Book: Open Society: Reforming Global Capitalism
Author: George Soros.
Reviewer: David C. Korten
No man can serve two masters: for either he will hate the one,
and love the other; or else he will hold to the one, and despise
the other. Ye cannot serve God and mammon. Matthew 6:24
George Soros, high stakes financial speculator, international
philanthropist, and a man of grand contradictions, tells us in
his final paragraph of Open Society: Reforming Global Capitalism,
that writing it clarified his thinking on his plan for the world and
led him to a clear sense of mission for his foundation network.
He closes with an ominous sentence: "I shall not spell it [the
mission for his foundation network] out here because it would
interfere with my flexibility in carrying it out. There is a parallel
here with the problem of making public pronouncements when
I was actively engaged in making money. But I can state it in
general terms: to foster the civil society component of the Open
Society Alliance."
This is pure Soros: Soros writing a book about Soros and his
secret plan to create a global open society. It befits the outsized
ego of the man who in an interview for a 1995 New Yorker profile
reflected on the parallels between himself and the God of the Old
Testament and observed that as a child he thought of himself as
superhuman.
"Open Society", a revised edition of his earlier "The Crisis of Global
Capitalism: Open Society Endangered", is its own contradiction.
After presenting a devastating critique of capitalism sure to beguile
progressives and infuriate market fundamentalists, it concludes that
global capitalism is the best of all possible worlds and sets forth a
program of "reforms" that on close reading are little more than a call
to give yet more money and power to the stewards of global
capitalism - the World Trade Organisation (WTO), the International
Monetary Fund (IMF), and the World Bank .
There are three reasons to read Open Society. The first is for the
penetrating Soros critique of capitalism. The second is for insights
into the limited world-view of those who live in the world of high
finance. The third is to understand why we must be sceptical of the
public pretensions of persons of means who profess to serve two
masters.
The Critique
Although the insights of the Soros critique of global capitalism are
scarcely new, they are rarely articulated with such candour and
accuracy by those who have so mastered its ways for personal
gain. The following is a sampling of Soros' insights.
1. Unregulated financial markets are inherently unstable. Soros
observes that, contrary to conventional economic theory, financial
markets are not driven toward a relatively stable and rational price
by the objective value assessment of such things as the soundness
of a company's management, products, or record of profitability.
Rather they are constantly driven away from equilibrium by the
momentum of self-fulfilling expectations - a rising stock price
attracts buyers who further raise the price - to the point of collapse.
The recent massive inflation and subsequent collapse in the price
of the shares of unprofitable dot-com companies illustrates Soros'
point. Bank lending also contributes to the instability, because the
price of real and financial assets is set in part by their collateral
value. The higher their market price rises the larger the loans banks
are willing to make to their buyers to bid up prices. When the bubble
bursts, the value of the assets plummets below the amount of the
money borrowed against them. This forces banks to call their loans
and cut back on the lending, which depresses asset prices and dries
up the money supply. The economy then tanks - until credit
worthiness is restored and a new boom phase begins.
2. Financial markets render irrelevant the morality of their participants.
According to Soros there is no meaningful place for individual moral
behaviour in the context of financial markets, because such behaviour
has no consequence other than to reduce the financial return to the
ethical actor. "When I bought shares in Lockheed and Northrop after
the managements were indicted for bribery, I helped sustain the price
of their stocks. When I sold sterling short in 1992, the Bank of England
was on the other side of my transactions, and I was in effect taking
money out of the pockets of British taxpayers. But if I had tried to take
social consequences into account, it would have thrown off my risk-
reward calculation, and my profits would have been reduced."
Soros argues that if he had not bought Lockheed and Northrop, then
somebody else would have, and Britain would have devalued sterling
no matter what he did. "Bringing my social conscience into the
decision-making process would make no difference in the real world;
but it may adversely affect my own results." One can challenge the
Soros claim that such behaviour is amoral rather than immoral, but
his basic argument is accurate. His understanding that it is futile to
look to individual morality as the solution to the excesses of financial
markets is all too accurate.
3. Corporate employees are duty-bound to serve only corporate
financial interests. Soros writes: "Publicly owned companies are
single-purpose organisations - their purpose is to make money. The
tougher the competition, the less they can afford to deviate. Those in
charge may be well-intentioned and upright citizens, but their room
for manoeuvre is strictly circumscribed by the position they occupy.
They are duty-bound to uphold the interests of the company. If they
think that cigarettes are unhealthy or that fostering civil war to obtain
mining concessions is unconscionable, they ought to quit their jobs.
Their place will be taken by people who are willing to carry on."
Though not specifically mentioned by Soros, this is why corporations
are properly excluded from the political processes by which societies
define their goals and the rules of the marketplace. They are not
capable of distinguishing between private corporate interests and
broader public interests. Soros the Benevolent has confronted Soros
the Greedy and Soros the Greedy wins hands down.
4. The fact that a strategy or policy produces economic returns in the
short-term does not mean the long-term results will be beneficial. The
focus of financial markets is on short-term individual gain to the
exclusion of both social and longer-term consequences. The fact that
particular policies and strategies are effective in producing short-term
financial returns does not mean they are more generally beneficial or
desirable. Soros offers the example that running up a budget or trade
deficit "feels good while it lasts, but there can be hell to pay later".
5. The relationship between the center and the periphery of the
capitalist system is profoundly unequal. The powerful countries at
the centre of the capitalist system are both wealthier and more
stable than countries at the periphery because control of the financial
system and ownership of productive assets allows them to shape
economic and political affairs to their benefit. "Foreign ownership of
capital deprives peripheral countries of autonomy and often hinders
the development of democratic institutions. The international flow of
capital is subject to catastrophic interruptions."In times of uncertainty
financial capital tends to return to its country of origin, thus depriving
countries at the periphery of the financial liquidity necessary to the
function of monetized economies. The centre's most important feature
is that it controls its own economic policies and holds in its hands
the economic destinies of periphery countries."
6. In the capitalist system financial values tend to displace social
values in sectors where this is destructive of important public interests.
Soros writes: "Monetary values have usurped the role of intrinsic values,
and markets have come to dominate spheres of existence where they
do not properly belong. Law and medicine, politics, education, science,
the arts, even personal relations, achievements or qualities that ought
to be valued for their own sake are converted into monetary terms; they
are judged by the money they fetch rather than their intrinsic value."
Because financial capital is free to go where most rewarded, and
countries vie to attract and retain capital, if they are to succeed they
must give precedence to the requirements of international capital over
other social objectives.
The Limitations
The Soros critique would seem to establish an iron-clad case for the
conclusion - widely shared among the civil-society groups protesting
the forces of corporate globalisation - that each nation must maintain
its essential economic sovereignty by regulating the flow of goods and
money across its borders and that market forces must be subordinated
to the democratically determined rules of a strong public sector. Soros'
world view and personal interests are, however, much too aligned with
the status quo to accept the logical outcome of his own argument.
My critique of the global capitalist system falls under two main headings.
One concerns the defects of the market mechanism, primarily the
instabilities built into international financial markets. The other concerns
the deficiencies of the non-market sector, primarily the failure of politics
at the national and international levels. The deficiencies of the non-market
sector far outweigh the defects of the market mechanism. In his focus on
financial markets, Soros scarcely mentions the real economy of goods
and services, people and nature. Nor does he make more than passing
reference to human rights, democracy, equity, and the environment
- all of which are obvious victims of the corporate global economy.
As to poverty and economic justice, Soros tells us, "I am altogether leery
of so-called social and economic freedoms and the corresponding human
rights: freedom from hunger or the rights to a square meal" because
rights must be enforced by the state and this "would give the state too
big a role in the economy."
In a rare mention of the poor, Soros suggests their needs are best left to
the charity of the rich: "We must recognise that under global capitalism
individual states have limited capacity to look after the welfare of their
citizens, yet it behoves the rich to come to the aid of the poor." His
only mention of the possibility of a less extreme form of capitalism that
might value a more equitable distribution of income and ownership is to
categorically reject it. "Social justice emphatically does not mean
equality, because that would take us right back to communism. I prefer
the Rawlsian concept of social justice, which holds that an increase in
total wealth must also bring some benefit to the most disadvantaged.
What 'some' means has to be defined by each society for itself, and the
definition is liable to vary over time."
Soros has no great quarrel with democracy in moderation, but warns us
to beware of the unruly masses. He fears, for example, that if the General
Assembly of the United Nations were turned into an effective legislative
body, "we might just have an overdose of democracy, with every NGO
breaking down the doors with legislative proposals. International civil
society is capable of great achievements such as the ban on land mines,
but with the help of the Internet it could become too much of a good
thing. We have all seen what happened at the WTO meeting in Seattle."
The self-appointed, self-righteous billionaire with a secret plan for the
world goes on to tell us that he is "rather leery of self-appointed,
self-righteous NGOs."
The limits of the Soros world-view were especially evident in his April 13,
1994 testimony before the Banking Committee of the U.S. House of
Representatives. He explained to committee members that when a
speculator bets that a price will rise and it falls instead, he is forced to
protect himself by selling - which accelerates the price drop and increases
market volatility. "No great harm is done," he told the Committee, "except
perhaps higher volatility," unless everyone rushes to sell at the same
time and a discontinuity is created, meaning that a speculator who has to
sell can find no buyers and consequently may suffer "catastrophic losses."
When Soros says, "No great harm is done," he means there is no threat
to the integrity of the system and the losses of the speculators who
created the crisis fall within acceptable limits. The millions of people
whose lives and livelihoods are disrupted by the machinations of the global
financial casino in which they have no say simply aren't on his screen.
Soros takes no note of the fact that from an elite perspective, the genius
of finance capitalism is its ability to manage the money system in a way
that maintains a sharp distinction between those who live by their labour
and those who live by money - keeping money scarce for the former while
allowing the latter to create it in abundance through the interaction of
debt pyramids and financial bubbles. The result is an inexorable transfer
of control over the real wealth of society from the many whose labour
produces the goods and services by which we all live, to the financial
elites who make only money. Enough money trickles down to the working
classes in times of economic boom to create the illusion that new wealth
is being enjoyed by all. Behind the illusion, however, there is a darker
reality of growing inequality and the depletion of real wealth. Either
Soros has not seen through to the reality behind the illusion or he
chooses to ignore it.
The Contradictions
Soros professes his allegiance to two masters: maximising private profit
in his market dealings and the public good in his philanthropy. Indeed, he
asserts as a guiding principle that, "People should separate their role as
market participant from their role as political participant. As market
participants, people ought to pursue their individual self-interests; as
participants in the political process, they ought to be guided by the
public interest." It's a tidy bifurcation, but begs the question of whether
it is possible for either individuals or society to sustain such a division
between private greed and public citizenship.
Consider what it means in the specific case of George Soros, who at one
and the same time is investing hundreds of millions of dollars for his private
profit in the countries of Eastern Europe and spending still more hundreds
of millions through his foundations in those same countries to shape their
economic and political policies in the public interest. One marvels at the
discipline that would be required to compartmentalise these interests in
one's daily dealings. When Soros meets with political leaders, including
heads of state, how are they to know whether they are dealing with the
private Soros or the public Soros? Can even Soros be clear which he is
representing in any given encounter? When Soros The Beneficent finds
himself pitted against Soros The Greedy, whose side is Soros the Arbiter
most likely to favor?
The Soros reform agenda reveals the deep conflicts. Most of Chapter 10,
"A New Global Financial Architecture," is devoted to spelling out the
myriad reasons why governments of countries at the periphery of the
global economy best serve their citizens by regulating financial markets,
foreign investors, and economic borders. Yet Soros concludes that "the
instability of the international financial system has no architectural
solution at present; it is more a challenge for day-to-day management"
and declares capital controls, the obvious step to curtail instability, to
be "beggar-thy-neighbour policies that could disrupt the global capitalist
system."
Soros the Benevolent has confronted Soros the Greedy and Soros the
Greedy wins hands down. Soros the Arbiter proceeds to settle for a
no-reform strengthen-the-status-quo "solution" that calls for the three
stewards of global capitalism - the IMF, the World Bank, and the WTO
- to keep markets open to foreign predators, keep the periphery in debt
(but not too much debt), and step in when the system falters with
generous bail-outs for those who made bad bets.
The Soros treatment of democracy is similarly conflicted. He properly
acknowledges that "Open society cannot be designed from first
principles: It must be created by the people who live in it." Yet his
proposal for creating open society centres on a proposed alliance of
the world's most powerful states acting under the tutelage of the United
States to impose on other states an unspecified set of open society
principles. This sounds distressingly similar to the undemocratic, top-
down process by which an alliance of the United States, the European
Union, Canada, and Japan under the leadership of the United States
acts through the IMF, World Bank, and WTO to dictate the principles
of open markets to the rest of the world. In the end, the main difference
between the "open society" of George Soros and the "open markets"
of the market fundamentalists who Soros criticises is that the former
includes just enough space for self-criticism and error correction to
prevent the self-destruction of capitalism's powerful mechanisms of
wealth extraction and concentration.
Quoting the famous dictum of Cardinal Richelieu that "states have no
principles, only interests," Soros concludes that his plan for open
society can succeed only with the strong support of civil society. "If
citizens have principles, they can impose them on their governments.
That is why I advocate an alliance of democratic states: It would have
the active engagement of civil society to ensure that governments
remain true to the principles of that alliance." The Soros plan thus
calls for civil society to impose the principles of open society on
powerful states that will in turn impose them on weaker states.
It is here that Soros reveals the most fundamental contradiction of
his plan - and the reason civil-society groups must be wary when the
beguiling billionaire comes calling with cheque-book in hand. "As the
recent demonstrations in Seattle and Washington have shown, civil
society can be mobilised in opposition to international institutions; a
way must be found to mobilise it in their favour. & While civil society
is an important part of open society, the common good cannot be left
solely in their care. We need public institutions to protect the public
interests. The WTO is such an institution; it would be a pity to destroy
it."
The thrust of the secret plan for civil society Soros intends to implement
through his network of foundations is thus revealed: to mobilise civil
society in support of the institutions that to date it has valiantly
opposed (even in the face of massive police violence and brutality) as
elitist, undemocratic, and a threat to the health of people, community,
and planet. Putting it bluntly, Soros plans to buy civil society. The
chutzpah of this undertaking is exceeded only by its grand contradiction.
Soros needs civil society because it is motivated by principle, not money.
To buy civil society, Soros would first have to destroy the dedication to
principle that makes it an essential element of his plan.
In his conclusion Soros tells us, "I have learned a lot from other people's
criticism, and I can continue to do so after the book is published." I thus
commend to him the biblical instruction that "No man [nor woman] can
serve two masters." At any given point in our lifetime we each make our
choice as to whether we will devote our life to the practice of public
citizenship or the pursuit of private greed. George Soros now faces such
a choice. If he proceeds with his plan to use his money and influence to
realign civil society behind the institutions of greed and his personal
financial interests he has made one choice. He could yet, however, make
a choice for citizenship by heeding his own critique - which is consistent
with that of civil society - and mobilise his foundations in support of
civil society's self-defined mission to align the institutions and values
of the economy with the interests of life.
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David C. Korten is the author of "The Post-Corporate World: Life After
Capitalism" and "When Corporations Rule the World". He is board chair
of the Positive Futures Network, publishers of YES! - A Journal of Positive
Futures, and is president of the People-Centered Development Forum.
This essay was originally published in Tikkun magazine, a bimonthly Jewish
critique of politics, culture and society. To subscribe, send your name and
address to subscribe@tikkun.org ($29 U.S. per year; $44 U.S. for foreign
subscriptions). Check out our website at www.tikkun.org
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