Freedom = Property Rights / 2018-09-26 / Nick Sallnow-Smith

The simple truth of my title this month is worth repeating regularly, especially in Hong Kong. It seems, listening to comments on private property rights from many people here, that they have forgotten this vital equation. Note I say “equation”; this is not my opinion or preference. Rather, freedom of the individual necessarily implies private property rights and without them freedom will wither away.  Let me explain my thinking.

The first essential of freedom is freedom to do with your own body as you decide. If you cannot, you are a slave. (It is sad that the word “slave” is often misused today to mean any unpleasant or demeaning condition, when the person involved typically has the freedom to leave. That devalues the true meaning of loss of freedom, not simply hardship.) Of course slavery has existed in most societies in history. It can be partial. Conditions where the serf must work for the landowner for most of the time but after fulfilling a quota or tithe of output, may work for himself are examples of partial slavery. Note that this is not the same as imprisonment. The serf seems in principle to own his own body and be free to move around but he may not own (all of) the output of his own mind and body. He has no “private property rights” until he has satisfied the landowners demands. This would be true of a household slave too of course. To have the rights to your own body, and not be imprisoned, provides no useful freedom if everything you produce is taken by others by force. Freedom must include not only owning your body but also whatever your body produces by your actions and effort. In a community with division of labour, this must also include ownership of any money you receive when you sell the output of your mind and body in free trade.

Now, hopefully, you agree so far (if not, please email me where you disagree!). Given these principles, we can see that none of us in so called “developed” societies is in fact fully free. Any system of coercive taxation is partial slavery. It doesn’t matter what the state does with the taxation raised, if you are forced to pay the tax on pain of imprisonment, this is no different from serfdom. You can think of it as your needing to work for the Government for part of the month (depending on the rate of taxation) before you begin working for yourself.

It is arguable that modern tax-based societies are even more demotivating than tithe-based serfdom. In the latter, the tithe was often a fixed amount or percentage (10% was typical) and was at least predictable. In taxed-funded societies, the rates regularly change. Nor is this only true on a forward looking basis – by which I mean that next year’s income may be taxed at a higher rate than last year’s. In states with Inheritance taxes, you can discover that even your post-tax savings can be confiscated years after they were earned, at a higher rate than you planned for. It continues to astonish me how European societies can react with indifference to an increase in inheritance tax. Suddenly income citizens have saved all their  working lives to leave to their children is taken and folks just shrug their shoulders.

We therefore have a system of “variable-tithe slavery”. No citizen ever knows how much of his output is owned by him.

Very few modern citizens think slavery is acceptable in society. Yet almost all accept what I have described as the partial slavery of modern states. If we had all been born in Classical Greece, I doubt any of us would question slavery. It was part of the fabric of society. Today, almost no one questions the system of taxation for the same reason. We are born into it and accept it, literally without question.

At least in Hong Kong – you might say – salaries tax is low, and sales taxes and estate duties do not exist. But freedom depends on rights to the assets you acquire with your income, as well as keeping most of your income in the first place. In Hong Kong your rights to your property assets are conditioned by the leasehold system of land ownership, on which I have written before (https://www.lionrockinstitute.org/en/2018/04/best-use/). With 2047 on the horizon, all short-dated property leases give rise to more and more uncertainty. There have been some attempts to calm that uncertainty by implying that property leases are very likely to be rolled over on their termination, without severe financial penalties.

Yet this calming effect is being put in doubt by the Government’s current review of private recreational club (PRCs) leases. Of course the terms of the leases allow the government, legally, to do anything it wants, including taking back the land entirely. But if – as seems likely – it rolls these leases over but with new and more onerous terms, then this will inevitably raise doubts about what future Administrations may do on expiry of any other lease.

A general loss of confidence would eventually be inevitable. Please note also that the “reasonableness” of the changed terms for PRCs on this occasion do not help. A future administration could be less reasonable. As soon as a presumption of “public interest” is used to change the terms of privately granted leases, confidence in ANY private use lease will be damaged. To declare that it is in the “public interest“ that members of the public should have rights to enter private property and use its assets, fundamentally undermines what private property actually means.  It suggests that private property remains private only while the Government deems it so.

Hong Kong has, literally, been built on private property rights, notwithstanding that the Government is the ultimate lessor of the land. If confidence in those rights is shaken, the basis for our prosperity could be seriously at risk.

Perhaps you can understand now why I posed the title of this piece in mathematical terms. If we lose our grasp of this very simple equation of freedom, we are at great risk. The history of taxation systems shows how, step by small step, freedom to dispose of our own income can be lost almost unnoticed. At each stage the minimal nature of the change (US income tax started at 1%, UK VAT at 5%) and the claim that it is in the “public interest”, are used to calm fears. Then the levels of confiscation gradually rise and the frog is boiled. The most dangerous aspect of this is that the population at large has lost connection with my “freedom equation”. Instead of seeing (as might have been the case 500 years ago) the predatory claims of the state, they see a justifiable modest removal of property rights as being “in the public interest”. Indeed many of our fellow citizens in Hong Kong openly beg the Government to deny private property rights when discussing the so-called shortage of land. Of course those doing so only want the Government to confiscate the property of others, rich people and large corporations. But as I noted, these moves always start in a manner that appears not to touch the mass of people, just the 1%. Yet once the principles of freedom are compromised in order to “strike a balance”, there is no way back.

Whenever you read of so-called justifications for taking back agricultural land from developers, or allowing public entry to private land at recreational clubs, please remember my title. If we don’t argue the case for freedom, can we really expect to keep it.

Nick Sallnow-Smith

Chairman