George Soros (Soros Fund Management Founder) – George Soros Lecture Series (Oct 2010)
Chapters
00:00:00 Capitalism and the Open Society: A Conflict of Power
The End of History: The fall of the Berlin Wall in 1989 led to the idea that capitalism and democracy would become the dominant global systems, marking the “end of history” (Francis Fukuyama).
The Reality of History: Despite the initial optimism, history has continued to unfold, with events like the Balkans, Rwanda, Gulf War, and Iraq War, challenging the notion that capitalism and democracy would lead to a peaceful and harmonious world.
The Conflict Between Capitalism and the Open Society: George Soros, a prominent figure in world capitalism and finance, argues that there is a fundamental conflict between capitalism and the open society as they currently exist.
Power and the Open Society: The moderator reflects on George Soros’s speech and considers the relationship between power and the open society.
Haitian Election: A personal anecdote about covering the Haitian election in 1987 is mentioned, hinting at the challenges of democracy in practice.
00:02:08 Rethinking the Open Society: Balancing Power and Promoting the Common Good
Original Conception of Open Society: The open society was created to promote the public good. The framers of the Constitution focused on dividing government power and protecting private space. The First Amendment protects freedom of the press but doesn’t guarantee truth, enlightenment, or the right to know.
Reforming the Open Society: Renovate the open society to be an active power promoting the common good. Examples include campaign finance reform, requiring free airtime for candidates, and ensuring truth-telling and fairness in the press.
Historical Examples: Franklin Roosevelt’s fairness doctrine and public interest requirement for broadcasting. President Obama’s proposal to reinstate the Fairness Doctrine.
Challenges: Strong opposition from forces that benefit from the current system. Difficulty in creating a group of truth-tellers who can effectively lead the public.
Conclusion: Systemic reform is needed rather than relying solely on private reform.
00:09:48 Chinese Perspectives on Democracy and Dual Roles
Questions from Fudan University: Pei Sun, the local facilitator, introduced the questions from Fudan University.
First Question – Role Separation in China: Weixin Li, from the School of Economics, questioned the applicability of separating political and market participation roles in China, given the absence of a representative democracy.
Soros’ Response: Soros acknowledged the complexity of the question, recognizing China’s efficient decision-making system but also its significant political influence.
00:12:39 Corruption and Market Fundamentalism in China
China’s Economic Model and Corruption: China’s model of economic growth is efficient in many ways, but corruption is a significant problem. Corruption limits the success of the Chinese model and is the main obstacle to improving investment efficiency. The rate of return on investment in China is low despite the country’s success, and more than 50% of the GNP goes into investment. Corruption in China is endemic to the system and pervades the economic system itself, while in the United States, corruption is mainly limited to the political arena.
Separation of Public and Private Roles: The separation of the roles of participants in politics and participants in the market can send a negative message to elites, potentially leading to more catastrophic effects and financial meltdowns. Market fundamentalism has skewed public opinion against the interests of the majority of the population, as seen in the abolition of the estate tax in the United States. Eliminating the influence of market fundamentalism would better serve the public interest and could lead to a more equal distribution of wealth. Determining whether a more equal distribution of wealth is desirable is ultimately up to the electorate in a democracy. The evidence suggests that income inequality has increased significantly in the last 25 years, coinciding with the rise of market fundamentalism.
00:20:32 Market Fundamentalism and Its Impact on Capitalist Societies
Capitalism and Open Society: Capitalism has led to immense wealth inequality, with the top 1% or 2% benefiting the most. Reversing this trend would likely result in more equitable distribution of wealth. Soros emphasizes the importance of an open society, but does not want to prejudge the relationship between capitalism and open society.
Market Fundamentalism and Capitalism: Market fundamentalism is not synonymous with capitalism. Market fundamentalism can develop and flourish in capitalist societies under certain conditions.
Market Fundamentalism’s Negative Impact: Market fundamentalism has been responsible for the super bubble that burst and damaged the American economy. It led to the current situation where banks receive hidden subsidies from the central bank. Market fundamentalists prioritize private interests over the public interest, leading to public resentment.
Obama Administration’s Policy: The Obama administration pursued a policy of supporting the banking system through hidden subsidies, similar to the Japanese approach. This decision was partly deliberate, considering America’s anti-government sentiment and tradition. The crisis and the previous administration’s actions also played a role in shaping this policy. Obama’s desire to be a unifying force contributed to his reluctance to criticize past policies.
00:29:19 Institutional Values vs. Market Fundamentalism
Institutional Checks and Balances: George Kovacs, a Hungarian fiscal council chairman and lecturer at Central European University, highlighted the historical efforts in the US to address agency problems through the creation of institutions like the Federal Trade Commission, Securities and Exchange Commission, and Congressional Budget Office. Kovacs emphasized the need for institutions to monitor government honesty, particularly in fiscal policy.
Values vs. Institutions: George Soros believes that America has the necessary institutions but lacks the appropriate values. He attributes the skewed and distorted values to the triumph of market fundamentalism and its inherent contradictions. Soros sees values, not institutions, as the root cause of America’s economic woes.
Late Capitalism and Economic Theories: Fred Brandtman, a writer and former colleague of Larry Summers and Paul Krugman, suggests that America has entered a phase of late capitalism characterized by high debts, uncompetitive industry, and major financial institutions that no longer serve the public interest. Brandtman argues that traditional economic theories are no longer relevant in this new economic landscape and that America cannot continue to grow as it has in the past.
Addressing Late Capitalism: Soros acknowledges the complexity of the issues raised by Brandtman and admits that he does not have a clear solution. He emphasizes the need for a deeper understanding of the problems and their interconnectedness before proposing solutions.
America’s Future: Fred Brandtman emphasizes the need for America to accept the reality that it can no longer grow as it has in the past. He suggests adopting a European-style welfare state to address issues such as income inequality and environmental challenges. Brandtman proposes promoting values of voluntary simplicity and redistributing wealth to create a more sustainable and equitable society.
Economic Challenges: Brandtman highlights the high level of debt and the lack of new industries bringing wealth into America. He expresses concern about the ability to repay this debt while addressing global warming and the needs of an aging population.
Late Capitalism and European Welfare State: Speaker 13 raises the question of whether America is in a late capitalist phase that requires a European-style welfare system and wealth redistribution. George Soros acknowledges the resilience of the European welfare state during the recent economic crisis but emphasizes that such views may not be widely accepted in America.
Obama’s Health Proposition: Soros criticizes Obama’s proposed healthcare system, arguing that it focuses on paying for procedures rather than promoting health. He advocates for a national health service as the only system that can prioritize prevention over treating disease.
Challenges in Convincing People: Soros acknowledges the difficulty in convincing individuals to separate their private and public interests. He suggests that moral suasion and arguments can still be effective in persuading people.
00:42:54 Rethinking the Role of Non-Commercial Values in Society
Disraeli’s Sibyl and Commercial Society: Disraeli’s Sibyl presents a civilized commercial society where the aristocracy, church, and monarchy lack direct commercial values. This societal structure fostered societal responsibility beyond the pursuit of gain and wealth. The British public schools, middle class, professions, and state sector embraced these values through Keynesianism.
Restoring Non-Commercial Sectors: The challenge lies in restoring sectors of society that prioritize societal responsibility over commercial interests. Margaret Thatcher’s policies dismantled such societal structures in Britain. The question arises: How can these sectors, like the church and aristocracy, be revived to uphold their traditional societal responsibilities?
George Soros’ Perspective: Soros believes it’s unrealistic to idealize the past and restore these sectors in their original form. He emphasizes the need to create new structures that embody societal responsibility, rather than harking back to the past.
Market Fundamentalism in the United States: Market fundamentalism gained traction in the United States due to well-financed propaganda efforts. Seven foundations played a significant role in disseminating market values to areas where they were not appropriate, such as law and economics. Soros sees this as the primary reason for market fundamentalism’s success.
The Failure of Market Fundamentalism: Soros believes the current instability caused by market fundamentalism provides an opportunity to expose its failures. He advocates for abandoning market fundamentalism due to its detrimental effects on society.
Influences on Economic Thought: The Powell memo and other think tank efforts spread a radical view of capitalism. High inflation in the Carter administration contributed to the acceptance of this radical capitalism. The monetarist and efficient market hypothesis gained prominence due to the discredited Keynesian economics caused by the inflation of the 70s.
The Chicago School of Economics: Contrary to the notion of wealthy foundations conspiring, the ideas of the Chicago School gained traction due to their intellectual power and apparent applicability to various problems. Despite valid criticisms, the Chicago School’s influence led to poor government outcomes due to its inherent anti-government stance.
Economic Theories and their Limitations: Keynesian economics focused on public spending to address depression-era demand issues, but lacked solutions for inflation. Monetarism, revived in the 1970s, emphasized controlling the money supply, leading to a boom-bust cycle similar to the 1920s.
Market and Political Spheres: The Swedish ambassador highlighted Sweden’s success from separating the market and political spheres. However, recent trends in Sweden show increasing market influence in politics and vice versa. Balancing efficient resource allocation in politics and ensuring market responsibility for public interests remains a challenge.
Government Intervention in Markets: George Soros emphasized minimal government intervention and regulation, allowing markets to function effectively. Social choices and public goods require political decisions, as markets are not designed to address these aspects.
00:58:23 Market Fundamentalism and the Collapse of Communism
Market Efficiency: Soros argues that markets are more efficient than the political process but can’t do everything.
Market Fundamentalism and Communism: The fall of communism could be seen as a triumph of capitalism or open society.
Soros’ Perspective: Soros believes the fall of communism was a victory for open society over closed society.
Future Lecture: In the final lecture, Soros will combine the themes of the week and present a way forward from current global challenges.
Abstract
The Complex Intersection of Capitalism, Democracy, and Open Society: A Comprehensive Analysis
“Navigating the Tensions Between Capitalism, Democracy, and Open Society”
In this article, we explore the intricate relationship between capitalism, democracy, and the concept of an open society. It draws on insights from George Soros and other thinkers to examine the conflicts and challenges within these dynamics. It discusses the conflict between capitalism and open society, the illusion of equality in democracy, the limited scope of open societies, the need for reform, and the difficulties in achieving systemic change. The article also covers the context of China’s political and economic model, the impact of market fundamentalism, and the role of institutions and societal values.
Capitalism vs. Open Society: The Soros Perspective
George Soros presents a stark contrast between capitalism and open society, challenging Francis Fukuyama’s “end of history” thesis. He focuses on the power dynamics undermining open societies and highlights inherent conflicts and societal issues.
Democracy’s Illusion and the Reality of Power Dynamics
Contrary to the idealistic view of democracy where all citizens have equal power through voting, the reality is skewed by power dynamics. The powerful leverage their resources to influence elections, distorting the democratic process.
The Limited Scope of Open Society: Constitutional Foundations and Media Freedom
The U.S. Constitution was designed to balance government power and protect a private sphere free from government interference. Although the First Amendment safeguards media freedom from government censorship, it does not address private manipulation in politics.
Reforming the Open Society: Towards the Common Good
Proposals for reforming the current conception of open society include changes in campaign finance, free airtime for candidates, media truthfulness and fairness, and reviving public interest requirements for broadcasters.
Challenges and Focus on Systemic Reform
Systemic reforms face opposition from those benefiting from the status quo. However, optimism remains, as exemplified by President Obama’s proposal to reinstate the Fairness Doctrine, despite resistance.
China’s Political and Economic Model: Soros’s Insights
China’s economic model, which lacks representative democracy, is marked by inefficiencies and corruption. Soros notes that China’s investment decisions are often politically driven, leading to inefficiencies and corruption.
China’s Economic Model and Corruption:
China’s economic system is characterized by corruption, high rates of investment, and low returns. This corruption pervades the economic structure, limiting the model’s success and hindering investment efficiency.
Separation of Public and Private Roles:
Separating political and market roles in China may lead to more catastrophic effects and financial meltdowns. Eliminating the influence of market fundamentalism could result in a fairer distribution of wealth.
Capitalism, Market Fundamentalism, and the Financial Crisis
Capitalism and Open Society:
Capitalism has resulted in significant wealth inequality, mainly benefiting the top echelons of society. Soros stresses the importance of an open society without determining its relationship with capitalism.
Market Fundamentalism and Capitalism:
Market fundamentalism, distinct from capitalism, can arise in capitalist societies under certain conditions and has detrimental effects.
Market Fundamentalism’s Negative Impact:
Market fundamentalism contributed to the financial crisis, leading to hidden subsidies for banks and prioritizing private interests over public welfare, resulting in public resentment.
Obama Administration’s Financial Crisis Response
The Obama administration’s response to the financial crisis involved supporting the banking system through hidden subsidies. This decision was influenced by America’s tradition and anti-government sentiment, and Obama’s unifying approach discouraged criticism of past policies.
Institutional Checks and Balances
Efforts in the US to address agency problems include institutions like the Federal Trade Commission, Securities and Exchange Commission, and Congressional Budget Office. These institutions are crucial for monitoring government honesty, especially in fiscal policy.
Values vs. Institutions
Soros attributes America’s economic woes to skewed values influenced by market fundamentalism, rather than institutional failures.
The Challenges and Solutions to America’s Economic Woes
Late Capitalism and Economic Theories:
America is currently in a phase of late capitalism, characterized by high debts and uncompetitive industries. Traditional economic theories may no longer apply in this context.
Addressing Late Capitalism:
Soros acknowledges the complexity of these issues and the need for a deeper understanding before proposing solutions.
America’s Future and Potential Solutions
Fred Brandtman’s Perspective:
Brandtman suggests that America should adopt a European-style welfare state to address income inequality and environmental challenges. He advocates for voluntary simplicity and wealth redistribution for a sustainable society.
Economic Challenges and Redistribution:
Brandtman points out the high debt and lack of new industries in the U.S., raising concerns about repaying this debt while addressing global warming and an aging population. The resilience of the European welfare state during the recent economic crisis is noted.
Obama’s Health Proposition:
Soros criticizes Obama’s healthcare proposal, advocating for a national health service focused on prevention rather than just paying for procedures.
Challenges in Convincing People:
Convincing individuals to separate private and public interests is difficult, but Soros believes moral suasion and arguments can be effective.
The Role of the Aristocracy in a Commercial Society and Market Fundamentalism:
Disraeli’s Sibyl and Commercial Society:
Disraeli’s “Sibyl” presents an ideal of a commercial society where societal responsibility is valued beyond mere pursuit of gain and wealth. The challenge lies in restoring sectors of society that prioritize societal responsibility, which were dismantled in Britain by policies like those of Margaret Thatcher.
George Soros’ Perspective:
Soros believes that idealizing the past and restoring these sectors in their original form is unrealistic. Instead, he emphasizes the need to create new structures that embody societal responsibility.
Market Fundamentalism in the United States:
Market fundamentalism in the U.S. has been propelled by well-financed propaganda efforts, particularly from seven foundations that have disseminated market values into areas like law and economics. Soros attributes the success of market fundamentalism to these efforts, but notes that its current instability provides an opportunity to expose its failures.
Economic and Political Commentary and Discourse
Influences on Economic Thought:
The Powell memo and think tank efforts, influenced by the high inflation of the Carter administration, spread a radical view of capitalism. The monetarist and efficient market hypothesis gained prominence as Keynesian economics was discredited due to the inflation of the 70s.
The Chicago School of Economics:
The Chicago School’s ideas gained traction not because of a wealthy foundation conspiracy, but due to their intellectual power and applicability. However, the anti-government stance inherent in these ideas led to poor government outcomes.
Economic Theories and their Limitations:
Keynesian economics focused on public spending but lacked solutions for inflation, while the revived monetarism of the 1970s led to a boom-bust cycle similar to that of the 1920s.
Market and Political Spheres:
Sweden’s success in separating the market and political spheres is noted, but recent trends show increasing market influence in politics. Balancing efficient resource allocation and ensuring market responsibility for public interests remains a challenge.
Government Intervention in Markets:
Soros emphasizes the need for minimal government intervention and regulation to allow markets to function effectively, while also recognizing that political decisions are required for social choices and public goods.
Soros and the Fall of Communism
Market Efficiency:
Soros argues that markets are more efficient than the political process but acknowledges that they cannot address every issue.
Market Fundamentalism and Communism:
The fall of communism could be interpreted either as a triumph of capitalism or of the open society.
Soros’ Perspective:
Soros views the fall of communism as a victory for open society over closed society, emphasizing the importance of openness and flexibility in societal systems.
Future Lecture:
In his final lecture, Soros plans to synthesize the themes of the week and present a pathway forward from the current global challenges.
In conclusion, this article provides a comprehensive analysis of the intersection between capitalism, democracy, and open society. It underscores the complexities and challenges in navigating these relationships and emphasizes the need for thoughtful consideration and reform to address the issues inherent in these systems.
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