Today at UCLA we have hosted a Seminar on the following topic:
Is George Soros a Robber Barron or a Philanthropist?
© OLGA LAZIN
The Open Society Foundation in Central Europe or International Philanthropy In The Era Of Borderless Trade And Financial Blocs We have learned recently that George Soros, the financier, was right; markets unregulated will go array.
At times, George Soros is also is a charitable ‘robber baron”:
“I give away millions of dollars because I care about the principles of Open Society, and I can afford it.” George Soros (1995)1
“Although only a few may originate policy, we are all able to judge it.”
Pericles (400 B.C.)
This chapter focuses on the rise and experience of the Open Society Foundation Network that merges the profit motive with the non-profit motive to develop locally and regionally responsible civil society through international networks of communication. Let us not forget that it was profit making that led to the creation of major U.S. foundations, so much money having been “dubiously” accumulated by capital barons that, for the money to be “saved” in the family name, it had to be donated to tax exempt organizations such as the Rockefeller Foundation.
George Soros, founder of Open Society Fund, has tried to create a new bases for civil society in places ranging from Haiti to Romania, and from China to India.
Although I began my study of philanthropy with the idea of focusing my research on the history of the Soros Foundations, that idea took new form once I met with George Soros in 1996 in New York, where I interviewed him regarding his activities around the world.
My preliminary thoughts were presented to Soros in 1995 in order to obtain his initial reaction to my hypothesis involving juxtaposition of:
- the stated goals and achievements of the Soros Foundations (as summarized verbatim from foundation reports, newsletters, and Soros World Wide Web pages on the Internet, as I told him during our intense discussions of May 15, 1996, in New York City) with him, and regarding his books he has published here in the United States.
- my hypothesis that he has taken a risky approach to international philanthropy that is uncommon.
In that juxtaposition I suggested that Soros, by himself, has sought to create an open society in each country, thus hoping that other U.S. and European foundations would follow him into East-Central Europe, but they did not do so.
Indeed most other foundations have not followed Soros lead because, as he himself noted in my interview with him, he has neglected the legal structure that they demand to protect themselves against risk of losing their tax-free status in their home country.
Bureaucratically conservative foundations, especially those based in the USA, where the largest corpus of tax-free funds is domiciled, do not in the main take the risks of donating abroad because they fear becoming enmeshed in legal problems related to tax reporting in their home base of operations.
Soros indicated to me his concern that scholarly analysis focusing mainly on his risk-taking approach could backfire. He is concerned that, given the anti-foreign tenor of many congressional representatives, the U.S. Congress may look for opportunities to develop legislation that could inhibit the transfer of U.S. official and private foundations assistance funds from leaving the country.
Although in my view Soros is unduly worried about possible U.S. Congressional activity against foundations,2 nevertheless, I here reorient my approach to focus on Soros as only one example of international philanthropy (here often used with a much larger connotation incorporating universities, NGOs and voluntary associations), thus also focusing my work on the rise of foundation activity such as that of the European Foundation Center and the Japan Foundation in an era when new trade and finance blocks are emerging as follows:
Association of Caribbean States,
Central American Common Market,
Asia Pacific Economic Cooperation
My thesis is that if trade and finance must globalize to survive effectively, so must philanthropy operate in the international sphere. Soros’ approach is only one of several which helps us to rethink the method of opening all societies to change and decentralized modernization. I have personally volunteered and dedicated 20 years of my life to a non-profit, and learn all the in-s and out-s of it after meeting Soros at his Open Society headquarters in New York.
This paper analyzes the role of George Soros and the process of how he has assumed unique social leadership in the international philanthropic arena. He is a lone “global trouble-shooter” who, as of 1996, has donated half of his one-billion-dollar net worth to the Soros Foundation, which he has dedicated to help break statism in formerly Communist countries.
” With the breakthrough of the Internet to achieve instantaneous globalization, the Hungarian-born philanthropist has embarked on an ambitious plan to set up 30 Internet training centers across the far-flung regions of Russia 3 Bill Gates, whose business visit to Russia, just coincided with Soros’, is just following into his footsteps.4
My approach in this chapter is to suggest the reason why Soros’ noble attempt did not succeed in laying the basis for a broadly-financed and updated Marshal Plan for Eastern Europe. The goal of breaking up the statism that maintains the former Communist bloc countries as closed societies needs new NPPO laws that enable multi-track activity beyond the single-track offered by Soros. Soros funding of NPPO legal reform has encouraged only marginally countries to look outward. Ironically he is leaving them on their own to look inward for lack of information about new trends in world philanthropy.
Soros’ single-track efforts have involved creating branches of his Foundation in 25 countries of Eastern Europe, Asia, and the Middle East by using U.S. NPPO law, not fostering the law itself as the legal basis needed for Western funders, including foreign investors who establish company foundations with some of the profits. Soros has yet to realize that the ideas he supports require a tax free and tax-deductible framework for the funding of community-based foundations that are able to make the thousands of decentralized decisions that he knows no central government can efficiently make.
To understand the Soros’ initiative and its impact we must acknowledge the crisis of the modern welfare state in the USA as well as in Europe. The conviction has coalesced that overloaded and over bureaucratized government is incapable of performing the expanded task being assigned to it. The welfare state is the incompetent State.
In Eastern Europe the Incompetent State protected itself by use of totalitarian principles to maintain society closed to circulation of ideas and criticism of government. In Eastern Europe, as in the Russian Empire which was euphemistically called the “USSR,” George Orwell’s 1984 came true as the “democratic centralism” of Communist government destroyed the ability of communes to make any decisions for themselves.
Soros’ Background And Career As Hedge-Fund Speculator
To establish a new type of “community interest” in Eastern Europe and Russia, George Soros determined in the 1980s to use his fortune to lead the way in establishing society open to the flow of information and criticism of government.
Soros had left Hungary for England in the 1947 to put behind him the experience of having lived under German and Russian occupations. He graduated from the London School of Economics in 1952; and he moved to the USA by 1956.5 By the 1960s not only had he become an American citizen but was noted for his risk-taking investment practices especially in world financial markets, which brought him fortune as speculating in currency.
Since 1969 Soros has operated the Quantum Fund–a little-regulated, private-investment partnership based in Curaçao (off the coast of Venezuela) geared to wealthy non-U.S. individuals, who typically attempt to achieve quick, outsized returns on highly leveraged “bets” that currency will appreciate or depreciate. His bets on currency culminated in his 1992 “breaking the Bank of England,” which could not maintain the value of the pound in the face of the Soros-led speculation that England’s currency was seriously over-inflated. 6
Thirteen years before he won his six-billion bet against the pound sterling, Soros had begun to use his gains from speculation to support the opening of closed societies. He established in New York the Open Society Fund in 1979, as an NPPO to support dissidents living under the Communist regimes, but he had kept a relatively low profile in doing so.
Indeed Soros had been interested since his period in England to foster the democratic values of “an open society,” as defined by the philosopher Sir Karl Popper.7 Determined to make Popper’s concept workable, Soros’ Open Society Fund became the basis for the Open Society Fund, Inc. to which he has donated so much of his dubiously-earned profits to good ends.
Soros moved with high visibility into philanthropy by establishing in 1984 the Soros Foundation-Hungary and in 1987 the Soros Foundation-Soviet Union. After the fall of the Berlin Wall in 1989, Soros began to reposition himself by turning over the day-to-day management of his hedge fund to his staff so that he could immerse himself in the world of philanthropy. He was the only one who recognized and was able to do something about it that in those first moments after 1989 liberation from socialist dogma a new pattern of open society had to be set. His diagnosis was correct in that hardly had Russia and Eastern Europe overturned their dogmatic regimes that authoritarian forces attempted to seize power. This was hardly surprising because these had a complete absence of democratic experience and no modern political infrastructure was in place to support the new and fragile ‘democracies.’
By 1990 he created three more foundations, moving into Central and Eastern Europe and the Soviet Union, dramatically accelerating the level of his giving. As Soros explains, “I have used financial markets as a laboratory for testing my theories…[on how to capitalize on] the collapse of the Soviet Empire.”8
According to Soros’ “Personal Statement” on the Soros Foundation World Wide Web Home Page, by early 1996 he was operating foundations in 24 countries. (The total is now 23, Belarus having this month withdrawn his legal recognition of Soros Foundation- Belarus, see below.)
Soros As Creator Of Open Versus Closed Societies Via
To change the course of history and prevent the return of centralized authoritarian power in Eastern Europe, Soros has attempted to build the framework needed to support democracy. Thus he has established a large number of independent branch foundations that offer services and vehicles of self-expression outside the reaches of an increasingly discredited state. Since governments have neither the will nor the resources to lead the kinds of initiatives they once though that they could lead, Soros has been the leader in arguing that the vacuum of leadership should be filled by a socially responsible private sector. Therefore, Soros has tried to set the philanthropic standard by opening branches of the Open Society Foundation around the globe.
Soros’ views quoted below are taken from his oral interviews, speeches, books, articles, and foundation reports that provide the basis for his polyvalent concept ‘open society,’ as is seen for example in the 1994 Annual Report of the Soros Foundations:9
The Soros is trying to make the family of Institutions independent by encouraging them to seek other sources of funding others than his own. As the Annual Report for the year 1994 puts it, “these organizations help build the infrastructure and institutions necessary for open societies by supporting a broad array of programs for education, children and youth, media and communications, civil society, human rights and humanitarian aid, science and medicine, arts, culture, and economic restructuring” Cit.
Telecommunications and the Internet have been the main tools in Soros’ hand in his crusade for establishing the pattern of open societies. His prominent role in bringing down the Iron Curtain is indisputable.
The dramatic revolution and expansion in communications that took place during the 1980s, satellites, fax, copying machines, widespread dissemination of the computer opened the world’s even most remote areas to the expanded communications links required for mass organization and concerted action contributed and accelerated the emergence of the fourth sector all around the world.
Analysis of Soros’ use of the Internet shows how he uses electronic communication to influence other world leaders as well as how he uses the Net to unite the work worldwide of his foundations. Hence he has initiated the Soros Foundation World Wide Web home page on the Internet.
George Soros has his own foreign policy. He has the money to back up his ideas and is spending it prodigiously. In 1994 alone, Soros’ foundations around the world gave away $300 million, more than Portugal, New Zealand, or Ireland did, and he has spent a like amount in 1995. High-profile projects include a water purification plant in Sarajevo and a $500 stipend for each of 30,000 Russian scientists.10 For the Soros actual expenditures for 1994, see Tables 1 and 2.
Since 1990 he has devoted half of his income and a substantially large portion of his time and energy to developing his foundation network.11
In Soros’ view, many Russians and Eastern Europeans are disillusioned and angry with the West, because the market economy being imported lacks a concept of common interest.12 Soros agrees and notes that the U.S. model of untrammeled pursuit of self-interest does not represents the common interest. He argues that the U.S. model, which now dominates world development thinking, requires new rules and standards of behavior to circumscribe and contain competition, a measure of cooperation being needed to sustain competition.
The concept of open society is based on the recognition the world we live is inherently imperfect, as is human understanding of it, and although the U.S. model is morally corrupt, the great merit of its open society is to permit correction of faults. For Soros, the Western democracies are morally bankrupt if they subsume common interest to the pursuit of narrow self-interest. 13
Soros’ goal is to turn the closed society of totalitarianism into an open society that follows Popper’s prescription for setting “free the critical powers of man.”14 Before the revolutions that swept Central and Eastern Europe, dissidents had a similar goal; they called it “civil society,” defined by some as ”the connective tissue of democratic political culture.” 15
Soros credits his membership in the Helsinki Watch and Americas Watch human rights groups as sparking him his 1980 creation Open Society Fund to offer a number of scholarships in the United States to dissident intellectuals from Eastern Europe.16 To credit that spark, he recruited Aryen Neyer, who was the head of Human Rights Watch, to become the president of Soros’ Open Society Institute in New York City.
With the human-rights orientation of spreading information, one of Soros’ first projects had been to offer photocopying machines to cultural and scientific institutions, which was the perfect way to undermine the Communist Party control of information in Hungary. As copying machines increasingly became available in 1984, the Party apparatus could not control the machines and the dissemination of information, thus, as Soros has stated, his foundation in Hungary enabled people who were not dissidents to act, in effect, like dissidents. Similarly the Soros grant program for writers increased their independence, therefore “disarming” the Party.17
Soros also tried to set up a foundation in China, establishing in 1986 the Fund for the Opening and Reform of China. That China operation was closed down by the Chinese government after the Tiananmen Square massacre, Soros being labeled as a “CIA agent.”18 Soros is optimistic about China, however, because with the rising number of fax machines and foreigners, it will be impossible to re-establish the rigid thought-control that prevailed previously.
To serve as “prototype” of open society, Soros’ network of foundations has grown as follows: 19
1990, Bulgaria, Estonia, Lithuania, Romania, and Ukraine 1991, Yugoslavia
1992, Albania, Belarus, Bosnia & Hertcegovina, Croatia, Czech Republic, Latvia, Macedonia, Moldova, Slovenia
1993, Kazakhstan, Kyrgystan, South Africa,
1995, Haiti, South Africa, Burma
According to Soros, these national foundations are committed to certain common goals, such as the rule of a democratically elected government, a vigorous, diverse civil society, respect for minorities, and a free market economy. They also share a commitment to working together across national, ethnic, and religious boundaries to achieve these goals and such regional objectives as cooperation and peace among neighboring countries. The manner in which they pursue these goals is up to each national foundation, which, with its own staff and board, sets program priorities in response to the particular situation and problems in each country. These national foundations support, in part or in whole, a variety of internships abroad.
Recognizing the importance of incisive and responsible journalism, the Soros Foundations fund a broad array of activities to train and equip reporters, editors, and media managers for their new responsibilities in democratic, free market societies. The ultimate goal is to create an informed electorate that has access to diverse, objective are reports supplied by a press corps with high professional standards.
Foundations in Romania, Russia, and Ukraine have sent local journalists to CNN’s U.S. headquarters in Atlanta, Georgia, for the six-week International Professional Program. Foundations in the former Yugoslavia sent reporters to London for two months of training and work at the Balkan War Report, the highly regarded publication of the Institute for War and Peace Reporting. The Soros foundations’ priorities in the area of communications are support for the establishment of strong, independent media as well as the expansion of telecommunications throughout the above mentioned regions.
Censorship in Central and Eastern Europe and the former Soviet Union is now less explicit than it was under communist regimes, who required that all broadcasts and newspapers pass through an official censor. Governments, however, still control much of the physical infrastructure of media transmission therefore exercising indirect censorship.20
Promptly, the National Foundations provided the print media have received access to international news services, desktop publishing equipment, electronic mail, printing presses, and even newsprint.
News outlets supported by national foundations include Radijocentras, Lithuania;
Radio Vitosha, Bulgaria;
Radio Tallin, Estonia;
Radio Echo of Moscow, Russia;
Feral Tribune, Croatia;
Ieve magazine, Ukraine;
Pritonmost, Czech Republic;
In Russia, the foundation is providing funds to refurbish more than two dozen independent radio stations and to organize them into a network for sharing information.
Soros-funded programs in Romania and Macedonia have acquired second-hand printing presses in the United States. The presses were refurbished and placed in independent printing houses. In supporting democratic movements, often times Soros is accuses of meddling in internal affairs. For example, in Romania when the Soros Foundations faced in 1991 the government’s attempt to quash news by increasing prohibitively the price of newsprint at election time, the Foundation bought newsprint abroad and trucks to import paper so that independent newspapers could continue to publish. President Iliescu subsequently accused Soros of supporting the opposition, to which Soros responded that he was only supporting a pluralistic, free press. 21
In Romania, Soros has administered since 1994 the first public surveys ever taken and published them as the “Public Opinion Barometer.” The goal is to take the pulse of opinions about the country’s economic and political life.
Soros is also founded in 1990 the Central European University (CEU) in Budapest, Prague, and Warsaw. The CEU is accredited in Hungary as degree-granting educational institution and prepares the leaders of the future. The CEU press publishing in English, Czech, Hungarian, Polish and Slovak languages provides news on the region in the domains of Literature, Political Science, Economics and European Studies.
Another fruitful program was established for the former Soviet and the Baltic states scientists, called the International Science Foundation. The scientists were given $100 million grant in order to continue their research in their native countries.22 Emergency grants were given out of $500 to some 30,000 scientists, travel grants and scientific journals were provided, and the International Science Education Program is currently working to make the Internet available not only to the scientists but also to schools, universities, libraries and media.23
The Consortium for Academic Partnership, established in 1993 , has expanded to include what Soros calls the “Virtual University,” that is a program that includes:
CEU scholarships for students to pursue doctoral work in the United States and Europe;
professorial exchanges for the CEU Economics School;
Freedom Support Act Fellowships;
supplementary grants for students from the former Yugoslavia displaced by war;
supplementary grants for Burmese students.
Support of education, either directly or as a component of other programs, is the main focus of Soros foundations activity, amounting to about 50% of the expenditures, according to Soros sources.
Education based on the values of open, pluralistic, democratic societies proved to be the most effective way to break the grip of the communist past and prevent the emergence of new closed societies based on nationalism.24
One of the most comprehensive educational programs of the Soros Foundation are the Transformation of the Humanities Project and the Social Science Projects, which attempt to undo the previously state-controlled educational system in Russia and the other countries of the former Soviet Union and ex-satellite states. The ambitious project to replace Marxist-Leninist text books and teaching in school and universities has been undertaken in cooperation with the Ministry of Education and commissioned thousands of books, training professors, giving grants to innovative schools, introducing new curricula at selected demonstration sites in various disciplines.25
The new textbooks, as well as Western texts adapted and translated for Russia, are being published at a rate of ten a month and 10,000 copies a run. The Transformation of Humanities Project has been replicated in Ukraine, Lithuania, Belarus, Estonia, Kazakhstan, Kyrgystan, Romania, Bosnia and Hertzegovina, and Macedonia.
The Open Society Institute in Budapest conducts a number of research programs in collaboration with the CEU. Other foundations and programs created by George Soros include the International Science Foundation (ISF) and the International Soros Science Education Program, both of which encourage and support scientists and science teachers in the former Soviet Union so that they will remain at work in their home countries and not sell their skills to weapons producers in areas such as the Middle East.26
Russia has been a difficult country for Soros. He began organizing the Soviet Cultural Initiative Foundation in 1987 only to have the management of it fall into the hands of a reformist clique of Communist Youth League officials, who paradoxically proceeded to form a closed society to promote an open one.27
For Soros, Gorbachev had the great merit to have first shaken the rigid power structure and break the isolation into which the Soviet Union had fallen. Gorbachev thought of Europe as an open society, where frontiers lose their significance. He envisaged Europe as a network of connections, not as a geographic location, the network extending the concept of civil society through an international arena. Such ideas could not be implemented by Gorbachev, but he must be credited with having planted them in infertile soil.28
In 1995, Soros reduced his financial investments in Russia, taking a “cautiously pessimistic’ stance.29 He is concerned that the xenophobic rhetoric by communists and nationalistic groups against greedy and exploitative foreigners is intended to provide an ideological justification for keeping the markets closed and protecting the resources for the state.30 As Russia explodes out of the information vacuum that characterized the Communist era, the American magnate, financier-philanthropist is audaciously expanding access to the Internet and narrows the gap between Russia and the technologically advanced West.
Within his conception of open society, Soros sees the need for closer association between the nations of Europe, provided that the state not define or dominate the international activities of the citizenry. His concept holds great appeal for people who have been deprived of the benefits of an open society. 31
Soros’ priority is to help give access to the world of information not only to journalists, as we have seen, but to other professional groups, especially including librarians and scientists as well as individual citizens. For Soros it is Electronic mail and Internet connectivity that hold the possibility of bringing to East-Central Europe and Russia a new method of communications particularly suitable to the building of open societies.32 –
By not having fully recognized the need to develop the NPPO legal framework that will facilitate the in-flow of funds from the USA, the NPPO sector fostered by Soros will remain stunted. Neither the governments nor the private sectors in Russian and Eastern Europe have the funding needed to substitute for and expand upon Soros’ funding–funding limited by Soros’ personal ability to maintain his pace.
Without the establishment of U.S.-Mexican type NPPO legislation that will permit foreign investors to establish company foundations, thus leaving some of their profits in Eastern Europe and Russia, then “nationalists” will be able to claim erroneously that their country is being sacked by greedy foreign capitalists.
Rather than creating competition, ironically Soros finds that he has to subsume it in order to save it, as in the case of Radio Free Europe. With the tremendous reduction in funds supplied by the USA, Radio Free Europe would not have survived had not in 1994 Soros moved it to Prague and reorganized it as part of his Open Media Research Institute (OMRI),43 In this case Soros entered into a joint-venture to acquire Radio Free Europe’s Research Institute and, under a fifty-year lease, its archives.44
Granted Soros’ many “successes” outlined in this study, the sheer number of activities over which Soros has taken personal responsibility and active on-going interest is simply incredible. Soros has done so with little central bureaucracy in New York City by recessing thousands of persons to whom the development of national programs has been delegated.
Although Soros has not led foundations to follow him into Eastern Europe and Russia, in the long term his foundations provide a model for the future, a model that works without regard to borders.45
Regardless of what his detractors claim, he has put his profits to good use.
The paradoxes of my analysis are as follows:
Soros has opened a healthy competition by engaging in the “race of giving” with Ted Turner (owner of CNN) and Bill Gates (Micrososft.) This triangle has creater a real healthy competition in giving, mark of an internationalization of the community spirit. In Latin America, Soros is spearheading a human rights and social activist program to improve education and open communications in Guatemala.46
As a responsible capitalist, Soros helps building democracy into the communities across nations by implicitly replicating the U.S. model of NGO that consists of: an open elected board made up of “all-walks-of-life”, that means of local prestigious people from different interest groups; businessmen, doctors, academics, union leaders etc.
Projects are being funded by open review of the projects and there is transparency in the expenditure (foundations have to submit a final report at the end of the year). If the NGOs have not been successful in completing the operation, no further funding will be available.
So, for those claiming his foundations are not democratic, let us compare it with The Red Cross (foundation that is indeed undemocratic, by being headed by a self-selecting board.)
About Soros’s innovation, as he isnistes all these organizations have a foreign (that is local) board of directors, leaves them with the decision to prioritize at local level and fund the projects most timely.
As Mahateer suggests of Soros being a “speculator,” we have to mention here that investment is also a kind of speculation: sometimes one loses, sometimes one wins; and hedge-funds are meant for that (he lost big in Mexico in 1994 speculating against the peso).
Rather than admitting defeat, Soros has invested in real estate, he inked a joint venture to develop three ambitious projects in Mexico City: Alameda Urbana, Santa Fe and, the tallest building in the country, the Chapultepec Tower.
Althought some observers have seen Soros as one who “colonizes” needy countries as a benevolent despot47, networking would be a better word. Neither was he offering “a new type of American imperialism” to the world, in reality he made high risk investments, that he finally ran out of his legendary good fortune as Soros wanted to keep his money up so that he could support his foundations that were eating up at his portofolio so he decided to retreat from bad investments.
Focusing more on his philanthropic funds and taking high risks, Soros lost 22% of his portofolio.48
Markets now are too complex, he pointed out, to make a huge fund work, “the bigger it got [the firm] the more difficult it became, Mr. Soros said.”49 Rather than riling the financial markets, after a bet on technology funds had left the fund down 22%, Soros had decided to do less risky investments, and will invest in “more conservative real-estate and private-equity funds.”50
And watch for market swings. That combined with the bad investments in Russian telecommunication systems cost him dearly.
His indisputable merit is that of replicating the American model of NGOs and leaving behind a legacy of philonthropic “incubators.”
Against the open society, its enemies have proliferated: they are not only the “clasic” ideologies (fascism, marxism or nationalism) but also the successful ideologies like laissez-faire, radical liberalism, geopolitical realism and social darwinism.51
To conclude, when Soros started out in hedge-funds, there was no competition. And now competition is so fierce, as all his moves are being observed in Europe as well as in the United States.
And Soros fell in his own “trap”, as the markets he once moved to his benefit, are moving against him, in his detriment.