Remarks delivered at the World Economic Forum
January 25, 2018
The current moment in history
It has become something of an annual Davos
tradition for me to give an overview of the current state of the
I was planning half an hour for my remarks and half an
hour for questions, but my speech has turned out to be closer to
an hour. I attribute this to the severity of the problems
confronting us. After I've finished, I'll open it up for your
comments and questions.
So prepare yourselves.
I find the current moment in history rather painful. Open
societies are in crisis, and various forms of dictatorships and
mafia states, exemplified by
Putin's Russia, are on the rise. In
the United States, President Trump would like to establish a
mafia state but he can't, because the Constitution, other
institutions, and a vibrant civil society won't allow it.
Whether we like it or not, my foundations, most of our grantees
and myself personally are fighting an uphill battle, protecting
the democratic achievements of the past.
My foundations used to
focus on the so-called developing world, but now that the open
society is also endangered in the United States and Europe, we
are spending more than half our budget closer to home because
what is happening here is having a negative impact on the whole
But protecting the democratic achievements of the past is not
enough; we must also safeguard the values of open society so
that they will better withstand future onslaughts. Open society
will always have its enemies, and each generation has to
reaffirm its commitment to open society for it to survive.
The best defense is a principled counterattack. The enemies of
open society feel victorious and this induces them to push their
repressive efforts too far, this generates resentment and offers
opportunities to push back. That is what is happening in places
like Hungary today.
I used to define the goals of my foundations as "defending open
societies from their enemies, making governments accountable and
fostering a critical mode of thinking". But the situation has
deteriorated. Not only the survival of open society, but the
survival of our entire civilization is at stake.
The rise of
leaders such as Kim Jong-Un in North Korea and
Donald Trump in
the US have much to do with this. Both seem willing to risk a
nuclear war in order to keep themselves in power. But the root
cause goes even deeper.
Mankind's ability to harness the forces of nature, both for
constructive and destructive purposes, continues to grow while
our ability to govern ourselves properly fluctuates, and it is
now at a low ebb.
The threat of nuclear war is so horrendous that we are inclined
to ignore it. But it is real. Indeed, the United States is set
on a course toward nuclear war by refusing to accept that North
Korea has become a nuclear power.
This creates a strong
incentive for North Korea to develop its nuclear capacity with
all possible speed, which in turn may induce the United States
to use its nuclear superiority preemptively; in effect to start
a nuclear war in order to prevent nuclear war - an obviously
The fact is, North Korea has become a nuclear power and there is
no military action that can prevent what has already happened.
The only sensible strategy is to accept reality, however
unpleasant it is, and to come to terms with North Korea as a
the United States to cooperate with
all the interested parties,
China foremost among them.
holds most of the levers of power against North Korea, but is
reluctant to use them. If it came down on Pyongyang too hard,
the regime could collapse and China would be flooded by North
What is more, Beijing is reluctant to do any
favors for the United States, South Korea or Japan - against each
of which it harbors a variety of grudges.
will require extensive negotiations, but once it is attained,
the alliance would be able to confront North Korea with both
carrots and sticks. The sticks could be used to force it to
enter into good faith negotiations and the carrots to reward it
for verifiably suspending further development of nuclear
The sooner a so-called freeze-for-freeze agreement can
be reached, the more successful the policy will be.
be measured by the amount of time it would take for North Korea
to make its nuclear arsenal fully operational. I'd like to draw
your attention to two seminal reports just published by Crisis
Group on the prospects of nuclear war in North Korea.
The other major threat to the survival of our civilization is
climate change, which is also a growing cause of forced
migration. I have dealt with the problems of migration at great
length elsewhere, but I must emphasize how severe and
intractable those problems are.
I don't want to go into details
on climate change either because it is well known what needs to
be done. We have the scientific knowledge; it is the political
will that is missing, particularly in the Trump administration.
Clearly, I consider the Trump administration a danger to the
world. But I regard it as a purely temporary phenomenon that
will disappear in 2020, or even sooner.
I give President Trump
credit for motivating his core supporters brilliantly, but for
every core supporter, he has created a greater number of core
opponents who are equally strongly motivated.
That is why I
expect a Democratic 'landslide' in 2018...
My personal goal in the United States is to help reestablish a
functioning two-party system. This will require not only a
landslide in 2018 but also a Democratic Party that will aim at
non-partisan redistricting, the appointment of well-qualified
judges, a properly conducted census and other measures that a
functioning two-party system requires.
The IT monopolies
I want to spend the bulk of my remaining time on another global
the rise and monopolistic behavior of the giant IT
These companies have often played an
innovative and liberating role.
grown into ever more powerful monopolies, they have become
obstacles to innovation, and they have caused a variety of
problems of which we are only now beginning to become aware.
Companies earn their profits by exploiting their environment.
Mining and oil companies exploit the physical environment;
social media companies exploit the social environment.
particularly nefarious because social media companies influence
how people think and behave without them even being aware of it.
This has far-reaching adverse consequences on the functioning of
democracy, particularly on the integrity of elections.
The distinguishing feature of internet platform companies is
that they are networks and they enjoy rising marginal returns;
that accounts for their phenomenal growth. The network effect is
truly unprecedented and transformative, but it is also
It took Facebook eight and a half years to reach
a billion users and half that time to reach the second billion.
At this rate, Facebook will run out of people to convert in less
than 3 years.
Facebook and Google effectively control over half of all
internet advertising revenue.
To maintain their dominance, they
need to expand their networks and increase their share of users'
attention. Currently they do this by providing users with a
convenient platform. The more time users spend on the platform,
the more valuable they become to the companies.
Content providers also contribute to the profitability of social
media companies because they cannot avoid using the platforms
and they have to accept whatever terms they are offered.
The exceptional profitability of these companies is largely a
function of their avoiding responsibility for - and avoiding
paying for - the content on their platforms.
They claim they are merely distributing information. But the
fact that they are near- monopoly distributors makes them public
utilities and should subject them to more stringent regulations,
aimed at preserving competition, innovation, and fair and open
The business model of social media companies is based on
advertising. Their true customers are the advertisers. But
gradually a new business model is emerging, based not only on
advertising but on selling products and services directly to
They exploit the data they control, bundle the services
they offer and use discriminatory pricing to keep for themselves
more of the benefits that otherwise they would have to share
with consumers. This enhances their profitability even further - but the bundling of services and discriminatory pricing
undermine the efficiency of the market economy.
Social media companies deceive their users by manipulating their
attention and directing it towards their own commercial
purposes. They deliberately engineer addiction to the services
they provide. This can be very harmful, particularly for
There is a similarity between internet platforms
and gambling companies. Casinos have developed techniques to
hook gamblers to the point where they gamble away all their
money, even money they don't have.
Something very harmful and maybe irreversible is happening to
human attention in our digital age. Not just distraction or
addiction; social media companies are inducing people to give up
their autonomy. The power to shape people's attention is
increasingly concentrated in the hands of a few companies.
takes a real effort to assert and defend what John Stuart Mill
called "the freedom of mind."
There is a possibility that once
lost, people who grow up in the digital age will have difficulty
in regaining it. This may have far-reaching political
consequences. People without the freedom of mind can be easily
manipulated. This danger does not loom only in the future; it
already played an important role in the 2016 US presidential
But there is an even more alarming prospect on the horizon.
There could be an alliance between authoritarian states and
these large, data-rich IT monopolies that would bring together
nascent systems of corporate surveillance with an already
developed system of state-sponsored surveillance.
This may well
result in a Web of Totalitarian Control the likes of which not
Aldous Huxley or
George Orwell could have imagined.
The countries in which such unholy marriages are likely to occur
first are Russia and China. The Chinese IT companies in
particular are fully equal to the American ones. They also enjoy
the full support and protection of the Xi Jingping regime.
government of China is strong enough to protect its national
champions, at least within its borders.
US-based IT monopolies are already tempted to compromise
themselves in order to gain entrance to these vast and fast
growing markets. The dictatorial leaders in these countries may
be only too happy to collaborate with them since they want to
improve their methods of control over their own populations and
expand their power and influence in the United States and the
rest of the world.
The owners of the platform giants consider themselves the
masters of the universe, but in fact they are slaves to
preserving their dominant position. It is only a matter of time
before the global dominance of the US IT monopolies is broken.
Davos is a good place to announce that their days are numbered.
Regulation and taxation will be their undoing and EU Competition
Vestager will be their nemesis.
There is also a growing recognition of a connection between the
dominance of the platform monopolies and the rising level of
inequality. The concentration of share ownership in the hands of
a few private individuals plays some role but the peculiar
position occupied by the IT giants is even more important.
have achieved monopoly power but at the same time they are also
competing against each other.
They are big enough to swallow
start-ups that could develop into competitors, but only the
giants have the resources to invade each other's territory. They
are poised to dominate the new growth areas that artificial
intelligence is opening up, like driverless cars.
The impact of innovations on unemployment depends on government
policies. The European Union and particularly the Nordic
countries are much more farsighted in their social policies than
the United States. They protect the workers, not the jobs. They
are willing to pay for re-training or retiring displaced
This gives workers in Nordic countries a greater sense
of security and makes them more supportive of technological
innovations than workers in the US.
The internet monopolies have neither the will nor the
inclination to protect society against the consequences of their
actions. That turns them into a menace and it falls to the
regulatory authorities to protect society against them. In the
US, the regulators are not strong enough to stand up against
their political influence.
The European Union is better situated
because it doesn't have any platform giants of its own.
The European Union uses a different definition of monopoly power
from the United States. US law enforcement focuses primarily on
monopolies created by acquisitions, whereas EU law prohibits the
abuse of monopoly power irrespective of how it is achieved.
Europe has much stronger privacy and data protection laws than
Moreover, US law has adopted a strange doctrine: it
measures harm as an increase in the price paid by customers for
services received - and that is almost impossible to prove when
most services are provided for free. This leaves out of
consideration the valuable data platform companies collect from
Commissioner Vestager is the champion of the European approach.
It took the EU seven years to build a case against Google, but
as a result of her success the process has been greatly
accelerated. Due to her proselytizing, the European approach has
begun to affect attitudes in the United States as well.
The rise of nationalism and how to reverse it
I have mentioned some of the most pressing and important
problems confronting us today. In conclusion, let me point out
that we are living in a revolutionary period. All our
established institutions are in a state of flux and in these
circumstances both fallibility and reflexivity are operating at
I lived through similar conditions in my life, most recently
some thirty years ago. That is when I set up my network of
foundations in the former Soviet empire. The main difference
between the two periods is that thirty years ago the dominant
creed was international governance and cooperation.
Union was the rising power and the Soviet Union the declining
one. Today, however, the motivating force is nationalism. Russia
is resurgent and the European Union is in danger of abandoning
As you will recall, the previous experience didn't turn out well
for the Soviet Union. The Soviet empire collapsed and Russia has
become a mafia state that has adopted a nationalist ideology. My
foundations did quite well: the more 'advanced' members of the
Soviet empire joined the European Union.
Now our aim is to help save the European Union in order to
radically reinvent it. The EU used to enjoy the enthusiastic
support of the people of my generation, but that changed after
the financial crisis of 2008.
The EU lost its way because it was
governed by outdated treaties and a mistaken belief in austerity
What had been a voluntary association of equal states
was converted into a relationship between creditors and debtors
where the debtors couldn't meet their obligations and the
creditors set the conditions that the debtors had to meet. That
association was neither voluntary nor equal.
As a consequence, a large proportion of the current generation
has come to regard the European Union as its enemy.
Britain, is in the process of leaving the EU
and at least two countries, Poland and Hungary, are ruled by
governments that are adamantly opposed to the values on which
the European Union is based.
They are in acute conflict with
various European institutions and those institutions are trying
to discipline them. In several other countries anti-European
parties are on the rise. In Austria, they are in the governing
coalition and the fate of Italy will be decided by the elections
How can we prevent the European Union from abandoning its
values? We need to reform it at every level: at the level of the
Union itself, at the level of the member states and the level of
the electorate. We are in a revolutionary period; everything is
subject to change.
The decisions taken now will determine the
shape of the future.
At the Union level, the main question is what to do about the
Euro. Should every member state be required to eventually adopt
the Euro or should the current situation be allowed to continue
indefinitely? The Maastricht Treaty prescribed the first
alternative but the Euro has developed some defects that the
Maastricht Treaty didn't foresee and still await resolution.
Should the problems of the Euro be allowed to endanger the
future of the European Union? I would strongly argue against it.
The fact is that the countries that don't qualify, are eager to
join, but those that do qualify have decided against it, with
the exception of Bulgaria. In addition, I would like to see
Britain remain a member of the EU or eventually rejoin it and
that couldn't happen if it meant adopting the Euro.
The choice confronting the EU could be better formulated as one
between a multi-speed and a multi-track approach. In a
multi-speed approach, member states have to agree in advance on
the ultimate outcome; in a multi-track approach, member states
are free to form coalitions of the willing to pursue particular
goals on which they agree.
The multi-track approach is obviously
more flexible but the European bureaucracy favored the
multi-speed approach. That was an important contributor to the
rigidity of the EU's structure.
At the level of the member states, their political parties are
largely outdated. The old distinction between left and right is
overshadowed by being either pro or anti-European. This
manifests itself differently in different countries.
In Germany, the Siamese twin arrangement between the CDU and the
CSU has been rendered unsustainable by the results of the recent
elections. There is another party, the AfD further to the right
than the CSU in Bavaria.
This has forced the CSU to move further
to the right in anticipation of next year's local elections in
Bavaria so that the gap between the CSU and the CDU has become
too great. This has rendered the German party system largely
dysfunctional until the CDU and CSU break up.
In Britain, the Conservatives are clearly the party of the right
and Labor the party of the left, but each party is internally
divided in its attitude toward Brexit. This complicates the
Brexit negotiations immensely, and makes it extremely difficult
for Britain as a country to decide and modify its position
Other European countries can be expected to undergo similar
realignments with the exception of France, which has already
undergone its internal revolution.
At the level of the electorate the top-down initiative started
by a small group of visionaries led by Jean Monnet carried the
process of integration a long way but it has lost its momentum.
Now we need a combination of the top-down approach of the
European authorities with the bottom-up initiatives started by
an engaged electorate.
Fortunately, there are many such
bottom-up initiatives; it remains to be seen how the authorities
will respond to them.
So far President Macron has shown himself
most responsive. He campaigned for the French presidency on a
pro-European platform and his current strategy focuses on the
elections for the European Parliament in 2019 - and that
requires engaging the electorate.
While I have analyzed Europe in greater detail, from a
historical perspective what happens in Asia is ultimately much
more important. China is the rising power.
There were many
fervent believers in the open society in China who were sent to
be re-educated in rural areas during Mao's Revolution. Those who
survived returned to occupy positions of power in the
So the future direction of China used to be
open-ended; but no more.
The promoters of open society have reached retirement age and Xi Jinping, who has more in common with Putin than with the
so-called West, has begun to establish a new system of party
I'm afraid that the outlook for the next twenty years
is rather bleak. Nevertheless, it is important to embed China in
institutions of global governance. This may help to avoid a
world war that would destroy our entire civilization.
That leaves the local battlegrounds in Africa, the Middle East
and Central Asia.
My foundations are actively engaged in all of
them. We are particularly focused on Africa, where would-be
dictators in Kenya, Zimbabwe and the Democratic Republic of
Congo have perpetrated electoral fraud on an unprecedented scale
and citizens are literally risking their lives to resist the
slide into dictatorship.
Our goal is to empower local people to
deal with their own problems, assist the disadvantaged and
reduce human suffering to the greatest extent possible.
will leave us plenty to do well beyond my lifetime.