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Subject: <nettime> Australian Radio Report on George Soros 2/2 From: Pit Schultz <pit@contrib.de> Date: 17 Aug 1997 18:43:35 +0200 * * * * * Mime-Version: 1.0 Content-Type: text/plain; charset="iso-8859-1" Sender: owner-nettime-l@Desk.nl Precedence: bulk Content-Transfer-Encoding: 8bit Robert Slater: I think he found it very exciting, very dramatic, and he learned some very valuable lessons after that in terms of his financial future. First of all he learned that it was OK to take risks in things that didn't have to do with life and death. After all, in that one year in 1944, he had been living on a day-to-day basis, facing the risk of death, immediate death, if he were found out. So once he got into a career pattern where he was dealing not with life and death issues, but with questions of how much money do you invest in a certain commodity or stock, when do you pull out, when do you get into a financial situation, he understood that it was OK to take some risks, because compared to what he had lived through, these didn't seem like very big risks at all. And then of course, the second point that one can derive from that year in 1944 facing the Nazis, was the kind of strong, compelling hatred he had toward totalitarian governments. He first faced the Nazis during World War II, and then immediately after the war, while he was living in Hungary, the Communists entered Hungary, and he saw that totalitarian regime, and went off in 1947 to England, and of course never lived in Eastern Europe again, but had some very, very strong feelings about the virtues of what he called an open society, as against the problems associated with closed societies as he had found in his early days in Hungary. Tom Morton: Robert Slater, the author of 'Soros: The Life, Times and Trading Secrets of the World's Greatest Investor'. Young George Soros arrived in London aged 18, with no money and no friends. He worked as a waiter, a house painter, and an agricultural labourer, before enrolling as a student at the London School of Economics in 1949. But Soros wasn't really interested in economics. Instead, he chose to study philosophy, and came under the influence of Karl Popper. It was Popper who taught Soros about the notion of the open society, which Soros later said was the thing he cared most about in his life. Ralf Dahrendorf knew both Popper and Soros. Ralf Dahrendorf: Popper had just arrived on the scene; the book, 'The Open Society and its Enemies' had just been published, and was actually one of the major texts of the times. I am not sure that Soros then saw himself as a philosopher; he did not in fact take his LSE studies unduly seriously at the time, but he was struck by this one idea about one can move out of the nightmares of totalitarianism of both descriptions, into a world which is more open, more experimental, in which you try, make mistakes, correct them - a whole set of ideas and attitudes which were obviously attractive to this young man who had had indirectly at least, two totalitarian experiences. Tom Morton: What exactly did Popper mean by the open society? Ralf Dahrendorf: He's never defined it properly. It was always - if you want to put it that way, a negative term - the absence of ideologies which are all-inclusive, the absence of a State which dominates everything. The whole point about the open society is that it doesn't seek a system and doesn't want a system. And so it wants institutions which make change without violence possible. MUSIC Tom Morton: After leaving the London School of Economics, George Soros worked for a couple of stockbroking firms before moving to New York in 1956. There he worked for an American broking firm trading European stocks, which no-one else knew anything about. Soros was moderately successful, but it wasn't until nearly 20 years later that he began to make really big money. Robert Slater: He set up a hedge fund, called the Quantum Fund, and he used a couple of hundred thousand dollars of his own money, and the rest is history, so to speak. I mean that fund has gone on to become the most successful investment venture in the history of the financial markets. Tom Morton: As an investor, Soros was ahead of his time. The fund he set up was a hedge fund - one which gives other investors a way of hedging their bets against future movements in prices of exchange rates. Well nowadays, hedge funds are all the rage, but back in 1973 when Soros set up his Quantum Fund, they were virtually unknown. Soros went into partnership with Jim Rogers, a young American trader who had also studied philosophy. They rented offices on Central Park, a long way away from the hype and hubbub of Wall street and the trading floors. But Soros and Rogers set out deliberately to distance themselves from the Wall Street traders, whom they referred to as 'the herd'. Robert Slater: Well they thought that these people on Wall Street didn't really understand the market. That's the big difference; they thought these people were just taking their economics courses and believing that the market was this rational animal, that all you had to do was factor in the fundamentals of any company and make some computations about future earnings, projections, and you could more or less hopefully come up with some prediction about what a certain stock would do, or wouldn't do. Soros thought that was rubbish. He believed that a lot of the way a stock moves or doesn't move has to do with people's perceptions, and it doesn't really have to do with the fundamentals of the company that's behind the stock. And that in order to succeed at stock picking, you had to really almost be a psychologist. And you had to understand the way 'the herd' was moving at any particular time, and when it was going to move, and at what pace, and you should base your own judgements about stock picking on the herd mentality and watching it, rather than basing yourself only on how companies were doing. MUSIC Tom Morton: In many ways, Soros is Mr Globalisation. He recognised and exploited a process which is now the economists' favourite mantra - the growth of global capital, roaming around the world without allegiance to governments or nations. According to Ian Harper, the birth of the modern global economy has its roots in the 1970s, precisely the time that Soros began to make his huge fortune. Soros, he says, correctly spotted a major historical shift, from the certainty and security of the post-war period, to an age of increasing risks and uncertainties. Ian Harper: When the world emerged from the Second World War, the international monetary system was renewed, re-established on the basis of the institutions which have come down to us now as the International Monetary Fund and the World Bank, and more recently, the World Trading Organisation. These institutions were founded on the idea of fixed exchanged rates, and the International Monetary Fund in particular, was established as the institution which would manage the fixed exchange rate regime. Now that all fell apart in the early 1970s, in 1971, primarily as the result of the emergence of international inflation and in particular large budget deficits in the United States, following the Vietnam war. Now once the fixed exchange rate mechanism and all of its controls began to fall to pieces, then the international monetary system, as it were, gradually became a free-for-all. Together with that, we had increasing technological development in the international financial markets, which made it much easier for funds flows to take place across international borders. So if you like, there are the two things going together: firstly there's changes in the regulatory environment, or the legal environment, as the formal system of fixed exchange rates is replaced by a system of variable or floating exchange rates, or at least managed exchange rates. Together with a technological facility for funds flows to take place much faster, more easily, and on a 24-hours basis. They put those two things together then throughout the 1980s, with further deregulation of financial markets, more development of technology, and we end up as we say, in the late '80s, early '90s, with an international capital market, which shifts hundreds of billions of dollars every day, on a 24-hour basis around the clock. And in that sort of environment the type of activity that Mr Soros engaged in is really par for the course. Tom Morton: Ian Harper, Professor of International Finance at the Melbourne Business School. MUSIC In his autobiography, Soros says that he underwent a psychological crisis in the early '80s. For a long time, he simply couldn't accept that he was a success, and the more money he made, the more insecure he felt. He separated from his wife and his business partner, and decided that he needed a new orientation in life. Soros has recorded an audio tape version of his autobiography - a whole six hours of it. Here he is describing the outcome of his personal crisis. George Soros: Some 15 years ago when the fund had reached a size of $100-million and my person wealth had grown to roughly $25-million, I determined after some reflection that I had enough money. After a great deal of thinking, I came to the conclusion that what really mattered to me was the concept of an open society. Tom Morton: Soros has continued to be a passionate advocate of the open society. Only a few weeks ago he gave a speech on the subject at Harvard. If you're on the Internet, you can hear the speech at www.soros.org - and look under speeches. In the wake of his crisis in the early '80s, Soros set up an Open Society Foundation, to promote the values of an open society in the Communist countries of Eastern Europe. The first branch of the Foundation was opened in Hungary in 1984. It supported dissidents, writers, intellectuals and activists - in other words, the political opposition. Soros was operating behind enemy lines. Robert Slater. Robert Slater: The question that of course I asked myself and the question that is begged is why did these Communist regimes let him in in the first place? Well the answer is foreign currency and the need for it. I think they underestimated Soros' influence also; they had no idea what a philanthropic foundation could do or did do, and therefore when he came into a place like Hungary, I think they really underestimated the potential for change that he could effect. I mean one example was that he was able to convince the government to give him permission to allow photocopier machines into all sorts of institutions, and this is something the government had banned up until then, because it did not want to give tools to people in resistance to disseminate information against the government. MUSIC Reporter: Well here in the middle of Wenceslas Square in central Prague, it's absolutely crammed with wildly exciting Czechoslovakians, many of them wearing the national colours of red, white and blue in badges and ribbons; and there's flags absolutely everywhere with red, white and blue, as the people have been listening - they're not listening now, they screaming, but they have been listening to Vlacav Havel who has been .... Tom Morton: When the great wave of peaceful revolutions spread across Communist Eastern Europe in 1989, Soros and his Open Society Foundation were there too. One man who met him then was Jan Urban, a Czech writer and dissident who was one of the leading figures in Czechoslovakia's Velvet Revolution. Jan Urban: I met George Soros in December 1989, early December. He was one of the first foreign visitors after what we used to call Velvet Revolution, and he helped tremendously because we very quickly agreed that for a successful ending of the Revolution, we need to build a strong political movement or political party. And with his fast reaction, he was the fastest and most important donor to - at that time - a civic forum. He gave us donation of $1-million, which kept us afloat for several months until we were able to secure more funds. And that was the beginning of a campaign that helped us to win the first free elections in June, 1990. Tom Morton: Jan Urban. Since 1990, Soros has set up a Central European University in Budapest, with students from 12 countries in Eastern and Central Europe, and the former Soviet Union. And his Open Society Foundation now has offices everywhere, from Croatia to Kazakhstan. But Soros' largesse hasn't always been received with gratitude. Croatia's President Tudjman, no great friend of free speech, accused Soros of undermining the fabric of Croatian society after his Foundation gave money to opposition newspapers. And in his native Hungary, Soros has been the target of vicious political attacks. Martin Krygier is Professor of Law at the University of New South Wales, and he's lectured at the Central European University in Budapest. Martin Krygier: Soros, wherever he comes, represents the West, he represents some cosmopolitan attitudes to social transformation, and there are a lot of people in these renaissant nationalist countries, or in countries where there are those movements, who simply hate that. And Soros is a kind of convenient beacon for that sentiment wherever it happens. And secondly, in Hungary itself, he's not only cosmopolitan and Western, but he's a Jew; and not only is he cosmopolitan, Western and a Jew, but he's associated not with the former Communists, but with the former dissidents, some of them from ex-Communist families, but some of the most distinguished intellectuals among dissidents in the region came from Budapest - people like Janos Kis, political scientist, philosopher, a number of others, and it's clear that Soros is associated with that in part. There is a long and dark tradition of anti-Semitism in Hungary, so already you can cancel him on that ground. There is his Western-ness, you can cancel him on that ground; there is his conception of an open society when a lot of nationalists don't want an open society, but on the contrary, a closed one. Tom Morton: Martin Krygier. It's not only in the former Communist countries that Soros has been attacked and accused of being a leftist. Recently, the American business magazines, 'Forbes', published an article accusing Soros of being a Communist collaborator before 1989, and supporting ex-Communists who are involved in politics in Eastern Europe today. One man who knows a lot about Soros' activities in the former Eastern bloc is Rudi Dornbusch. He travelled to Russia and Ukraine with Soros as an economic advisor in the early '90s, in between his duties as a Professor at MIT. As an economist, Rudi is drier than Humphrey Bogart's martini. He's an economic rationalist, or as the Americans say, a neo-liberal, through and through. So did he think that Soros was harbouring any secret Communist sympathies? Rudi Dornbusch: Oh I think it's absurd if you look at the reformers in Russia, they were very, very important people in the Russian Communist party. So you will not find a very bright, very successful person in the late 30s who was not a Communist. Inevitably you have to work with them, and you want to work with those who are more reform-minded and more democratic. So anyone who knows of Soros' support for Gaidar might well have said that Gaidar was the editor of the Communist party newspaper. Does that mean that Gaidar wasn't a driving force for turning Russia into a market economy? Surely not. So I think that's just an inane, dumb, stupid comment; he has absolutely no sympathy for Communists. Tom Morton: Soros' friend Byron Wien, says that Soros has been deeply disappointed by the West's indifference to problems in the former Soviet bloc. After Communism collapsed in 1989, Soros actually went to Washington and proposed a Marshall Plan of massive economic aid for the Eastern bloc, like the scheme which helped Germany get back on its feet after the Second World War. Soros was laughed out of the White House. Interestingly though, the idea of a Marshall Plan for Eastern Europe was revived only a couple of weeks ago by Bill Clinton. And even Rudi Dornbusch, himself a neo-liberal, says this was another case of Soros being ahead of his time. Rudi Dornbusch: I think he was totally right, and to his credit, to have proposed it, and we may come back and say that's the year where market reform in Russia was captured by the Mafia, and had Soros' proposal been used, we might today see a Russia that has less corruption and less poverty. So he may well have been right. Surely not absurd, because the Marshall Plan was advancing in precisely these conditions, even for Germany that just had emerged from Nazi regime. So yes, totally realistic, but that isn't a criterion for Washington to go ahead! Tom Morton: In many ways, George Soros' recent article on The Capitalist Threat seems to have been inspired by his experiences in Eastern Europe and his frustrations with the process of change there. Soros points to a connection between the hardline free-market reforms advocated by some Western advisors, and the growth of poverty, crime, and neo-nationalist movements in Russia. In his article on The Capitalist Threat, Soros argues that there are certain similarities between totalitarian ideologies like Nazism and Communism, and the pure doctrine of laissez faire capitalism. Common to each of them, he says, is a belief that they are in possession of a scientific truth, and any ideology which believes that, tends to be intolerant of dissenting views. So how seriously should we take this argument? Martin Krygier. Martin Krygier: I think it's a serious issue. I think that Soros makes clear in that much-discussed and reviled article that he in no way suggests that there is anything evil in laissez faire capitalism to compare with the evils of totalitarianism. But he does spot a kind of similarity of temper in thinking about social fairs. What they have in common, and what is contrary to the Open Society as Popper outlined it, was a kind of overwhelming certainty that they had grasped the truth about this extraordinary complex phenomenon which is a society. Popper, in 'The Open Society and its Enemies' and also in a smaller book called 'The Poverty of Historicism' says that we can never know that much, and in science we never know that we know we should always be prepared to be proved wrong, and that's the way science progresses. And so in social experiments, Popper insists that an ambition to change things overall, change things holistically - what he calls holistic social engineering - is bound to fail, and bound to have unintended and very often tragic consequences. And so whatever your ideology, whatever your values, he says you should go for what he calls piecemeal social engineering. And I think if that's what Soros believes out of Popper, he's right to think that the enthusiasts for laissez faire capitalism who came to advise in post-Communist countries, and who seem to be in very prominent roles as advisors in Western countries, though their values are radically different and they don't come with guns, nevertheless the certainty with which they espouse those values is similar, and similarly flawed. Soros doesn't say that there is anything in the consequences of economic rationalism which will spill the same blood, but he does - as Marxism more, or even more, Nazism - believe that this spirit of certainty is radically inconsistent with what he takes to be the openness to fallibility in an open society. Tom Morton: Martin Krygier, Professor of Law at the University of New South Wales. Soros may well have been right to think, as Rudi Dornbusch says, that a savage dose of economic rationalism was not the best thing for countries like Russia, which now has, according to Dornbusch, 20,000 millionaires and a hundred million people living in poverty. But do Soros' criticisms of market economics have any relevance for the West, where after all, we have social security systems to protect the poor? Rudi Dornbusch. Rudi Dornbusch: I think that as a philanthropist, he's just exceptional, and he's a strategist in that he's immensely successful. As a philanthropist. As an economist, he would not get a passing grade. I don't wake up in the morning and say, 'God, I should be listening more to George to what he has to say about how the economy works.' Don't exaggerate the coherent decisiveness and definitiveness of his economic thinking; he's a contrarian - he'll try something out, and most of these things fail. Tom Morton: It seems very extraordinary to me in a way, because you'd think that someone who's made so much money would actually have a pretty good idea of economics. I don't mean to be rude when I say that I mean he's got his hands dirty in the marketplace, and you're an academic economist - I mean, wouldn't we be inclined to think that perhaps - ? Rudi Dornbusch: No, I think that if you look at people who have amassed very substantial fortunes, you will not find that above all they're good economists. They have for example, in the '87 Stock Market crash Soros was on the wrong side and lost a fortune, right? He's an enormously successful trader; that takes something very different from an economist. Tom Morton: Being sent to the bottom of the class by the economists hasn't taken the wind out of George Soros' sails. He's as busy as ever - investing in oil and gold exploration here in Australia and supporting his latest controversial cause in America: women's right to abortion and contraception. Perhaps most of all, Soros likes to make trouble for those who believe that they've got a monopoly on the truth. And whether or not you agree with his views on capitalism will have a lot to do with whether or not you think economics is a science with immutable laws, or - as Soros believes - the flawed and fallible study of flawed and fallible humans. Philosopher John Gray is putting his money on the Freedom Broker. John Gray: I myself am more inclined to treat with respect a criticism of the Panglossian harmonies of free markets, which comes from someone like George Soros, who combines philosophical insight with practical experience. I'm less inclined to treat with any degree of reverence or uncritical acceptance, the re-assertion of economic rationalism by academic economists with a limited philosophical competence and an often narrow, practical experience. The period of market romanticism, the period in which it was felt that all problems, practically speaking, had a market solution, and that the only thing to do with governments was to get them out of the way of the market, that period, that era, is I think, over. MUSIC Tom Morton: You've been listening to Background Briefing. Our Co-ordinating Producer is Linda McGinness; Technical Production was by Marsail McCuish and Mark Don; Research by Vanessa Muir; and our Executive Producer is Kirsten Garrett. MUSIC ------------------------------------------------------------- Background Briefing is broadcast at 9.10 every Sunday morning and repeated at 7.10pm the following Tuesday, on Radio National, the Australian Broadcasting Corporation's national radio network of ideas. ---------------------------------------------------------------------------- Suggestions, brickbats and bouquets - we want your feedback: bbing@rn.abc.net.au ---------------------------------------------------------------------------- Adelaide 729AM Brisbane 792AM Canberra 846AM Darwin 657AM Gold Coast 90.1FM Hobart 585AM Melbourne 621AM Newcastle 1512AM Perth 810AM Sydney 576AM and via satellite to over 220 regional centres. 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