A billionaire tries to solve the crisis


The Crisis of Global Capitalism
By George Soros
Little, Brown & Company, 1998
245 pp., $39.95 (hb)

Review by Allen Myers

George Soros, the billionaire hedge fund manager, is worried, even alarmed, at what he considers the dim prospects for capitalism. "I have no hesitation ... in asserting", he writes, "that the global capitalist system will succumb to its defects, if not on this occasion then on the next one — unless we recognize that it is defective and act in time to correct the deficiencies".

The Crisis of Global Capitalism created a short-lived stir when it was published in December. Major excerpts were published in the Sydney Morning Herald before the media moved on to swimming between the flags stories and similar holiday fare. Still, this was a notable departure from the capitalist triumphalism of most of the '90s.

Soros' fears are only partly caused by the economic crisis that has been spreading since it first broke out in south-east Asia in mid-1997. He sees in the crisis symptoms of a more fundamental illness. In that, he is right, though the specifics of the diagnosis are open to dispute, and his proposed cure is not worthy of the name.

'Market fundamentalism'

Soros is at his strongest in attacking what he calls "market fundamentalism", his term for the ideology of neo-liberalism. He is caustic about neo-liberalism's blind faith that "the market" can and should solve all problems.

He appears to believe that market fundamentalism is a more or less logical outcome of economic theory in general. Using too broad a brush, Soros attacks "classical economics" (a term which he uses to include what is usually called "neoclassical economics") for assuming that free markets tend naturally to equilibrium, when there is an abundance of evidence and a wealth of theoretical arguments against such an assumption.

(The criticism is really valid only for neoclassical, subjective value economics and other schools, such as neo-Ricardianism, that share the attempt to explain prices on some other basis than the creation of value by socially necessary labour.)

Socialists will certainly share Soros' abhorrence at the intrusion of market relations into virtually all aspects of social life, if not for the same reasons: "... market forces, if they are given complete authority even in the purely economic and financial arenas, produce chaos and could ultimately lead to the downfall of the global capitalist system".

He is certainly not against market economy, but Soros objects to economics invading other arenas. "As a market participant", Soros observes in the introduction, "I try to maximize my profits. As a citizen, I am concerned about social values: peace, justice, freedom, or whatever. I cannot give expression to those values as a market participant."

This immediately raises the question: What does he do as a citizen participating in the market?

Clearly, there is a real contradiction between the roles of citizen and capitalist, and Soros at least deserves credit for calling attention to it rather than assuming it away, as is done in most capitalist apologetics.

However, Soros cannot find a way to comprehend, let alone resolve, the contradiction. This inability is the product intellectually of his explicit adoption of the philosophical theories of Karl Popper and positivism.

Social laws

In Popper's theory, there are no laws of social evolution (or of Darwinian evolution), and hence nothing to be learned from history.

Soros frequently repeats the idea that a science of society is impossible. His argument, incorporating his own development of Popper, is that this is due to "reflexivity", Soros' coinage for the interaction between observer and observed. Hence our thinking is necessarily imperfect, and "... the fact that reality incorporates inherently imperfect human thinking makes it logically impossible to explain and predict". He seems to have no concept of knowledge which is sufficient for a particular purpose, or that different purposes might require different degrees of knowledge.

Soros tries to define science out of existence by claiming that scientific statements must have "universal timeless validity" — a requirement, not of science, but of theology.

With this approach, explicitly discarding both science and history, Soros has no tools with which to analyse the causes, and possible remedies, for the problems he sees in global capitalism. As a result, his discussion of developments in capitalism usually degenerates into pure description, with no attempt to distinguish causes and effects or necessity and accident.

For the same reason, his proposed cures for problems are similarly arbitrary and shallow: moral admonitions to "reconsider our attitude toward financial innovations" and suggestions that a system of credit insurance might mitigate some of the more abrupt international financial flows.

The "main idea" of his book, he writes, "is that we must learn to distinguish between individual decision making as expressed in market behavior and collective decision making as expressed in social behavior in general and politics in particular. In both cases, we are guided by self-interest; but in collective decision making we must put the common interest ahead of our individual self-interest."

This "must" is nothing but Soros' assertion, since of course he cannot derive it from any scientific or historical necessity. More importantly, rather than overcoming the dichotomy within the breast of the capitalist citizen, he here raises it to an absolute that must be lived with, apparently forever.


The neo-liberal ideal of a free market being left to its own devices can claim an intellectual heritage going back at least to Adam Smith and his "invisible hand", which brought about the common good through individuals pursuing their own good. For Smith, there was no contradiction between individual interest and collective interest, between market participant and citizen.

Soros can disagree with Smith on this question, but without a scientific history of capitalism, he cannot explain why Smith made such a mistake.

The explanation is that when Smith wrote, the "invisible hand" had a considerable degree of reality. The capitalism about which Smith wrote, developing in opposition to feudalism, did represent progress for society as a whole. Capitalists pursuing their own profits did bring about continual increases in society's productive forces and help to break down the backward relations of personal dependence, rural isolation and clerical domination.

But history exists even if philosophers refuse to recognise it. Capitalism's growth, its very success, turned it into something else. It created a handful of extremely powerful capitalists whose individual interests are directly contrary to social interests and who must, therefore, constantly corrupt every political process to prevent the collective interest being served.

The intrusion of market relations — of money — into every aspect of social existence, especially the business of government, is not an aberration brought about by the failure of neo-liberals to study Karl Popper. It is necessary behaviour for capitalists who don't want to stop being capitalists.

Soros, whose view of Marxism and socialism is distorted by the experience of growing up in Stalinist-ruled Hungary, contrasts the attitude there following suppression of the 1956 revolution and today, after the restoration of capitalism. In the late 1950s, even though many were intimidated, there was an awareness of oppression and admiration for those who did not compromise. Such civic virtue, "the clear sense of right and wrong that prevailed" then "has faded since the dissolution of the communist regime".

He writes this with no sense of irony, no understanding of the necessary connection between the rise of capitalism and the decline of collective interest.

What Soros would like to bring about is a capitalism from which the antisocial features and "over"-reliance on markets have been removed. That is a thoroughly utopian project, which no doubt accounts for much of Soros' pessimism.

There is much else that is objectionable in the book — especially the identification of the United States as the paradigm of the desirable "open society" and the desire for Washington to play a larger role in policing the world. All of it derives from the superficial impressions that are the only recourse of someone who has abandoned the effort to understand the world scientifically.