Once again he openly talked about capital, and the Director of the World Development Movement (spin off of Oxfam) pointed out that the solutions that have been used so far have been for the benefit of capital rather than for poor and ordinary people. Soros rather agreed. Economic discourse now includes the word capital without censorship or McCarthyism.
Soros's package remains the creation of Special Drawing Rights to be available as a "free lunch" to make good the loss of capital in a crisis. Prior to this, lenders should be more cautious and take on board a degree of moral hazard. But they will still be bailed out as far as I could see when the crash does occur.
The disadvantages to his strategy seem to me to be four:
1) It is not a free lunch. He claims it is a free lunch because the capital has disappeared so the SDR's fill an empty space. But this leaves out the contradiction which marxists point to based on the law of value: the continued need for capital to accumulate and also to sell an expanding volume of commodities to a population who are being increasingly exploited, creates periodic crises of over-production. These *must* be met by the real destruction of old capital. Not the illusory destruction, and not replacing old capital in exactly the same way as it was before it was destroyed.
Therefore the SDR's are inflationary and are not a free lunch. If they are a form of global deficit spending ("Keynesianist" on a world, rather than a national, level) then they devalue the total volume of money in the world. Their use is only justified if in the course of doing so they produce a proporionate discounting of old capital, and bring into circulation means of production, especially workers, who have otherwise been languishing among the unemployed and the underemployed. If so, then there needs to be a much better basis of deciding where these large sums of deficit spending should go than to the banking system of a country that has crashed because it relied on short term inward investment by investors/speculators who did not heed the words of moral hazard, and are too big as bankrupts to be allowed to crash.
2) The system Soros promotes is inherently jerky. It assumes, rightly, that economic slumps will recur. But it leaves a gamble as to whether there will be a bail out or not. It has to leave a gamble otherwise there will be no moral hazard. If it is to be a bottomless purse to ensure all get bailed out, SDR's need to be created to the order of trillions of dollars to deal with the vast swings short term currency flows.
3) Although Soros has warned that it nearly came to a crash in the metropolitan heartlands of capitalism, he has no fundamental answer to the fact that the marginal countries on the edge of the capitalist system will be the ones to bear the burden. His hit and miss solution of a gamble on special drawing rights will perpetuate that insecure status.
4) He has no political answer for the fact that the decisive action will only be taken by the USA not the IMF. Any successor to the IMF will also face that problem.
Nevertheless Soros continues to be a valuably candid witness. He admits that markets are fundamentally immoral (amoral) but they have to exist within society that has a code of ethics. Now he is a public figure in civil society he finds it difficult that this sometimes conflicts with his work in playing the market as hard as he can. Hence presumably his philanthropy, his speaking tours, and his book (he hardly needs the royalties).
Congratulated by a New Labour woman MP on his remarkable candour in advocating that the world should have a financial system that would regulate activities of people like himself, he side-stepped the detail of any answer by saying he should be regulated as little as possible and as much as necessary.
Soros is open minded about measures to slow the inflow of short term money, as used in Poland, Hungary, and Slovenia as well as Chile. But unless it was in the part of the discussion I missed, he persisted in saying nothing about a currency movement (Tobin) tax.
I am strengthened in my conviction that a rational regulation of finance capital on a global basis needs political struggle even though to some extent the technicalities place the question on the agenda regardless of class forces. It requires a combination of a Tobin tax world-wide and a flow of SDR's into an environmental and human development fund, size to be adjusted to try to be counter-cyclical, and against which progressive projects can bid.
This will strengthen industrial capital and the peoples' interests vis a vis finance capital on a global basis.
Chris Burford
London