The Third Way

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Is the third way simply an eclectic compromise which offers to drop any unpalatable bits from the familiar ideologies of far right and far left? I argue that if there is a third way, this is not where we will find it.

Talk of the third way lends itself to banality and caricature because it invariably begins with a description of what it is not. It rejects the doctrines of Marxist socialism, and of the New Right. It believes in markets, but not too much; in regulation, but not too much. It supports success, but is sympathetic to failure. It emphasises equality of opportunity, but would not impose equality of outcome.

There is nothing wrong with these sentiments, and few who would disagree with them. But by that very token they offer no guidance in the policy dilemmas of the age. Avoiding extremes is no doubt wise counsel when we confront the problems of health, education or welfare, but once we have avoided extremes, there are many options left.

So is the third way simply an eclectic compromise which offers to drop any unpalatable bits from the familiar ideologies of far right and far left? In this essay, I shall argue that if there is a third way, this is not where we will find it.

The two most widely canvassed compromise positions might be labelled benign socialism and benign Thatcherism. The former is to the right of the traditional left, the latter to the left of the less traditional right. If we look for labels that convey their intellectual content, the former is modernised social democracy, the latter redistributive market liberalism.

Benign socialists’ embrace of the market is reluctant and provisional. Their instincts remain dirigiste: what went wrong in Eastern Europe and Africa was not that the project of centralised economic planning and control was fundamentally misconceived, but that it was overdone: too centralised, based on political authority that was insufficiently democratic. It was not administered by people as sensible and reasonable as we are.

This remains the position of the majority of the British Labour Party, thought not of its leadership. For New Labour there is more consolation to be found in benign Thatcherism, or redistributive market liberalism. This accepts wholeheartedly, even welcomes, the priority of market forces, but combines it with a social conscience. The economic role of the state is confined to arms length redistribution through the tax and benefit system supplemented, perhaps, by modest regulatory tinkering which will make markets work better. This doctrine has never had any wide following (except in New Zealand, which has now been run on these principles for a decade). Its main advocates are professional economists (James Meade and Samuel Brittan have been its most eloquent exponents). Brittan’s title Capitalism with a Human Face exactly characterises it.

It is an influential doctrine today. It is the vision described in David Marquand’s analysis of New Labour’s first year (Prospect, May). “A meritocratic society is one in which the state takes action to raise the level of the talents – particularly the talents of the disadvantaged – which the market proceeds to reward. First, the state levels the playing field. Only then does the game commence.”

But neither benign socialism nor benign Thatcherism has much that is useful to say about those key political issues of the day – health, education and welfare. For the benign socialist, what both health and education need is more money and more political control. At its best, this increased political control is represented in more and more extensive interference in schools and hospitals by bureaucrats from the Departments of Health and Education. At worst, it restores the ability of local politicians to use the governance of schools and hospitals as opportunities for political posturing. All benign socialists agree that the real answer is more money, except there isn’t any, or not much.

For benign Thatcherites, the ideal is wholesale privatisation, marketisation and contractualisation. If access to health and education services is a concern, the answer is vouchers. The jingle of the cash register substitutes for prayers and morning assembly, the Hippocratic oath is overtaken by the contract between doctor and patient. All these ideas are intellectually intriguing and have about the same political appeal as Mr Netanyahu has on the West Bank or Ian Paisley on the Falls Road.

On welfare too, neither benign socialists or benign Thatcherites have much to offer. Benign socialists hope wistfully for a world in which the numbers of the sick, unemployed and elderly are sufficiently small that they can be generously provided for within realistic limits of public expenditure. Redistributive market liberals have a technocratic approach to the reform of social security. They favour schemes such as citizen’s income, social dividend, negative income tax.

Unfortunately no-one has ever come up with a variant of these proposals in which the numbers add up. This apparently technical problem derives from a fundamental moral and political flaw. The citizen’s right to a decent standard of living independent of his or her conduct or circumstances implies a corresponding duty on others to pay the taxes needed to support this right. The assertion of the right is not accompanied by acceptance of the duty.

These policy failures reflect the underlying weaknesses of the two ideologies. Benign socialists have no convincing answer to the devastating critique of economic planning provided by the East European experience. The inept rudderlessness of Lionel Jospin’s government demonstrates how little substantive content there is to benign socialism. Whatever the third way is, the French know they have not found it.

And benign Thatcherism is wrecked on the fundamental incompatibility of its private and public values. You cannot extol selfishness in business behaviour and expect that the beneficiaries of that process will pay up cheerfully, or at all, to fund generous redistribution of income and wealth. Nor can you easily sustain the commitment of teachers to their students when their actions are defined by contract: or rely on the dedication of doctors and nurses in the operating theatre when those who manage them, between the hours of nine and five, need the motivation of share options and long-term incentive plans.

Compromise is not an ideology. And the attempt to give substance to compromise as ideology by favouring more moderate versions of the parent ideologies of Marxism and libertarianism fails. The origins show through: the flaws of the parent are compounded by the compromise. The search for the third way begins, not by seeking for something in between the first and second ways, but from a rejection of the whole notion that the choice of political action is a choice between roads to an ultimate destination.

For the modern third wayer, it is not just that the socialist and new right ideals, and their more moderated versions, are flawed: any utopian project of this type is necessarily flawed. There are no models of economic, social and political organisation which are universal truths, valid outside the particular history and culture which have given rise to them. There is no ideal to which we seek to converge, and we cannot judge political action by how far it takes us towards such an ideal. Fukuyama’s announcements of the End of History – because the values of late twentieth-century American intellectuals are valid for all time – is as absurd as the historical determinism of Marx which would culminate in the inevitable dictatorship of the proletariat.

The Big Idea is that there is no Big Idea. But in its implications that turns out to be a Big Idea in itself. John Gray exaggerates only a little when he sees in it the end of the Enlightenment project which has motivated most of our politics and economics for two centuries.

If political action is not to be assessed by progress towards the ideal, what is it to be measured by? The best term I can find is fit, or perhaps appropriateness. Metaphors from evolutionary biology are perhaps overdone at the moment, but as soon as we understand that social and economic development is an evolutionary process, and not the imposition of a grand design, it is impossible to avoid using them. Success in evolutionary terms is measured by how well an organism fits with its environment, evolutionary improvement by which it establishes a better adaptation to that environment.

In saying these things, we use terms like success and improvement in very modest ways, rather as we talk of a successful picnic or an improved washing powder. When we talk of the good, we use good in the sense which we employ when we talk of a good knife: and by a good society we mean much the same. The mountain people of Ladakh enjoy a good society, in this sense, if the anthropologists who observe it are to be believed. Good for them, of course: not appropriate for us.

As this example illustrates, fit is ultimately deeply subjective: things fit if people think they do. But as the example also illustrates, there may be objective indicators of it. Certainly, there is no room for the view that even if people are satisfied with their lot and their institutions they ought not to be – the inspiration of political agitation of all perspectives for centuries.

This relativism applies not only to politics, but to economics. In the post-socialist era, we begin to understand that there are many different models of market economies. American individualist capitalism is not the same as Italian networking or Japanese corporatism. And each of these models of markets acquires validity from the social context in which it operates and the products which it makes. Historically, one has developed with and from the other.

We can trace the evolution of these different styles of organisation to the different histories and cultures of these three societies. And in turn these different styles of organisation yield different forms of competitive advantage. So Americans write most of the world’s software, Italians lead in the manufacture of fashionable clothing, and Japan produces automobiles of unsurpassed reliability. And while we can certainly learn from each other, wholesale transplantation necessarily fails, as in Russia.

Shared values matter, then, not just in morality and in politics but in economics and business also. And shared values are held in communities, which is why the concept of community plays a key role in discussion of the third way. Both the New Right and the old Socialists agreed that power was to be polarised between the individual and the state, disagreeing only on what the division of responsibility between them would be.

Both were uncomfortable with the dominant institution of modern business life – the large corporation. For the left, it represented an agglomeration of unaccountable power which needed to be brought under political control. For the right, it had either to be eliminated by reductionism – General Electric is “really” just the individuals who own its shares – or by personalisation – General Electric is “really” just an extension of the personality of Jack Welch, its CEO.

All these miss the key point about General Electric, or any other corporation which continues to be successful. It is an organisation with personality, vitality and values of its own values that are stifled by state ownership. have nothing whatever to do with the stockholders, and which existed before Jack Welch and will continue after him. When we talk of communities, we need to understand that the important communities in modern life are not troops of Morris dancers, or associations of residents agitated about the state of their pavements. Communities are Marks and Spencer and the City of London, hospitals and universities, groups of accountants and franchisees. Organisations which function effectively only by virtue of shared values within their own community, reinforced by acceptance outside of the relevance and appropriateness of these values. Fit is actually the key concept of corporate strategy – the successful firm is one whose characteristics are well adapted to the environment in which it trades.

And while this adaptation is the product of evolution, it is not entirely a matter of chance. In contrast to biological evolution, it is not just the environment which selects the organism: the organism may select the environment, and it may also consciously adapt both itself to the environment and the environment to itself. The search for fit is not just a Panglossian assertion that what is must be for the best: fit is actively searched for.

If the job of the business leader is to lead that search, that is true of the political leader also. The job of the politician is to look at those things that do not fit; to broker conflicts; to observe and ameliorate tension between society and environment. When John Major talked of a society at ease with itself, he understood this need, although he had not the slightest idea how to fulfil it. A skilled politician like Blair does it instinctively. And Franklin Roosevelt, perhaps the greatest politician of the century, did it on a heroic scale. The intellectual’s first contribution is to say that political pragmatism is intellectually respectable.

But the role of the modern policy analyst goes beyond that. It is to help to understand why things don’t fit; to see the origins of conflict and from that to suggest general lines of solution. Misfits – inadequacies in evolution and adaptation – seem to fall into three broad categories.

First, there are direct conflicts between incompatible or incommensurable values. Northern Ireland is an example. On issues such as these, it is immediately obvious that ideology not only does not help, but gets in the way. No principles beyond those of basic decency and integrity are involved: the agreement is in this sense unprincipled, and properly so. The objective is simply to find some formulation which all parties can accept.

Similar considerations apply on other social issues – abortion, for example, or fox-hunting. These are matters on which there is no widely shared social consensus, and on which substantial numbers of reasonable people hold differing views (even if, irrelevantly, they seem unreasonable to those who oppose them). On issues such as these, the job of the politician is to identify and steer through some compromise. If all this seems rather obvious, contrast the consensual approach to these questions in most European countries with how they are handled in the United States, where such arguments are translated into conflicts of rights. On abortion, the right to choose confronts the right to life; on gun control, the right to bear arms conflicts with the right of public safety. The presentation of issues in this fundamentalist way threatens to tear US society apart.

Second, misfit occurs because institutions have become dysfunctional: the environment has changed, and structures have not adapted to them. This is the argument for constitutional reform. Or for reforming an interrelationship of tax and benefits once applied to wholly disparate groups has persisted into a world in which most of the population fall into both groups.

This is perhaps justification for the stress on modernity. But we need to be careful here. In economic policy, as in much else, the 1960s was the modern age. The time of the white heat of Harold Wilson’s technological revolution, of George Brown’s national plan, the era of the Industrial Reorganisation Corporation. The translation of Macnamara from the Ford Motor Company to the Defense Department and then to the World Bank exemplified the application of analytic rationalism across the whole spectrum of economic and political life, from automobile production to the Vietnam War to third world development. Yet Toyota, the Vietcong and African poverty had the last laugh.

The third way is not so much modern as post-modern. The case for modernisation is not that one can construct some hypothetical structure that might perform better, but that there is ready evidence of misfit: of contrast between expectations and outcomes. The evidence that institutions are inappropriate is that they are the subject of reiterated and often incoherent complaint which comes from all sides of something which is true of the relations between central and local government, or the interaction between tax and benefits, but less evidently the case for other antiquated institutions, such as the House of Lords.

Third, misfit occurs because of the remains of ideologies and the clash between ideology and dominant values. From the influence of the left, we have unwanted and inefficient centralised control – the historical politicisation not only of our education system but of how we generated electricity. From the influence of the right, we have the attempt to force mechanisms of social sympathy and risk-sharing into a framework of rights and contracts.

So if we go back to today’s central political issues – welfare, health and education – what might a third way politician have to say? All of these are areas where policies and institutions appear to be at odds with the widely held values and expectations. They are central political issues because there is a gap between what our institutions deliver and what we want them to deliver. In none of these policy areas is the misfit of my first kind – a clash between incompatible or incommensurable values. On the contrary, there seems very widespread agreement about what we want from our health service, our education system and (less so but still substantially) our welfare state. Political argument is not much about objectives, principally about means.

While there is an element of adaptive failure in health education and welfare – in particular, the ossification of systems of public sector management which are ill equipped to cope with rapid change or serious external pressure – the principal origins of misfit lie elsewhere. They come from the imposition of both left and right ideologies on value systems with which they are largely incompatible. The problems are the relics of Big Ideas in areas where no big ideas are required, or at least not these ones.

In health and in welfare, the central values are those of inclusiveness and the socialisation of risk. Inclusiveness implies the opportunity to share in the community’s central institutions – voting, employment, raising children, Coronation Street and the FA Cup Final. The socialisation of risk involves acknowledgement that a variety of individual misfortunes are accepted, at least in part, as community as well as individual problems. It is not an accident that the key institutions of our health and welfare systems – the national health service and the national insurance system – date from the period immediately after the second world war, when these values of inclusiveness and risk socialisation had been maintained with particular force. That is why the dry Beveridge Report, published in the middle of total war, readily captured the public imagination.

The NHS above all epitomises inclusiveness and risk socialisation. To such a degree that its intellectual critics are frequently converted when they come into contact with it: and to such a degree that sustains its extraordinary popularity quite independently of its effectiveness as a means of delivering medical treatment. Americans, from a culture that values technical efficiency more highly, are bewildered by our public pride in these institutions. Critics correctly note its focus on the treatment of illness rather than on the promotion of health. But it is care, not quality adjusted life years which is the system’s central value. If it is a national illness service, rather than a national health service, that is because it is what we want.

In truth, there is not much wrong with the NHS, except that it does not meet the requirements of modern rationalist ideologies. It suffers from a problem inescapable in any health system: the difficulty, in any but the most uncaring of societies, of refusing (on any grounds) treatment which might yield some benefit even if the probability is low and the benefit small. And it is poorly managed, a legacy of the excessive centralisation and political control which has been endemic in all British nationalised industries.

The gap between expectation and achievement in our welfare system is large. The imposition of ideology has undermined its legitimacy. This has come about, right across Europe, in a rather curious way. The importation from the United States of a rights based style of political discourse influenced not only the political right but the political left, who recast traditional arguments based on solidarity and risk-sharing in terms of welfare rights. But there has never been an accepted basis for these welfare rights – we want to help the sick and unemployed because we want to help them, not because they have a right to our help. The proclamation of such rights not only raised the costs of social security, but changed its nature, and eroded the social solidarity on which the welfare system was in reality based.

Welfare to work recognises this. In this, it represents perhaps the largest ideological shift by New Labour and most clearly epitomises the style of third way thought. It redirects welfare towards the objectives of inclusion and risk sharing. It acknowledges a specific commitment to an element of sharing misfortune such as redundancy, or disability. And to inclusion: unemployment policy is about putting people back to work, not compensating them for the absence of a job. In a tolerant society, inclusion is optional: but those who choose not to be included have no particular claim on the rest of us. Rights play no part in any of this. What our welfare system offers is the product of our current values.

The implications of inclusion and socialisation of risk extend to other areas of benefit provision. Compulsory retirement saving follows quickly from a requirement of inclusiveness, and arguments of social solidarity justify what tools, at first sight, the technically inefficient churning of taxes and benefits over household lifetimes or within the same household at the same time.

No policy area epitomises the consequences of the clash of ideology and values more clearly than education. Subjected to political control and increasingly nationalised, the recent evolution of Britain’s education system has displayed the familiar characteristics of failed systems of centralised planning. The capture of ostensibly democratic mechanisms of accountability by interested groups of producers. The periodic implementation of sweeping but unsuccessful schemes of radical reform. The proliferation of tools of measurement and control, reinforced when they fail to achieve their desired effect by yet more tools of the same kind. The progressive alienation of operating units from a centre which they view with increasing contempt. The consequential fall in morale and performance. For the student of Stalinist economic policies, only the Common Agricultural Policy provides a better test bed than British education (especially higher education).

But education, more than any other commodity, is about shared values in communities, and is undermined by the polarisation of authority between individuals and the state. That is why neither marketisation nor central political control work: and the most successful education institutions are rarely found within such contexts. Around the world, the most successful educational institutions are, almost invariably, strongly embedded in communities. Mostly geographical communities, where good schools, technical colleges and metropolitan universities drawn on and reinforce civic pride. At the élite level, the communities that support and manage education have no geographical focus but extend nationally or internationally through the involvement of alumni: as is true for the leading US universities, the French grandes écoles, the top English public schools.

Educational reform requires the creation, or recreation, of these communities. This will not be quick, and will not be easy, and from where we are it may not be possible at all. Just as the implementation of grand designs is not always possible, successful evolution is not always achievable. But it is more often achievable.

Is not this version of a third way a profoundly conservative doctrine? There is certainly a sense in which that is right: perhaps Burke is the true intellectual progenitor of the New Labour project. And yet this apparent confusion as to where doctrines are to be located in the political spectrum, simply reflects the third way truism that the traditional categories of left and right do not describe politics today.

They do not: one of the most striking features of western politics today is that in all the major democracies the two principal parties have more in common with each other than with their ostensible counterparts elsewhere. Blair and Hague, Jospin and Chirac, Schroder and Kohl: what separates each pair is far less significant than the divisions in the Socialist International, and it is barely worth convening a meeting of the European parties of the right. But if modern politics is not about the promulgation of universal Big Ideas, but about adaptation within specific social, cultural and historic contexts, this is exactly what we might expect.

Nor should we be surprised to find that today conservative policies – pledges to the defence of established institutions are as likely to be found on the left as on the right. Since today’s Big Ideas are mostly on the right, those who wish to maintain the status quo in the NHS and SNCF naturally look in the opposite direction. The true measure of the irrelevance of left and right taxonomies is that moving to the right of established left positions – benign socialism – takes one to a very different position to the one reached by moving to the left of established right positions – benign Thatcherism. It is because there is no longer a unidimensional array of political issues that the Third Way is not to be found in the middle of it.

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