Syndicate: a long letter from Uncle George (fwd)

[Andreas Broeckmann <abroeck@v2.nl>]

To:     The National Foundations
From:   George Soros

A)  A number of factors have come together to induce me to engage in a
radical rethinking of my strategy for the foundation network.  I want to
encourage the people engaged in the foundations to participate in the
process to the greatest possible extent. That is why I am distributing
this paper now well in advance of the General Assembly in June. The paper
and your response to it will then form the basis of discussion at the
General Assembly. I want the process to produce radical changes in the way
the network operates in the first decade of the next century.

The various factors have come together because they are interconnected.
They all have to do with the revolutionary transformation which has
occurred in the region and the network's role in it. Here they are:

1)  The network came into existence to foster the transition from closed
to open societies. It was meant to exploit to the full the opportunities
presented by a revolutionary moment, and by and large it has succeeded in
this endeavor. (My greatest disappointment was in Russia as I have
explained elsewhere). It was not meant to be a permanent organization. The
revolutionary moment has now passed. There are things for the foundations
to do but we must decide what they are. We must engage in a kind of
strategic thinking that was not necessary at the creation. Indeed if I had
indulged in it, the network would not have come into existence.  I have
been encouraging the foundations to do some strategic thinking but I am
now forced to do it myself because certain decisions cannot be taken
within individual foundations.

During the revolutionary moment, I empowered a group of people in each
country to decide what the priorities of the foundation should be. This
was an important element in our success. Not only did the local people
know better what needs to be done than anybody from the outside but it
also allowed the foundation to serve as a prototype of an open society.
Conditions have changed. Different countries are not only in different
stages of development but they are also moving in different directions.
Some are well on the way to joining the European Union. Others are
regressing.  Foundations need to play different roles in different
countries. While the people in the country concerned are still best
qualified to decide what role the foundation ought to play, I must
allocate my funds not only among different countries but also among
different kinds of activities. This requires strategic decisions which
only the donor can make. While I want to consult with the foundations I
cannot leave these decisions in their hands. For instance, I think it is
more important to build up the provincial universities in Russia than to
spend money on Hungarian universities. This is not a decision that can be
made by the Hungarian or the Russian foundation on its own.

2)  During the revolutionary period we were not confined by the lack of
funds. I was willing to spend practically any amount of money provided it
was well spent. I have continued to act on this principle even after the
revolutionary moment has passed because I was determined to spend as much
of my fortune during my lifetime as possible. I have deliberately created
a situation where our spending exceeds my income. This is unsustainable. I
have committed myself to keep the network in existence until the year
2010, but we cannot continue spending at an ever-increasing rate.
Therefore we must establish a method of allocating funds in a way that
allows for cutting as well as adding. Moreover the allocation process must
be more closely correlated with the amount of available income. Since the
flow of income is unpredictable, the allocation process must become more
flexible than it is currently. I think I will be able to project the
amounts available three years ahead so with proper planning there will be
no need to make unpremeditated cuts.

3)  I have always been aware of the danger of unintended consequences. It
is an essential element in the concept of open society. It applies with
particular force to philanthropic activities because they are not subject
to the checks and balances that apply to other spheres of activity.
Foundations need to subject themselves to constant critical reexamination.
This constraint is better imposed by a live donor than a dead one. That is
why I have deliberately created the conditions where a thorough rethinking
and reorganization becomes necessary (I don't want to be like Mao Tse-Tung
with his permanent cultural revolution. I hope the consequences will be
less disastrous).  Left to its own devices, every institution is driven by
inertia. If I allowed the network to continue along its present path, it
would be sure to disintegrate after the year 2010. That would be a pity
because there are some institutions and activities supported by the
foundations which ought to have a more enduring future. Perhaps also some
aspects of the network itself, such as a new version of the East-East
Program, ought to be supported beyond 2010.  We must start thinking now
about the longer range future.

4)  I am very proud of what the network has accomplished. Whatever we do
in the future, it is unlikely to equal in historical significance what we
have done until now. Sometimes a glorious past can interfere with facing
the future. Some programs need to be terminated exactly because they have
succeeded. When I am asked which project pleases me most, I always mention
the International Science Foundation not because it was better than others
but because it has ended.

I would therefore welcome an opportunity to draw a line under our
accomplishments to date so that they will not be overshadowed by what we
do hereafter. Such a dividing line would prevent the network from living
on its accumulated goodwill and it would force the foundations to justify
their continued existence by their current accomplishments. I am an
advocate of a sunset clause for public and philanthropic institutions. I
would have liked to see a sunset clause for the United Nations when it
reached the age of 50.  It would give me great satisfaction to demonstrate
in practice how such a sunset clause works. I should like the foundations
to start a new phase in 2001 by developing a strategy appropriate to the
present conditions and continuing only those programs which can be
justified by the new strategy.

5)  Now that the revolutionary period has passed and I have extended my
philanthropic activities to other parts of the world, it is not clear to
me how much of my resources I should devote to the region and why.
Although I retain an emotional involvement, I need better justification
for spending my money than I needed during the moment of revolutionary
opportunity.  This could be achieved by foundations behaving more like
grant seekers, justifying their requests. Where I differ from other donors
is that I know what I don't know. I don't want long proposals. I don't
want to understand programs better than the people engaged in them. Once I
have decided my priorities I want to rely on the people involved to the
greatest possible extent.


B)  Here are some preliminary thoughts on how these considerations could
shape the next phase of the network:

1)  The countries within the network are becoming increasingly
differentiated. While each country is unique, we need to make some
generalizations for strategic purposes. I should like to establish three
major categories.

First, there are the countries which are well on their way towards joining
Europe. They include Poland, Hungary, the Czech Republic, the three Baltic
Republics, and Slovenia, with Romania, Bulgaria, Bosnia and Croatia on the
margin.

Second, at the other extreme we find countries which are in a regressive
or reactionary mode. These include Belarus, Yugoslavia, Croatia, Slovakia.
Here the foundations operate in a hostile environment and generally
speaking they know what needs to be done.

Third, the large majority of foundations lie in between these two
extremes. They should not be lumped together but differentiated according
to the level of economic and political development.

2)  As the transition from closed to open society made progress, the
deficiencies of the prevailing form of open society, even in the West,
have become increasingly apparent. I do not want to go into details; my
views on the subject will soon become available in book form. Suffice it
to say that there is a continuing role for a foundation even in an open
society but its objectives and methods of operation ought to be radically
different from what they are now.  The way the Open Society Institute
operates in the United States may be more relevant. It has a clearly
formulated strategy and I would like to see a similar, albeit not
identical, development in the countries concerned. For your information,
the programs of OSI New York fall under three major headings:

1.  What I would call the unintended adverse consequences of imperfect
understanding. There are problems which have no solutions. Death is one,
and drug abuse is another. Refusing to acknowledge the problem can make
the situation worse than it would be otherwise. By refusing to accept
death as the natural ending of life, we can make the pain and fear
associated with dying worse than it needs to be. In the case of drugs, the
war on drugs is doing more harm than drug abuse itself.

2.  The deficiency of values characteristic of open society which has
allowed market values to penetrate into areas where they do not properly
belong such as politics, culture and the professions.  This leads to
issues of professionalism in medicine and law and campaign finance reform.
In our region, the issues of corruption, corporate governance and
conflicts of interest would fall into the same category.

3.  There are certain areas of activity which ought not to be solely the
domain of either State or market. These are the areas where philanthropy
has been traditionally active such as education, culture and the
disadvantaged.

Based on these ideas we have established some really innovative and
worthwhile activities. Since philanthropy in the United States is well
developed, we have given priority to the first two topics because the
field is less crowded.  Even so the bulk of our spending has been in the
third because I prefer to spend large amounts of money on programs which
directly effect large numbers of people. (See # 5 below.) I can see even
more justification for spending relatively more money on the third topic
in the newly open societies of Eastern Europe because the needs are great
and philanthropy is less well developed.

I do have an emotional commitment to the region and to the foundations,
and the foundations have carved out a respected position for themselves,
but I feel strongly that I should not continue to be the sole source of
support for certain programs in certain countries after the year 2000. In
the first group of 7 countries, I want to restrict the kinds of programs
for which I am willing to remain the sole source of support. For instance,
I am willing to be the sole support of Roma programs but not necessarily
the sole support for cultural journals. It will be the task of the working
groups to advise me in formulating my strategy.

The foundations in the first group of seven countries will have to decide
whether they want to raise funds from other sources or restrict the scope
of their activities. In the US, we have developed the concept of a
"selfless foundation" where we sponsor or inspire a project but do not
claim ownership. For instance, in starting the "After School" project in
New York I am going out of my way to get other funders involved from its
inception.

As for operating in a hostile environment, that is where the foundations
flourish. I am heartened by the support they receive from mature
foundations.

In the transition countries, the present program areas are by and large
well justified but the way we go about them needs to be improved.
Professional competence needs to be given greater weight. To justify a
program, we must bring more to the table than just money. Our role should
be to foster innovation and systemic improvement. We are doing it now but
we could do it better. I am looking for significant changes but I do not
want to jump to any hasty conclusions. I do not want professionalism to be
translated into bureaucracy.

Foundations in transition countries must pay more attention to where these
countries are heading. Many of them combine the ills of open society with
those of closed society, creating a very unattractive brew. Take for
instance Ukraine, a country which has given corruption a bad name.
Transparency, corporate governance, protection of minority shareholders,
clean government, prison reform, police reform--these are just some of the
topics these foundations could usefully address.

3)  Having a regional network is one of our great assets and we ought to
preserve it. It allows us to learn from each other and to establish best
practices.  We are also filling a unique role in fostering East-East
relations and we ought to explore new approaches.

4)  We must decide case-by-case what outcome we expect from our
activities.

(1) Some need to be endowed so as to assure them of a permanent existence,
e.g.: the CEU.  (2) Others may be continued as long as the network is in
existence, e.g.:  scholarships.  (3) Yet others could become
self-sustaining, e.g.: debate and Step-by-Step. (4)  Some should be
terminated, e.g.: subsidies to publishers. (5) Where we are entering a
program area for a limited period in order to make a difference, we should
have clear objectives and evaluation criteria and an exit strategy. Our
role should be limited to demonstration programs, seed financing and
bridge financing, e.g. education. (6) We must also respond to emergencies,
e.g.: school feeding in Bulgaria. We must begin to differentiate between
these various categories.

   5)  In order to give us the necessary flexibility, we need to keep our
commitment to ongoing activities to a small budget and avoid dependency by
the institutions we support. Generally speaking I feel more comfortable
spending large amounts of money when they directly benefit a large number
of people. In programs concerned with ideas and elites, money could be a
source of corruption by building a clientele around the foundations. I
have a feeling that the foundations have become far too preoccupied with
the spending of money and have not given sufficient thought to what needs
to be done. Ideas, principles and examples can be more important than the
amount of money spent.


C)   Structural changes

1)  To translate these ideas into practice, we must bring the strategic
decision-making closer to the donor while keeping the decisions involved
in the execution of programs as close to the ground as possible. This can
be achieved by relatively modest modifications in the existing structure.
The national foundation budgets would be broken up into line items.
Discretionary funds designed to give the foundation flexibility would also
become a line item. Matching funds for network programs would be another
line item. The line items would cover the major program areas: higher
education, lower education, publishing etc. Each program area would have
its own decision-making process at the national level.  For instance, when
we spend significant amounts on education or public health or Roma, I
would want a national foundation sub-board in charge of the program, not
the national board. Members of the national board could of course be
members of sub-boards as well.

2)  In order to assist me in the strategic decision-making, I want to form
sub-boards of the OSI Budapest Board. The membership of these sub-boards
would be drawn from the national foundations and from the OSI Board, with
the possible addition of one or two outside experts. They would be
assisted by the network program coordinator.

3)  In certain program areas national foundation strategies would have to
be approved by the OSI sub-board before they can be implemented. In this
way we would ensure that there is an overall strategy in the network. For
instance, we will not spend money on supporting media or printing text
books, except in countries where we decide to make an exception.

4)  The role of the network program coordinators is liable to change. At
present they assist the national foundations. In the future they will also
assist the OSI sub-boards and through them exercise indirect control over
some national foundation line items. This is an issue that needs to be
carefully considered.**

5)  In the case of network programs such as HESP, spending in particular
countries would be subject to the advice, but not the approval, of the
national foundation. The same applies to grants made directly by the OSI
Board or a sub-board. This is already the case.

6)  In this way there would be one particular body responsible for every
item of spending, but I as the funder would have the benefit of advice
from two sources: one national, one network. When the spending body is in
the national foundation some network advice would be brought to bear, and
when that body is regional there is an input from the national
foundations.

7)  I would not change the matching fund arrangement for network programs
unless the foundations are dissatisfied with it but it will be specified
which network program is available to which foundations. This should be a
subject of discussion.

8)  I recognize the need to clarify the relationship between national
boards and national sub-boards for each country and each program area.
This should be decided on a case-by-case basis, proposed by the national
foundation boards, and agreed to by the OSI Budapest Board. We need
professionalism but we also need to insure that the mission of the
foundation takes precedence over professional interests.

9)  National boards should be preoccupied with strategic thinking and the
selection of people whom they can trust rather than spending decisions. In
particular, I would expect them to pay more attention to network programs
over which they do not have direct spending authority.

10)  I very much hope that new program areas will be created. At the
network level, we have entered micro-lending and small business
development in the belief that a broad economic base is indispensable for
a democratic society. The support of policy studies is another subject I
should like to discuss. I look for new ideas and approaches from the
national level.

11)  The new structure should produce cooperation between network program
coordinators and national foundations on program design but leave spending
decisions to be exercised at the local level. The OSI Budapest board would
allocate funds to program areas as well as national foundations. The funds
would then be reallocated among the various countries according to their
needs and the ability of the foundations to deliver. For instance, I want
to give high priority to the development of provincial universities in
Russia and I am willing to spend a lopsided amount both in the relation to
the total spending in Russia and the total spending on universities, but I
will not authorize any spending until I am satisfied both through the
national foundation and the Educational Policy Institute that the program
is in the right hands. (In this case the decision-making body in Russia
may include a member of the Institute for Educational Policy or of HESP.)


D)   The General Assembly

I should like the June General Assembly to start the strategic planning
process for the next phase of the foundation. After a general discussion
of this paper and any comments that may be circulated prior to the
meeting, I should like the General Assembly to break up into the following
working groups:

   1. Higher Education incl. scholarships and research
   2. School and Preschool Education
   3. Non-school education and youth, e.g.: debate

   4. Culture I:   Internet
         Library
         Publishing

   5. Culture II:   Cultural periodicals
           SCCA and visual arts
         Theatre
         Documentaries
         Other cultural

   6. Public Administration
      Law
      Criminal Justice

   7. Economics + Business education

   8. Roma

   9. East-East + Conference + Travel

   10. Public Health

   11. Institution building

   12. Disadvantaged
      Minorities
      Women
      Civil Society


   Their task with regard to specific program areas
will be:

1.  To take an inventory of existing programs.  Classify them and rank
them in order of priority specifying country or group of countries. I need
to know what is the long-term outlook for each program, and particularly
which programs will require funding beyond a 3 year time horizon including
how to sunset.

2.  To start considering a coherent strategy for the future.

Here are my current thoughts on some of the main program areas which
should be critically examined by the working groups.

   Education: This should remain a major focus of the foundation. The CEU
needs permanent endowment. The HESP supported institutions also require
long-term funding with a minimum 10 year time horizon. Scholarships should
be an on-going activity as long as the foundations exist but the amounts
can be varied according to the availability of funds with a 3 year time
horizon. Other educational programs would be under the guidance of the
Educational Policy Institute, resulting in specific line item allocations
with no more than a 3 year time horizon. Specific attention should be paid
to the uses of new technologies e.g.:  Internet. Non-school educational
programs should be supported out of the discretionary funds of national
foundations. Non-school youth programs could also be considered by this
working group. It should remain an area of priority and could be handled
on both a national and network basis as they are presently.

   Culture: Internet, library and publishing could fall into another
working group. I consider culture a legitimate sphere of activity for
foundations in open societies but objectives and guidelines need to be
clarified. I should like to see policy papers on (1)  publishing, (2)
Internet, (3) support of cultural periodicals, (4) SCCA and the visual
arts, (5)  theaters, (6) documentary films, (7) libraries and (8)  the
support of other cultural institutions and events prepared and circulated
prior to the General Assembly.

   Public and local administration is becoming an increasingly important
field of activity. I should like the working group to consider the role of
policy institutes and policy fellows. This could become a key element in
the new phase of the network. It could spearhead our entry into new areas
such as prison reform or police reform, or how to deal with corruption. A
policy paper may be prepared in advance.

      Law and legal education is shaping up well under the new direction
of COLPI and could be merged with the previous working group.

      Our media strategy is clear and probably does not require a special
working group.

      Roma. This is a festering issue which goes to the core of the open
society mission and I should like to increase our involvement. There are
special organizational and attitudinal problems that need to be addressed
by the foundations concerned. I favor a pluralistic approach with two main
threads: enabling Roma to develop a high culture and a sense of identity
and encourage them in self-organization, and at the same time helping them
to function better in modern society and even assimilate if they wish. At
the same time, the attitude of non-Roma needs to be changed, stereotypes
revised, and the rights of Roma protected.  The various missions cannot be
carried out by the same people. This creates organizational issues which
need to be resolved. I propose a longer working group on June 24th prior
to the General Assembly.

      East-East relations need to be reinforced and the parameters of
existing programs enlarged.  A policy paper had been commissioned and
could be considered by the plenum.

      Civil society institution building presents important issues that
need to be resolved. Particular attention should be paid to institutions
sponsored by us such as the Open Society Clubs in Bulgaria and the
Community Clubs in Yugoslavia. I also need to know which institutions
require ongoing support beyond a 3 year horizon.

      I do not think that civil society other than institution building
needs to be considered separately.  It falls within the purview of the
discretionary activities of national foundations.

There are two major issues that remain unresolved in my mind on which I
look for guidance from the foundation network.

1.   Administration

At this point, we have a tremendously complicated machinery, which is very
expensive to maintain; there is an awful lot of communications and an
awful lot of different levels of decision-making. The way in which I have
tried to keep costs down has been by increasing the amount we spend--by
increasing the budget, the administrative portion seems less! However,
since we never actually spend the budget--we have spent on average 80% of
the budget--our administrative costs were effectively that much higher.
The effect of the mega-projects has been to increase the size of the
foundations beyond a sustainable level.  A simple downsizing is likely to
have very negative dynamics.  Usually you cut programs without cutting
staff and administration; and the continuation of existing programs takes
precedence over the introduction of new programs. Cutting budgets usually
hurts the performance of institutions, and I would like to avoid that. A
discussion of the subject could start at the General Assembly between
Stewart Paperin and the Executive Directors.

2.   Governance

The present organization of the foundation is based on my personal trust
in individuals. This has served us well but it cannot be extended into the
next phase of the foundation's life mainly because of my own inability to
continue the level of involvement that I maintained during the
revolutionary period. While commitment to the principles of open society
has to remain the basis of our organization, we must strengthen an
institutional mechanism for changing boards, sub-boards and executive
directors. This is an issue that ought to be sorted out between the OSI
Board and the Chairmen of the National Boards. The discussion could begin
at the General Assembly. The governance of institutes sponsored by us and
their relation to the national foundations also needs to be considered.

Deborah Harding is preparing a timetable for the General Assembly in
accordance with this paper. I look forward to seeing you there.