The Crisis of Global Capitalism: Open Society Endangered

In THE CRISIS OF GLOBAL CAPITALISM, Soros dissects the current crisis and economic theory in general, revealing how theoretical assumptions have combined with human behavior to lead to today's mess. He shows how unquestioning faith in market forces blinds us to crucial instabilities, and how those instabilities have chain-reacted to cause the current crisis-a crisis that has the potential to get much, much worse. But there is a way out, and it involves embracing the concept of the open society. And by doing so we can save not only our financial system, but also our civilization.

I think George Soros and Robert Kaplan, as well as others that are starting to realize that the opposite of virtue is not vice but rather virtue carried to an extreme (Jim Fox said it first, at least in this era), are on to something.

Although economists of great traditional standing (Robert Samuelson comes to mind) have been very quick to denigrate, even trash, the ideas of George Soros, my personal reaction, and my own reading of 225 or so books that I have reviewed for Amazon, suggests that he is right on target. Unfettered capitalism and corporate consumerism is killing us, and is part of the problem between Western secularism and Islamic fundamentalism--we don't have a model for sustainable faith-based prosperity they can buy into (I am mindful of Bernard Lewis's What Went Wrong thesis).

Most recently, in The Washington Post of 24 February 2002, George Soros is quoted as saying, "We can't be successful in fighting terrorism unless we fight that other axis of evil--poverty, disease and ignorance." Right on. Both The Future of Life and The Future of Ideas (see my reviews of those titles), and many other books now coming together in a critical mass, support basic propositions about the failure of politics, the erosion of moral contexts, and the dangers of capitalism upon public health, the environment, and the social fabric.

I would normally have rated this book with 4 stars for its lack of reference to others, but in light of the importance of the argument that George Soros makes, and the value of his own unique experiences bridging the worlds of poverty and wealth, American and Eastern European challenges and biases, I have to give this a 5--and wait to see our academic economists do better.


BIG TIME WALL STREET CAPITALIST ATTACKS CAPITALISM!   December 15, 2000
David Roger Allen (Freeland, MD USA)
25 out of 33 found this review helpful

George Soros is one of New York City's richest Wall Street zillionaires, and got his money by organizing and profiting quite a bit from Soros Fund Management in Manhatten. His Quantum Fund is one of Wall Streets biggest and most profitable (for investors participating in it). He was born in 1930 in Hungary and completed study at the London School Of Economics in 1952. He left Europe for America, and got rich in the money biz, just like his famous fellow Hungarian Jew, Nicholas Deak (shot by his secretary at age 80, but whose famous name still lives on all over the world under the banner of the Deak-Perrera Foreign Exchange organization, the largest money changing company on the planet).

Mr. Soros promotes himself and his business organization by writing books published by vanity press operations. His 1998 book titled THE CRISIS OF GLOBAL CAPITALISM was cranked out in a month by the famous Peter Osnos, publisher extraordinare, and mover and shaker of the Perseus Books Group, and its Public Affairs label. Soros pays a ton of money (which he can certainly afford) to foot the cost of printing, binding, and shipping, gratis, to libraries, bookstores, etc., etc. all over the planet. George Soros knows about and believes in skillful public relations, and he should. His past P.R. efforts have helped importantly to build his fortune.

All this may sound unsavory, but the irony is that George Soros offers, in THE CRISIS OF GLOBAL CAPITALISM, an excellent read which probably wouldn't have seen the light of day had he been a pennyless writer trying to interest publishers in a book attacking big money in the USA and the world, and the abuses of the big money establishment. His book is terrific and everyone who cares about America and the impact of careless and unscrupulous big money should buy it and read it many times over.

Soros pulls no punches. "What I predict," he states directly and without apology, "is the imminent disintegration of the global capitalist system." This is not Karl Marx asking the workers of the world to unite. It's a rich Wall Street guy who likely eats $300 per plate dinners at Manhatten's snootiest restaurants very, very often. Mr. Soros is worth listening to and heeding.

He's written a lot attacking his fellow capitalists in recent years. In February 1997, he wrote an ATLANTIC MONTHLY article, much discussed at the time, titled "The Capitalist Threat."

George Soros states that the capitalist system is deeply flawed. "As long as capitalism remains triumphant, the pursuit of money overrides ALL OTHER SOCIAL CONSIDERATIONS! Economic and political arrangements are out of kilter. The development of a global economy has NOT BEEN MATCHED BY THE DEVELOPMENT OF A GLOBAL SOCIETY!........If and when the global economy falters," (he implies it is certain to do so soon) "political pressures are liable to tear it apart."

Soros dissects the current crisis and economic theory in general, revealing how theoretical assumptions have combined with human behavior to result in dangerous local and world crisis. He shows how unquestioning faith in market forces (touted by politicians in the USA for the past two decades) blinds people to crucial instabilities and how those instabilities have chain reacted to cause the current crisis, a crisis he concludes has the potential to get much, much worse.

This is the most important and worthwhile part of his message. He sugarcoats the end of his book with suggestions not very enthusiastically or hopefully offered. All in all, his book is pessimistic, and must be regarded as such.

Buy and read this wonderful book, especially Part II, Chapter 6 titled "The Global Capitalistic System." If Karl Marx and other Communists over the past century had made THEIR anti-capitalist case as convincingly, maybe the Soviet Union and other similar political entities wouldn't have fallen apart and disappeared forever. There may be nothing that can be done about the present sad situation, but it is worth thinking about, and comforting, oddly, that a man like George Soros has found the skillful words to describe what's really going on.


Precarious and Fragile - our financial world is not a given   May 10, 2001
Homeowners Inventory Registry (Oakland Twp., MI United States)
12 out of 15 found this review helpful

The real message here is that the our prosperity and our easy way of life is not guaranteed by our being members of a rich and productive society. There are real reasons, embedded in human nature, why our modern economy has teetered on the brink of collapse several times in the last fifteen years. Read this book together with "Maestro : Alan Greenspan's Fed and the American Economic Boom" to understand that it has been repeatedly left up to a small number of people to respond to genuine crises with risky fixes to keep our financial system from collapse. Soros' application of "reflexivity" to market behaviour helps us understand that this will happen again and again. Someday the right people won't be there or the risky fix will not work. Whether Soros' call for international banking authorities and guarantees is feasible is an important question that won't be answered until a lot more people understand that all it will take is time and normal human behaviour to bring it all crashing down.


Economic theory has misrepresented how markets behave   January 13, 2006
Golden Lion (North Ogden, Ut United States)
7 out of 10 found this review helpful

Reflexivity, is the two way interaction between thinking and reality. Reality is not separate from thinking. Reflexivity is acceptance that there is a reality and we are a part of that reality. Reflexity, strength of its statement is contingent on their impact.

Fallibility means there is a lack of correspondence between the participants thinking and the actual state of affairs. When one recognizes a fallible belief, he can correct for error, this is another name for learning. All human designs are bound to be defective. In finance the value of a hypothesis is measured in money. Money accumulation measures the degrees of success in a belief system and the exploitation of observed fallacy. No fertile fallacy is likely to last forever and eventually, it will be replaced with a new fallacy that will occupy people's imagination. There are two ways to deal with deficient design, one, to look for an escape and two, to look for improvement. Marxist philosophy and economics is not scientific provable.

Karl Popper's theory of scientific method involves predicting a specific phenomena then testing and explaining the phenomena. Therefore, prediction and explanation are reversible. Testing is comparing the initial and final conditions and establishing whether they conform to the hypothesis. One should accept the hypothesis provisionally, until is can be falsified. This approach allows the hypothesis to provide predictions and explanations without insisting on verification. The predictions can be either deterministic or probabilistic. However, generalizations made about reflexive events cannot be tested.

Equilibrium in supply and demand means there is exists no unsatisfied sellers and buyers. Economics is the study of the relationship between supply and demand, not the conditions. All markets have radical fallibility and are liable to be flawed. Economic theory has misrepresented how markets behave. The conditions of supply and demand are unknowable because financial markets are discounting the future contingent on how they discount the present.

Rational expectations of price are based on fundamentals, such as, future earnings, dividend, and the prospect of future transactions. Therefore, it would be irrational for an investor to believe they can outperform the market.

Self-interest is the best explanation why free markets succeed. Different people work with different bias. A sequence of events occurs and these events affect a person's bias. Rational expectations philosophy contents that markets are always right. However, in reality financial markets are almost always wrong, but have the ability to validate them selves to a point. Divergence from outcomes and expectations can be taken as bias.

For example, credit expansion and contraction are followed by a boom or bust, in the business cycle. Collateral value depends on the amount of money the bank is willing to lend. Investors had sought fast per-share growth rates and certain companies had exploited this bias using their high-priced shares to acquire companies with lower multiple of earnings and producing higher shares and growth earning increases, for which, the investors appreciated. These companies become bestowed with higher P/E multiples far from the mean and reality cannot sustain these expectations.

The turning point formed because there were size limits and the company could not sustain momentum. Investors got carried away with expectations. The moment of truth occurred when reality could not support investor expectation. People only increased their pain by continuing too play the game when they, themselves no long believed, hoping a greater fool would arrive and bail them out. The crossover point would be followed by a downward trend and eventual crash. Markets are in constant dis-equilibrium: Prices do not clear the market and there are dissatisfied buyers and sellers in the wings, who could not execute order at the last sell or could not make up their minds.

1972, Citibank enters the market and starts using capital to simulate stock prices, raise additional capital, and made purchase acquisitions. 1973, Oil crisis causes a boom and swing into dis-equilibrium. 1982, radical change caused the international banking crisis. 1989, the Soviet empire collapsed and robber capitalism emerged, as, management tool control of companies and private property by cheating workers of vouchers and buying up companies cheap. State to Private property distribution became the problem of a free for all. The Russian central government was unable to collect taxes.

1998, IMF negotiates with Russia, a $22.5 billion rescue plan. Emerging market Russia's stock had fallen 48% in four weeks. Prior too the bailout, Russia had $11 billion in hard currency in its reserves, but this was not enough to cover debts come due. The USSR was on the verge of breaking up and building a free-market system in the stead. Peoples exchanging their rubles for dollars had depleted the central bank by $2.4 billion. Russia was too big and too nuclear to fail and IMF bailout mandated and required. The IMF role in the financial intervention of Russia would be too help Russia make the transition into a free-market. Russia lacked many of the components needed in a free-market: viable commercial banks, stocks and bond markets, and laws to protect private property and enforce contracts. The IMF used "shock tactic" to dismantle communist command and control hierarchy and liberalizing price and markets. Soon after shock tactic private retail shops opened and imports of foreign goods increased. Bloated budget deficits caused an explosive rise in Russian money supply and in 1993, inflation topped 843% and 224% in 1994. 1995, Russian reforms acquired a $6.8 billion IMF loan aimed primarily to tame inflation and inflation subsided. The ruble was pegged too the dollar ending a slide in currency value. The next stage of reform was modern banking. By 1997, inflation was 11 %, the ruble stable, communism vanquished, and portfolio investor were infusing money into Russia. Portfolio investment surged to $45.6 billion. Russia economy looked health, but its heavy dependence on short term borrowing subjected it to heavy costs. Russia had to borrow $1 billion each week by selling GKO to replace the maturing ones with increase costs of 25%. The