soros

George Soros. GEORGE SOROS ON GLOBALIZATION. New York: Public Affairs (Perseus Books Group), 2002.

George Soros made a fortune in international investments. In this book, he analyzes the deficiencies of global capitalism and advances remedies with the insight of a very successful practitioner. You might think that his take on globalization would be that of a rock-ribbed free market ideologue. Far from it.

Soros believes that global financial markets have led to unacceptable instability and inequity on a world-wide scale. He analyzes why this is so. Then, instead of offering an agenda of resistance to globalization, he advances "a set of practical proposals that would make global capitalism more stable and equitable." (vii)

Opposing the Right's market fundamentalism, he rejects the idea that global markets should be left alone to correct themselves. This laissez-faire approach will not provide equitable or adequate social or political benefits, in his view. Opposing the Left's activism against globalization, Soros rejects the idea that international financial institutions—International Monetary Fund (IMF), World Trade Organization (WTO), the World Bank—should be destroyed. He believes that practical measures can improve these existing international structures. He sees in them agents for addressing the problems of globalization. And he draws on his own experience as a global philanthropist to propose specific steps.

Limited improvements are achievable

Globalization, by Soros's analysis, so far is "lopsided." International financial markets are well developed. But international institutions and political arrangements are not. (vii)

Soros has a vision of a "global open society" that will not only produce extra wealth but also foster freedom. (7) His vision is not a Utopian dream that lies beyond our grasp. He takes a realist's approach and sets limited objectives. He believes that some achievable changes in financial policy would reduce the lopsidedness and lead toward social equity and political improvement worldwide.

Here is his four-point reform agenda:

1. To contain the instability of financial markets;

2. To correct the built-in bias in our existing international trade and financial institutions (IFTIs) that favors the developed countries that largely control them;

3. To complement the World Trade Organization (WTO), which facilitates wealth creation, with similarly powerful international institutions devoted to other social goals, such as poverty reduction and the provision of public goods on a global scale;

4. To improve the quality of public life in countries suffering from corrupt, repressive, or incompetent governments. (8)

The main problem in Soros's view is that the growing wealth produced by globalization is being distributed too unevenly. The rich grow richer as the poor grow poorer. (10) Free global markets generate the wealth but do not provide for an equitable distribution of it. That is why Soros calls for the development of stronger social and political institutions to parallel global economic institutions. We need them to facilitate "resource transfers from rich countries to the poor." (20)

Foreign affairs require a moral vision

The deeply moral theme that runs throughout this very practical book thus surfaces early and remains visible to the end, where Soros restates his vision of a global open society in the aftermath of 11 September 2001. The issue that concerns him is how to alter the economics of globalization for the benefit of the whole human race under conditions of global interconnectedness.

This concern leads Soros to review the sorry record of development assistance from rich countries to poor. The US is the worst performer of all. (Treasury Secretary O'Neill's recent pronouncements on the ineffectiveness of foreign aid underscore the Bush administration's reluctance to improve this performance.)

When you are personally very rich and have a vision, you can create your own foreign aid program. Soros did so with his program for open societies, which expended some $425 million annually over a five-year period. (21) From his experience and from new aid efforts by the World Bank, the Organization for Economic Cooperation and Development (OECD) and others, Soros sees a new and better paradigm for wealth transfer in the globalized setting:

It is built around giving the recipients a greater sense of ownership and participation in the programs that are supposed to benefit them, as well as reinforcing success. (22)

IMF assets could stimulate aid to poorer countries

The centerpiece of Soros's proposals is to use an existing program in the International Monetary Fund (IMF) as a medium for the distribution of funds. It could accomplish an end-run around governments, which too often divert aid funds before they reach the people and programs they are supposed to help. It would overcome other defects of traditionally dispensed foreign aid as well: (1) The interests of donors would be subordinated to the needs of the recipients. (2) Recipients would own and manage the development projects, not outsiders. (22-24)

The IMF issues international reserve assets to its members. They are called Special Drawing Rights (SDRs). SDRs are part of a country's official foreign exchange reserves. They serve as a means of payment among Fund members. IMF creates SDRs "through a process of allocation and distribution to IMF members." (77) It last did so in 1981. In 1997, the IMF members "agreed to...allow a single special 'equity' allocation of SDRs that would channel a bigger share to the former Soviet republics and other transition countries as well as poorer member countries...." (77)

However, this agreement cannot be implemented unless a vote in the US Congress puts it over the required majority. If Congress would act, the 1997 agreement "would trigger an immediate new allocation of SDR 24.433 billion, doubling the total outstanding and significantly boosting the foreign exchange reserves of transition and poorer countries...." (77) (An SDR's value arises from the collective value of four major currencies--the dollar, the euro, the yen, and the pound sterling. [76])

Soros sees in this pending SDR allocation a readily available means "to finance the provision of public goods on a global scale as well as to foster economic, social, and political progress in individual countries...."(73) Richer countries would donate their SDR allocations to specific improvement projects in poorer countries. (74) Poorer countries would keep their allocations as an addition to their monetary reserves.

Projects worthy of funding proposed by poorer countries would win a place on an approved list created by an independent international board to be set up by the IMF. "Eminent persons" appointed for fixed terms and free of control by their governments would make up this board. (78)

Donor countries, using their SDR allocations, would choose to fund any program from the list created by the international board. (79) But unlike the usual practice in traditional foreign aid, the donor countries would not control the programs. An audit commission, separate from the international board, would monitor and evaluate. Donors' choices would be made public. (79) Soros would limit the initial round of eligible programs to a few high-priority areas such as public health, education, information technology, or judicial reform. (80)

The IMF's international board would thus work roughly the way philanthropic foundations work. Poorer countries would submit a proposal to the board the way, say, a college now submits a proposal to, say, the Mellon Foundation. But the board's approval of a program would merely be an enabling act. A richer donor country, interested in giving its SDR credits to a poorer country, would have to step up and select a project for funding from the list of approved projects. In doing so, it would be agreeing to follow the rules established by the board and IMF. Those rules would aim at keeping the donor country from using the "grant" for its own political purposes; and they would aim to place responsibility for executing the program in the hands of locals who were not agents of their governments.

As Soros sees it, this system would create "a kind of market in which programs compete for donors' funds." (78) The virtues of market competition to some degree would infuse the process. This would crowd out the geo-political motives of donors and the vulnerability to corruption at the local level, characteristics of traditional foreign aid that give it such a bad name. His experience in distributing his own wealth to international "open society" programs, executed largely along such lines, makes Soros believe that this IMF-sponsored system could work. He acknowledges the risks of failure. But he encourages an entrepreneurial attitude like that found among venture capitalists and discourages traditional bureaucratic attitudes. (95)

Soros trains his pragmatic and eminently reasonable mind not only on the IMF but also on the other high-profile international organizations, the World Trade Organization and the World Bank. These agencies, he observes, operate in a climate generated by three persistent problems. (1) Global financial markets tend toward disequilibrium not equilibrium; thus they contradict the prevailing fundamentalist market beliefs that dominate thinking and practice in the US and elsewhere. (2) The global marketplace is a "very uneven playing field" favoring the richer over the poorer countries and cannot be made more even without intervention. (3) Richer countries, led by the richest one, the US, are unreceptive to even moderate solutions to the system. (147) Soros hopes to see small steps toward improvement in the role of the major organizations and sponsor nations in the face of these persistent problems, but he tempers his optimism:

We shall have to continue to improve our institutional arrangements indefinitely because perfection is beyond our reach. (147)

Open society idealism would correct our moral deficiency

Soros's book had not gone to press when the terrorists attacked on 11 September 2001. That moment of trauma compelled him to add a final chapter aimed primarily at Americans, Toward a Global Open Society.

The attack shocked us into a new awareness of our position in the world. Soros hopes that this will lead us to see the faults of our foreign policy. We need a change in policy--not only to succeed in the new war on terrorism but also to correct the distortions of global capitalism and lay the foundation for a new world order. We need to abandon the old Cold War policy of geopolitical realism. In its place we need to install a policy that Soros labels open society idealism.

The policy that brought us victory in the Cold War does not fit the new conditions of globalization, as he sees it. Soros sees a moral deficiency in the self-serving policy of hegemonic unilateralism that perpetuated our Cold War stance after 1989. This American moral deficiency parallels the deficient moral base of global capitalism as it has developed to date. (165)

Given its dominant position, America has the unique opportunity to infuse the global agenda with a moral vision that would emphasize cooperation over competition. This is essential if we expect to win the war against terrorists. (175) And it is the key to transcending the market fundamentalism that currently distorts globalization. (178-179)

"Fuzzy-headed liberalism on a global scale," critics of this view might be quick to say. Self-made billionaire Soros begs to differ. He believes that open society idealism is the only practical stance for the US to take. The events of 9-11 and the war on terrorism only make the practicality of such a stance all the more compelling. The nub of his vision is worth quoting:

The lesson we have to learn from September 11 is that morality has to play a larger role in international affairs. The asymmetric threats that confront us arise out of the asymmetry that we have identified in globalization: We have global markets but we do not have a global society. And we cannot build a global society without taking into account moral considerations. (165)

To come into being, a global open society requires a confrontation with the long-entrenched concept of national sovereignty. Soros acknowledges the residual power of this concept even as he declares it to be anachronistic. (170) He hopes that sovereign power can be confronted through "positive incentives for voluntary compliance with international rules and standards." (171)

Can the Bush administration change America's course?

The sad reality is that the US poses the largest roadblock to a global open society because geopolitical realism continues to keynote our policy. The global dominance of the US allows us to resist international rules and standards at will in the interest of our national sovereignty. The Bush administration came to Washington determined to perpetuate an "unabashedly unilateralist and hegemonic" defense of American sovereignty in the world. (158) Events following 9-11 and the writing of Soros's last chapter have compelled the US to adopt more cooperative positions. But they have not brought a fundamental abandonment of geopolitical realism.

Ever hopeful and optimistic, Soros concludes his book by urging the US to "lead the fight against poverty, ignorance, and repression with the same urgency, determination, and commitment of resources as the war on terrorism." (179)

Soros is too tactful to say outright that the Bush administration lacks the moral fiber to turn American policy toward open society idealism. Clearly, though, his analysis implies it. This political judgment would seem to be at odds with the (admittedly restrained) hope and optimism with which Soros advances his initial call for an Open Society Alliance around the world. Readers who share Soros's vision can and will be more outspokenly sanguine about the political changes in the US that must precede a definitive turn to open society idealism.

I concur with Joseph E. Stiglitz's assessment: "George Soros has written a brilliant, powerful book." (New York Review of Books, 21 May 2002, p. 24) Its brilliance emanates from the way Soros combines the experience of a vastly successful businessman in the global arena with the conscience of a humanist that knows no borders. Its power comes from the practicality of its proposals for action. In a congenial way, Soros puts down the extremists of fundamentalist global capitalism as well as the opponents of globalization. He points us to a difficult but navigable path toward global improvement that does not enthrone a Utopia at its end.

I wish I could see Condi Rice reading this text to her boss in the Oval Office and insisting, as only a professor can, that this is the way he ought to envision the world he leads: "The fight against terrorism cannot succeed unless we can also project the vision of a better world." (179) Alas, I can't quite see it.

18 June 2002 Copyright © 2002 Richard P. Richter