As a longtime reader of The Atlantic Monthly, I was startled to read George Soros's "The Capitalist Threat" (February Atlantic). Soros's most surprising error is his reference to the economist Friedrich Hayek. Soros cites Hayek as an advocate of laissez-faire and then goes on to reject laissez-faire economics on the grounds that it is a dogmatic system at once claiming and demanding perfect knowledge and equilibrium. Of course, Hayek's major contribution to economics was his critique of scientific assumptions in equilibrium-based economics. In a nutshell, Hayek argues that the market process relies on contextual, personal knowledge to coordinate the activities of millions of individual participants -- a vaguely Popperian notion. Soros misses Hayek's crucial point, and wastes another several hundred words sacking the scarecrow version of capitalism he has constructed.
George Soros is right to criticize classical economics, but he is wrong to criticize capitalism. It is hard to believe that he has actually read Hayek, who found the same flaws in conventional economics that Soros does, but spent his life showing that capitalism was the best way to the open society Soros claims to champion.
The virtues of openness, humility, and a willingness to admit that we do not have all the answers are not antithetical to capitalism but an integral part of it. Hayek and other economists of the Austrian School have shown that economic exchange is fundamentally a process of knowledge discovery. Permitting this process to flourish requires an admission that knowledge of resource distribution in society is fragmented, chaotic, and often unattainable. Soros's capitalism is a poorly constructed straw man.
George Soros understands very well why Karl Popper places the open society between the extremes of fascism and communism. He unfortunately fails his mentor by effectively defining the post-Second World War open society in the United States and Europe as a capitalist free-for-all that up to 1989 was kept in check by the Cold War balance of power. Now Soros increasingly fears that unabashed selfishness will rob the West of the advantages it has enjoyed.
The trials and tribulations of the former Eastern bloc are in fact no threat to the open society. Nations like Hungary, Albania, and Romania must learn that the struggle between social cohesion and individualism is not a zero-sum game. The viability of the open society depends on the balance between minimum state control and minimum personal constraints. The pragmatist Popper understood the need for the state to selectively and properly intervene where capitalism and individualism had gone astray, and to put in place those safeguards that would protect society from such abuses.
If Soros worries about the open society, it is those social safeguards that he should turn his attention to.
I have to admit that my reference to Friedrich Hayek was misleading. My assertion that Hayek, one of the apostles of laissez-faire, was also a passionate proponent of the open society is, strictly speaking, true; but the context in which I made it implied that Hayek shared the prevailing view that markets are perfect, and that is false. Hayek criticized economic theory on the very same grounds as I do: participants act on the basis of imperfect understanding, not perfect knowledge.
Faced with imperfections in both markets and regulations, Hayek opted for letting the markets have their way, because errors would result in financial losses and so would tend to be corrected. I agree with Hayek on the merits of markets as error-correcting mechanisms, but I contend that markets have other deficiencies to which Hayek failed to give proper weight. Financial markets are inherently unstable; left to their own devices, they are liable to break down. More important, many social values are not properly represented by market forces. This defect has become more pronounced since Hayek's time by the conversion of the professions and social services into businesses.
Gregg Easterbrook's profile of the Nobel Peace Prize laureate Norman Borlaug, "Forgotten Benefactor of Humanity" (January Atlantic), is less a paean to Borlaug than a major hatchet job on those who oppose his solution to hunger and malnutrition.
Although Easterbrook fails to name explicitly a single one of Borlaug's opponents, the Institute for Food and Development Policy (Food First) has no problem placing itself among that group. To claim that merely because we disagree with Borlaug, those of us who oppose Green Revolution technologies are a bunch of effete, insensitive northern elites who do not give a damn about human suffering in Asia, Africa, and Latin America is character assassination by innuendo.
A great many of Borlaug's opponents have as many years experience living and working in Africa, Asia, and Latin America as he does. And most of us care every bit as much as Borlaug does about the unnecessary human suffering in those parts of the world, as well as in North America and Europe. But we have reached a different set of conclusions about the causes of hunger and therefore about appropriate solutions for solving the problem. Borlaug's analysis and Easterbrook's representation of the debate contain a number of fundamental flaws.
First, as Food First has always argued, hunger is not caused by food shortages or population growth rates. If that were the case, then the food increases Easterbrook erroneously attributes almost solely to the genius of one American man should have ended the problems of hunger and malnutrition in India, Pakistan, and Mexico, where Borlaug claims such success. The fundamental cause of the hunger has always involved the distribution of existing food supplies.