NS Essay 1 - 'The rulers of the United States have embarked on policies that violate the principles of open society'

George Soros recalls how the writings of Karl Popper were the formative influence on his life, and a

Karl Popper's philosophy has influenced my entire outlook on life, affecting not only my thinking, but also my actions. Strange as it may seem, it has made a tangible contribution to my business success and it has also influenced my philanthropic activities, as the name of my foundation, the Open Society Institute, attests. We live in an age when philosophy is supposed to be a specialist pursuit whose scope is strictly circumscribed. Popper, whose work is almost completely neglected by the philosophy departments of American universities, harks back to a time when philosophy was not just a branch of knowledge, but the foundation of all understanding.

This may explain why Popper is held in relatively low esteem by professional philosophers today. In the famous debate between him and Wittgenstein - which forms the subject matter of a currently popular book, Wittgenstein's Poker by David Edmonds and John Eidinow - Popper argued that philosophy deals with real problems, while Wittgenstein said that philosophy deals only with problems of language. I should like to testify on behalf of Popper's position.

I started reading him as an undergraduate at the London School of Economics between 1949 and 1951. His The Open Society and its Enemies made a deep impression. I had just lived through Nazi and Soviet occupation. The idea that the two regimes had something in common - namely a belief that they were in possession of the ultimate truth - struck me with the force of revelation. In my third year, Popper was my tutor and I submitted two papers to him. He was kind and encouraging.

After I had left college, moved to America and started work in the financial markets, I sent him the draft of a book I had written under the title The Burden of Consciousness (which didn't deserve to be published and wasn't). He responded enthusiastically and I went to see him at the LSE. No sooner had I introduced myself than he exclaimed: "But you are not American!" "No, I'm Hungarian," I told him. "I'm so disappointed," he said, "and I shall explain to you why. I thought that my ideas about totalitarianism had made an impression on an American who had never experienced it. But you haven't learned about it from me; you have lived through it yourself. That is what I find so disappointing."

Popper's greatest achievement, in my judgement, was to show that scientific theories can never be verified, only falsified: indeed, the ability of a theory to be falsified is what qualifies it as scientific. It is a criterion of demarcation (that is, it defines what is scientific), not a criterion of truth.

Thus, although science is the closest we can get to knowledge, even scientific knowledge is less than perfect in that sense. This conclusion is relevant not only to scientific method, but to the entire structure of our beliefs and to the relationship between beliefs and reality. The fascination that Popper holds for me lies in these broader implications. If certainty is unattainable, those who claim to be in possession of the ultimate truth are bound to be wrong. The truth can be approached only through a critical process that treats all generalisations as provisionally valid and subject to falsification. This holds true not only in scientific method, but also in other forms of discourse, including politics. Popper drew his distinction between open and closed societies on these grounds.

Within the narrow confines of the philosophy of science, Popper established a model of scientific method that uses only deductive logic. The scientist forms a hypothesis - given certain conditions, such and such will happen - and then tests it. As long as the tests corroborate a hypothesis, it can be accepted as provisionally valid; when they falsify it, the hypothesis must be abandoned and replaced by another. The more severe the testing, the greater the explanatory and predictive value of the hypothesis.

Critics say that scientific practice fails to conform to his theory in many respects. But I am not a philosopher of science. I find Popper's model intellectually satisfying and I have found a use for it outside science.

As a financial speculator, I have formulated a theory about the way financial markets work which bears a curious resemblance to Popper's model of scientific method. It is generally recognised that financial markets try to anticipate the future. The way they do it, I contend, is by adopting a hypothesis that yields a prediction. The actual course of events then serves as a test.

The process is a complicated one because, in contrast to science, the prediction influences the actual course of events. In The Alchemy of Finance (which was published in 1987), I recounted a particular example, that of the Mortgage Guarantee Insurance Corporation. Around 1966, the market adopted the hypothesis that the company would suffer catastrophic losses as a result of declining house prices in California. I took the opposite position: I maintained that the insurance formula effectively insulated the company from market conditions, and I proved to be right. The company survived a difficult test practically unscathed. Subsequently, the shares increased many times in value, not just because earnings rose, but even more because the market attributed a higher value to those earnings. This is only one example out of many, albeit the most striking one. Based on those experiments, I have formulated the rule that one should not own stocks while they are being tested, but one should load up on them when they have successfully passed the test. The more severe the test, the greater the profit afterwards. Popper's contention about the severity of testing may not be applicable in science, but it certainly works in financial markets.

However, I part company with Popper where he proclaimed the doctrine of the unity of method and argued that the social sciences must meet the same standards and criteria as the natural sciences. He, of all people, should have known better. He should have recognised that what distinguishes social events from natural phenomena is that they have thinking participants who introduce an element of uncertainty.

Participants cannot base their decisions on knowledge because knowledge consists of true statements, and for a statement to be true it must correspond to the facts. Only if the facts are independent of the statements that refer to them do they serve as an independent criterion of truth. But the participants' decisions relate to the future, and the future is contingent on the participants' decisions in the present.

I have established what I call the human uncertainty principle. That principle holds that people's understanding of the world in which they live cannot correspond to the facts and be complete at the same time. People can have knowledge, but they cannot base their decisions solely on knowledge. There is always an element of judgement or bias involved.

The human uncertainty principle bears a strong resemblance to Werner Heisenberg's uncertainty principle in quantum physics. But there is an important difference. Heisenberg's principle does not influence the behaviour of quantum particles one iota. They would behave the same way if the principle had never been discovered. But theories about human behaviour can and do influence human behaviour. It is possible to make an impact on reality by propounding false theories that influence people's behaviour. Such theories may even validate themselves up to a point. Labouring under such handicaps, the social sciences cannot possibly meet the standards and criteria of natural science.

Why did Popper embrace the doctrine when he was at least as much aware of the principle of human uncertainty as I am? I believe he did so because he wanted to show that Marxism is unscientific and he needed the doctrine of the unity of science to make the argument stick. But it would have been much better to establish that the social sciences cannot meet the standards and requirements of natural science. Therefore, those social theories that base their claim to validity on their scientific status are making a false claim. That is not to say that social theories cannot be valid and valuable, but they must establish such claims on their own merit, not by parading in the false feathers of natural science.

This is not an arcane theoretical argument. It has great practical relevance right now. The same critique that Popper raised against Marxism can be applied to market fundamentalism. Economic theory cannot be disproved because it is based on certain specified assumptions and the conclusions follow from the assumptions by deductive logic. Whether the assumptions correspond to reality is open to question. Economists acknowledge this, but market fundamentalist ideologues ignore the difference between an axiomatic system and reality. The globalisation of the financial markets has been based on market fundamentalist ideology.

Popper did not take the concept of open society as seriously as I do. He never defined it in any way; he did not even mention it very often. And naming his famous book The Open Society and its Enemies was only an afterthought. It is I, as his disciple, who has made such a big thing out of it.

I established the Open Society Foundation in 1979. I defined its goals as the opening up of closed societies, making open societies more viable - that is, correcting their imperfections - and fostering a critical mode of thinking.

My first big effort was in Hungary where, in 1984, I established a foundation in partnership with the Hungarian Academy of Sciences, then an agency of the political police. Our unannounced aim was to foster all kinds of cultural and intellectual activities that were not under the direct control of the party/state apparatus. The theory was that the official ideology was false because it laid claim to the ultimate truth, and its falsehood could be demonstrated by fostering alternatives. And it really worked like that.

That encouraged me and, as the Soviet system collapsed, I established foundations in 30-odd countries. The goal was to help with the transition from closed to open societies, based on the recognition that an open society is the more sophisticated form of social organisation. In the Soviet system, there was supposed to be only one plan, the central plan, whereas in an open society, every individual has to form his own plan and there is a need for institutions to allow different people with different plans to live together in peace.

But it became obvious that the collapse of a closed social system does not automatically lead to the formation of an open one. On the contrary, the collapse could simply feed on itself. That is what happened in the Soviet Union. It made me realise that there was something wrong with the simple dichotomy between open and closed societies with which I was working. Totalitarian dictatorship was not the only alternative to open society. There was another: the disintegration of society. As the political theorist Stephen Holmes put it, "weak states can also be a threat to liberty".

Strange as it may seem, this idea was not part of my conceptual framework, and I was not alone in this respect. Most liberal thinkers were only concerned with oppressive states, not with weak states. I reconsidered my framework. Instead of a simple dichotomy between open and closed societies, I now envisage open society as a kind of embattled middle ground, threatened from all sides. It is endangered both by too much interference with the freedom of the individual and by too little. Market fundamentalism has become my favourite whipping boy because I consider it more influential today than socialism.

When I visit the former Soviet empire, however, I emphasise that, when I criticise the market mechanism, I am not endorsing the controls and constraints that are still all too prevalent in those countries. The imperfection of markets does not, in itself, justify government controls; similarly, the imperfection of regulations does not imply that markets are perfect. All human constructs are imperfect in some way or another. Open societies accept this constraint, closed societies deny it. In my definition, open society is an imperfect society that holds itself open to improvement.

What would constitute improvement? It is not for me to define an open society, but for the people who live in it. Without specific content, however, it is difficult to see how the concept could serve as an ideal that fires people's imaginations. It has fired mine, but that is because of my own background, and it has inspired many who have suffered under oppressive regimes, but it doesn't in itself provide sufficient inspiration for those who live in an open society. I contend that we must correct the inequities and deficiencies of globalisation in order to attain a global open society. That programme ought to inspire people.

In reality, open societies find it difficult to acquire a purpose that will command allegiance except by identifying an enemy. Even Popper spoke of open society and its enemies. In the cold war, it was the communist threat; now it is terrorism. The real threat to open societies comes from ideologies that offer simple but false answers to difficult and often insoluble problems.

Since 11 September, the threat comes not only from terrorism itself, but from the war against terrorism. Amazingly, the government of one of the most open societies, the US, has embarked on policies that violate the principles of open society. The Bush administration contains a number of ideologues who believe that international relations are relations of power, and the US, being the most powerful state, has the right to impose its will on the rest of the world. They held this belief before 11 September and, to the extent they could, they acted upon it. They renounced international treaties and sought to make American military power absolute by militarising space. But they were constrained by the lack of a clear mandate. The events of 11 September changed that. The Bush administration could claim to be acting in self-defence and carry the nation behind it.

The Bush administration arrogates for itself the right to decide how and where to fight the invisible enemy. It fails to acknowledge the possibility that Popper always emphasised - that we may be wrong. Military power is of limited use in dealing with asymmetric threats such as terrorism. The US needs to earn the support and sympathy of the world, and following the precept that might is right is not the way to go about it.

Fortunately, we live in a democracy, and if we, the citizens of the US, believe in the principles of open society, we can prove the Bush administration wrong.