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.
With 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.
In 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.