HOW FAIR IS LAI$$EZ-FAIRE?
FEBRUARY 20, 1997
In the world of competing economic systems, capitalism seemed like a safe bet. But recently, a successful capitalist has come out against the economic system that earned him his billions. Paul Solman leads the debate over whether the policy of laissez-faire has gone too far.
PAUL SOLMAN: The debate over capitalism, dormant in the mainstream media these last few years, is showing new signs of life. The latest spark comes from an unlikely source: George Soros, one of the most successful capitalists the world has ever known. In the February issue of the Atlantic Monthly, Soros, a billionaire financier and philanthropist, argues that free-market fundamentalism has gone too far. "The untrammeled intensification of laissez-faire capitalism is endangering our open and democratic society," Soros writes. "Too much competition and too little cooperation can cause intolerable inequities and instability."
A RealAudio version of of this segment is available.
October 30, 1996:
Paul Solman looks at the Democratic and Republican economic plans, and the history of economic growth in America.
October 21, 1996:
Paul Solman looks at the increasing income gap, "the bud vase economy," in America.
March 25, 1996:
America's economic insecurity, looked at in an historical perspective.
Browse the Online NewsHour's Economics Index.
Browse the Online NewsHour's Business Index.
George Soros's Atlantic Monthly article, "The Capitalist Threat."
George Soros's foundation, the "Open Society Fund."
Read Adam Smith's The Wealth of Nations online.
"Preposterous," harumphs an editorial in The Economist Magazine, responding that governments almost everywhere in the world are playing a major role in their economies. "Mr. Soros can only be hallucinating to portray a world in which laissez-faire doctrine rules supreme," says The Economist. "No such place exists, and very few, people would wish it."
So, has capitalism gone too far? Joining us to discuss that are the men behind the war of words: George Soros, international investor and philanthropist, and Bill Emmott, editor of The Economist Magazine. Gentlemen, thanks for coming. Mr. Soros, would you spell out your argument for us?
GEORGE SOROS, International Investor: Well, you actually did.
PAUL SOLMAN: Well, why don't you--
GEORGE SOROS: I have no quarrel with the market mechanism as such. It is, of course, superior to central planning. But I do take issue with the laissez-faire ideology which I think is based on the misunderstanding of how the market works and particularly financial markets, and pushes the--the reliance on the market too far, wants to use the market instead of let's say fundamental, social values.
PAUL SOLMAN: So give us some examples of what you've seen that make you feel that laissez-faire is headed too far down the path.
GEORGE SOROS: Well, I think generally in America, there has become--it has been a cult of success, of money as the ultimate value, instead of the social values which hold society together. And lately we've been say resisting any kind of social redistribution of wealth because we are arguing that the government ought to stay out of the economy.
PAUL SOLMAN: So let's take the U.S. as an example, for a minute, Mr. Emmott. So what's wrong with what Mr. Soros is saying? Hasn't the U.S. gone too far?
BILL EMMOTT, The Economist: I think if you look at the role of government in the U.S. and the way in which it's increased and decreased over the past 50 years, it seems to me that the role of government and of redistribution and of welfarism and all of that peaked in around 1980 and has been declining since then.
PAUL SOLMAN: As Mr. Soros suggests.
BILL EMMOTT: As Mr. Soros suggests. But it hasn't declined very far, it seems to me. It seems to me that if you look at the cycle, peaking in 1980, and declining since, we are somewhere around 1975. We are far from the position that Mr. Soros suggests of there being a real sustained movement against even redistribution but certainly against welfare and the role of government altogether. The government plays an enormous role in our economy, as does regulation of all kinds at state and federal levels.
PAUL SOLMAN: But many people would agree with Mr. Soros, that we've lost values, that the free market has become the be all and end all, wouldn't they? Are they just wrong?
BILL EMMOTT: Well, I would disagree with that. If that was the case, then I would agree with Mr. Soros that that state of affairs would be bad. I would not want money to be the ruling thing in life. I don't think that knowing the price of everything and the value of nothing is a good state of affairs. But that is not where we are now.
PAUL SOLMAN: Well, convince Mr. Emmott, if you would, Mr. Soros, that you're right and he's wrong. I mean, to what extent has the love of money taken hold?
GEORGE SOROS: Take an issue where let's say professions like medicine or law have become businesses. Even politics is all a matter of money now. It's you know how much money can you raise, so I think these are excesses of the market mentality.
PAUL SOLMAN: You don't find rampant commercialism, for example? We often talk about that in this country obviously.
BILL EMMOTT: I don't feel that it is excessive. I look at my own country in Britain, and I find our degree of commercialism inadequate. I look at America and look at Bill Gates and look at the entrepreneuralism of Silicon Valley and of Intel and of all the companies that are created, all the jobs that are created in the U.S., and I--it lights my heart. It seems to me that it's terrific. And at the same time in America, looked at from outside compared with my own country, spiritual values are very important and are, indeed, to my mind are on the rise. In my country spiritual values are declining.
PAUL SOLMAN: Mr. Soros, you don't see this? I mean, are you just looking at the world in completely different ways, or in the United States in this case?
GEORGE SOROS: Well, obviously we have different views, but take another very important issue, which I'm stressing, and that is that markets are inherently unstable, particularly financial markets, and maintaining stability ought to be an objective of government policy. And that is to some extent recognized now internally in the domestic economy, but you now have a global economy and there is no global supervision of markets, and I'm afraid that this is a very unstable and dangerous situation. What do you think of that, Mr. Emmott?
BILL EMMOTT: Well, I agree with you that stability is an important value, and I think that the important role of governments, particularly central banks, but other elements of government, should be to try to achieve stability and try to modulate fluctuations. Markets can easily overshoot.
GEORGE SOROS: Right. Now you see the theory, the underlying theory doesn't recognize this. The prevailing wisdom is that markets tend towards equilibrium, and that's a dangerous fallacy.
PAUL SOLMAN: What he's saying, for those of us who don't understand that term, is that markets are very imperfect, right, Mr. Soros? You know, economists tend to think of them as, you know, the be all and end all is the term again, and, in fact, they have all kinds of imperfections. That is what you're saying, isn't it?
GEORGE SOROS: I'm being more specific. I'm talking particularly of the financial markets which are so important in allocating resources, and I maintain that they are inherently unstable; that the theory underlying our interpretation of financial markets is actually false because it is based on a non-existent world, based on certain assumptions which are necessary to make the theory work. But they are not corresponding to what happens in the real world.
PAUL SOLMAN: But I want to ask just--but I mean, what happens? We have a worldwide crash, or something, is that what you're worried about?
GEORGE SOROS: Well, you have markets are in a boom/bust mode.
PAUL SOLMAN: Cycle.
GEORGE SOROS: And unless you recognize that you have to take action to prevent them from overshooting, they will, in fact, overshoot, and this wonderful global economy which I admire and enjoy would be destroyed. It has been destroyed in the past. And I'm afraid that it might happen again unless we recognize, you see, that markets are not perfect.
BILL EMMOTT: My feeling, Mr. Soros, is that you and I agree about what problems need solutions, but I think we disagree on what economists and other commentators are actually thinking because the economics that I read does not assume that markets are stable; it does not assume that everything comes to a balance in a neat way. Extreme economic theory--let me finish--extreme economic theory used only to radically simplify the world and produce an utterly artificial picture in order to demonstrate theoretical points, that does assume that. But no practicing policy maker, Alan Greenspan or anybody else, believes that markets are inherently stable.
PAUL SOLMAN: Let's get back to--
BILL EMMOTT: They think economics is about instability.
PAUL SOLMAN: Gentlemen, let me back to a sort of a more mundane case, if you will. Mr. Soros, you've done a lot of work in Russia, and one of the things you wrote about in your Atlantic article is when you looked at Russia, that's when you began to discover that you thought laissez-faire was going too far. Could you explain the problem of Russia in terms of what you're talking about.
GEORGE SOROS: Well, this is a very big problem that there was a central plan--centrally planned economy which collapsed, and the infrastructure of a market economy which requires laws and institutions were not introduced. So you have the most rampant robber capitalism which currently prevails, and that is a rather--let's say unpleasant, intolerable situation, and people in Russia are very disappointed. People who were opposed to Communism are now disillusioned with robber capitalism which prevails there.
BILL EMMOTT: Here I agree 100 percent with Mr. Soros on this. I think that Russia currently is a case in which free market ideology has gone too far if it's really ideologically driven. I think there is a kind of robber capitalism of a very 19th century almost Wild West capitalism sort in Russia. PAUL SOLMAN: That's what we've been calling laissez-faire, that is you let people do whatever they want.
BILL EMMOTT: Yes. And it's essentially theft as much as capitalism. And I think that there is a risk in Russia that the whole market idea, the whole idea of individual freedom that's associated with capitalism gets discredited because basically there are some thieves there who are essentially--it's like having the Mafia run your entire economy, and I think that in Russia, as with other countries like Albania in a similar circumstance with very unstable capitalism, absolutely I agree with Mr. Soros; it's the United States I don't think that's this.
PAUL SOLMAN: But it's a tremendous worry, is it not? I mean, Russia, if Russia were to go in a totalitarian direction say because free market capitalism seemed to have failed, that is the kind of thing you're worried about, is it not, Mr. Soros?
GEORGE SOROS: That is right. And I think we could have--we could have helped. Had we had a different frame of mind, I mean, we had a Marshal Plan after the Second World War that could have been a similar kind of assistance provided to Russia to help with the transition but we were not in a helping mode because we believed that everybody is out for himself; that we are in a competitive world; that, you know, pursuing your self interest is enough, and this is where I think that our values have gotten screwed because of the way the--we have become the slaves of the market, if you look, if I may say that.
PAUL SOLMAN: Screwed up, you mean?
GEORGE SOROS: Yes.
PAUL SOLMAN: The values. The free market ideology, he says. Okay. Then the free market ideology didn't help Russia, and it's a perfect example of the problem he started out talking about. I leave you to respond to that.
BILL EMMOTT: I disagree with that as a piece of history. I think the reason that the U.S. and Europe didn't send billions of dollars to Russia, although we sent a lot of money, but we didn't send billions and billions of dollars in a Marshal Plan sort of way, was because we felt that it was like piling up dollars in the street and setting fire to them. We thought it would be a waste of money because what Russia needed was institutions, the rule of law. It needed a functioning democracy, things you can't easily buy. Russia had hyperinflation, rapidly rising prices, chaos, and we thought that actually it would be a waste of money. I don't think that ideology really prevented the money going there. This was under several different administrations that that reluctance came, took place. The reluctance was held by governments of the left in Europe and of the right. This isn't an ideological question in my opinion.
PAUL SOLMAN: All right. Well, gentlemen, I think we're going to have to leave it there. This is a conversation that will probably continue for another couple of centuries, as it has for a couple of centuries already. Thanks very much.