| 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
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