(This essay was published in Hong Kong Economic Journal on 17 June 2015.)
Since my article appeared last week, I have had two notable requests to clarify what I mean by a just society. One came from a free market freedom-loving friend in response to my suggestion that some young people here no longer believe we have a just society and believe democracy is the only solution to restore justice and get rid of corruption.
The other request came after I appeared on a radio program to discuss inequality and social mobility in Hong Kong. Two of my free market liberty-loving friends took me to task for favoring a policy to subsidize the disadvantaged to become homeowners. They were shocked that as a free market economist I had the audacity to advocate a populist socialist policy that would wreck individual incentives. I could almost hear them ask, how can this be just?
They all raise an important question about what is justice.
The pre-Enlightenment concept of justice was rooted in the recognition that people were unequal in their abilities and talents. The good society was attained when people learned to cooperate with each other to create a better life for all, which meant adopting certain types of behavior and ethical norms and rules. This view characterised the Classical period and is found in such texts as Plato’s Republic, which conceives of a polity made up of three classes of people: philosopher-king, guardian, and citizen.
In Classical thinking, since individuals were not equal, so justice was based on the principle that the same treatment should be applied to individuals who were similar (or equal), and a different treatment to those who were dissimilar (or unequal). This rudimentary principle of justice formed the core idea for what became the central principle underlying the rule of law.
A critical question arose over what was fair when treating individuals who were dissimilar (or unequal). It was not enough to say that they should be treated differently; it also had to be specified what that difference should be. If it is fair for two workers with equal productivity to receive the same pay, how then should we remunerate a worker who is twice as productive?
The Classical thinkers invented the idea of a natural order to provide an anchor for justice when dispensing treatment to those who were dissimilar (or unequal). The natural order accords with human nature, is the origin of society’s ethical norms and rules, and can be discovered through human reasoning. Chinese Taoist philosophy also envisages man and nature attaining a state of harmonious existence akin to the natural order.
The concept of justice began to change in the Enlightenment period when the idea took hold that people have equal political rights even though they may have unequal abilities and talents. This made inequality a central concern in what constitutes justice.
The presumption of equal political rights has sometimes extended to include equal economic and social rights as well. Much effort has been spent arguing about whether economic and social equality is necessary for political equality. There is a general presumption, supported by experience, that extreme economic and social inequality subverts political equality.
A critical matter is whether, in economic and social affairs, we wish to attain equality of outcomes or equality of opportunities. If abilities and talents are unequally distributed in society, achieving equality of outcomes implies adopting discrimination measures that interfere with the natural order. Such measures violate Classical principles of justice and the rule of law.
Adam Smith’s idea of market competition evolved out of the Classical concept of the natural order. It implied that the butcher should be paid his due and so should the baker. Their pay need not be the same as they performed different tasks. In circumstances where liberty prevailed and coercion was absent, a natural order would prevail, and every person would be paid his due – the competitive market price – and that would constitute fair pay. Different economic outcomes could thus be compatible with justice in general and economic justice in particular, as long as there was equality of opportunity and equal treatment for those who were alike.
The free market order was the application of the idea of a natural order to economic matters. Smith was particularly critical of state monopolies and franchises, which he saw as privileged and interfering with the proper functioning of the free market order. These were barriers to trade, erected and maintained by a coercive state.
Smith’s economic ideas were similar to the ideas of the British political philosophers. The central British idea was to limit the powers of the sovereign, especially the sovereign’s arbitrary powers, including in judicial matters. Such a tradition had evolved gradually from the days of the Magna Carta.
The aims of a constitutional monarchy and later of representative government are to allow individual liberty to become less and less fettered. To see the natural liberal political order and the free market economic order triumph. To securely leash coercive and arbitrary government. To have a rule of law that is sovereign. All men could then become as politically equal as practicable. British justice had some continuity with Classical thinking insofar as the natural order was maintained as an anchor for justice while accommodating equal political rights.
These British ideas provided a rationale for the limited state as the best guarantee for individual free choice. The market order was simply the material dimension of the natural order. Limited governments and constitutional democracies were deemed to be better at delivering individual liberty than absolutist monarchies and dictatorships because of the primacy of the rule of law to constrain the arbitrary powers of the sovereign.
Justice thrived when there was maximal feasible individual liberty and minimal necessary state coercion, governed by the rule of law.
This conception of liberty as individual free choice was not shared by German philosophers, who regarded liberty as the free will of the collective people rather than the free choice of the individual. Majoritarian political democracies embodied the collective will of the people through representative government that expressed what the people wanted for themselves. Equal participation by autonomous individuals in free elections made this popularly-expressed political will precious and noble. It was not just a political choice, but also a morally superior one.
Because majoritarian political democracies implemented this morally superior collective will of the people, the powers of their governments should not be limited or constrained but made as powerful as possible, as long as the elections were free and fair. Indeed, the distinction between equality of opportunity and outcome were largely irrelevant. Justice becomes political, not a matter of the rule of law.
The German philosophers believed that economic, social and political justice could be obtained conditional on free and fair elections to express collective will. History has unfortunately shown that this can be a naïve and dangerous view. It has inspired fascism and communism, and tyrannies that are anything but liberal democracies. All by basing the only principle of justice on the collective will of the people rather than the rule of law.
Both British and German ideas continue to influence modern day ideas on democratic politics. In societies where inequality is more severe, German ideas often dominate. Modern China chose Marxism over liberalism in its struggle to modernize, and is only now showing some tentative signs of change.
Societies everywhere face challenges from time to time that cannot be easily accommodated within their usual constitutional framework. They experience economic shocks, such as the global financial crisis in 2008 that have lead to extreme economic and social inequalities as a result of quantitative easing. This causes people’s sense of economic and social justice to become severely strained, especially for those that have suffered from a negative shock.
Majoritarian political democracies necessarily come under pressure to turn populist, resulting in a subversion of the usual principles of justice in the name of the people. The idea that the free market is part of a natural order where justice prevails is mocked. Those who continue to hold this view are regarded as hypocrites and having vested interests. In such times, the people prefer majoritarian democracies to become more German than British.
In a sense, democracies may become more tyrannical either on behalf of those with vested interests or those who wish to overthrow them.
Since 1980, Hong Kong has experienced such a challenge. Economic globalization, China’s opening, and prolonged low interest rates have created an unequal society of “haves” and “have-nots” in terms of holding assets whose values have gone through the roof due to inflation. Some people in the middle class are also sinking. Is this an inequality of outcomes or opportunities?
An individual who held an asset in 1980 or has since acquired one is among the “haves” today. Those who are still without assets are clearly among the “have-nots” – a group that is half the population of Hong Kong. Modest asset price appreciation can normally be attributed to prudent investing, but the huge windfalls that have been experienced could not have been foreseen and are unlikely to be self-reversible.
Given such a state, privatizing public housing is in my view necessary for restoring the credibility and proper functioning of the natural order. In a world where we have also embraced equal political rights for all, then it is necessary to level the playing field after huge uncontrolled shocks severely disrupt or disable the healing process of the natural order. Failing to do so risks even greater injustices if the natural order is abandoned or wrecked altogether.
Privatizing public housing is unjust if it is framed as an intervention that damages the integrity of the natural free market order. But it is just if it restores the natural order so as to allow the equality of opportunity to function properly again in a leveled playing field, without risking an extremely long painful coercive adjustment process. This is something a political democracy does not have the patience for. Policy inertia can inflict permanent damage to the natural order.
The Classical thinkers have done a great service by inventing the concept of the natural order, but modern society is no longer willing to wait for economic and social problems to be resolved according to a classical time-horizon, when it has simultaneously embraced equal political rights for all. When politics takes precedence over the rule of law, justice is not strengthened but sacrificed.
The political rhetoric of the radicals in Hong Kong has deep Germanic origins. Their impatience is familiar and not difficult to understand. Their belief that all society’s evils can be resolved through political democratization alone is foolish. But their political message of impatience should not go unheeded.