy in the world inthe Index for ranking economic freedom(Berggren, 2003). Research by Lam points out that the Hong Kong`sgovernment has played a significant role in ensuring abusiness-friendly environment to attract investors and promoteeconomic growth (2000). In a free economy, all the firms competeequally and are protected from unnecessary regulations andinterferences. Hong Kong`s adherence to principles of free marketexplains the nation`s success in various sectors especially economicgrowth. According to Yuen(2015), for Hong Kong to continue reaping the benefits of a freemarket, she should remain committed to implementing appropriateregulations that allow reliability and successful implementation of aopen market.


Oneof the advantages that nations reap from the free economy is enhancedeconomic growth(Berggren, 2003). In an open economy as Read points out in hisarticle, the government does not control the production andinvestment by entrepreneurs. Instead, the government adopts a marketeconomy in which all investors and entrepreneurs compete equally forsuccess. Hong Kong`s government for many years has ensurednon-interferences with the business sector. As a result, the nationhas attracted many investors, a move that has led to the growth ofthe enterprise sector. Free economy allows entrepreneurs tocalculate the risks involved and invest wisely band appropriatelywithout unnecessary regulations and restrictions. A free economyallows talents and resources to be allocated where they generate thehighest value in terms of economic growth. According to Yuen(2015), a government has a role in shaping Hong Kong’s economy butcaution should be taken to avoid interfering with the principles of afree economy. Table 1 below illustrates the various indicatorsexplaining the economic growth trends in Hong Kong for the last threeyears.

Table1: Indicatorsof economic growth in Hong Kong


Technologygrowth and good infrastructure

Anotherbenefit of a free economy isthe improvement in infrastructure technology. According to Gwartney,Lawson and Holcombe (1999), the primary role of governments inensuring the sustainability of a free economy is the establishment ofgood infrastructure and improvement in technology. To ensure thesmooth running of an open economy, the Hong Kong government hasimplemented various strategies to ensure the availability ofup-to-date information to her business community. Some of thestrategies include updating information technology not only in thepublic but also in the private sector. Currently, Hong Kong is amongthe leading nations in terms of adoption and implementation oftechnology to enable availability of information essential forinvestment and other business activities (Berggren, 2003). Goodinfrastructure is needed for smooth running of business operations.Hong Kong has invested in improving its infrastructure such as roadsand bridges to ensure investors can quickly access and explore allthe parts of the nation that they desire to invest or start businessoperations.

Reducedunemployment rate

Accordingto Berggren, a free economy results into economic growth meaning jobcreation for the unemployed (2003). In a free economy, there are manyinvestors and all the new businesses coming up need people to workfor them. Since the year 2012 as shown in table one, the Hong Konggovernment has maintained unemployment rate below 3.3% despite anincrease in population growth.

Reducedincome disparity

Researchcarried out by Lam indicates that people with the lowest income arebetter in freer countries compared to their counterparts in plannedeconomies (2000). Adam Smith founded the idea that economic freedomgenerated many benefits for the poor. The argument by Adam Smith isevident in Hong Kong. Despite the fact that there are still manycitizens of Hong Kong living below the poverty line, the poorcommunity is also benefiting from economic growth, improved healthfacilities and improved infrastructure.


Fromthe paper, it is clear that Read aimed at bringing out theinefficiencies of a planned economy and the reasons why governmentsshould embrace free economies. The primary argument from Read`s paperis that economies cannot be governed by a single central entity thesame way a single person can not produce a simple pencil. A plannedeconomy restricts methods of production and modes of investmenthindering investors from achieving their highest potential. On theother hand, a free economy protects the business community frominterferences and unnecessary regulations giving an equal platformand suitable business environments for investors to compete equally.Hong Kong is a good example of an Asian economy has reaped manybenefits from its free economy policies. For many years, the HongKong government has focused on implementing free economy policies toattract many investors to its country as possible. Currently, thecountry prosperity is based on the various benefits derived from itsfree economy such as economic growth, improved infrastructure, andreduced income inequality. However, there is the need for furtherstudies on this topic to find out some of the adverse impacts of afree economy to a nation.


Berggren,N. (2003). The benefits of economic freedom: a survey.&nbspTheIndependent Review,&nbsp8(2),193-211.

Gwartney,J. D., Lawson, R. A., &amp Holcombe, R. G. (1999). Economic freedomand the environment for economic growth.&nbspJournalof Institutional and Theoretical Economics (JITE)/Zeitschrift fürdie gesamte Staatswissenschaft,643-663.

Lam,N. M. (2000). Government intervention in the economy: a comparativeanalysis of Singapore and Hong Kong.&nbspPublicAdministration and Development,20(5), 397-421.

Poon,D. (2015). Economicand Trade Information on Hong Kong.Available at


Read,L. (2008). I,Pencil: My Family Tree as Told to Leonard E. Read.50th Anniversary Edition, Irvington-on-Hudson: Foundation forEconomic Education.

TracyB. (n.d). Plannedeconomy | features, advantages and disadvantages.Retrieved from:http://www.dineshbakshi.com/igcse-gcse-economics/how-market-works- and-failure/revision-notes/1263-planned-economies[Accessed on 25th September 2015]

YuenS. (2015). Government`srole in shaping Hong Kong`s economy should be limited, despite whatLeung Chun-ying says.Retrieved from: http://www.scmp.com/comment/insight-opinion/article/1850146/governments- role-shaping-hong-kongs-economy-should-be[Accessed on 25th September 2015.