In the last two years of his administration, Bill Clinton hosted three conferences on the "Third Way" that included British Prime Minister Tony Blair, Dutch Prime Minister Wim Kok, Italian Prime Minister Massimo D'Alema, French Prime Minister Lionel Jospin, and German Chancellor Gerhard Schröder. Three years later, only Blair and Schröder are still in office, and Schröder may be gone by the end of September when he is up for re-election. Does this mean that the third way is finished, as the German newspaper DieZeit recently concluded?
As a movement of elected heads of state, it is certainly kaput, at least forthe time being -- a victim of schisms on the left, imperfect execution, and thepost-September 11 fear of immigrants. But it remains the primary politicalphilosophy of the Democrats in the United States, Labour in Britain, and some ofthe Social Democratic -- and even Christian Democratic -- parties in Europe. It isthe only politically viable alternative to laissez-faire conservatism and thepopulist right, as well as to socialist or social-democratic politics of the oldleft. Its main contribution has been in defining a new approach to economics, butBlair and Clinton have developed foreign and social policies that could also bedefined as third way.
FOREIGN POLICY: Prior to the 1990s, both the Democratic Party in the United States and the Labour Party in Britain were identified publicly with politicians who distrusted the use of military force. In 1983 Labour was led by Michael Foot, a pacifist pledged to unilateral disarmament. In 1991 most Democrats voted for using economic sanctions rather than force to expel Iraq from Kuwait. By contrast, Clinton and Blair used force in the Balkans when diplomacy failed, and they accepted the importance of military power as a weapon in diplomacy. But Blair and Clinton used force in order to create a new democratic community of nations. They removed the stigma of pacifism from their parties, but on behalf of a post-Cold War liberal internationalism.
SOCIAL POLICY: Prior to the 1990s, many Democrats dismissed a commitment to "law and order" as Republican racism. They fretted more about rehabilitating the perpetrators of crime than about caring for the victims of crime. Clinton managed to reclaim law and order for the Democratic Party. Similarly, Blair outflanked the Tories on urban crime, pledging to bring New York Mayor Rudolph Giuliani's "zero tolerance" policies to England. Both men also deflected critics of the welfare state by insisting that welfare spending had to link rights with responsibilities.
ECONOMIC POLICY: American liberals were not socialists, and soon after World War II, European social democrats abandoned the quest to create a socialist society. Instead, they sought to forge a regulated capitalism in which government would guarantee full employment through selective nationalization, deficit spending, trade protection, and strict labor regulations, and in which organized labor would demand and get a constantly rising standard of living. Some version of this strategy worked through the 1960s, but it depended on conditions peculiar to an older industrial capitalism that ran more smoothly with stable, lifetime employment and that was insulated from capital movements and global currency speculation. By the mid-1970s, caught up in these new currents, the American and European economies had begun to suffer from slow growth and unemployment.
Clinton, Blair, and Holland's Wim Kok attempted to devise a center-lefteconomic strategy appropriate to a new post-industrial capitalism that dependedon a market-driven process of creative destruction -- on the prevalence ofspin-offs, start-ups, and temporary and part-time workers, and on both low-wageand high-wage service industries. Its hallmark in practice was letting the marketdictate (within limits) investment and jobs, but using government in atraditional liberal manner to make workers more competitive and to protect themfrom illness and poverty. Clinton rejected Keynesian demand management and tradeprotection, but he also tried, against concerted opposition, to expand access tohealth care, protect Social Security, increase spending on education, andalleviate -- through measures such as the Earned Income Tax Credit -- the growinginequality that is endemic to this new knowledge-based capitalism.
Blair forced Labour to adapt its rhetoric to reality by junking Clause IV inits constitution, which had committed the party to nationalization of industry.He removed government from everyday monetary policy and didn't attempt to undoMargaret Thatcher's efforts at deregulation, but he tried to strengthen educationand the safety net. In his second term, he has finally turned his attention toBritain's decaying National Health Service.
Kok showed that if third-way governments paid attention to the market needs ofthe new economy, they could maintain very generous welfare systems. Under Kok,Holland had some of the most generous benefits but also the highest rate of jobgrowth on the continent. There were two secrets to Kok's success, both of whichare best understood by contrasting the fate of the Dutch and German economies ofthe 1990s.
First, as head of the Dutch labor federation in the 1980s, Kok oversaw a wageagreement that held down wages over the next two decades and spurred newinvestment. In the 1980s and 1990s, real wages in manufacturing in theNetherlands grew only 0.4 percent a year, compared with 1.5 percent in Germany.According to Ronald Schettkat of Utrecht University, the lower costs in theNetherlands made possible a boom in trade and employment, while higher wages inGermany have held down growth and employment. By 2000, Dutch unemployment was at2.6 percent, the lowest in Europe, while Germany's unemployment was hoveringaround 10 percent.
Secondly, under Kok, the Dutch did not tighten -- and in some instancesreduced -- labor regulations that prevented firing and layoffs and that discouragedpart-time and temporary workers. As a result, their service sector boomed in the1990s -- rising to 49 percent from 33 percent of the workforce -- while Germany'sover-regulated service sector only grew to 38 percent from 34 percent.
Of course, this third-way strategy has not been without problems. Third-waygovernments must choose between easing inequality and discouraging growth, andbetween fulfilling social needs through government spending and meeting budgetarytargets. Blair clearly faces a dilemma in trying to finance an improvement inBritain's health-care system. But it is not as if a center-left government canavoid these choices.
The third way has been at least a partial political success.Clinton was the first Democrat re-elected since Roosevelt; and Blair was the firstLabour prime minister ever to succeed himself. Democrat Al Gore was narrowlydefeated in 2000, but certainly not because the public rejected the politics ofthe third way. The American public continues to support the Clinton-Blairthird-way assumptions on Social Security, health care, pensions, and education,and to oppose the conservative alternative of privatization.
In Holland, Kok's party was thrashed by the Christian Democrats, whogained a plurality of seats, and by the late Pim Fortuyn's party. Nevertheless,the election was not a repudiation of third-way politics. The ruling ChristianDemocrats will follow a third-way strategy of spurring market growth whilesafeguarding workers and enhancing their productivity. (In the campaign, theChristian Democrats called for increased health-care spending.)
Part of what hurt the Dutch Labour Party was its social policy, which datedfrom the 1960s New Left. Kok's administration ignored urban crime, much of itcommitted by immigrants, leaving an opening for Fortuyn who ran as a kind of gayGiuliani against the Dutch equivalent of liberal David Dinkins. Kok's party alsopassed laws legalizing gay marriage and euthanasia, which contributed to thelandslide vote in the Dutch countryside that came from socially conservative (byDutch standards) Christian Democrats.
If you want a clear indication of what happens when liberal or left-wingpoliticians spurn the third-way economic strategy, look at France's Jospin orGermany's Schröder. Jospin attended one of Clinton's third-way conferencesbut clung to the rhetoric of the socialist past. "We are not 'liberals of theleft', we are socialists," he declared. Yet Jospin sought to privatize France'sstate-owned industries. As a result, he confused his political base (much ofwhich stayed away from the initial vote or backed splinter groups) withoutattracting the kind of new middle-class voters that have flocked to Britain'sLabour Party or the Democratic Party here.
Schröder still claims to be the follower of the third way, but his SocialDemocratic Party has failed to challenge the status quo of high-wage costs,driven by an aggressive labor movement, and draconian labor regulations that makeit extremely difficult to lay off or dismiss workers, or to hire temporary orpart-time workers. While these regulations have protected the already employed,they have held back the growth of a new information economy and the spread of alow-wage service sector that could reduce Germany's chronically high jobless rateby employing young and unskilled workers, including millions of immigrants.
America's Democrats, Schröder, Jospin, and Kok have all suffered from theafter-effects of September 11. France's Jean-Marie Le Pen, Holland's Fortuyn, andGermany's Christian Democrats and Conservative Social Union have fanned fear ofimmigrants to the detriment of the democratic left. If Europe were to endure adecade of economic stagnation, one could certainly imagine even the most creativethird-way parties being marginalized by the populist right. Similarly, ifAmerica's war on terrorism were to last a decade, it is possible to imagine theRepublicans, who still enjoy an advantage on security issues, leaving theDemocrats in the dust. But it's likely that the European hysteria aboutimmigrants will eventually abate, along with the threat of Osama bin Laden. Whenthat happens, Europe and the United States will be ready to consider again thepolitics of the third way.
