Public Policy Sources #33:
The “Third Way” in Theory—The Policy Foundation

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Political economy for the 21st century must combine dynamism and equity, defining a Third Way between old Left and New Right.20

Its proponents strenuously claim that the Third Way is more than merely opinion poll-driven platitudes. Rather, they argue that the Third Way lends itself to substantive policy prescriptions that flow from the “basic principles we have in common.”21 For Michael Jacobs, the General-Secretary of Britain’s socialist Fabian Society, the challenge is “to find a new interpretation of social democracy relevant to today’s society.” The Third Way is seen as a distinctive way forward for the centre and the left, that is, a socialist “Way Forward”; one, however, that is neither corporatist, traditional, nor bureaucratic. In practice, in macroeconomic terms, this is translated as an end to the predilection for inflationary expansion of the money supply and an end to the discredited tax-and-spend approach that led to large budget deficits and soaring levels of public debt across the industrialized world.

While the Third Way movement may have graduated first in its class at “Socialists Anonymous,” swearing off the traditional left-wing economic levers, the Third Way, while overtly sympathetic to (particularly big) business, is overtly unsympathetic to the free market (or neo-liberalism as most European Third Way thinkers choose to label their opponents’ ideology). May it be surmised, then, that the Third Way lies somewhere on the ideological spectrum between the “Old Left” and the “New Right” (to borrow more Third Way labelling)? No, apparently it does not. Like so many other disciples of the Third Way, the eminent British sociologist Anthony Giddens has determined that the traditional left-right ideological continuum retains only partial relevance. For Giddens, today, “There are many concrete issues of policy which... don’t fit,”22 along the left-right continuum, such as environmental issues and the debate over the quantity and quality of employment.

Instead, one is informed that the Third Way lies not between right and left but beyond right and left. It is this intricate ideological manoeuvring that allows Third Way prescriptions for public policy to appear, in their promoters’ eyes, so modern, so innovative, so robust, so internationalist, and, of course, so forward-looking.23 According to Blair, the Third Way lies, “Beyond an Old Left preoccupied by state control, high taxation and producer interests; and beyond a new laissez-faire Right championing narrow individualism and a belief that free markets are the answer to every problem.”24 The Third Way stresses activist, dynamic government for, “In a globalizing world, we need more government, not less.”25 After all, “We need the active hand of government to refurbish civic culture, to reconstruct everyday civility.” Hence, Blair is able to “argue as confidently as ever that the Right does not have the answer to the problems of social polarization, rising crime, failing education and low productivity and growth.”26

If there is a central policy thesis to the Third Way, it is that it is a self-consciously pragmatic approach to public policy; unlike traditional socialism, the Third Way explicitly recognizes real- world constraints. According to Third Way academic Julian Le Grand, “The best method is that which is most likely to promote the values of community, accountability and responsibility… What’s best is what works.”27 This helps to explain why there is, “No single ‘Big Idea’. Rather… a steady accumulation of small to medium-sized ideas”28 making their way around Third Way policy circles. It is assumed that, over the long term, such utilitarian Third Way policy prescriptions will produce a “new,” mixed economy, thereby avoiding either a so-called “North American” economy, with low unemployment but a relatively high degree of economic inequality, and a so-called “European” economy, with a relatively low degree of economic inequality but high unemployment.29

Anthony Giddens is the leading intellectual impetus behind the Third Way movement and, as such, in the media is often referred to as “Mr. Third Way.” A social liberal (in the politically correct, North American sense), Giddens, a Cambridge don-turned-Director of the London School of Economics, is widely known as the British Prime Minister’s favourite intellectual. In his role as the Third Way’s principal thinker he attends and participates, alongside the British Prime Minister, in all international Third Way summits. Giddens’ intellectual preoccupation is the development of a new political philosophy that avoids what he terms the extremes of both left and right. His thinking is encapsulated in his book, The Third Way: The Renewal of Social Democracy.30 According to Giddens, the Third Way:

Means… trying to steer a way between the two dominant philosophies that have failed us, socialism more generally and market fundamentalism; Thatcherism here or Reaganism in the US. You simply can’t run the world as though it was a gigantic marketplace… We used to think we could control history—that’s what Marxism was based on. The alternative view was that you could just leave everything to the marketplace. But you can’t run the world that way either. There is now a vacuum.31

Giddens shares the commonly held social democratic response of, “Yes, to the market economy; no, to the market society.” Giddens has assumed responsibility for fleshing out that position within a coherent political framework:

You can’t say ‘no’ to markets… The only possibility is making them work for people economically, socially and culturally…For the past 20 years, there has been this idea that markets can provide leadership because they are the sum total of what people want. You can now see that it is not really right. You need markets but you also need good political leadership32… You can see all around you that markets create problems, not just resolve them.33

Giddens is highly representative of Third Way advocates in basing his dismissal of free market economics on the “fact” that, in America, for example, “There are large numbers of working poor.”34 Unfortunately, as with so much of the Third Way’s critique of the capitalist experience, the facts do not support the charge. For example, in 1996, only 2.3 percent of all those Americans considered poor were working full-time.35 Revealingly, Third Way advocates appear unaware of the considerable body of research documenting a causal link between democratic capitalism and higher standards of living.36 Economist Sadequl Islam, for example, found a direct relationship between economic freedom and the growth rate of per capita income.37 Further, “Increased economic restrictions lower the rate of economic growth.”38 Similarly, Third Way advocates maintain adherence to an outdated, static model of the effects of tax cuts upon government revenue.39 This is accompanied by an unwillingness to acknowledge that economic regulations (for example, minimum wages, environmental protection measures, etcetera) increase the cost of conducting business and, therefore, are reflected in lower incomes.

Giddens concurs with Francis Fukuyama that the collapse of Communism in Eastern Europe a decade ago signified the triumph of democratic capitalism. However, although the Third Way rhetorically accepts the inherent efficiency of the economic marketplace, when it comes to observing a fundamental system of values, according to Giddens, “Third Way politics... is simply modernized social democracy... sustaining socialist values and applying them to a globalized world.”40 As an adherent to the Third Way approach, “You’re still trying to follow... the traditional left-of-centre values: Inclusion, do something about inequality, create a solidary society which cares more for vulnerable people — all those things are still core values,”41 for, “These are socialist values... Those values surely will not themselves go away, even though the economic theory which underlay them has done so.”42 For example, Giddens disagrees with the view that the best model for equality is equality of opportunity,43 for so-called “positive discrimination” may be required, and, although essential, “Welfare reform... shouldn’t mean spending less on the welfare state, it should mean spending it more effectively.”44

Competing for intellectual influence within the Third Way movement are exponents of communitarianism. This may be observed in, for example, the Third Way‘s preoccupation with exclusion (social and economic), inclusion and social involvement being central facets of the communitarian philosophy. Similarly, the Third Way extols a communitarian commitment to civic responsibility, that is, a delineation of “the precise range of behaviours for which individuals are appropriately seen as responsible to the community and which the State may therefore legitimately seek to regulate.”45 It is in this context that both Blair’s and Clinton’s speeches often allude to communitarian themes, frequently calling for a better balance between rights and responsibilities. In the Third Way approach, much has been gleaned from the noted communitarian academic Amitai Etzioni’s “I-and-We” paradigm.46 In the hands of the Third Way, ”Where the Old Left over-stressed the commitment to collective identify, and the New Right to the selfish ego, the Third Way pays attention to both and attempts to keep them in some kind of balance.”47 There is intense criticism of the negative impact of the individualization of modern life, allegedly leading to a more dehumanized society. One observes a con-

cern with building or maintaining a sense of community and social cohesion that removes or reduces existing conditions of social fragmentation and social inequality.

Although there is, at least rhetorically, a market orientation to some Third Way policies, such prescriptions are certainly not libertarian in nature. Arguably, some policies resemble fuzzy versions of certain aspects of social conservatism, often lending a somewhat authoritarian flavour.48 It is also in such aspects of Third Way thinking on social regulation that one observes communitarianism, tinged with social authoritarianism, winning out over social libertarianism. The campaign waged in the United States against the use of illegal drugs, extended under Clinton’s “leadership,” is an obvious example. The most recent and vivid reminder of the danger inherent in this approach is provided by Samuel Brittan, who writes:

The danger of Communitarianism is that of attributing superior value to collective entities over and above the individuals who compose them. This disastrous error was made respectable by the teachings of Hegel, and reached its apotheosis in the State worship of the Nazi and Communist regimes.49

In part, operating in a Third Way world means fashioning so-called “hard choices.” As voters will not accept significant tax increases to fund increases in social programs, current revenue levels

must be better targeted toward the “excluded”50 members of society. This is viewed as a particularly pressing matter given the Third Way’s acceptance (as opposed to approval) of globalization. Advocates of the Third Way are concerned that “modern governments are no longer in control of their national destinies,” for they are cognizant of the fact that “electronic money… is 60 times the value of goods (and) the capacity of government to influence events is thus diminished.”51 Here, the Third Way seeks to combine dynamism and equity, ensuring both minimum standards and equality of opportunity, the latter through improved access to education, training, and child care. As such, Third Way social policy is employment-centred, and is inspired more by Swedish than American labour market policy, that is, emphasis is placed upon providing incentives to disadvantaged workers (for example, the introduction of a minimum wage and acceptance of the State as the employer of last resort), and encouraging worker training “so that otherwise vulnerable people can enter the labour market with better skills.”52

Most troubling, perhaps, is the Third Way’s avowedly internationalist outlook, supporting “greater global governance of the world economy.”53 In concrete terms, this includes efforts to promote the stabilization of the movement of financial capital, especially currency speculation, as well as increased funding for the International Monetary Fund (IMF), and the payment of United Nations (UN) arrears by the American government. Alarmingly, the EU project—continental Europe’s very own socialist Trojan Horse —is described as “a pioneering phenomenon.”54 In addition, some Third Way supporters continue to advocate the imposition of a so-called “Tobin tax” on international currency transactions to reduce the volatile nature of short-term capital flows. After all, it is argued that, with UN and EU support, “If the leading economies acted in concert, they could make business difficult indeed for governments permitting evasion of a transactions tax.”55 In predictable communitarian fashion, the problem of how to live in a finite world consumes a significant portion of the Third Way’s intellectual resources. Dangerously, both for the free-market and for the environment, most of the recommended solutions fit under the disingenuous heading of “sustainable development,” which is translatable as command-and-control-style environmental economics on a global scale.

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