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TURNING DOLLARS INTO CHANGE

Savvy financier George Soros gave away $1 billion in Europe. Now he's
turned homeward with some unusual ideas and deep pockets

WILLIAM SHAWCROSS/LONDON 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 marbleplaqued
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
regimewhich Soros the humanitarian opposesto 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 humanrights 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
megabucksestimated at up to $5 billionto 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 "clearcut 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 railinstant 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 hedgefund 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 fatherwho had lived through the Russian Revolutionknew 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 Sovietcontrolled 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 societymeaning 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 truthin the financial
markets, law or everyday lifethey'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 arbitragea 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 oneman 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 shortsold 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 excommunists, called his thesis
"nonsense." Says Soros: "You had a capitalist fool [Steve Forbes, the
magazine's owner] combining with the nationalist righta 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 druglaw
reform. In 1994 he began funding the Lindesmith Center. Its director, Ethan
Nadelmann, campaigns for an end to the socalled war on drugs and advocates
sweeping drugpolicy reforms. Soros has committed at least $15 million to
Lindesmith and other groups. Last fall he became a target of the
zerotolerance 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, outofstate 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 lightningrod 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 nobrainer 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
criminaljustice 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 KublerRoss'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 deathfor instance, the fact that
twothirds 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
deathrelated 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
missioncontrol banks of computer terminals, manned by frantic traders
looking for profits in the interstices of monetary flows. His bestknown
division, the Quantum Fund, is a socalled 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 broadbrushed decision to devote attention and money to
innercity education, crime and incarceration, and professions such as law
and medicine. Some funding is downright civic minded, including a high
schooldebate 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 bluecollar jobs
with it and depleting the tax base. "We want to engage OSI in
socialcapital 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
lifethreatening 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 20year 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.