Was there a “third way”, a politics which reconciled the market economy with the values of compassion and fairness that had traditionally motivated the political left? When was government interference with the operation of free markets justified, even necessary, and when did such intervention reduce choice and welfare?
What became of the “third way”? After New Labour’s sweeping election victory in Britain in 1997, there was a euphoric moment in which Prime Minister Tony Blair and Bill Clinton, then US president, seemed to offer not just the most charismatic political leadership in the western world, but the prospect of an intellectual revolution in political thought.
In the 1980s, market fundamentalism had gained the ascendancy; the case for socialism had collapsed in the face of the practical failures of socialist regimes. Was there a “third way”, a politics which reconciled the market economy with the values of compassion and fairness that had traditionally motivated the political left? When was government interference with the operation of free markets justified, even necessary, and when did such intervention reduce choice and welfare?
The third way died in vacuity and derision. Mr Clinton’s sexual peccadilloes destroyed his opportunity to offer intellectual leadership. New Labour’s capacity for new economic thinking was constrained by its courtship of business and – especially – finance. But the opportunity to define a coherent third way was also damaged by the feud between Mr Blair and Gordon Brown, then chancellor of the exchequer, and the implicit concordat between the two men that left economic policy in the chancellor’s hands.
Mr Brown did attempt to lay out an economic philosophy for the left after socialism, most notably in a 2003 speech to the Social Market Foundation. The model described there is one of redistributive market liberalism. This doctrine largely accepts the claims of market fundamentalism – greed is a dominant human motivation, private companies are usually more effective than the public sector, markets (including financial markets) are generally efficient. The economic role of government should be limited and confined to a short list of issues described as market failures. Redistributive market liberals believe, however, in a big role for the state in reviewing the distribution and redistribution of income.
That philosophy has always had considerable appeal for socially concerned economists – you can find substantial elements of that thinking in the writings of distinguished contributors to this paper, such as Samuel Brittan and Martin Wolf. The idea was certainly espoused by some of Mr Brown’s close advisers, and has been for at least two decades the dominant economic philosophy in the British Treasury. Redistributive market liberalism has, however, never had much attraction for people who are not professional economists. You can detect a lack of conviction even in Mr Brown’s Social Market Foundation speech, notably in the passages in which he tries, unsuccessfully, to reconcile his political commitment to a state-funded National Health Service with a belief in the efficiency of private market outcomes.
Mr Brown’s instincts are very different: he is a natural centraliser, notoriously a micro-manager. His temperament does not really fit with the idea that government should basically set the rules of the game and then leave the players to get on with it. Mr Brown’s biographies – both critical and hagiographic – describe the education of a man with a very different perspective. Like many on today’s political left, he is a socialist mugged by reality. Their practical socialism began from the assumption that economic activity should normally be subordinated to political control. But given the manifest fact that this system did not work very well, either in the collectivised economies of eastern Europe or the planned economies of social democracies, political control is to be watered down and applied by stealth. This is not an inspiring doctrine, and it has not inspired.
The crisis of 2007-08 revealed starkly the limits of redistributive market liberalism. The range of market failures was a good deal wider than the limited list defined by market fundamentalists would allow. Both socialists and social democrats have re-emerged from the shadows. For socialists the crisis renewed hopes that Marx’s promise of the collapse of capitalism under the weight of its own internal contradictions would finally be fulfilled. For social democrats, forever in Utopian search of stability and harmony, salvation lay in the creation of a new global financial order, although no one seems to have much specific idea of the nature of that global financial order.
The search for a practical political philosophy for the left in Europe has, in short, moved backwards since 1997. Market fundamentalism is out of favour, the failings of socialism are still not forgotten. Social democracy seems inevitably associated with high taxes and obstructive and overbearing public sector trade unions. This intellectual vacuum is also a problem – although a less pressing one – for the European political right: without the glue of resistance to socialism, there is little to hold the disparate components of rightwing parties together.
Mr Blair, with more natural political talent than most of his rivals, did sense some of the elements of a third way. That markets operate successfully only when they were embedded in communities; that trust and co-operation are not antithetic to a market economy, but essential to it; that the driving force of innovation is pluralism and experiment, not greed and monopoly; that corporations acquire legitimacy only from the contribution they make to the societies in which they operate. In a column after the British election I will elaborate that philosophy.