Thursday, March 07, 2002

THE CAPITALIST THREAT  by George Soros (February, 1997) What kind of society do we want? "Let the free market decide!" is the often-heard response. That response, a prominent capitalist argues, undermines the very values on which open and democratic societies depend. "Hegel discerned a disturbing historical pattern -- the crack and fall of civilizations owing to a morbid intensification of their own first principles. ... I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The main enemy of the open society, I believe, is no longer the communist but the capitalist threat." " ... Karl Popper, in his book The Open Society and Its Enemies (1945) ... another view of society, which recognizes that nobody has a monopoly on the truth; different people have different views and different interests, and there is a need for institutions that allow them to live together in peace. These institutions protect the rights of citizens and ensure freedom of choice and freedom of speech. Popper called this form of social organization the 'open society.'" "Why does nobody have access to the ultimate truth? The answer became clear: We live in the same universe that we are trying to understand, and our perceptions can influence the events in which we participate. ... In social and political affairs the participants' perceptions help to determine reality. ... There is a two-way connection -- a feedback mechanism -- between thinking and events, which I have called "reflexivity." I have used it to develop a theory of history." "Recognizing that an open society is a more advanced, more sophisticated form of social organization than a closed society (because in a closed society there is only one blueprint, which is imposed on society, whereas in an open society each citizen is not only allowed but required to think for himself) ... " "The Western alliance seems to have lost its sense of purpose, because it cannot define itself in terms of a Communist menace. ... an open society may also be threatened from the opposite direction -- from excessive individualism. Too much competition and too little cooperation can cause intolerable inequities and instability. ... laissez-faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest. Unless it is tempered by the recognition of a common interest that ought to take precedence over particular interests, our present system is liable to break down. ... Totalitarian ideologies deliberately seek to destroy the open society; laissez-faire policies may endanger it, but only inadvertently. ... We are enjoying a truly global market economy in which goods, services, capital, and even people move around quite freely, but we fail to recognize the need to sustain the values and institutions of an open society." "The main scientific underpinning of the laissez-faire ideology is the theory that free and competitive markets bring supply and demand into equilibrium and thereby ensure the best allocation of resources. ... when we examine the assumptions closely, we find that they do not apply to the real world. ... assumed perfect knowledge, homogeneous and easily divisible products, and a large enough number of market participants that no single participant could influence the market price. The assumption of perfect knowledge proved unsustainable, so it was replaced by an ingenious device. Supply and demand were taken as independently given. ... he condition that supply and demand are independently given cannot be reconciled with reality ... Buyers and sellers in financial markets seek to discount a future that depends on their own decisions. The shape of the supply and demand curves cannot be taken as given because both of them incorporate expectations about events that are shaped by those expectations. There is a two-way feedback mechanism between the market participants' thinking and the situation they think about -- 'reflexivity.' ... instead of tending toward equilibrium, prices continue to fluctuate relative to the expectations of buyers and sellers." "Heisenberg's famous uncertainty principle implies that the act of observation may interfere with the behavior of quantum particles; but it is the observation that creates the effect, not the uncertainty principle itself. ... There is a powerful case for the market mechanism, but it is not that markets are perfect; it is that in a world dominated by imperfect understanding, markets provide an efficient feedback mechanism for evaluating the results of one's decisions and correcting mistakes." "Whatever its form, the assertion of perfect knowledge stands in contradiction to the concept of the open society (which recognizes that our understanding of our situation is inherently imperfect). Since this point is abstract, I need to describe specific ways in which laissez-faire ideas can pose a threat to the open society. I shall focus on three issues: economic stability, social justice, and international relations." [Economic Stability] " ... in financial markets prices are not merely the passive reflection of independently given demand and supply; they also play an active role in shaping those preferences and opportunities. This reflexive interaction renders financial markets inherently unstable. ... Stability can be preserved only if a deliberate effort is made to preserve it. Even then breakdowns will occur, because public policy is often faulty. ... Instability extends well beyond financial markets: it affects the values that guide people in their actions. ... Market values served to undermine traditional values. There has been an ongoing conflict between market values and other, more traditional value systems, which has aroused strong passions and antagonisms. ... Unsure of what they stand for, people increasingly rely on money as the criterion of value. ... What used to be professions have turned into businesses. The cult of success has replaced a belief in principles. Society has lost its anchor." [Social Darwinism] " ... laissez- faire ideology has effectively banished income or wealth redistribution. ... The laissez-faire argument relies on the same tacit appeal to perfection as does communism. It claims that if redistribution causes inefficiencies and distortions, the problems can be solved by eliminating redistribution ... The laissez-faire argument against income redistribution invokes the doctrine of the survival of the fittest. ... The main point I want to make is that cooperation is as much a part of the system as competition, and the slogan "survival of the fittest" distorts this fact." [International Relations] "States have no principles, only interests, geopoliticians argue, and those interests are determined by geographic location and other fundamentals. ... it treats the state as the indivisible unit of analysis ... geopolitics ... does not recognize a common interest beyond the national interest. ... the present state of affairs, however imperfect, can be described as a global open society. It is not threatened from the outside, from some totalitarian ideology seeking world supremacy. The threat comes from ... democratic but sovereign states pursuing their self-interest to the detriment of the common interest. The international open society may be its own worst enemy. ... We have entered a period of disorder. ... Laissez-faire ideology does not prepare us to cope with this challenge. It does not recognize the need for a world order. An order is supposed to emerge from states' pursuit of their self- interest. But, guided by the principle of the survival of the fittest, states are increasingly preoccupied with their competitiveness and unwilling to make any sacrifices for the common good. ... An open society is not merely the absence of government intervention and oppression. It is a complicated, sophisticated structure, and deliberate effort is required to bring it into existence. ... Our global open society lacks the institutions and mechanisms necessary for its preservation, but there is no political will to bring them into existence. I blame the prevailing attitude, which holds that the unhampered pursuit of self-interest will bring about an eventual international equilibrium. I believe this confidence is misplaced ... the global open society that prevails at present is likely to prove a temporary phenomenon." " There has to be a common interest to hold a community together ... there is such a thing as a global community; there are common interests on a global level, such as the preservation of the environment and the prevention of war. But these interests are relatively weak in comparison with special interests. ... Societies derive their cohesion from shared values. These values are rooted in culture, religion, history, and tradition. When a society does not have boundaries, where are the shared values to be found? ... the concept of the open society itself." " ... I see the open society as occupying a middle ground, where the rights of the individual are safeguarded but where there are some shared values that hold society together. This middle ground is threatened from all sides. At one extreme, communist and nationalist doctrines would lead to state domination. At the other extreme, laissez-faire capitalism would lead to great instability and eventual breakdown. ... In many parts of the world control of the state is so closely associated with the creation of private wealth that one might speak of robber capitalism, or the "gangster state," as a new threat to the open society." "I envisage the open society as a society open to improvement. ... What is imperfect can be improved, by a process of trial and error. The open society not only allows this process but actually encourages it, by insisting on freedom of expression and protecting dissent. The open society offers a vista of limitless progress. ... in an open society is that whereas most cultures and religions regard their own values as absolute, an open society, which is aware of many cultures and religions, must regard its own shared values as a matter of debate and choice." "We must promote a belief in our own fallibility to the status that we normally confer on a belief in ultimate truth. ... The need for articles of faith arises exactly because our understanding is imperfect. If we enjoyed perfect knowledge, there would be no need for beliefs. ... Beliefs ought to serve to shape our lives, not to make us abide by a given set of rules. If we recognize that our beliefs are expressions of our choices, not of ultimate truth, we are more likely to tolerate other beliefs and to revise our own in the light of our experiences. ... most people ... tend to identify their beliefs with ultimate truth. Indeed, that identification often serves to define their own identity." "A belief in our fallibility ... is a highly sophisticated concept, much more difficult to work with than more primitive beliefs, such as my country (or my company or my family), right or wrong. ... the cult of success can become a source of instability in an open society, because it can undermine our sense of right and wrong. That is what is happening in our society today. Our sense of right and wrong is endangered by our preoccupation with success, as measured by money. Anything goes, as long as you can get away with it. ... It is much easier to argue for my own interest than to go through the whole rigmarole of abstract reasoning from fallibility to the concept of the open society. ... There has to be a commitment to the open society because it is the right form of social organization." "I believe in the open society because it allows us to develop our potential better than a social system that claims to be in possession of ultimate truth. ... Given the reflexive connection between thinking and reality, truth is not indispensable for success. ... Only at the highest level of abstraction, when we consider the meaning of life, does truth take on paramount importance. ... After all, the open society is based on the recognition of our fallibility. Indeed, it stands to reason that our ideal of the open society is unattainable. ... [but] the open society can be approximated to a greater or lesser extent." "We have now had 200 years of experience with the Age of Reason, and as reasonable people we ought to recognize that reason has its limitations. The time is ripe for developing a conceptual framework based on our fallibility. Where reason has failed, fallibility may yet succeed." ... [more] 2:54:31 PM    comment  []

March 7, 2002 Dollar Falls; Investors Look to Recovery "The yen shot to 2002 peaks against top currencies on Thursday, posting its biggest gain on the dollar in seven months, as Japanese stocks hit seven-month highs on hopes a U.S. economic recovery will carry the world out of a global slump." "Japan's Nikkei stock index leapt 2.55 percent on Thursday and has now gained 24 percent in the last month, helped by an improving global backdrop and by Japanese restrictions on short-selling the stock market. The yen has surged nearly 5 percent in a week, catapulted higher as dealers who had been betting the yen would fall due to Japan's bleak economic prospects were forced to bail out of their positions en masse." But many New York-based analysts doubted the staying power of the yen's gains. Disbelievers say the Nikkei's rise stemmed in part from the ban on short sales, as opposed to an improving economic picture, and from Japanese repatriation of overseas assets ahead of the March 31 fiscal year- end. 'I think the old ghosts have come back to haunt the yen after the end of the fiscal year ... " "The lack of an aggressive response to the yen's muscle has some analysts speculating Tokyo is keen to support the stock market ahead of the fiscal year-end to avoid chaos in the fragile financial sector." "The dollar's tumble against the yen sent the greenback falling to a six-week low of 88.13 cents per euro in European trading hours ... 'U.S. numbers are getting better, but euro zone numbers are also getting better. I don't think there is much change in the fundamental relationship between the two' ... Some analysts have said the dollar is looking a bit fragile, given its inability to rally despite signs of a stronger-then-expected recovery from recession. Some analysts said President Bush's decision to impose tariffs on steel imports was weighing on dollar sentiment, fueling fears of rising trade tensions." "U.S. manufacturers have urged Bush to scrap America's long-standing strong dollar policy, which they say reduces the competitiveness of U.S. exporters." ... [more] 1:28:46 PM    comment  []

The coming crisis of American imperialism March 06, 2002 "The American response to September 11th did not change the terms of international relations. It only enhanced and deepened a trend that was manifest in Bush's foreign policy from the beginning." " ... American foreign domination replicated the capitalist model of the domestic domination of production: police in the background, economic necessity in the foreground. Exploitation was, and is, relentless. ... The U.S. professed commitment to human rights, democracy and rule of law, promised hope and gave the system respectability, even among its critics." " ... Bush switched U.S. foreign domination towards an older imperialist model. ... Bush's imperialism is unabashedly and openly nationalistic. 'America first' became the motto of foreign policy ... The U.S. could have come out of Afghanistan as the undisputed and unchallenged ruler of the world. Instead, ... the U.S. is emerging from Afghanistan as the hated tyrant of the world." "One can point to several reasons for the tenacity of Bush's 'doctrine.'[:] ... the human reasons: the personal touch of George Bush, and the rise of the strategic hawks ... the interests of the oil and defense lobbies America's military superiority makes negotiated cooperation seem unnecessary, hence unpatriotic. ... the new muscular America would protect the GOP from having to confront voters over a bankrupt domestic agenda." " ... Western capitalism moved away from both the pre-war model and the Cold War model of imperialism for a reason. The European empires died off because Third World nationalism made them too expensive to maintain. ... In response, capitalism transformed itself and learned to profit from the newly independent Third World. ... Consumer capitalism discovered the power of optimism. ... prospect of arming every Chinese peasant with an Internet ready cell phone. [oil for the lamps of China] ... the gospel of democracy and human rights proved to be a ... potent Bourgeois ideology ... Furthermore, the end of the Cold War freed the U.S. government to concentrate on economic expansion." "By trying to pull the clock back, [Bush's] policy is undermining the world hegemony of the United States. First, the new focus on war interferes with the business of promoting business. Second, U.S. policy undermines the credibility of the institutions representing Capitalism. And most importantly, by shedding the international institutional framework, Bush gives American domination a recognizable face and address." "As it emerges behind its international cloak, the new American domination appears unmasked, as a purely foreign force. ... America-bashing is thus slated to become de-rigueur for politicians far beyond the left. ... no matter what ensues ... As America contracts behind its night- vision goggles, the spread of market capitalism is bound to lose steam. That will cause a split between American capitalism and Bush's imperialism." " ... as tensions multiply, the White House may conclude That, rather than change the tune, the best election strategy would be to raise the volume. Given the present popular support for saber-rattling in the U.S., that might be a winning strategy for George Bush. But it would drive America deeper into a vicious cycle of militarization and anti-Americanism. This is how empires self- destruct." " ... capitalism will start voting with its feet. ... Capital fleeing the U.S.? That might sound outlandish, but it’s not. The huge American trade deficit means that capital doesn't need to move out. If enough stops flowing in, it will dramatically alter the American political landscape.  The U.S. economy looked iffy even before factoring foreign policy in. With debt mounting, credibility under fire, goodwill largely written off the book, and the Pentagon fast becoming a bottomless money pit, America Inc. looks less and less of a strong buy with every passing day." ... [more] 12:19:11 PM    comment  []

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March 7, 2002 China Is Increasing Its Budget for Military Spending by 17.6% "China is increasing military spending this year by 17.6 percent, or $3 billion, bringing the publicly reported total to $20 billion, the finance minister announced today. ... continued large spending increases were needed for China's military "to utilize modern technology, especially high technology to raise our army's defense and combat capabilities," and to raise salaries for the country's 2.5 million officers and enlisted men." "Actual military spending may be three to five times the reported total of $20 billion, according to Western experts. ... even the higher estimates are well below the spending levels of the United States, and the American technological advantage may, if anything, be growing ... The Bush administration has proposed a $379 billion military budget for the next fiscal year, a 14.5 percent increase ... " " ... a 28 percent increase in spending on living allowances for the unemployed, pensions and other social security measures "in order to protect social stability." Millions of farmers and workers in decrepit state industries are expected to lose their jobs in the years ahead as China further opens its markets to global competition ... " ... [more] 8:36:21 AM    comment  []