35 of 36 people found the following review helpful:
4.0 out of 5 stars
Reflecting on Reflexivity, July 30, 2001
The book consists of roughly two parts. The first is the philosophical foundation of the "theory of reflexivity", with application to financial markets and historical process in general, resulting in the "Open Society" concept. The second is the assessment of the present moment of history and the author's vision of the future of the global financial and political architecture.
The "reflexivity theory", already developed by George Soros in his earlier books (e.g. "The Alchemy of Finance") can be summed up in his own words: "We are part of the world we seek to understand, and our imperfect understanding plays an important role in shaping the events in which we participate." This entails recognition of the fundamental limitations of the social science and our own understanding of society. "It (reflexivity) creates a cleavage between the natural and social sciences and it undermines the postulate on which economic theory has been based: rational behavior in general and rational expectations in particular."
This is a powerful statement indeed. It immediately follows that the future of humankind is not only unknown, or too difficult to predict, but unknowable, because self-awareness and attempts at prediction influence events and change the course of history. This line of reasoning has more immediate application in the financial markets. The widely accepted "efficient market theory" postulates that market participants absorb all available information in an objective and efficient manner, and new information is random and unpredictable relative to previous expectations. If any statistically significant pattern appears in the market data, it should be exploited by many players and will soon disappear. This seems to be similar to the conclusions of the "reflexivity theory". At the first glance the "reflexivity" process can improve market "efficiency" in line with the arguments of the "market fundamentalists" arguments that market processes automatically self-correct any mispricing. Yet this is not what typically happens according to Soros (and his experience and investment track record suggests that his arguments should be taken very seriously). Instead of self-correcting towards the equilibrium, which characterizes many physical phenomena (such as, for example, most types of wave motion), markets form self-reinforcing tendency which moves further away from the equilibrium. This tendency, eventually turning out wrong ("fertile fallacy", and "radical fallibility" in Soros's terms) is supported by several positive-feedback mechanisms.
G. Soros believes that development of the "reflexivity" and "fallibility" concepts should have as profound effect on the thinking of society and historical process, as the Enlightenment and ideas born with French and American revolutions. "It is high time to subject reason, as construed by Enlightenment, to the same kind of critical examination that the Enlightenment inflicted on the dominant external authorities, both divine and temporal. We have now lived in the age of reason for the past two hundred years - long enough to discover that reason has its limitations. We are ready to enter the age Fallibility. The results may be equally exhilarating and, having learned from past experience, we may be able to avoid some of the excesses characteristic of the dawning of a new age."
The remainder of the book deals mainly with the application of these ideas to the current moment in history and the author's vision for the global financial and political structure. This is not an easy task, and the author soon begins to fail his own recipe and the paradigm underlying this vision. To his credit, he never fails to recognize his own fallibility. He speaks at length, and very frankly, about his own investment mistakes and failed predictions. This provides a refreshing contrast with many others who prefer to ignore their failures, or, when they are too evident, spend many pages trying to justify or attribute them to some extraneous factors.
He begins to miss his beat when speaking about the global financial and political architecture. After presenting sharp, well-argued criticism of the present state of the world, his recipes for improvement look disappointingly weak. Essentially it's all about "kinder, gentler" IMF, WB, NATO and other such institutions. His definition of the "Open Society"(that is, the one based on ideas similar to "reflexivity" and "fallibility") eventually looks like nothing more than touched-up version of any liberal democracy today. It is contrasted with "closed societies", based on authoritarian or nationalistic ideas. Well, throughout the human history the strongest military and economic powers always viewed themselves if not perfect, as the only models truly capable of improvement and progress. Every colonial conquest, no matter how destructive and brutal, was based on the ideological support of "bringing civilization to the barbarians" in one or another form. The "Open Society Alliance" proposed by Soros, doesn't look too different from yet another reincarnation of such ideological foundation.
In the model of financial bubbles, which the author described as an application of the "reflexivity theory", the unsustainable booms happen not because skeptical views during the bubble build-up are suppressed by some official censorship, but because even in the presence of critical dissent, the prevailing erroneous consensus become self-reinforcing and self-perpetuating. Similarly, the is no reason to believe that, just because of the democratic mechanisms and press freedom, the supposed "Open Society Alliance" will be free from the standard "arrogance of power". Such arrogance and delusion, which often leads to very costly political mistakes, wars or major crises, can happen not just because any other views are suppressed by censorship as in many authoritarian societies. Rather, because of artificial self-perpetuating consensus generated by and propagated through the media and political elite, while maintaining illusion of a genuine vigorous debate by endlessly pouring attention to peripheral issues.
The "fallibility" concept truly deserves serious intellectual attention. Too bad that most likely the "center" of the global system - the richest and most powerful nations - will invariable find it harder to apply these criteria to themselves, as opposed to the rest of the world.
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39 of 44 people found the following review helpful:
5.0 out of 5 stars
Financial Speculators Against Libertarianism!, January 29, 2002
Here are two reasons to read this book --
1) Learn why George Soros, one of the world's wealthiest men, a billionaire financial speculator, says that dogmatic belief in the so-called "free market" is every bit as dangerous as a comparably dogmatic belief in Marxism-Leninism (a topic Soros knows something about, given that he grew up under a Marxist-Leninist government in Hungary).
2) Learn about the philosopher Karl Popper, a beacon of rationality in a tribalistic world. Soros is an intellectual follower of Popper, author of the renowned THE OPEN SOCIETY AND ITS ENEMIES (see my review), and Soros attempts to apply Popper's thinking to the current crisis of global capitalism. Whether he draws the correct conclusion in every case is less the point than the serious thinking involved. Popper is widely misunderstood to be an advocate of the free market. What he is actually in favor of is freedom of thought -- skepticism of any received dogma, including the dogma of the Free Market, to which many now say There Is No Alternative.
Rubbish, says Popper, and so says Soros. A legal, regulatory framework is required. Without the appropriate regulation, the result is the "gangster capitalism" of Russia, and of Enron. Along with Nobel Prize-winning economists Amartya Sen and Joseph Stiglitz among others, Soros is absolutely right in his basic point, and is making a contribution to the construction of an appropriate institutional architecture for an increasingly global society.
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25 of 28 people found the following review helpful:
5.0 out of 5 stars
Very Thoughtful Personal Opinion, Very High Value, February 27, 2002
This review is from: The Crisis Of Global Capitalism: Open Society Endangered (Hardcover)
I think George Soros and Robert Kaplan, as well as others that are starting to realize that the opposite of virtue is not vice but rather virtue carried to an extreme (Jim Fox said it first, at least in this era), are on to something.
Although economists of great traditional standing (Robert Samuelson comes to mind) have been very quick to denigrate, even trash, the ideas of George Soros, my personal reaction, and my own reading of 225 or so books that I have reviewed for Amazon, suggests that he is right on target. Unfettered capitalism and corporate consumerism is killing us, and is part of the problem between Western secularism and Islamic fundamentalism--we don't have a model for sustainable faith-based prosperity they can buy into (I am mindful of Bernard Lewis's What Went Wrong thesis).
Most recently, in The Washington Post of 24 February 2002, George Soros is quoted as saying, "We can't be successful in fighting terrorism unless we fight that other axis of evil--poverty, disease and ignorance." Right on. Both The Future of Life and The Future of Ideas (see my reviews of those titles), and many other books now coming together in a critical mass, support basic propositions about the failure of politics, the erosion of moral contexts, and the dangers of capitalism upon public health, the environment, and the social fabric.
I would normally have rated this book with 4 stars for its lack of reference to others, but in light of the importance of the argument that George Soros makes, and the value of his own unique experiences bridging the worlds of poverty and wealth, American and Eastern European challenges and biases, I have to give this a 5--and wait to see our academic economists do better.
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