TURNING DOLLARS INTO CHANGE

Great philanthropists often follow a simple formula: 1) make billions of dollars in ways that stir controversy and occasional outpourings of ire; 2) give much of it away to marble-plaqued institutions like colleges and libraries so that public revulsion gradually melts into reverence.

George Soros got the first part right. As a detached and mysterious currency speculator, he made billions by moving markets in a manner that made him a whipping boy for besieged bankers and ministers. In one famous week in 1992, he made $1 billion betting against the British pound, earning him the grudging title of the Man Who Broke the Bank of England. This summer Malaysian Prime Minister Mahathir Mohamad accused him of being a criminal. He said Soros the speculator had attacked Southeast Asian currencies to punish their governments for admitting the Burmese military regime–which Soros the humanitarian opposes–to asean, a regional political and trade organization.

Now Soros is gleefully flouting the script for Act II. With a unique and astonishing passion for challenging conventional wisdom, he is leveraging his billions to move controversial ideas and speculate in policy. In the process, he has made himself the most influential, intriguing and to some the most infuriating philanthropist of our era. Says he: “When I was offered an honorary degree at Oxford, they asked me how I wanted to be described, and I said I would like to be called a financial, philanthropic and philosophical speculator.”

Initially, he focused his philanthropic speculation on Central and Eastern Europe. A survivor of the Holocaust and communism, he spread hundreds of millions of dollars to support democracy in countries struggling to break from the old Soviet orbit. In the waning years of the cold war, he bought photocopiers for his native Hungary so the communists couldn’t monopolize information. Later, with Russia adrift, he spent $100 million to help Soviet science, and scientists, survive the transition. In Yugoslavia he was outraged by what he perceived to be the pusillanimity of the West, so he doled out $50 million to try to save Sarajevo from Serb depredations. He has spent millions more funding Open Society foundations around the world, which finance education, freedom of speech and human-rights projects.

He is now turning his attention to the U.S., his adopted country. The reason? The good guys won abroad; there’s work to do at home. The collapse of the Soviet Empire, he says with typical forthrightness, “was a historical opportunity, and I rose to the occasion, so there was no time for any other activity. When things calmed down, I had the opportunity to start thinking about what could be done here.”

So what kind of reception can this champion of human rights and open debate expect for the hundreds of millions he is giving away each year? “He’s the Daddy Warbucks of drug legalization,” who seeks to bamboozle American voters, fumes Joseph Califano, former U.S. Secretary of Health, Education and Welfare and currently president of the National Center on Addiction and Substance Abuse at Columbia University. New York Times columnist A.M. Rosenthal denounced him as giving new meaning to the term drug money. To Deputy Secretary of State Strobe Talbott, on the other hand, his international work makes him a “national treasure.” To Richard Holbrooke, the former Assistant Secretary of State who negotiated the Dayton peace agreement for Bosnia, “he is the most interesting and important philanthropist since Andrew Carnegie. He really tries to have his money make a difference.”

Soros deliberately courts controversy and publicity, trying to build a platform from which to propagate his views, a strategy that has earned the enmity of governments from Malaysia to Croatia to Belarus. And he’s feeling the pressure. “I’m a little bit beleaguered, not too badly but a little bit. I’m overexposed, fighting on too many fronts, and that’s a mistake.” But that doesn’t seem to stop him from engaging on even more fronts as he brings his personal philosophy of “reflexivity” and his megabucks–estimated at up to $5 billion–to bear on the attitudes he believes are damaging the U.S.

Here he is concerned with the antithesis of state control: the abandonment of state responsibility. He thinks our drug laws are ludicrous, filling up prisons with people who really have a medical problem. He calls welfare reform a “clear-cut case of injustice contrary to this country’s proud tradition of welcoming immigrants.” He also thinks we die wrong.

And he is doing something about all of it.

–Soros is giving $15 million over five years to groups that oppose America’s “war on drugs” or want to open the debate about drug policy. He says the “unintended consequences” of the war, including the criminalization of a vast class of drug users, far outweigh the limited and costly success of interdiction. Last year he gave an extra $1 million to persuade voters in California and Arizona to allow doctors to prescribe hitherto illegal drugs, including marijuana, to ease suffering.

“Our drug policy is insane,” he says. “And no politician can stand up and say what I’m saying, because it’s the third rail–instant electrocution.” Soros can get an audience and feels obligated to speak out. “I’m in a unique position. The same applies with Eastern Europe. Therefore I have to do these things.”

–Appalled by the fact that more than 1.6 million people are behind bars (the U.S. incarceration rate is more than five times that of most industrialized nations), he has created the Center on Crime, Communities and Culture, which this year will give away about $5 million in grants to service and research organizations.

–Outraged by the way in which President Clinton’s 1996 welfare bill penalizes legal immigrants, he set up the Emma Lazarus Fund. Soros emigrated to the U.S. in 1956 from Hungary via Britain. He has committed $50 million to help fellow immigrants gain full citizenship, and to campaign for their rights.

–Moved by his parents’ death and the belief that most Americans die badly, he created the Project on Death in America, to which he has committed $20 million in an attempt to improve the care of the dying and to bring death out of the closet.

–In Baltimore, Md., he is shelling out $25 million to set up an office of his Open Society Institute to see if there is synergy to be gained from applying many of his different programs in one place. “I’m sure, whatever he focuses on, it will help,” says Baltimore Mayor Kurt Schmoke. “It will have to be well targeted, because $25 million is both a lot and a little. A lot if you focus on a limited number of problems; a little if you try and go after all the problems of urban America.”

Outside of the temples of high finance, Soros was almost unknown until the early 1990s. On Wall Street he is judged the greatest hedge-fund investor of our time. With characteristic candor, he says he “carved myself a place on Mount Rushmore as a money manager.” An investment of $100,000 with Soros in 1969 would be worth $300 million today.

Born the son of a Hungarian Jewish lawyer in 1930, Soros was a boy when the Nazis invaded Hungary in 1944. They rounded up all the Jews they could find and murdered most of them in concentration camps. Soros survived only because his father–who had lived through the Russian Revolution–knew that this was a time to disobey orders. He bought the family false identity papers and places to live and hide.

Nonetheless, Soros has said 1944 was the happiest year of his life: “I had a father whom I adored, who was in command of the situation, who knew what to do and who helped others. We were in mortal danger, but I was convinced I was exempt. I learned the art of survival from a grand master. That has had a certain relevance to my investment career.”

After leaving Soviet-controlled Hungary for London in 1947, Soros fell under the spell of a college professor, the philosopher Karl Popper. It was Popper who coined the term open society–meaning one in which argument and debate are encouraged, the opposite of a dictatorship, which claims an ultimate truth but derives it only through force. Soros’ approach to investing, indeed his whole life, is informed by Popper’s work.

It was from Popper that Soros gained his personal philosophy of reflexivity. It boils down to the sensible if not entirely original idea that people always act on the basis of imperfect knowledge or understanding; that while they may seek the truth–in the financial markets, law or everyday life–they’ll never quite reach it, because the very act of looking distorts the picture. He says he has used this theory to try “to turn the disparate elements of my existence into a coherent whole.”

Soros found the market for his philosophy to be rather thin, and eventually turned to banking. In 1956 he moved to the U.S. By the end of the ’60s he had delved into the obscure discipline of arbitrage–a branch of financial physics that involves buying and selling securities in different markets in order to skim profits off the transactions. He discovered that a lot of money was to be made by moving money around the world to profit on the rise and fall of currencies.

By end of the ’70s he was very rich, very unhappy and entirely unfulfilled. He split with his original business partner and his wife. He acknowledged his relationship with his children was damaged, calling it “the biggest regret of my life.” He became reclusive, living out of a small, sparsely furnished apartment in Manhattan. One year he lost money. He said later, “I underwent a serious change in my personality during that period. There was a large element of guilt and shame in my emotional makeup.” Therapy helped, but philanthropy was the cure.

In the ’80s Soros began to build his philanthropic empire. One of his first ventures was in his native Hungary, where he supplied the country with photocopiers, an inspired application of technology to fight censorship. As the democracy movement gained momentum throughout Europe, Soros swept in to fund it, at times acting as a one-man central bank for struggling countries. He established philanthropic offices all over Eastern Europe. Nominally centered in New York City under the direction of Aryeh Neier, the former head of Human Rights Watch, Soros’ network of foundations in 31 countries employs about 1,300 people. Soros has spent about $1.1 billion sustaining free media, encouraging political pluralism, defending human rights.

In some places the authoritarian or nationalist governments that replaced the communists were just as unenthusiastic as their predecessors about Soros’ continued push for open debate. Says his friend Byron Wien, head U.S. strategist at Morgan Stanley: “He was definitely not viewed as the Albert Schweitzer of our time, but as someone with an angle. He was not prepared for the hostility.”

Although well known in Europe, Soros became frustrated because his huge wealth seemed to give him no political influence in the West. When the Berlin Wall fell, he sought to persuade both President George Bush and British Prime Minister Margaret Thatcher to endorse a new Marshall Plan to rebuild the societies shattered by 70 years of communism. Neither leader would give him the time of day. He realized he needed to become a public personality.

In the late summer of 1992, a time of great pressure on European institutions, he did so with a vengeance. A remark by the president of the German Bundesbank about possible instability among European currencies encouraged Soros to start the attack. First he short-sold the Italian lira, which tumbled. Emboldened, he took on sterling, sending the immense power of his funds, billions of dollars’ worth, against the British pound. He shorted, betting that the pound would not be able to hold its value against other currencies traded within the Exchange Rate Mechanism, which seeks to fix the value of European currencies in preparation for a common Eurocurrency.

On Sept. 16, with Soros and others selling pounds, the British government responded by raising interest rates 2 percentage points to attract buyers. Soros saw this as “an act of desperation. It encouraged us to continue selling sterling even more aggressively.” He sold all his holdings that afternoon. By evening sterling had been forced from the erm. He scooped up $1 billion from that escapade and became known all over the world as the Man Who Broke the Bank of England.

“I had no platform,” he says today. “So I deliberately [did] the sterling thing to create a platform. Obviously people care about the man who made a lot of money.” Since then, “my influence has continued to grow and I do have access to most people I want to have access to.”

Soros is now here to help save America from itself. Of all things, he is worried that “excessive individualism,” defined by Wall Street’s market mentality, has replaced traditional values. Writing in the Atlantic Monthly this year, he warned that the unbridled market is a greater threat to “Open Societies” than totalitarian ideologies. The press torched him. Forbes, which castigated him for dealing with ex-communists, called his thesis “nonsense.” Says Soros: “You had a capitalist fool [Steve Forbes, the magazine’s owner] combining with the nationalist right–a stupid combination.”

Soros’ solution to America’s problems, sure enough, is to throw money at them. He has committed some $90 million to the U.S., a figure that will grow and grow.

Nothing has caused so much bad blood as the money he has given to drug-law reform. In 1994 he began funding the Lindesmith Center. Its director, Ethan Nadelmann, campaigns for an end to the so-called war on drugs and advocates sweeping drug-policy reforms. Soros has committed at least $15 million to Lindesmith and other groups. Last fall he became a target of the zero-tolerance lobby after contributing $1 million to help pass state referendums in California and Arizona to legalize the medical use of such drugs as marijuana. Critics of the new marijuana laws argued they were stalking horses for legalization. Califano blamed Soros for underwriting crucial television advertising that swayed the voters, claiming, “A moneyed, out-of-state elite mounted a cynical and deceptive campaign to push its hidden agenda to legalize drugs.”

Soros insists he supports nothing of the sort. Rather he wants to decriminalize drug use and focus on treatment instead of punishment. Yes, he has inhaled and enjoyed it, but he does not want marijuana legalized. Nevertheless, he says, the unintended consequences of current drug laws are horrendous: “I do want to weaken the drug laws. I think they are unnecessarily severe. The injustice of the thing is outrageous.”

Soros did his lightning-rod act again last month, giving $1 million to the Tides Foundation in San Francisco to finance needle exchanges for addicts. More than a third of new AIDS cases are related to contaminated needles. To him, needle exchange is a no-brainer of an issue: it saves lives. Yet federal funding for needle exchanges is still prohibited.

His concern about drug laws led Soros logically to an interest in the criminal-justice system. He established the Center on Crime, Communities and Culture, which this year will give away about $5 million in grants to both service and advocacy organizations. The issue: every year in America some 5.5 million people, or 2% of the population, are in prison, on probation or on parole, a higher percentage than in any other democracy. The cost of a prisoner is enormous: $25,000 a year. The center proposes that alternative, noncustodial sentences be devised.

Any number of people feel the same way about drug laws or jails as Soros does; few have a billion dollars at their disposal to do something about it. Says his friend Wien: “You must understand he thinks he’s been anointed by God to solve insoluble problems. The proof is that he has been so successful at making so much. He therefore thinks he has a responsibility to give money away. He thinks that the drug issue is a serious problem and that he must try and make a difference.”

Last fall he was outraged by President Clinton’s welfare bill, which deprived legal immigrants of some benefits. As one of the country’s most prominent immigrants, Soros felt he must respond. He did so at once, setting up the Emma Lazarus Fund (named for the writer of The New Colossus, the poem excerpted in the inscription on the Statue of Liberty: “Give me your tired, your poor…”), to which he pledged $50 million over three years. Legal immigrants represent only about 6% of those on public aid, he points out, yet they took more than 40% of the cuts in welfare. “I am in sympathy with the need for welfare reform,” Soros says, “but I think there is a lie in claiming you can reform welfare by spending less money in the near term, because to create jobs requires investment. To cover up that lie, they cut the benefits to legal immigrants.” In almost a year, the fund has had more than 700 applications for grants and has awarded 45 of them, worth about $25 million. Most have gone to organizations that help immigrants gain citizenship.

Soros’ concern about the American way of death came from a much more personal experience. His beloved father, who had saved the family from the Nazis, died in 1968, and Soros recalls that he did not even hold his hand. “I refused to face the fact that he was dying. I think it was a tragic mistake on my part. I think our whole society is somehow operating in a state of denial and distortion. We have been told all about sex, but very little about dying.”

After his father’s death, Soros read Elisabeth Kubler-Ross’s seminal books on dying and realized that it is a defining moment in one’s own life. As a result, he approached his mother’s death very differently. She died quietly at home, surrounded by her family. “She was a believer, and she actually saw the gates of heaven. It was a very touching thing. I was holding her hand, and she described it to me. She got very worried. She didn’t want to take me with her. Very touching. I said, ‘Don’t worry, my feet are on the ground.’ That was when she lost consciousness.”

After her death, in 1994, Soros gathered at his home a group of professionals concerned with issues of death–for instance, the fact that two-thirds of Americans die painfully, in hospitals or hospices. The group decided to put together an organization and, with stark simplicity, called it the Project on Death in America. Soros wrote it a check for $15 million. “It was an extraordinary experience,” says Dr. Kathy Foley, who is PDIA’s director as well as a professor of neurology at Cornell University Medical College and an expert on the treatment of pain. “Most of us were used to groveling for money as physicians, and suddenly someone says, ‘Here’s $15 million. Improve the care of the dying.'”

The PDIA has 38 faculty scholars in 31 medical schools in the U.S. and Canada. Foley hopes they will become role models and help persuade other doctors to change their approach to pain, depression and other death-related issues.

Soros runs his philanthropy and his business from the same place, a couple of floors of shopworn offices in New York City. On two floors overlooking Central Park, Soros Fund Management operates with the standard mission-control banks of computer terminals, manned by frantic traders looking for profits in the interstices of monetary flows. His best-known division, the Quantum Fund, is a so-called hedge fund that invests for rich clients. (See box.) The company itself has $18 billion in assets under management. It is also a vulture investor, taking positions in distressed companies in anticipation of a turnaround, and it is a part owner of businesses ranging from food companies to airlines. Soros has not actively managed the funds in years. That responsibility falls to Stanley Druckenmiller, who by most accounts has done brilliantly at it.

The Open Society Institute, operating on a lower floor, is also run by a professional staff, although it is just as likely to convene in Soros’ beach house in Southampton, N.Y., or at his country place in Westchester County. Those residences and a flat in London are the extent of Soros’ display of wealth. His lack of interest in clothes, cars and other toys of rich boys is apparent. In his spare time he plays tennis, goes skiing or walks on the beach or does mental weight lifting. Soros says he spends a third of his day “thinking, and trying to clarify my own thinking about where I should be going, and where the world is going. Until recently I didn’t feel the need to reflect, but I really do feel the need to spend more time on reflection. It takes a lot of effort, and I am frankly stumped on some issues.” He is married to Susan Weber Soros, a former art magazine publisher who runs Bard College’s respected Graduate Center for Decorative Arts, in Manhattan, which is partly funded by her husband. They have two preteenage children.

It was at his country house that Soros hatched his American program, following what is sometimes called around his office the philosophers’ meeting. He gathered a group of intellectuals, a potpourri of philosophers, sociologists and political scientists, and asked them how he could use his fortune to improve the quality of life and institutions in America. Out of that meeting came a broad-brushed decision to devote attention and money to inner-city education, crime and incarceration, and professions such as law and medicine. Some funding is downright civic minded, including a high school-debate program and a $12 million commitment to the Algebra Project, which seeks to improve the mathematical and intuitive skills of students all over the country.

But Soros and his “philosophers” agreed to try to make a big difference by choosing one or more American cities where they could apply many of his foundation’s programs simultaneously. The test is Baltimore, where the Open Society Institute will spend $5 million a year for the next five years.

Baltimore reflects all the problems of urban America: high rates of AIDS, addiction and welfare. According to city officials, 85% of the city’s crime is drug related. The industrial base has eroded, taking blue-collar jobs with it and depleting the tax base. “We want to engage OSI in social-capital projects to rebuild the center,” says Lee Tawney of the mayor’s office.

If Soros were to run a campaign for public office, his opponent might characterize him as pro drugs, pro crime and even pro death. Being pro algebra would not get him elected. Soros chuckles at the level of vitriol he has attracted while addressing issues and widening debates he believes are vitally important to the country’s future. He is, as he says, “grateful for the abuse,” a sure sign he is having an influence.

Sitting in his New York office, absentmindedly playing with a small stuffed animal, he tries to sum up his resolve. “Once you have survived a life-threatening experience, everything pales after that. But I think integrating the different strands of my character, combining business success with philanthropy, and with reflection, gives me tremendous satisfaction.”

And as long as he is willing to back his principles with cash, he can continue to be influential. He is not likely to run out of cash soon and has taken out a 20-year lease on new offices. Soros plans to indulge what he calls his “messianic tendencies” for a long time to come. There are very few billionaires who yearn to change the world for the better. Soros does. On the basis of his record so far, he will do much more good than harm.