<nettime> OSF NF 5/5/98 letter

[t byfield <tbyfield@panix.com>]

May 5, 1998

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 hink 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.
---
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