Harbour View: Out of the darkness – Amnesty in Hong Kong

Industrial buildings are full of virtuous, non-industrial businesses.  These people deserve to be legally validated to bring employees and owners in from the cold.

Amnesty.

It is a tool that, properly used, can make for radically improved governance. In Hong Kong, a range of regulatory disconnects with reality could be ameliorated with formal amnesties that bring good people in from the dark. Non-compliant use of industrial space should be top of the list.

Hong Kong is famous for being a place where, if no one complains, you can do pretty much whatever you want. However, if you are so foolish as to annoy your neighbours, a legal grey, or clearly black, zone is not where you want to be. Being productive, providing employment and satisfying customers for decades counts for naught when the inspector comes a’calling, pen tapping on ominous clipboard.

It works

Amnesty can be used in a variety of ways.  It is sometimes used to get nasty people to stand down from power, often to great controversy.  It can be used to bring a real cessation to hostilities of war (end of the Jacobite uprisings, American Civil War) or occupation to essentially allow the foot soldiers who supported those now out of power, to go back to normal life without fear of prosecution for their actions during a time of conflict.

The form that is interesting to Hong Kong is where government has decided it can move society forward by allowing those with relatively minor past transgressions to declare and correct them without fear of prosecution.  With an aim to reducing gun proliferation in society, many jurisdictions from China (2006) to the West (UK, Australia, Canada, many more) have occasional amnesties where owners of unregistered firearms can turn them in, no questions asked.

Another political aim of amnesty is used when law and reality are disconnected. Thousands, or even millions, of otherwise law abiding citizens find themselves black market operatives with never intending to be so. Amnesty can help.

Hong Kong is full of such people and they deserve to brought in from the cold.

Rare beasts in Hong Kong

While tax amnesties and gun amnesties are frequently used elsewhere, Hong Kong hasn’t seen a real, legal amnesty (as opposed to non-prosecution) for many years. In the late 1970s, the Governor issued a directive stating the new ICAC would not prosecute officials involved in petty corruption prior to 1 January 1977.  Anything after that was fair game for prosecution, but minor officials would not be held responsible for prior actions that were pervasive at the time. It was part of a broader programme to bring about a rapid diminution of corruption. The broader programme worked.

“when law and reality are disconnected, thousands, even millions, of otherwise law abiding citizens find themselves black market operatives.

There was also an amnesty letter issued by the District Office regarding rooftop structures on buildings with single staircase buildings of more than 13 floors built prior to February 1975, that seems since to have lapsed*.

In other places, taxes and immigration amnesties have allowed people to clean up unpaid back taxes, bringing mountains of unrealised revenue to governments, and to rectify the status of honest illegals contributing to society.

Legalise our innovators

In Hong Kong, the real estate crunch has led to many people setting up non-industrial businesses, or even living in, industrial buildings. Many people have commended the creative use of space, but old laws and definitions mean that many of these businesses could be under threat of disruption, or even ejection and prosecution, if their legal status is called into question.

Ming Pao highlights a case today with a full page story.  The self-storage industry is one of the brightest spots in the real estate and consumer service sector. Compared to other modern markets, Hong Kong is woefully underserved, but venture capital and investment bank money is getting behind new entrants and global players currently expanding in Hong Kong.  Consumers are keen and are well served by the major players, who recently established an Asia-wide industry body based right here in Hong Kong, the Self Storage Association Asia.  They are establishing industry norms to match global standards.  However, their innovation defies old ways of thinking about definitions created in another era. The full-page Ming Pao story tells a tale of what happens when a very public, legitimate, business gets caught in the crosshairs of a complaint and bureaucratic wrangling.

“old laws and definitions mean that many of these businesses could be a threat of disruption, or even ejection and prosecution.

This is not a case of the new-fangled Internet and technology outstripping laws, as is always the  case. This is another way of using real estate that is part customer service, part real estate, and part mini-warehousing. When lawyers and zoning people start looking at definitions and conditions put on ‘go-downs’ dating back to Hong Kong’s founding, the spectre of ‘the law is an ass’ raises its equine head.  At the least, the law is just not keeping up.

The Town Planning Board, seems fine with self-storage. The Lands Department seems to have issues. It seems there is a case of disconnect here creating confusion. Lawyers are no doubt calling clients and adding to their budgets in anticipation of profiting from ambiguity.

Another problem is that the old definitions assume one operator has one business at the site. With self-storage, the fims ask clients to undertake they are not conducting illegal business, but otherwise do not, cannot and definitely should not, monitor every aspect of a client’s storage contents and how they are being used, owned, distributed and the like. If the business is legitimate, there is no reason to stop it.

Four benefits

An amnesty would be just the thing here for many otherwise lawful and productive uses of industrial buildings.  The government has been taking commendable small steps to rezone industrial buildings.  The pace could be faster, however.  Until then, an amnesty, ‘legalising’ people using industrial buildings for non-industrial purposes, would serve multiple purposes.

“The government has been taking commendable small steps to rezone industrial buildings.  The pace could be faster, however.

First, it would help virtuous business thrive.  It could remove the threat to business that  increases anxiety and risk for entrepreneurs. A single anonymous phone call from a jealous competitor can scupper a good business. Loan officers at banks, if on the ball, may note the conflict in business nature and lease conditions and refuse to extend credit. Innovative business should not be held back by ambiguous lease conditions and laws. If a commercial or services business is in an industrial building, no one is harmed by it.  Good business deserves to be public and proud and legal.

Second, it would lead to better legislation. The government might be surprised to find out how innovative the use of space is and what is really going on in Hong Kong. Better intel would help the Administration, bureaucracy,LegCo and bodies like the Town Planning Board to craft legislation appropriately.

Third, it would reduce the workload of inspectors so they could focus on truly problematic cases.  For every commercial or professional services firm that declared itself, there would  be another site inspectors could strike off their list.  Those that had not declared would likely be those with something troublesome to hide.

“The many benefits of an amnesty suggest that it is time for Hong Kong to bring it back.

Fourth, it would improve market efficiency in resource allocation.  While some of the efficiencies are being realised now through non-compliance, more certainly in legality would see businesses flow more naturally into and out of real estate that best serves their needs.

Conditions

The government could craft the amnesty to suit its needs. Ms. Lam has already ruled out amnesty for people taking up residence in industrial buildings. So then, stick to business. In 1977, the amnesty only forgave the small fry.  In this case, the government could state that those businesses that pose no threat to safety or hygiene would be exempted and allowed to carry on. It would still require some judgement on the part of applicants as to how safe or hygienic they are, but our government is fond of providing guidelines for ambiguous legal novelties (think the Competition Commission).

The many benefits of an amnesty suggest that it is time for Hong Kong to bring it back. As the first step in reviewing and improving legislation, the government could find itself with new fans in the small and medium business sector. Political parties picking this up as an issue could find themselves votes and backers. It could be a win-win-win for many with no apparent downside.

It could be the first of many amnesties deployed to legitimise innovators and improve our  business climate and stay true to our free market heritage while the law catches up to innovators, or even just regular honest business people. Mr. John Tsang and Ms.Carrie Lam, we humbly submit for your consideration, the amnesty.

*Readers with more details about this amnesty are encouraged to write to us at info@harbourtimes.com. Please indicate if you would, or would not, appreciate accreditation.

Disclaimer: New Work Media, publisher of Harbour Times, does business with the Self Storage Association Asia.