Soros On the Open Society

In Defense of Open Society by George Soros

Everyone’s favourite boogeyman, George Soros—apparently responsible for toppling governments, engineering crises to make money, and drinking the last of my Haagens—has gathered a collection of essays, speeches, and reflections in his book In Defense of Open Society.

Contrary to its title. which suggests some unified elaboration of what an “Open Society” is, and why we ought to have it, he covers rather loose ground here, weighing in on various topics such as the Euro, the migrant crisis, his philanthropic work, and small bits of what you would have to call philosophy.

The most exciting parts are about his father. Soros considers him his greatest influence. His life is one of those unbelievable stories that unfolded in all the corners of the world during the Great War: a volunteer in the Austro-Hungarian empire, he wound up in a Siberian POW camp where he became “the editor of a handwritten literary magazine that was displayed on a plank, and it was called The Plank.” (42)

When the guards started cracking down on the prisoners, Soros’ father, one of their ring-leaders, organised a jail break. He and his conspirators built a raft, intending to sail it down-river to the ocean, only to realise that all the rivers lead to the Arctic. Amid the turmoil of the Russian Civil War, they made the perilous journey back to Hungary across the Siberian taiga.

Having had enough adventure for a lifetime, Soros’ father wanted nothing more than to settle down and raise his family. But he had witnessed crisis first-hand. The possible breakdown of ordinary society loomed large in his mind. When the Nazis rolled in, he knew what to do: “He realized that these were abnormal times and that people who followed the normal rules were at risk.” (44) He arranged fake identities for those around him to get out of the country. During the Soviet occupation, he arranged a place for his son at the London School of Economics.

The lessons of his father, caught up as he was in the whirlwind of history, led Soros to a key insight: as we move further away from ideal conditions and equilibria, people become less rational and predictable in the behaviour. The supposed rules—perfect market hypotheses, rational actors—no longer apply. Civilised life, rational debate, objective truth: everything we take for granted rests on fragile circumstances that may fall apart as easily as they were obtained.

During his time in London, Soros fell under the spell of George Popper, who had just become a philosophical celebrity for his book The Open Society and Its Enemies. Much of Soros’ thinking is derived from Popper. According to Popper, scientific knowledge is not ever verified, only postulated: it remains valid only insofar as it has yet to be shown false by a contradictory observation under identical circumstances. This is known as falsifiability.

How can we, from direct observation—that is a white swan—generalise to logically valid truths—all swans are white—? Falsifiability links the two by eliminating those claims which are not true: the observation of a black swan proves false the claim that all swans are white. Knowledge—at least practical knowledge—thus has a provisional nature, valid only insofar as direct observation is insufficient to prove it wrong. Because our knowledge is constructed, it is fragile, and at risk of being lost or broken.

That means knowledge is a process, not an endpoint. We can never be in possession of “the whole truth”. If we set up our world according to what we believe to be true, there will always be something wrong, something missing with it. The body of human knowledge can never be “closed"—at best, we can be open to new koneldge by the application of critical thinking, direct observation, and scientific falsification. This leads us away from the closed societies of monarchy, fascism, dictatorship, and communism towards libreal demoracy, which promises never to close the lid on the final say.

Soros differs from Popper in a few ways. Whereas Popper thought that science and the social studies could be unified under the same methods, Soros believes the two to be fundamentally irreconcilable because of human agency. We are finite, imperfect creatures. We never act on the basis of pure, infallible knowledge, but according to beliefs which have been partially formed by incomplete, biased, or irrational information.

For example, “If investors believe that markets are efficient, then that belief will change the way they invest, which in turn will change the behavior of the markets in which they are participating.” (143) Is the Efficient-Market Hypothesis true? A lot of people with influence in the real world believe it to be true, which gives it something of a reality. But the fact remains that some degree of belief structures our lives and how we act in them: when we finally see a black swan, we are just as liable to conclude that he needs a bath as we are to overturn the belief that all swans are white.

Soros holds that we have both an observing self and a manipulating self. The observing self is essentially passive. It receives perceptions of the external world and produces knowledge about them (“That is a swan”, “That swan is white”). The manipulating self is the part of us that acts in the world. In acting, we influence the beliefs of other people. But since we are fallible, we act according to a flawed picture of reality. In doing so, we therefore introduce a degree of uncertainty into our observing selves, and hence into our knowledge. Soros calls this feedback loop “reflexivity.”

Not just because of falsifiability, but also because of the possible cross-contamination of knowledge with belief, we have to be open to new information. The best way to do this is through democratically-structured societies. This practical consequence of Soros’ philosophy manifests itself in his philanthropical work, like the Central European Univesrity and the Open Foundation. His admitted goal is to open up “closed” societies like those of his native Hungary.

Ignore the conspiracies for a second. Soros clearly doesn’t have his hands on the puppet-strings of the world, but he is a very wealthy man with strong beliefs and a self-assurance about using his influence to realise them. This isn’t, in itself, a bad thing, any more than any form of politics is a bad thing. But at several points in In Defense of Open Society, Soros struck me as somewhat naive about the practical wielding of power.

It took several failures by the Open Foundation for Soros to acknowledge that democracy cannot be imposed on a country. Changing the leadership is not enough. Democracy has to be accepted and nurtured from society itself. And if organisations, no matter how noble or philanthropic in purpose, get too cosy with the political counter-currents of “Mafia” states, they risk degrading into patronage networks for another, competing set of elites. As Vitaly Klitschko said, “If you put fresh cucumbers into a barrel of pickles, they will soon turn into pickles.”

One memorable example that Soros discusses is the Rose Revolution in Georgia. After a disputed election, a wave of protests swept Mikhail Saakashvili into power as the next President. The Open Foundation had worked closely with Saakashvili. Soros saw him as a guiding light for democracy in Georgia. Yet once in power, he introduced new authoritarian measures to crack down on journalists and clean out the civil service, replacing its members with his own cronies.

What struck me most about this recollection was not that Soros’ organisation had played a hand in events. Nor even that a particular outcome happened (I’m not going to pretend to know anything about Georgia). What struck me most was the rather ho-hum way in which Soros describes Saakashvili’s authoritarian turn, as if everyone’s had that same feeling of buyers’ remorse after helping topple a government.

While I’ve mostly talked about the political and philosophical ideas of George Soros, a good deal of his essays are about finance, which is where he first made his name. Financial decisions are based on a forecast of risk that assumes a certain understanding of the economy, one that views it as amenable to the methods of science. As part of this, investors and actuaries take rather questionable assumptions in stride, like that human beings are ratoinal actors, or that we can have perfect knowledge in a given situation. Economists do this to make the maths nice, but we all know humans aren’t like that.

Using his idea of reflexivity, Soros reads the Global Financial Crisis as being caused by a self-amplifying misconception about real-estate trends. In other words, a situation was created in which observing selves were deceived, thus causing manipulating selves to act in a certain way, which only furthered the deception of the observing selves, which drove the manipulating selves to… etc. etc.

Lenders were too relaxed about who they gave credit to, so buyers rushed in to buy up real-estate. This short-term glut caused values to rise, helping people to actually do better on their mortgages. This indicated to lenders that everything was fine, so they continued to relax their credit availability. Everyone acted on a rational picture of the market, according to the financial signals it sent. But according to this, “the value of the collateral [was] independent of the availability of credit.” (167) We all know how that ended. The reality was an unsustainable real-estate bubble that could only pop.

Soros also expresses a good degree of scepticism about the Euro. While he does not lean strongly towards more or less integration of the EU economies, he points out the absurdity of a common currency that has a central bank, but no central treasury. In ceding the ability to print their own money, struggling members of the Eurozone Were no longer able to inflate debt away. They had to default on government bonds during the GFC, turning Europe into a two-tiered arrangement of creditors (Germany) and debtors (Greece, Italy, Portugal). Soros compares the situation to that of a third-world country that has to borrow money in a foreign currency it cannot control.

Though Soros is critical of the promise of a scientific, rational basis for economics, he is, in som eways, still a typical economist. His view of humnan nature is oddly mechanical, viewing human freedom as little more than the sum of various nudges, incentives, pushes, and pulls. Even when he acknowledges the breakdown of a rational picture of human affairs, he does so only for the practical end of the taming chaos and conducting us back to order.

No room—nor relevance—is afforded those spontaneous, irrational bursts of life that make us who we are: beauty, faith, love, ingenuity, madness… We are only ever capable of acting in the world according to our “manipulating selves”, a formulation which reduces all human relations to mere exploitation. That word, “manipulating”, seems to contains within it the fundamental obstacle that economic thinkers always seem to hit up against whenever they try to illuminate human affairs. We must count Soros among them.

At some points, In Defense of Open Society is too hagiographic or unreflective to be insightful. That there is an objective truth we are not in possession of is not exactly an original thought. How do we move from this realisation to a practical application of knowledge? How do we even begin to approach complicated situations like the Ukrainian War, which span far more than any one person could hope to contain in his head? Short of just not being wrong about everything—how would you even know?—Soros’ framework gives us few answers.