Can new Labour Dance the Clinton?

For the first time in 18 years, Britain, barring some cataclysm,
will soon elect a left-of-center government. Starting with their
name and extending to a wide range of policy and rhetorical stances,
Tony Blair's New Labour Party has much in common with Bill Clinton's
New Democrats. Even before the recent changes in the Democratic
and Labour parties, comparisons between the politics of the United
States and Britain were commonplace, and both countries look for
intimations of the future across the Atlantic. Just as Margaret
Thatcher's victory over Labour in 1979 foreshadowed Ronald Reagan's
victory in 1980, many in Britain see Clinton's repeated electoral
success as evidence of a shift to the left in the public mood
and as a weariness with conservatism, Clinton's own centrist drift
notwithstanding.

art by William BramhallWith all these similarities, it is too easy to forget just how
different the two countries are, and in particular how different
the Labour Party of Tony Blair is from the Democratic Party of
Bill Clinton. The most obvious difference is that the right wing
of the Labour Party is far to the left of the right of the Democratic
Party. Those on the Labour right would be mainstream Democrats,
while the most right-wing Democrats would be firmly in the Thatcherite
wing of the Conservative Party. Labour, for all its recent changes,
is an authentically left-wing party, while the Democrats will
always be an uneasy alliance between the left and more conservative
forces.

Perhaps even more important than their internal differences are
the structural settings in which the two parties operate. Britain
is a midsized country that must accept terms of global, political,
and economic reality that it has little hand in creating. The
United States, on the other hand, is the most powerful country
in the world, able to influence the terms of financial, economic,
and political competition. In the United States, the Democratic
Party's conservative elements and institutional checks and balances
radically limit the range of policies that can receive a serious
hearing, whereas Britain's parliamentary system, and the Labour
Party's socialist tradition, mean that the Labour Party can consider
a very wide range of social and economic policies, but is tightly
constrained in what it can implement by its position in the global
system.

In both cases the consequence is effectively the same: practical
acceptance of the status quo in economic policy. But this constriction
of economic possibility leads to greater attention to both political
and welfare state reform, which, under current conditions, are
the only tools that the Democrats and Labour have for influencing
economic outcomes.


WHY WHITEHALL ISN'T WASHINGTON

The political structures in which the two parties work are dramatically
different. In the U.S., power is shared by the national government
and the states, and some of the most important government functions,
such as education and criminal justice, are almost exclusively
state affairs. In the U.K., on the other hand, government is more
centralized: Education and crime fighting are matters for the
central government.



Subscribe to The American Prospect



art by William BramhallIn fact, as the British journalist Simon Jenkins argues in Accountable
To None
, the U.K. government is more nationalized now than
at any time in the twentieth century, perhaps at any time in the
history of the union. In the obverse of the pattern established
by Reagan and George Bush, Thatcher radically centralized the
power of the national government, abolishing the Greater London
Council and stripping most of the power from local governments,
which had been the stronghold of Labour Party power. The result
is that, while support for decentralization is a strong theme of both the Labour and Democratic
parties, its meaning is considerably different. In the United
States, support for decentralization, as in Clinton's signing
of the welfare bill, is a capitulation to the principles of the
Republican Party. In Britain, however, it is a powerful attack
on Tory power. While Labour supports devolution partially in order
to "deepen" democracy and strengthen participation—themes
present in New Democrat thinking—the impact of moving power away
from Whitehall will be to expand government, not contract it.

Political reform in Britain is central to the concerns of the
Labour Party in part because that's the only place it has room
to maneuver. Reform of the British political system is one of
the few areas where Labour can make substantial changes in British
life without spending money or disrupting the financial markets.
And those who do stand to lose from political reform, at least
in the short term, are not terribly sympathetic figures: Few Britons
will shed a tear when hereditary peers in the House of Lords lose
their power, or when unelected "quangos"—the British
term for quasi-nongovernmental organizations—staffed mainly by
Conservative Party supporters, are supplanted in delivering services
by local government. Policies that give the impression of action
without roiling the financial markets or diminishing the Labour
Party's popularity tend to move to the top of the agenda.

But reforming the political system is important for more
than just political reasons. The structure of the state is the
linchpin of the regime, embodying in its form a nation's understanding
of power and its uses. The British regime emphasizes the indivisibility
of power, in the form of the sovereignty of Parliament. True power
is concentrated—shared or checked by no one. Will Hutton, editor
of The Observer and author of the highly influential The
State We're In
, argues that:

Successful capitalism and socially cohesive societies at bottom
incorporate the idea of membership; that workers are members of
firms and that individuals are citizens of the state. The two
conceptions go hand in hand—but not in Britain. Here Parliament
and the firm are sovereign; individuals are subjects and workers.

It is conceivable that by breaking up the British state, through
devolving power to regions or local governments, and by creating
some check on the power of Parliament—such as a written constitution,
a strong committee system, or a democratically legitimate House
of Lords—the symbolic structure of the British regime could be
altered. Over time, changes in the structure of the state could
alter the prevailing conception of power, legitimizing notions
of shared power in the economy.

Decentralization of the more mundane functions of government away
from the center and toward regions or localities may actually
strengthen the national state in Britain. Devolution, as Blair
observes, "will be good for the whole of the UK as it brings
power closer to the people and is part of a wider process of decentralisation
which allows the center to concentrate on the strategic needs
of the whole country." Currently, virtually any problem anywhere
in the United Kingdom—whether it's a dog that bites a woman in
Manchester, or a prescription improperly filled in Glasgow, or
a road that needs fixing in Cardiff—could end up on a minister's
desk. This places an enormous weight of minor affairs on the backs
of any British government, and makes it difficult to focus on
a larger, national agenda.

Centralized government, at least in the British case, is also
likely to be weaker than a more devolved system, because it is
under the persistent suspicion of the people, who feel they have
little say in or control over it. This explains the very different
meaning of Blair's echo of Clinton: "The era of big, centralised
government is over. Ordinary people have lost confidence in the
ability of a distant central government to offer solutions to
their problems. They have become unprecedentedly cynical about
politics and politicians. . . . If we are to reconnect people
to the political system we have to reform it." Note the importance
of Blair's addition of the term "centralised" to Clinton's
bon mots. Big government itself is not necessarily obsolete, but
big centralized government is.

It may be that significant economic policy or welfare state change
must be preceded by political reform. Voters in both Britain and
the United States are suspicious of the capacity of the state
to effect substantial positive social change. More money or more
authority for the state will only come, both in the U.S. and the
U.K., after the state shows itself to be a more reliable tool
for the implementation of the people's will.


IN THE SHADOW OF CLINTONOMICS

But New Labour will be judged principally by its success in improving
British economic performance. It cannot wait until its political
reform proposals become effective. Blair will have to set out
a workable economic policy under severe constraints. What's more,
he will have to do so in the shadow of Clinton's uninspiring example.
Despite Clinton's campaign claims, the economic policies he has
worked for in office have been utterly orthodox. His greatest
accomplishments are administrative reform, trade liberalization,
deficit reduction, and acceptance of restrained monetary policy.
Promises of a large shift of spending from redistribution to investment
have not yet come to pass. Or, to be more to the point, we got
the cut in public consumption (primarily in programs for the poor),
but not the corresponding increase in public investment.

Like Blair, Clinton started out with a fairly sweeping metaphor
for economic change: "public investment." The idea was
that in a modern global economy, direct regulation of capital
was likely to be ineffectual or detrimental to market efficiency.
Capital had to be encouraged to locate in the U.S. by America's
highly educated citizens, the quality of its physical infrastructure,
the safety and decency of its social life, and the efficiency
and responsiveness of its government. Dramatically shifting government
activity from consumption and redistribution to savings and investment
would give the nation the upper hand in the battle for capital.

In practice little was done to implement this vision, largely
because the costs, both political and economic, were larger than
Clinton was willing to bear. Clinton wanted to balance the budget
while raising public investment and keeping tax hikes to a minimum.
This is impossible without cutting government spending on current
consumption, which in practice means cutting entitlement spending.
There were no structural or geopolitical constraints keeping Clinton
from making such a shift in priorities, but there were trade-offs,
and the President was unwilling to make them.

This is not an especially encouraging precedent for Blair, especially
given that the British economy has bigger problems than the United
States's and that the constraints on a Labour government's maneuverability
are more substantial. Exacerbating Blair's difficulties still
further is the incoherence at the heart of Labour's economics:
"stakeholding," which is the closest thing Labour has
to an encompassing idea.


TIED TO THE STAKE

Blair and other New Labourites have used at least five different
understandings of "stakeholder economics," often without
recognizing that they are either mutually exclusive or of varying
viability as implementable propositions. In fact, almost all the
definitions of stakeholding end up being either implementable
but ineffectual, or effectual but unimplementable.

The first, and least New Labourish, understanding of stakeholding
is that it is just another way of describing full employment.
In Blair's terms, "the most meaningful stake anyone can have
in society is the ability to earn a living and support a family."
The fundamental element of modern civic membership is employment:
Those outside the labor market lack a stake in society, and consequently
turn against it, either through welfare dependency, crime, or
simple lack of social involvement. By creating a predictable and
steady expansion of demand, government can induce businesses to
invest for the long term, and thus to expand employment. The problem
is that it is very difficult for a medium-size state to implement
this steady expansion of demand in a global economy. Any attempt
to reflate the British economy would cause a run on the pound,
which would be devastating for an economy as integrated into the
world economy as Britain. Keynesianism in one country is impossible.
And since Blair has described his support for monetary policy
as being as conservative as the Tories', this version of stakeholding
seems both infeasible and out of fashion.

The second, and infinitely more New Labourish, definition of stakeholding
centers around human capital. Like the pre-election New Democrats,
the human capitalists accept the structure of global capital markets,
but try to maximize the leverage that its citizens have against
them. As Peter Mandelson and Roger Liddle argue in their book,
The Blair Revolution: Can New Labour Deliver?, "whereas
capital is mobile, labour is much less so. Decisions about where
new investments are made are primarily determined by the skills
and attributes of the local population." Giving citizens
a stake in the economy means shifting emphasis from redistributing
income to redistributing skills, thereby giving people the means
to compete in an international economy. But while this version
of stakeholding increases the value of a country's human assets
and attracts foreign capital, it is expensive to implement because
it requires either reductions in redistribution of wealth in favor
of redistribution of skills or increases in taxation. Given the
generally uninspiring record of programs to improve education
or training on a widespread basis, expecting substantial returns
from human capital investment is probably excessively optimistic.
Still, this construction of stakeholding, which is clearly close
to Blair's core politics, is at least coherent and theoretically
plausible.

The third, and even more New Labourish, definition of stakeholding
concentrates on the nature of the business enterprise, and by
extension on society as a whole. As Mandelson and Liddle assert,
"New Labour stands on the side of the egalitarian style of
management about which Far Eastern inward investors have so much
to teach Britain." This construction of stakeholding argues
that while the economy as a whole may best be understood as competitive,
no successful business enterprise is. Successful businesses have
cooperative—not competitive—relationships with their employees,
suppliers, and local communities, since these are the essential
resources that help them add value. When trust exists with these
"stakeholders," transaction costs (such as the cost
of constant supervision of employees) go down, information is
widely and easily shared, and change can occur in a more rapid
and frictionless manner. Companies that treat their stakeholders
well will, in the end, be more profitable and create greater value
for their shareholders. Stakeholder economics, then, is about
creating the social preconditions for the wide diffusion of this
sort of corporate model. The role of government here is to increase
social cohesion by encouraging, but not requiring, companies to
adopt stakeholding principles. Blair, who seems currently to favor
this model, has said:

We cannot by legislation guarantee that a company will behave
in a way conducive to trust and long-term commitment. But it is
surely time to assess how to shift the emphasis in corporate ethos
from the company being a mere vehicle for the capital market—to
be traded, bought, and sold as a commodity—towards a vision of
the company as a community or partnership in which each employee
has a stake, and where a company's responsibilities are more clearly
delineated.

The attractions of this model to New Labour is that it gets the
party behind a trend that everyone seems to like, and that has
few obvious costs. The downside is that encouragement without
regulation is unlikely to influence corporate policy in a decisive
manner, and it is not altogether clear that stakeholding in this
interpretation is anything more than a way to get more effort
out of employees by making them feel part of the business.

A fourth model of stakeholding, in some ways related to the third,
suggests that not only is the stakeholding enterprise socially
and economically superior, but that it is the only humanely justifiable
form of capitalism. A true stake in capitalism can only come when
employees and other stakeholders are given a legal standing in
the corporation. Currently, Anglo-American corporate management
is legally required to maximize shareholder value: To do otherwise
is to risk either lawsuits or hostile takeovers. Pension and other
financial professionals have a fiduciary duty to maximize their
trustee's risk-adjusted returns, and to do so they typically attempt
to keep their holdings as liquid as possible. Shareholder capitalism
always leaves open the possibility of dissolving a firm's component
parts: Shareholders can always sell their shares, management can
always fire its employees, cut their pay, or reduce their benefits,
and the company can always move to another location. The fragmented
corporation, advocates of this version of stakeholding say, in
which an employee's stake is always tenuous, is both economically
irrational and socially destructive.

This construction has the advantage of having clear policy consequences,
and the disadvantage of, well, having clear policy consequences.
If Britain threatens to change, through legislation, the nature
of the corporation, won't capital flee to places where it is treated
with greater solicitude? While the United States, with its substantial
weight in the world economic system, might be able to implement
the capital controls this kind of change in corporate structure
would require, Britain cannot.

The advocates of corporatist stakeholding recognize this: Will
Hutton, for example, argues that "the world's financial markets
need to be brought to heel. . . . Mobility of capital is not an
unqualified public good. . . ." But doing anything about
this requires policy at least at the European level, if not at
a global level. It can't be done in Britain alone. Besides which,
Blair seems to believe that if the United States can have a strong
economy without giving employees a legal stake in corporations,
England can too: "the Anglo-Saxon [financial] structure has
not stopped the US economy being dynamic and strong." So
corporatism is out, management consultancy is in.

This leaves one other construction of stakeholding, which is to
give employees a stake in their firms directly, by mandating certain
minimal standards of corporate responsibility, such as the minimum
wage, working hours, provision of pensions, training, and child
care, and by making it more difficult for employees to lose their
job without cause. Instead of trying to re-jigger the political
structure of the firm to lead companies to voluntarily provide
these things, government would mandate their provision directly.
Labour has already signed onto some of these mandates, such as
the minimum wage, and has indirectly agreed to almost all of them
as a result of its support for joining the European Social Chapter.
The problem is, right now Britain's primary comparative advantage
in Europe is the cheapness and flexibility of its labor market.
Directly imposing additional social costs on the firm means that
business is more likely to locate in countries without such costs,
such as the United States, or in countries like Germany that have
the costs but with compensating advantages such as a highly educated
workforce and a safe and stable society.

So Labour is in a bind. While it has a respectable intellectual
case to be made for various forms of dramatic economic policy,
it is probably unlikely to get away with any of them, because
of its place in the international economy. Policies that attempt
to change corporate behavior directly, or that attempt to reflate
the economy unilaterally, are not possible for a country of Britain's
size and position.

While this does not mean that nothing can be done to improve Britain's
economic performance, it does sharply narrow the possible scope
of such interventions. Labour's best hope of changing Britain's
economic performance is likely to come from transforming the policies
it already has, and from restructuring its state, rather than
from attempting to directly remake the structure or behavior of
the corporation. Ultimately, social policy and political reform
will be the most important manifestations of stakeholding, and
possibly the most effectual form of economic policy.


RECIPROCITY AS SOCIAL POLICY

Some of this stakeholding premise in social policy was present
in Bill Clinton's campaign for president in 1992. Clinton's greatest
promise as a campaigner was a new era of social policy. The old
division, between a left that wanted opportunity without obligation,
and a right that wanted obligation without opportunity, was over.
Social disorder was recognized as having roots both economic and
civic, and neither cause could be collapsed into the other. For
this reason, constructing a ladder of opportunity for the poor,
and vigorously enforcing the fundamental civilities, were of a
piece. Social obligations—to work, to obey the law, and to support
one's family—generated a responsibility on the part of the larger
society to make conforming somewhat easier, and to support those
willing to obey its standards.

In practice, of course, things didn't quite work out this way.
Other than an expansion of the earned income tax credit and an
increase in the minimum wage, Clinton's legacy is one of reducing
the carrots of opportunity and supporting the sticks that, while
rhetorically attractive (such as limits on payments for women
who have additional children while on the welfare rolls), are
least likely to be successful or important. His support for returning
the responsibility of Aid to Families with Dependent Children
to the states not only reduces the money available for the poor
during economic downturns, but also, more insidiously, makes it
difficult to firmly put the poverty problem back on the national
agenda. A "policy trajectory" has been created, one
that roots interventions primarily in the states, where the resources—and
often the will—are lacking for dramatic new extensions of equal
opportunity.

Blair promises the same deal Clinton originally did: enforcing
civilities against those who would violate the norms of decent
society, emphasizing obligations and their connection to rights,
and proposing substantial redistribution to the poor who conform
to minimal obligations. Blair states the principle clearly: "If
I take without giving, enjoy rights without accepting obligations,
then I betray the trust of those who do give, those who do exercise
their responsibilities in a responsible way." New Labour
has accepted that enforcing the rules of civil life is critical,
and that tolerance for incivility weakens the social bonds that
support the welfare state.

Enforcement of civic obligations is at the center of New
Labour plans for Britain for three reasons. First, it is necessary
politically, if Labour is to demonstrate its sense of common purpose
with "Middle England." Second, it is necessary economically,
given that, in Blair's words, "The existence of what is sometimes
called an underclass—a group excluded from society's mainstream—is
an economic as well as a social evil." Moreover, the crime
and social disorder created by lax enforcement of social norms
drag down the quality of life and increase security costs, both
deterrents to global capital.

Finally, norm enforcement is central to one of Blair's favorite
themes, "community." As a basic definition, a community
is a social form characterized by mutual obligations. But beyond
this, what Blair means by "community" continues to be
quite unclear. Like "stakeholding," "community"
is something of a placeholder where an idea belongs. Blair is
quite fond of language that attempts to integrate concepts that
previously were considered contradictory:

Binding all this together is the notion of rebuilding a modern
view of community, where interdependence and independence are
both recognized, where the existence of a strong and cohesive
society is considered essential to the fulfillment of individual
aspiration and progress.

While attractive as a theoretical proposition, this understanding
of community is incredibly thin. The Welsh miners, for example,
bound by traditions passed along for generations and situated
in a fixed place, were a community. Blair is toying with this
common understanding, using it to justify social bonds so thin
as to be virtually transparent. Gordon Brown, Blair's Shadow Chancellor
of the Exchequer, clearly stretches the New Labour idea of community
far beyond the commonsense definition of the word:

But community was never, at root, a reference only to a geographical
entity or a description only of class or, most of all, synonymous
with the state, but something more fundamental: a recognition
of our interdependence, that we emerge from society and are part
of it.

Fair enough, but this sleight of hand means that a definition
of community with a fixed meaning is being exchanged for little
more than a metaphysical abstraction, the social embeddedness
of human beings. This is unfortunate, because the loss of actual,
physical communities should be a central object of Labour's attention.
Self-governance—the capacity of citizens to shape and regulate
themselves through political instruments close to them—is the
center of any understanding of community that has connections
to politics. And it is the centralization of almost all social
policy under Thatcher that has done the most to erode the capacity
of Britons to govern themselves. Blair should forthrightly claim
that the central right he seeks to reclaim for the British people
is the right to self-governance. Without such a claim, all Blair's
talk of community adds up to very little.


THE AGONY OF NEW LIBERALISM

The core of New Democrat and New Labour thinking is a shared cognitive
perspective that sees the essence of moral reasoning to be the
integration of equally necessary social goods, rather than the
process of choosing between them. The attractiveness of this model
is, first of all, its decency and its accord with reason, but
also its connection to the way ordinary citizens of both Britain
and the United States think. The public, if not most of the elites
that rule them, want to see the values of order, equality, and
liberty integrated, and they recoil from ideologues who ask them
to support one to the exclusion of the others.

Establishing this cognitive model in an environment in which narrow
ideological thinking still reigns is a difficult project, however.
Politically, the challenge is to demonstrate one's difference
from the old way of thinking, since parties develop reputations
over decades that take strong steps to repair. To do this, the
first order of business is separating oneself from the old elites,
and this usually, perhaps necessarily, takes the form of attacking
the old elite at its most sacred spot. For Blair, this came with
the removal of Clause IV of the party's constitution (which for
many years was the essence of the Labour Party's commitment to
public ownership and statist socialism), his unwillingness to
support reconnecting pensions with earnings (Thatcher had dramatically
reduced pension obligations by linking them only to prices—not,
as previously, to wages or prices, whichever was higher), and
his weakening of the institutional role of the unions in the Labour
Party. For Clinton, it was support for welfare reform, the attack
on Sister Souljah (and divisive identity politics), and an embrace
of free trade, balanced budgets, and tight money.

The problem is, as right as these steps are, they are truly only
the precondition for party renewal, not the renewal itself. Smashing
the power of the radical left (in the Labour Party the militant
unions, in the Democratic Party the identity politics crowd) is
necessary because it allows for large-scale thinking that does
not merely parrot or water down radical left thought. Distancing
oneself from the left feels so important, so decisive, so brave.
But that's the easy part. The difficult part is planting the garden
once the weeds have been pulled up by the roots.

Clinton has, for a variety of reasons, basically ceased the process
of real structural reform, coming out, it seems, every day with
a new symbolic proposal to reimpose social order, like school
uniforms. He has, in fact, well and truly established his legitimacy
as a "New Democrat." But he seems unwilling, or unable,
to take advantage of the room for major action that this impression
creates. Unwilling to use the language of reciprocity to substantially
remake the welfare state and the structures of American capitalism,
Clinton looks like a decent, pre-Thatcher-Reagan conservative.
He has presided over freer trade, sound money, and reduced deficits,
and has moved the state of American society toward greater civility
and a willingness to enforce social norms. But these are the accomplishments
of a responsible conservative, not a true believer in reciprocal
liberalism and cultural integration, because, left to themselves,
they leave out the element of equality.

There are lessons here for Tony Blair. It is not enough for him
simply to stand behind the forces of civility and order, both
in word and deed. He must use his emphasis on civility and order
to go forward, to change the nature of social debate. He should
insist that every call for more obligations on the poor be accompanied
by an explanation of how we can reward those who play by the rules,
even when their environments and local incentives encourage vice.
He should insist that a sane anti-inflationary economic policy
be based not just on sound monetary policy but on increasing public
investment. He will need to explain convincingly how a reformed
state, which grants additional power to local government and which
does not sacrifice quality for equity, can be trusted with more
of the taxpayers' hard-earned money. Distancing oneself from the
Old Left should only be a way station on the road to creating
a new, sane, reconstructed left. Unless this is strongly and repeatedly
emphasized, the danger is that New Labour will decompose into
flaccid centrism, and ideological hegemony will remain in the
hands of the Tories, even if they do not hold the reins of the
state.

All the political incentives from the left will encourage Blair
to expand rights, while those from the right will push him to
enforce obligations. Blair should stand athwart and above both,
pushing policies that do both simultaneously. In doing so, he
will not be splitting the difference, but creating a new dominant
ideology to which rival elites will have to adjust themselves.
If Blair does this, he has the chance of becoming one of the greatest,
and most consequential, Labour prime ministers of the twentieth
century. If he fails, and falls into the inherent dangers of New
Liberalism that devoured Clinton, he will simply be the next in
a long line of failed Labour Party leaders, remembered in the
same breath as James Callaghan and Neil Kinnock. If he succeeds,
he will be a model for those of us on the Western side of the
Atlantic to emulate.



You need to be logged in to comment.
(If there's one thing we know about comment trolls, it's that they're lazy)

Connect
, after login or registration your account will be connected.
Advertisement