Beyond the Third Way

In general the idea is, "The state should not row, but steer: not so much control, as challenge." All of which sounds pretty reasonable. But do we really need these bromides? Do we need a third way? For advocates, there are two rationales: Progressive-minded parties need to show that they can respond to mainstream voters and, second, that they can improve governance.

The electoral rationale runs as follows. The left--Democrats in the United States, Labor in Britain, Social Democrats in Germany, and so on--lost elections in the late 1970s, the 1980s, and the early 1990s because it was out of touch with ordinary voters. These voters had turned against the traditional welfare state, had come to believe much government spending was wasted, and had concluded that the parties of the left were dominated by special interests and advocates of alternative lifestyles. Solution: Admit the voters were right and reposition the parties.

The governance rationale is that the world is going through a dramatic transformation driven by globalization and information technology. Traditional liberal or social democratic policies have proved inadequate to deal with this transformation, relying as they do on heavy-handed state regulation, excessive state spending, and inefficient income redistribution policies (see Anthony Giddens's semi-nal 1999 book The Third Way: The Renewal of Social Democracy for per-haps the best--if at times maddeningly vague--statement of this case). Solution: Change the policies to correspond to new realities; cut spending, eliminate regulation, and abandon income redistribution whenever such approaches are counterproductive.

Both rationales have some plausibility. It is hard to deny that the parties of the left were losing ground in the late 1970s, the 1980s, and the early 1990s and therefore needed a new approach. It is also hard to deny that new institutions and policies are needed to deal with the tremendous changes wrought by globalization and the rapid advance of technology.

But the devil is in the details. How is the third way working out?

In electoral politics, the accomplishments of the third way seem impressive. The story for the United States is recounted in copious detail in Kenneth Baer's indispensable book Reinventing Democrats. Baer starts with the founding of the Democratic Leadership Council (DLC) by Al From and a prominent group of Democratic elected officials in 1985 and proceeds through Dukakis's defeat in 1988, Clinton's two electoral triumphs, and the unexpectedly good performance of the Democrats in the 1998 election.

One thing Baer's account makes clear is the relent-lessly political motivation behind the formation of the DLC and behind its subsequent activities. The group was formed to respond to the rise of Reaganism and the Democratic electoral defeats in 1980 and 1984. And pretty much every step the DLC took after that was aimed at enhancing the electoral marketability of the Democratic Party. Perhaps the most important of those moves took place after the 1988 election and the Democrats' third straight presidential defeat. As convincingly described by Baer, the DLC decided to jettison its "big tent" approach (Richard Gephardt, an ally of labor, was the DLC's first chairman) in favor of a more confrontational approach that directly counterposed New Democrat ideas to the electorally counterproductive ones of party liberals, especially blacks and trade union activists. It is really from this juncture that we can date the formation of the American third way, at least as we have come to know it so far.

Baer describes in loving detail how the DLC proceeded to outmaneuver its party rivals from then on, to have one of their own (Bill Clinton, chair of the DLC in 1990-1992) nominated and then elected president, to help him recover from the brutal congressional defeat of 1994 and get re-elected in 1996, and to help shepherd the Democratic Party to its small but unexpected gains in the 1998 election. The word "loving" is used advisedly; by Baer's account, the DLC has almost never made a wrong move since 1988, and party liberals haven't made a right one. Still, enough detail is provided so that politically savvy readers can make their own judgments on the DLC's record.

Whatever those judgments might be, surely no one can deny the impact of DLC-style third-way politics on the Democratic Party. From the strenuous commitment to fiscal discipline to the "tough" stance on crime, from the passage of NAFTA and normalized trade status with China to welfare reform, from support for the death penalty to reinventing government, the DLC's fingerprints are all over the current position papers of the Democratic Party.

Similarly, as Paul Anderson shows in recent articles on the Western European social democratic parties in the invaluable British journal New Times, these parties have been reshaped thoroughly by, broadly speaking, a third-way approach. After mostly losing elections in the late 1970s through the 1990s, these parties are now mostly winning. As I write, 13 out of 17 Western European democracies, including the four largest (Germany, France, Italy, and Britain) have left or center-left governments. And while there is substantial individual variation (the German Social Democrats and the British Labor Party have the most in common with the U.S.-style third way, and socialist parties in France and the Scandinavian countries have the least), all of these parties have moved toward the core principles outlined at the beginning of this article.

In governance the third-way approach yields less obvious evidence of success. In the United States, the chief positive evidence is that economic performance, at least since 1996, has been unusually strong and that there is, for once, a large budget surplus. Similarly, in Europe, many countries where the center-left holds power are turning in stronger economic performances than they had in the recent past (though high unemployment rates in many countries, such as Germany, remain a problem).

But in areas like education, training, retirement, and health, there is (so far) no visible payoff from the third way. Despite the robust U.S. economy, nobody really believes significant progress is being made in revamping the educational system. In fact, the initiatives of the Clinton administration in this area have been quite modest. Similarly, beyond some streamlining of existing government programs, the worker training system in the United States looks just like it used to. The lack of improvement in the U.S. health care system, with its 44 million uninsured people, hardly needs to be dwelled on. The retirement system continues to look suspect, with two legs of the three-legged stool (private savings and employer pensions) as wobbly as ever and the only good one (Social Security) under combined attack from the right and some centrists (including, interestingly, the DLC).

And such challenges are hardly unique to the United States. Tony Blair is in trouble in Britain partly because voters don't see much improvement in the public school system and the Health Service, two areas he promised he'd fix. In other European countries, improvements in labor market flexibility and fiscal discipline haven't automatically translated into helping government solve problems in areas voters really care about.

Eventually, of course, this means that the third-wayers are likely to lose their electoral mandate--or never fully gain it. In the United States, the Democrats control neither house of Congress, and they are outnumbered among the nation's governors (31 Republicans to just 17 Democrats). And among working-class whites (who are the overwhelming majority of working-class voters), the Democrats have done terribly throughout the 1990s, a pattern that is continuing in the 2000 presidential race and could easily cost Gore the election.

The response of orthodox thirdwayers in the United States--the Democratic Leadership Council--to these difficulties has been remark-ably unimaginative. They continue to call for privatization of Social Secu-rity and voucherization of Medicare, two policy "reforms" that are neither popular with the public nor economically necessary, especially as projected economic growth makes the supposed crises threat-ening these programs ever more distant. Their "progressive" budget, outlined in a recent special issue of the DLC magazine Blueprint, is a remarkably tepid document. After calling for a variety of bold plans and approaches to "expand the winner's circle" in the new econ-omy, their recommended budget pretty much follows existing Clinton administration policy with the vast majority of future budget surpluses devoted to debt reduction, combined with some modest new programs and tax credits.

To what can we attribute this lack of imagination? The fundamental reason, in my view, is that the orthodox third way is really a transitional political philosophy. That is, in a time of budget deficits, slow growth, and an associated sour attitude toward government, there was a need for an agent to shake the left parties out of their torpor and help them develop a more realistic approach to elections and governance. This included a need for more market flexibility, budget discipline, and government efficiency. To some extent, this change in approach probably contributed to the emergence of the new economy as we are coming to know it.

But third-way orthodoxy is illsuited to developing a politics for times of budget surplus and high growth--in other words, a politics for the current era. In the new economy, it will become increasingly untenable to argue that we can't afford X, Y, or Z because we must, absolutely must, eliminate the national debt to save the economy (or Social Security or Medicare) from collapsing. New liberals, if I may coin a phrase, will be much better-suited to confronting this emerging abundance and making good use of it.

And they will indeed be new liberals who will have absorbed the various lessons about reasonable fiscal discipline, respect for market mechanisms, government efficiency and accountability, adherence to mainstream values, etcetera, that the third-wayers have put into play. In this sense, I think leftists like Joanne Barkan, in her indignant annotations in Dissent to the Blair/ Schröder document, and Norman Birnbaum, in his sophisticated cri-tique of the third way in New Political Economy magazine, don't give the devil his due. Liberals in the United States and left social democrats in Europe really could not have pursued the kind of political repositioning and policy shake-up that has made the third way a successful transitional philosophy. Conversely, only new liberals (and their equivalents in Europe) will be able to successfully adapt to a new economy that no longer requires a strenuous emphasis on austerity and free rein for business.

In short, the third way itself is in need of reinvention. In my view, that reinvention will combine the lessons cited above--the lessons we already associate with the third way--with a realistic appreciation of both the need to confront social problems and the potential of the new economy to make that possible. ¤