Crackpot Prophet

WE ALL RECALL HOW MICHAEL JORDAN DID IN baseball. He bombed. He couldn't make it into the majors, let alone become a superstar. Even at the AA Birmingham Barons, he batted a miserable .202 (88 for 486, with 114 strikeouts). There's an insight here. Call it the Jordan principle: genius doesn't travel well. Applying the Jordan principle to George Soros--the fabulously successful investor who is among the world's wealthiest men-we find that getting rich doesn't make you an economic philosopher. In Soros's case, just the opposite: as a seer, he's a crackpot.

I know this because I've recently read his essay "The Capitalist Threat" in the February Atlantic. It argues that "the spread of market values into all areas of life" is now the main threat to "open and democratic society." Powerful stuff. Also rubbish. Soros's essay is rambling and incoherent. In some ways, it resembles the Unabomber Manifesto in its sweeping, unsupported and disconnected generalizations. For example:

"Species and their environment are interactive, and one species serves as part of the environment for the others. There is a feedback mechanism similar to reflexivity in history, with the difference being that in history the mechanism is driven not by mutation but by misconception."

Got it? The truth is that if Soros weren't the author, this gibberish wouldn't have made it into print. Its only appeal is its shock value: capitalist condemns capitalism. "There was a man-bites-dog quality to this," says Atlantic editor William Whitworth. The result is that we get assertion instead of analysis. "Insofar as there is a dominant belief in our society today," Soros claims, "it is the belief in the magic of the marketplace." Really? If that were so, governments everywhere would be shrinking radically.

They aren't. Government spending, as a share of economic output (gross domestic product), is near record peacetime levels in most advanced nations. In the United States it was 83 percent of GDP in 1995, down slightly from 34 percent in 1992 and up from 81 percent in 1980. In Germany it was a record 50 percent in 1995, up from 48 percent in 1980. In France it was 54 percent, a bit lower than 1993's 55 percent but up from 1980's 46 percent.

The very illogic and obscurity of Soros's diatribe may, ironically, enhance its appeal. It panders to a fashionable anti-capitalist chic. And ordinary readers may assume that, though these matters are unfathomable, Soros must be a trustworthy authority. After all, he ranks 43d in Forbes's latest list of the 400 wealthiest Americans, with an estimated net worth of $2.5 billion. In 1992 he gained notoriety when his currency speculation helped cause the British pound's devaluation. Who better to expose modem capitalism?

Maybe anyone. In most rich democracies, the central problem of the political economy now is the reverse of what Soros says. It is not how to curb rampaging markets. It is how to maintain a large welfare state without suffocating a productive economy. The resulting dilemma is this: only higher economic growth can make the welfare state affordable; but higher economic growth often requires cutting benefits (for the unemployed, the poor, the elderly and the sick).

In Europe the conflict is already acute. Since 1970, the unemployment rate has nearly quadrupled. In 1996 it was 9 percent in Germany, 12 percent in Italy and 12 percent in France. Generous jobless benefits, rigid wages, high taxes and overregulated industry stifle growth. Governments respond by trying to pare benefits and promote competition. But even modest changes trigger outcries. Here are some recent headlines about France: "French Trucker Strike Ends With Indirect Defeat of Government"; "French Transit Workers Press Retirement at 55"; "Actors, Musicians Stage Strike in Paris to Protest Cutbacks in Social Services."

People want what they've been promised. Nor can Europe's problems be laid to global competition or capricious markets, because the United States--with unemployment of 5.4 percent in 1996 --faces the same competition and has beer markets. The danger is that welfare commitments continue to mount (because the jobless and aged increase) while economies continue to slow. At some point, the system could lose its capacity to deliver promised benefits. Higher taxes become impossible, and financial markets (that is, savers) refuse to lend. Or both.

Will that happen-and flit does, what then? No one knows. But this is the issue facing almost all advanced societies. It's not capitalism versus compassion, as Soros implies, but where to draw the lines between market power and government power for the larger good. The good of market capitalism occurs because it maintains "incentives." People and companies profit from their successes and suffer for their blunders through a random process of buying and selling. The incentives remain powerful. In 1996 the Forbes 400 included 48 new people. Three quarters of them made it because they had built businesses, from billboards to software.

But because the market is unsettling and often unfair, all modem societies have tempered it through welfare and regulation. In 1913 government spending was only 8 percent of GDP in the United States and 9 percent in France. Governments are now torn between the impulse to intervene and the knowledge that too much intervention can backfire. (Indeed, "free market" philosophy has truly surged only in the former Soviet bloc, China and India, where intervention was pervasive.)

Soros might have advanced this ongoing debate with specific ideas over where government is-and isn't-needed. Instead, he delivers drivel. Editor Whitworth should have heeded the Jordan principle; that he didn't makes The Atlantic a dupe to Soros's grander ambitions. Yes, this is the same Soros who helped finance California's pro-marijuana campaign and whose charities reach around the world. Others will judge his politics and philanthropy. But as an economic prophet Soros is no more entitled to be taken seriously than Jordan is to play major-league ball. Unless he makes sense, we shouldn't listen.