The Seed Money for Democracy

It’s an accomplishment that Hungarian-born financier George Soros doesn’t flaunt. Bragging about it, after all, could just make his global democracy-building mission more difficult.

But the multibillionaire philanthropist quietly played a key role in the dramatic overthrow last year of President Slobodan Milosevic. His Soros Foundations Network helped finance several pro-democracy groups, including the student organization Otpor, which spearheaded grass-roots resistance to the authoritarian Yugoslav leader.

“We were here to support the civil sector--the people who were fighting against the regime of Slobodan Milosevic the past 10 years,” said Velimir Curgus of the Soros network’s Belgrade branch. “Most of our work was undercover.”

Soros’ efforts in Yugoslavia reflect just a small part of his enormous financial support over the past decade--at first tens of millions, then hundreds of millions a year--for democratically minded groups throughout the former Communist world. This work, which got his branch in Belarus expelled from that country in 1997, has helped strengthen thousands of nonprofit organizations in countries where, up until 1989, Communist parties ran almost everything.

Throughout Eastern Europe, find an independent group that promotes ethnic understanding, a free press or help for the disadvantaged and disabled, and it is likely that some of its money comes from Soros. The man seems to be everywhere.

Soros, 70, was once best known as the speculator who “broke the Bank of England” by reputedly making $1 billion in a single week in September 1992 betting against the British pound. But his main interest the past decade has been promoting democracy in the region of his birth. Globally, his network has spent or given away $2.8 billion since 1990, most of it in formerly Communist states.

“When I got involved there was a pressing issue, which was the collapse of the Soviet empire and the transition from a closed to an open society,” Soros explained. “It was an historical opportunity, and I rushed in.”

As Communist controls disappeared, resurgent nationalism, ethnic intolerance, pressure on free speech and authoritarian rulers threatened hopes for democracy. Soros saw as the antidote strong citizen organizations, respect for civil liberties and minority rights, the rule of law and the growth of market economies.

The Soros Foundations Network now lists branches in 27 formerly Communist countries. But Soros also believes that his principles are universal. His foundation has opened branches in Guatemala and Haiti as well as two branches serving 10 countries in southern Africa. It has also launched initiatives involving Myanmar, formerly Burma, and 16 countries of West and Central Africa.

It spends about 20% of its roughly $500-million annual budget on programs in the United States. In South Africa, it focuses on education and criminal justice. The New York-based Burma Project works for democratic change in that country. In general, the branches mainly disburse money to other nongovernmental organizations, but they also run some programs directly.

Yugoslavia was a case where everything democrats had worried about--extreme nationalism, ethnic conflict, corruption, media controls and bickering among opposition political parties--were at their worst. Yet, just as Soros had calculated, it was a grass-roots surge by strong citizen organizations that won the battle for democracy.

Soros’ branch in Belgrade, the Yugoslav and Serbian capital, was among the earliest backers of Otpor, which grew under young and decentralized leadership to strengthen the fractured opposition to Milosevic. “We gave them their first grant back in 1998, when they appeared as a student organization,” said Ivan Vejvoda, executive director of the Fund for an Open Society-Yugoslavia, the network’s branch here.

Foreign financial support helped Otpor surreptitiously print about 60 tons of posters and leaflets in the months before the Sept. 24 election that led to Milosevic’s ouster, said Miljana Jovanovic, a student who is one of the movement’s leaders.

Otpor also ran humorous political ads on municipal television stations controlled by the opposition. One showed a homemaker using an “election” washing machine to get rid of a “Milosevic” clothing stain.

Vejvoda said his office also gave early funding to a group of economists called G-17, which grew into a kind of think tank for the Serbian opposition. In addition, Soros helped fund independent media in Serbia, the dominant republic of Yugoslavia, to counter powerful state television, which functioned as a mouthpiece for Milosevic.

Curgus said he believed that Milosevic tolerated the fund for several reasons: The Yugoslav president viewed it as a link for communications with Washington and a potential source of humanitarian aid; its existence gave the regime a veneer of democracy; it brought in hard currency that was exchanged at rates extremely favorable for the government; and the regime was simply too busy to deal with Soros.

Soros’ actions fit the global tradition of the local boy made good, who returns home to build a new school or to finance charities. He has simply done this on a grand scale.

A Firsthand Experience of Oppression

The son of a Hungarian Jewish lawyer, Soros had firsthand experience of both Nazi and Communist oppression. He survived the Holocaust because his father bought the family false identity papers and found places to hide. In 1947, Soros fled Soviet-controlled Hungary for London.

While a student at the London School of Economics, he was influenced by the views of philosopher Karl Popper, whose book “Open Society and Its Enemies” was a damning attack on totalitarianism. Soros moved to the United States in 1956 and became a citizen.

In the 1960s and 1970s, he became an expert in financial arbitrage and hedge funds, winning incredible profits from fluctuations in currency rates and market values. But getting rich didn’t make him happy. He established his first philanthropic foundation, the Open Society Fund, in New York in 1979.

His first overseas branch was set up in Hungary in 1984, when communism was still entrenched in Eastern Europe. Soros picked a former political prisoner as his personal representative in Budapest, the capital.

Miklos Vasarhelyi had served as press secretary in the reformist government of Prime Minister Imre Nagy, leader of a 1956 revolt that was crushed by Soviet tanks. Nagy was executed in 1958 after a trial in which Vasarhelyi was one of the co-defendants.

Vasarhelyi said that in 1984, he was still “a political nonperson,” yet he managed to arrange cooperation between Soros and the Hungarian Academy of Science--a Communist-controlled but relatively open-minded institution.

“At this time our main purpose was to soften the dictatorship and support cultural and social institutions which were not forbidden by the state,” recalled Vasarhelyi, 83, who remains active as board chairman of the Soros Foundation-Hungary.

After the fall of the Berlin Wall in late 1989, the network experienced explosive growth, with funding increasing from $11.4 million in 1990 to $184 million in 1993 and a peak of $575 million in 1998. The Hungarian branch alone received 30,000 grant requests in 1998--when its budget was about $20 million--and gave money to nearly 13,000 applicants, Vasarhelyi said.

The vast majority of groups funded by Soros are not nearly as powerful as Otpor, nor do they play for such huge stakes.

More typical are efforts such as “horse-riding therapy” for disabled children, funded by the network’s Polish branch, the Stefan Batory Foundation. This treatment, in which children ride gently on horses with trainers walking alongside, is aimed at providing both physical and psychological benefits to children with problems such as cerebral palsy or Down syndrome.

This might appear to have nothing to do with promoting open societies. But it does so by linking the parents of more than 100 disabled children in a nongovernmental structure.

“We started with horse-riding therapy,” said Anna Struminska, director of the Horse Riding Therapy Foundation for Aid to Disabled Children. “Then those children grew up and went to schools, and it turns out there are problems in the schools. So we created another organization to fight to solve those problems. In a few years they’ll start to graduate, and we’ll have to fight for jobs for them.”

“It will be an open society if people become part of it who previously have been thrown to the side,” she said. Her organization has received more than $40,000 since 1997.

“We’re aware of the fact that the funds one day will stop coming,” Struminska said. “But we’re a stable organization now. We’re not going to surrender and let go. I think the importance of such grants is incredible--not just financially but in the psychological strength it gives you.”

Anti-Semitism, Tax Allegations

Soros has faced his share of trouble over the years, including anti-Semitism and allegations by some countries of tax and currency violations by his organizations, which have denied the charges.

“Soros is a Hungarian and a Jew, and in Romania this characteristic is not necessarily the best of all,” said Gabriel Petrescu, executive director of the Open Society Foundation-Romania. Soros-backed groups trying to work on issues such as reforming the criminal justice system have a better chance of success if they have their own identity, he said.

In the mid-1990s, in addition to the allegations of tax and currency violations used to drive the Soros network out of Belarus, branches in Yugoslavia, Albania, Kyrgyzstan and Croatia were accused by authoritarian leaders of shielding spies and breaking currency laws.

Yet, because it mainly provides funding, these governments all hesitated to throw the Soros network out. The result was that Soros’ money could continue flowing into the countries, laying the groundwork for democratic change.

Soros has also run into difficulty with conservative politicians with solid democratic credentials who sometimes think that his efforts are directed toward strengthening the influence of the left. Bad feelings between Soros and former Czech Prime Minister Vaclav Klaus are blamed for the decision to move Central European University, which Soros founded in 1991, from Prague to Budapest.

But with democracy increasingly well entrenched in Eastern Europe, Soros is edging toward a partial declaration of victory: He is starting to scale back his presence in post-Communist countries seeking to join the European Union--partly because the EU is now pressing for many of the same goals that Soros has pushed for years.

Moreover, Soros is starting to focus on how to wean the entire network from annual infusions of his funds.

“I’m not going to be around forever, and I had not intended to set up something that lasts forever,” Soros said. “I’m giving the network a limited lifetime of 10 years [from 2000], so during that 10 years they have to think about how the things they are doing are going to be continued. It should rely more on its ideas and less on my money.”

Fund-raising certainly isn’t easy for any institution perceived as a Soros outfit.

“As ‘Soros,’ I can’t fund-raise,” said Petrescu in Romania. “It’s insane. Even the World Bank wants money from us.”

Even as Soros seeks to transform many branches of the network into independent self-sustaining institutions, he is preparing to provide endowments for some of them. That goal has already influenced how he is managing his own money, with a switch last year to a much more conservative style.

His financial focus now is on his Quantum Endowment Fund, formed last year from other once-aggressive hedge and growth funds. This safer fund, he said, will be used not only to manage his own wealth but also to provide permanent endowments for some of the institutions he has founded, including Central European University.

Asked how he would assess his accomplishments, Soros replied: “I think that I’ve strengthened the concept of an open society. I’ve helped individual countries to become more open societies, and I hope that I’m also helping now toward the establishment of a global open society. . . . Anyway, I’m putting my money where my mouth is.”