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The grain of truth about state monopolies that will haunt Hong Kong’s next leader

In 81BC, the imperial court of Han summoned the most learned scholars across the empire for what was to become the first national policy debate in ancient China.

More than 60 notables – some from far-flung provinces – travelled for weeks and finally gathered in the capital of Changan in February. There, under the auspices of Emperor Zhao, they argued passionately for five months.

The subject matter of this unprecedented event was to decide if China should annul its centuries-old state monopoly on salt and iron.

Sitting on one side were Confucius scholars representing local interests. They mounted a strong case against the monopoly. The state, they argued, should not compete with the private sector. A responsible government must place greater public good over profit-making. It should focus on promoting moral education to strengthen social coherence and building infrastructure to improve agriculture. Commerce and trade should be left to private merchants. Some of the arguments would fit nicely in today’s liberal economic discourse.

Minister Sang Hongyang, a consummate politician well-versed in the so-called legalism philosophy, headed the other side. Sang was a believer in a strong state, arguing that the government should be the most important player in an economy. He supported expanding commerce and trade but insisted that the state must regulate and control these activities. Without government intervention, these trades would fall into the hands of a few unscrupulous magnates. In a sense, Sang was an ancient advocate of “state capitalism” – centuries before that term was coined.

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The debate ended in a pyrrhic victory for Sang. The Han court annulled the state monopoly on liquor and wine but kept the one on salt and iron. The discussion was recorded and compiled into a 60-chapter book titled The Discourse on Salt and Iron. It is still being read today.

Earlier this week when Beijing formally abolished the state monopoly on salt, the news was buried by the US presidential election debate. Historically, however, this marked an amazing end to the world’s oldest state monopoly.

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Records of salt tax in China can be found as early as 4,000 years ago. In fact, the very character of salt in traditional Chinese consists of three parts. The bottom is a pictograph of a cooking utility. The upper left part is the character for imperial official and the upper right is the word “brine”.

The pronunciation of salt, or “yan”, is derived from the word “supervision”, according to Shuowen Jiezi – a 2nd-century Chinese dictionary. State control on salt is so deeply ingrained in Chinese culture that the very word of it encapsulates the idea. Yet, since everybody, rich or poor, needs roughly the same amount of salt to stay alive, a salt tax always affects the underprivileged the most. The control on salt is controversial because it is essentially a levy on necessity. Like air or water, salt is not something we can live without.

When renowned German biologist Mattais Jakok Schleiden wrote Das Salz in 1875, he drew a direct connection between salt taxes and despots. He pointed out that neither Athens nor Rome, as a republic, taxed or controlled the salt trade. But China – the primary example of despotic rule for people living in the late 19th century – had the longest history of salt monopoly.

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Schleiden’s view was largely shaped by the European experience of the French revolution a century earlier. Like China, the French monarchy saw salt as a key source of revenue. The French salt tax, the gabelle, became a contributing factor to the outbreak of the French revolution. The gabelle was devilishly complex, with many exemptions and privilege grants. In the end, it came to symbolise the arbitrary rule of the royal court and all its unfairness.

The lesson was lost across the English Channel. Just a few years after the French revolution, Britain introduced a salt monopoly in 1804 to India – the crown jewel of its colonial empire. The monopoly was so hated that it grew into a unifying force that brought the culturally diverse Indian people together.

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This culminated in the famous Salt March by Mohandas Gandhi in 1930 that eventually led to the independence of the world’s largest democracy.

Today, revenue derived from salt tax is so trivial that few governments rely on it to balance books. Yet many other forms of state monopoly, which effectively amount to indirect tax, still exist.

In Hong Kong, the biggest source of public grievance is housing. Many blame our housing shortage on the government’s land premium policy, which they see as a form of poll tax. They argue that since the Hong Kong government controls land sales and this is its major source of revenue, it is in government’s interests to keep land prices high. This transfers into exorbitant housing prices. Just like the salt tax, the people least able to afford it are the most affected.

Some challenge this view. They argue that as the government is providing subsidised housing to the poor – even if more is needed – this shows it is not deliberately keeping prices high for the sake of revenue. Instead they blame causes such as the exchange rate or political resistance to source new land.

The debate will probably continue. But just as the gabelle became the greatest headache for the French monarchy, the issue of housing will haunt whoever becomes the next chief executive.

Chow Chung-yan is executive editor of the South China Morning Post, overseeing daily print and digital operations