kenny hodgart

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Squeezes and wheezes

Tax may seem like an obvious subject for this column (which was published as a Rant in the South China Morning Post’s Post Magazine) – nobody likes having their money taken away, do they? – but there’s been a lot of noise about it lately, mostly emanating from places that don’t have their houses much in order.

What our European friends – all up in arms about individuals and large corporations using various Machiavellian stratagems to shunt their wealth into tax havens – seem unable to grasp is that businesses nowadays don’t so much avoid tax as choose where to pay it (if production and sales can be easily shifted around the world, why stick to one tax jurisdiction?). The answer, garcons and frauleins, therefore is to shut up and be more accommodating – after the example of Hong Kong, where tax is simple, flat and low.

Of course, there’s plenty wrong with how things are done in this city: the government sneakily drip-feeds building land on to the market to keep prices high, the “trickle down” effect making life more expensive for everyone; it offers tax wheezes and loopholes and exemptions; and nobody bothers much to hold it to account. But, as Chief Executive Leung Chun-ying was keen to point out on his recent visit to the United States, our business-friendly arrangements do fill up the coffers.

Politicians in Britain, meanwhile, have seized on the word “immoral” to describe companies such as Google, at whose altars they previously worshipped; while campaigners styling themselves as modern-day Robin Hoods – quite forgetting that it was the Sheriff of Nottingham who collected taxes – have been doing the exchequer’s bidding by demanding corporations cough up more for the government to spend. The risk is they’ll frighten all the dastardly rich off to places like Hong Kong, leaving old Robin with no one to steal from.

This article was published in the South China Morning Post’s Post Magazine

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The poor and the greedy

This article appeared in the South China Morning Post

One hears a lot of about “the grass roots” in Hong Kong. It’s a phrase that seems to carry a more specific meaning here than I have encountered elsewhere, having come out from Scotland some 18 months ago.

Whereas in Britain and the US it intimates more generally the ordinary rank and file, or the population base at large, in Hong Kong “the grass roots” also tends to serve as a rather euphemistic term for the poor. We are told that grass roots people feel neglected, or that they are being effectively papuerised by inflation, or that they do not trust Chief Executive Leung Chun-ying to deliver on his pledges to help them.

There is one problem with the metaphor, however: real grass roots find it easy to break through the sod and grow. If they have the strength to seek their days in the sun, then so it shall be. By comparison, many of Hong Kong’s poor can legitimately be described as being downtrodden.

Much has been made recently of inequality in Hong Kong. As indicated by the city’s Gini co-efficient, a statistical measure of income disparity, we are living in one of the most unequal societies in the world. But it would be a mistake to unhesitatingly conflate, as many do, these two problems: stalled social mobility (the thwarted seedbeds) and a yawning gap between rich and poor.

To seriously confront the latter would require large-scale redistribution of wealth, which seems an unlikely course for any government here to take. There is more than a whiff of crony capitalism in Hong Kong, but it remains one of the world’s freest market economies: increasing the tax burden significantly on wealth creators would be to curtail much of the activity that stems from that.

It is always worth stressing, furthermore, that a more equal society is not necessarily a better one. “Solitary, poor, nasty, brutish and short” is how Thomas Hobbes described life in mankind’s “natural” state – relative equality tends to prevail in primitive societies as there is little scope for accumulating wealth. There is therefore less economic activity, less innovation and less incentive to create employment – things which benefit everyone.

How to ensure this is so is the challenge faced by governments: even the right accepts the state has a responsibility to help the poor. But where the right may be correct to insist that income disparity is necessary, the solution to ensuring inequality works for the benefit of society as a whole is perhaps the most sensible idea to come from the left.

It was the great liberal 20th Century American political philosopher John Rawls who outlined it best. Arguing for the free market and social inequality, he nevertheless insists in his A Theory of Justice on equality of opportunity: “Those who have the same level of talent and ability and the same willingness to use these gifts should have the same prospects of success regardless of … the class into which they are born and develop until the age of reason.”

To be born poor in Hong Kong is to have one’s prospects of success seriously blunted. Partly this is because the strivers who are given the chance to better themselves in one generation have a tendency the world over to pull up the ladder behind them on subsequent generations. It is also, however, a matter of public policy.

During his election campaign, Leung promised to focus on livelihood issues affecting the poor. Some of these he will no doubt follow up on; others he will not. But in a city whose coffers are directly swelled by booming asset prices – which themselves create new haves and have nots – and which has a grievous track record of billions spent on unnecessary infrastructure projects, the fact that people are forced to live in cage homes is nothing short of scandalous.

No doubt the isolation and immiseration of swathes of what used to be the working classes in rich societies is a global phenomenon and one related to deindustrialisation, which in Hong Kong happened in the space of a generation. Economic circumstances will stall social mobility, but this is when government spending – on housing, on education subsidies, on underwriting small business loans – is at its most useful.

For all the protest and agitation in Hong Kong in recent weeks and months, the conditions for class warfare thankfully do not yet exist. But for the “grass roots”, a bit of Rawlsianism would not go amiss. The city can afford it.