KEYNOTE ADDRESS BY GEORGE SOROS TO THE WORLD FORUM ON DEMOCRACY
June 25, 2000
Warsaw, Poland

I realize that conferences like this are meant for general discussion not to achieve a specific outcome, but I should like to contribute to help break this mold. I should like to put before you a specific proposal. I propose that the developed democracies of the world should form an alliance which would have a dual purpose: one is to foster the development of open societies within individual countries; the other is to promote the evolution of a global open society. The two goals are distinct: the first involves development assistance; the second, the strengthening of international institutions, such as turning the IMF into an international central bank, and the World Bank into a World Development Agency. Yet the two goals are complementary because fostering open societies within individual countries also requires international institutions.

This forum is meant to celebrate the advance of democracy throughout the world. Indeed, there is much to celebrate. The Soviet Empire has collapsed; many authoritarian regimes have been swept away; and popular resentment against the remaining ones in countries like Iran, Peru, Malaysia and Zimbabwe is growing. But it is far too early to declare victory.

We can speak about the triumph of capitalism in the world but we cannot yet speak about the triumph of democracy. Capitalism and democracy do not necessarily go hand in hand. There is some correlation. Rising standards of living and the formation of a middle class tend to generate pressure for freedom and democracy; they also tend to support greater political stability. But the connection is far from automatic.

Whether a country respects human rights does not weigh heavily in the foreign policy of democratic countries: other priorities usually take precedence. Yet the people living in repressive regimes need outside assistance; often it is their only lifeline.

Repressive regimes do not relax their grip on power willingly and they are often aided and abetted by business interests, both foreign and domestic. We can see this in many countries, particularly where natural resources such as oil and diamonds are at stake. Perhaps the greatest threat to freedom and democracy in the world today comes from the formation of unholy alliances between government and business.

Capitalism is very successful in creating wealth but we cannot rely on it to assure freedom, democracy and the rule of law. Business is motivated by profit; it is not designed to safeguard universal principles. Most businessmen are upright citizens; but that does not change the fact that business is conducted for private gain and not for the public benefit. The primary responsibility of managements is to the owners of the business not to some nebulous entity called the public interest, although enterprises often try, or at least pretend, to be acting in a public spirited way because that is good for business. If we care about universal principles like freedom, democracy and the rule of law, we cannot leave them to the care of market forces; we must establish some other institutions to safeguard them.

All this is almost too obvious to be stated, yet it needs to be said because there is a widely held view that the markets will take care of all our needs. It used to be called laissez-faire in the nineteenth century but there is a better name for it: market fundamentalism. Market fundamentalists hold that the public interest is best served when people are allowed to pursue their own interests. This is an appealing idea but it is only half true. Markets are eminently suitable for the pursuit of private interests, but they are not designed to take care of the common interest. The preservation of the market mechanism itself is one such common interest. Market participants compete not to preserve competition but to win; if they could, they would eliminate competition.

The protection of the common interest used to be the task of the nation state. But the powers of the state have shrunk as global capital markets have expanded. When capital is free to move around it will avoid any state that seeks to impose taxes and regulations. Since capital is essential to the creation of wealth, governments must cater to its demands, often to the detriment of other considerations.

In some ways that is a welcome development. Private enterprise is better at wealth creation than the state and free competition on a global scale has led to an acceleration in productivity. Moreover, states often abuse their power; globalization offers a degree of individual freedom that no state could provide.

But there is a downside. Global financial markets are inherently unstable; free competition creates and reinforces inequalities both on the national and the international level; and collective interests ranging from preservation of peace to the protection of human rights and the environment receive short shrift. If we want to enjoy the benefits of globalization we must address these shortcomings; and the way we deal with them has to be international in scope.

Unfortunately, most international institutions don't work well. This is because they are associations of states and, as Cardinal Richelieu said, states have only interests, and no principles. This finds expression in their behavior within international organizations. Whatever the faults of a state bureaucracy, they are multiplied in an international bureaucracy. International institutions such as the United Nations are ill-suited to safeguard universal principles. This can be seen in the record of the UN in protecting human rights.

There is a serious mismatch between the political and economic conditions that prevail in the world today. We have a global economy but the political arrangements are still firmly grounded in the sovereignty of the state. This would not be a cause for concern if free markets could be counted on to take care of all needs; but that is manifestly not the case. How can the needs of a global society be reconciled with the sovereignty of states? That is the crucial problem that faces us today.

I believe it can be solved only with the help of civil society. States have no principles but democratic states are responsive to the wishes of their citizens. If the citizens have principles, they can impose them on their governments. What are the principles that would promote freedom, democracy and the rule of law? Those are the principles of open society.

I must pause here to explain the concept of open society. It is a sophisticated, philosophical concept which is little understood and even less well-accepted as a universal idea. Open society and civil society are often confused with each other. Actually, a healthy civil society is part of open society but only a part. Open society also needs a democratic government and a private sector that is independent of the government. To safeguard these elements, it needs the rule of law. Open society can be taken as a more complete and comprehensive expression of democracy but it also has a philosophical component which needs an additional word of explanation.

Open society is based on the recognition that we act on the basis of imperfect understanding and our actions have unintended consequences. Perfection is beyond our reach; we must therefore content ourselves with the second best: an imperfect society that holds itself open to improvement. This makes open society a very peculiar kind of ideal. Most ideals are unattainable but open society is not. For instance, it would be utopian to expect less developed countries to become mature democracies from one day to the next but it is not at all utopian to work towards the strengthening of democracy throughout the world.

The idea of imperfection or fallibility is an integral part of the concept of open society. It applies with particular force when it comes to intervening in the internal affairs of another country.

Most forms of punitive intervention have unintended adverse consequences. Trade sanctions foster smuggling and the smugglers are usually in cahoots with the authorities so that the sanctions actually strengthen the governments whom they are supposed to topple. Military action tends to silence internal opposition to the regime against which it is directed. The blacklisting of officials and businessmen associated with a war criminal like Milosevic is relatively more effective.

There is something contradictory about imposing democracy from the outside. The contradiction can be avoided only if the intervention brings benefits and is therefore voluntarily accepted. To the greatest possible extent, intervention ought to take the form of incentives and constructive engagement.

The idea of fallibility is difficult to accept especially if it applies to oneself. Take the most powerful democracy in the world today, the United States. It has a deep commitment to the principles of open society: the Declaration of Independence and the Bill of Rights are eloquent statements of those principles. Yet the United States fails to recognize its own fallibility. As the sole remaining superpower, it considers itself the protector of the free world but it refuses to submit to the rules that it seeks to impose on others. The United States sees itself as the defender of freedom; others see mainly the arrogance of power. Talking of imperfect understanding, there is an almost complete disconnect between how the US perceives itself and how it is perceived in the world.

Obviously no single state can be entrusted with the protection of universal principles. Whenever there is a conflict between universal principles and self-interest, self-interest is likely to prevail. This point was well-understood by the founding fathers when they devised the Constitution of the United States.

Yet it is in the interest of all open societies to foster the development of open societies throughout the world. In today's interdependent global society most conflicts occur not between states but within states. Open societies cannot tolerate the large scale violation of human rights and sooner or later they are liable to be drawn into the conflict as they were in Yugoslavia. Even if they refuse to be drawn, they have to face the influx of refugees and various other forms of contagion.

Once a conflict has erupted it is very difficult to deal with it. Crisis prevention cannot start early enough. But in the early stages it is difficult to identify what will lead to a crisis. That is why the best way to prevent crises is to foster the development of open societies. That is what my network of open society foundations seeks to do. By creating open societies the chances of crises requiring outside intervention can be greatly reduced. And if punitive intervention becomes unavoidable it is more easily justified when it has been preceded by constructive engagement.

These thoughts are particularly relevant today, after the NATO intervention in Kosovo. I believe the intervention was necessary but it must be justified by ensuring a better future for the region. This can be achieved only by the European Union bringing the countries of the region closer to each other by bringing them closer to Europe. This idea is now widely accepted and it is given expression in the Stability Pact for South Eastern Europe. Making it work must be a top priority for the European Union. It is certainly a top priority for me.

Going from the particular to the general, I should like to advocate a concerted effort by the developed democracies to foster the development of democracy in the less advanced parts of the world. It would take the form of technical assistance and economic incentives. Economics and politics cannot be separated. Amartya Sen makes a convincing case that development should be defined in terms of freedom not in terms of gross national product.

I realize that my proposal goes against the grain of market fundamentalism. Foreign aid has been a dismal failure in Africa and more recently in the Soviet Union and its successor states and it threatens to fail also with the Stability Pact. The fact that it doesn't work does not mean that we should abandon the idea. Rather, we must examine the reasons for our failure and devise better ways. Foreign aid, as it is administered today, is all too often directed at satisfying the needs of the donors, not the needs of the recipients. I can assert, based on my own experiences in countries like Russia, that outside assistance can be effective.

The global capitalist system has produced a very uneven playing field. The gap between rich and poor is getting wider. This is dangerous, because a system that does not offer some hope and benefit to the losers is liable to be disrupted by acts of desperation. By contrast, if we offer economic incentives to countries that are eager to take advantage of them we create a powerful tool for crisis prevention. Incentives foster economic and political development; and the fact that they can be withdrawn provides leverage that can be used against recalcitrant governments.

Unfortunately, the global financial architecture that prevails today offers practically no support to those who are less fortunate. Current trends go in the opposite direction. After the recent financial crisis, the aim has been to impose greater market discipline. But if markets are inherently unstable, imposing market discipline means imposing instability - and how much instability can societies tolerate?

Now that we have global financial markets we also need a global central bank and some other international financial institutions whose explicit mission is to keep financial markets on an even keel. But any lender of last resort activity engenders some moral hazard, and the current battle-cry of market fundamentalists is to eliminate moral hazard. The result is the downsizing of the IMF. Undoubtedly, that will reduce the danger of excessive lending to emerging markets, but in my opinion the next crisis is likely to come from the opposite direction: from inadequate capital flows to less developed countries.

The Meltzer Commission established by the United States Congress recommends that the World Bank be converted from a lending agency to a grant-giving agency aimed at the poorest countries of the world. That is a splendid idea, but the way that the Meltzer Commission would go about it is by downsizing the World Bank and returning the unused capital to the shareholders in a major resource transfer from the poor to the rich. I believe that the unused capital ought to be put to more productive use by increasing the grant-giving and guarantee-giving activities of the Bank. But that is not what the Meltzer Commission has in mind.

The same applies to the World Trade Organization. There is a crying need for labor standards and the protection of the environment. But poor countries can't afford it. Instead of punitive measures, there ought to be incentives which would enable the poor countries to comply.

An alliance of democracies could take many different forms. It could try to reform existing institutions like the World Bank or even the UN, or it could operate more informally and address specific problem areas or problem countries. It would have a better chance of reforming the UN than any previous effort exactly because it could operate either within the UN or outside it if the other member states refuse to go along. But the Alliance could succeed only if its members can agree among themselves. And that means establishing some ground rules for co-operation.

The membership of the alliance must include the US, the EU, and a critical mass of democratic countries from the periphery of the capitalist system - otherwise the Alliance could turn into an instrument of domination and exploitation. The most problematic is the United States, because at present it is unwilling to abide by the rules it seeks to impose on others. It has nothing to fear from the kind of alliance I have in mind, because this Alliance could not function without US participation; nevertheless, it would require a radical reorientation in US policy from unilateralism to multilateralism.

An open society alliance cannot depend on governments alone, because states have only interests, not principles. The principles must be imposed on the governments by public opinion. That is where the greatest difficulty lies. Public opinion must be mobilised in favour of a global open society. So far, the signs are not favourable. As we have seen in Seattle and Washington, the self-appointed guardians of civil society have been playing a destructive role vis-à-vis international institutions.

That needs to be changed, and that is where this forum can play an important role. We should affirm our commitment to a global open society and ask the meeting of foreign ministers which starts tomorrow to establish joint working groups devoted to specific topics - such as the reform of international institutions - and specific problem areas - such as Indonesia, Peru or the Ferghana Valley in Central Asia. In the case of Indonesia, the aim would be to assist a democratic government to avoid a repetition of Yugoslavia; in the case of Peru, the aim would be to re-establish democracy; and in the Ferghana Valley, the task would be to counter-balance terrorism and drug-trafficking, with economic development. It would then make sense to hold another forum two years from now to review the progress made in the various topics and problem areas.

I realise that such working groups cannot be organised at short notice. This forum can only endorse the general idea; the organisational work will have to be done afterwards. But I hope that we can at least make a beginning. Usually, major institutional reforms occur only in the aftermath of a major cataclysm. Can we not act to prevent it? I appeal to you to endorse the broad outlines of the proposal I have put before you.