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Issue 37, April 1999

The year the party ends

The Crisis of Global Capitalism, by George Soros, Little Brown, 1998.
Reviewed by Victor Paananen

"THE GLOBAL capitalist system which has been responsible for the remarkable prosperity of (the USA) in the last decade is coming apart at the seams".

The words quoted above do not come from the pages of Socialism Today but they do confirm statements that we have made ever since the global financial crisis began in Thailand in July 1997. We would not say that the last decade has meant prosperity for working people in the USA because workers actually worked longer hours for lower wages, but we would agree that there is overwhelming evidence that the 'global capitalist system' is indeed 'coming apart at the seams'. What is remarkable about the statement, however, is that it appears in the preface to a new book by George Soros, a spectacularly successful speculator in the global financial markets of the 1990s. Soros's accurate diagnosis of the condition of global capitalism formed part of his testimony to the US Congress in September 1998.

Normally, when Soros speaks, the markets listen, but his analysis has been more than US money managers, flush with other people's money from pension schemes, want to face. Yet this is the same Soros who made billions for his own investment fund by foreseeing both the devaluation of the British pound in 1992 and, six months before it happened, the 1997 crash in Thailand. It's not wise to bet against Soros who says, candidly, "I wonder if you would be reading this book if I had not gained a reputation as a financial wizard" (p120).

Soros reveals in this book that his financial acumen arises from certain "abstract philosophical ideas". To the astonishment of a socialist reader, these ideas turn out to be Soros's own version of the relationship between subjective and objective factors in human activity. Soros, in fact, uses language reminiscent of Marx's explanation in Capital of how the labor of humans differs from the life activity of other species because it involves imagination and anticipation. Humans, Soros explains, "seek to make an impact, to mold reality to their desires", and this characteristic he names as "the active or participating function" (p7). "In situations that have thinking participants", Soros says, "the thoughts of these participants are part of the reality about which they have to think". Every Marxist understands these insights as aspects of dialectical materialism, and even Soros feels that he must explain that "the only reason I do not use the word dialectic more prominently is that I do not want to be burdened by the excess baggage that comes with it" (p60). Soros's notion of an 'excess baggage' carried by Marxist philosophy is based on his distorted perception that "Marx propounded a deterministic theory of history". What Soros encountered as 'Marxism' in his native Hungary was instead a rigid, Stalinist distortion.

  Precisely because it is dialectical, Marxism cannot see 'determination' as more than the exertion of pressures and the setting of limits. Because the subjective factor of conscious human activity must be present, we cannot be certain that, despite the best efforts of some, history will not end in barbarism rather than socialism. Soros, rejecting 'dialectic' through some false associations the word carries for him, chooses 'reflexivity' to describe the human engagement with reality.

Soros's success in forecasting markets comes from his understanding their dialectics. Human desire creates and is part of what passes for reality in the markets. The belief that capitalist economists hold in an invisible hand that regulates markets and restores equilibrium is mistaken. Soros says, in fact, that "Marx and Engels gave a very good analysis of the capitalist system 150 years ago, better in some ways, I must say, than the equilibrium theory of classical economics" (pxxvi).

Soros understands that, human desire being what it is, the nature of markets is to feed on themselves, forming 'bubbles' that are punctured with disastrous consequences: "For example, in the 1990s the enthusiasm of international investors and bankers for Asian shares and assets produced domestic booms spurred by high valuations and easy credit. These booms accelerated growth in the area and increased valuations, which in turn validated and encouraged further capital inflows from abroad" (p57). Soros hints at the technology bubble that is evident in 1999 by noting 'self-reinforcing' interest in Internet stocks at the date of the book's publication in late November 1998. A stock market decline in the USA will, Soros suggests, cause rapid decline in an economy sustained by the 'feel good factor' created by paper profits.

  Soros also makes the wry forecast that "the communist regime in China will be destroyed by a capitalist crisis" (p152), but this is not the paradox that it seems. China's regime is not 'communist' but a capitalist restorationist one which will lead to similar results as are seen in Russia as far as the economy is concerned. It is, however, the disastrous collapse of the Russian economy after the introduction of capitalism that is the immediate occasion of Soros's book. "I am afraid", he says, "that the political developments triggered by the financial crisis may eventually sweep away the global capitalist system itself" (pxxviii).

Soros is convinced that capitalism must be saved. "Financial markets", he notes with some irony, "resent any kind of government interference, but they hold a deep down belief that if conditions get really rough the authorities will step in". Soros rightly feels that national governments cannot provide adequate supervision of international finance capital. The market fundamentalism of the Thatcher and Reagan era pushed aside residual concerns about human values. With the IMF ultimately ineffectual, Soros argues that an International Credit Corporation is needed to guarantee loans that themselves reflect international standards of transparency and collateralization. What makes Soros's hopes ultimately naive, however, is the belief that an international community based on formal but not economic democracy can check the excesses of capitalism. Capitalism is based on competition and exploitation of labor which in turn produces a shrinking rate of profit, overproduction of commodities that cannot be sold, recessions and economic depressions. Soros's illusions are like those of union leaders who fail to see that a system sustained by exploitation cannot be coaxed into putting effective brakes on exploitation. The capitalist system may be forced to give some concessions from time to time under the threat of movements of the masses, but it invariably returns to take back what it gave.

Soros does reflect the views of the more far-sighted section of international capitalism that is terrified at the dangers facing the capitalist system. It is the job of socialists to prepare the ground for an alternative to the inhumanity of global capitalism and make possible a world based on democracy, prosperity and international solidarity.

  The capitalist class and the stock market gamblers enjoyed the bubbles in their champagne as 1999 began, but they will soon find that their speculative bubbles are bursting around them. This small group of exploiters will discover that, for them, the party's over. In the next century, the fruits of labor will belong not to the few but to the entire human race.

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