Pit Schultz on Sun, 17 Aug 1997 18:56:53 +0200 (MET DST)


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<nettime> Australian Radio Report on George Soros 2/2



          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.

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