Revival: The Third Way Transformation of Social Democracy (2002)

Normative Claims and Policy Initiatives in the 21st Century

Oliver Schmidtke

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781138720350
• eBook ISBN: 9781351762953
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This title was first published in 2002. This multi-faceted account of the transformation of social democracy in Europe provides a unique critical discussion of the normative claims and the key policy initiatives that characterize Third Way politics. Designed to cover a broad range of aspects, this text provides fresh understanding of the transformation of social democratic politics in a globalizing world. Including accounts of the changes in the socio-political environment in which the New Social Democracy operates, the socio-cultural roots of Third Way politics and the underlying political and ideological shift of the contemporary established left, this text offers comparative insights into national case studies and an interpretative framework for the transformation that this political force has undergone in recent years. The reader will benefit from this book's expert and easily accessible multi-faceted approach to one of the key political issues in contemporary Western societies.

PART I

ORGANIZING THE ECONOMY IN THE AGE OF GLOBALIZATION – THE INSURMOUNTABLE CHALLENGE FOR THE SOCIAL DEMOCRATIC LEFT?

Chapter 1
The Comparative Political Economy of the ‘Third Way’

Peter A. Hall

Introduction

One of the most prominent features of turn-of-the-century politics is the search for a ‘Third Way’, launched by social democratic parties seeking a new set of policies distinctive from those traditionally pursued by the political left and right. There are multiple dimensions to this quest. In some measure, it is an electoral gambit designed to lend a patina of coherence to policies that might otherwise seem disparate by grouping them under a single slogan. It can also be seen as an effort to define a new public philosophy marked by the integration of market and communitarian principles, analogous to the ‘new liberalism’ developed in Britain at the turn of the last century (cf. White, 1998; Giddens, 1998; Beer, 1978; Weiler, 1982). These features of the process are far from inimical: after all, it is through such trial-and-error efforts to associate novel policies with a coherent moral vision that political parties construct new images and coalitions for themselves.

In this chapter, I explore another dimension of the search for a third way, namely, its close relationship to developments in the political economy. While far from entirely economic enterprises, the platforms of contemporary social democracy have been deeply conditioned by recent socio-economic developments. In the following sections, I argue that recent changes in the policies of social democratic governments in Europe are similar enough to describe them as a common movement toward something like a ‘Third Way’ and explore the relationship of these changes to transnational economic developments. I then consider the principal differences in the political economies and social policy regimes of the European nations and argue that these differences will condition the opportunities and constraints facing social democrats in each nation. My principal contention is that the origins and fate of the political projects associated with a ‘Third Way’ are dependent on the character of contemporary political economies. I review the recent history of policy making by the social democratic governments of Britain, Germany and France with a view to establishing whether we fmd the differences in policy this perspective would lead us to expect and conclude that there are substantial differences in the recent trajectories of policy. My overarching point is that the British policies most often associated with the ‘Third Way’ are well suited to its liberal market economy but that social democrats will have to pursue somewhat different policies if they are to succeed elsewhere in Europe.

The Commonalities of the Third Way

The rhetoric of social democracy varies across Europe. Tony Blair, the Labour Prime Minister of Britain, has been a vocal exponent of the ‘Third Way’. Gerhard Schröder, the Social Democratic Chancellor of Germany, accepted the idea but preferred to describe his policies as those of the Neue Mitte or ‘new middle’. Lionel Jospin, when Socialist Prime Minister of France, explicitly disavowed the term in favour of a rhetoric that described his goals as ones of modernization and republicanism. Nevertheless, there are enough similarities in the break these three governments have made with previous socialist policy to justify the contention that they moved towards a ‘Third Way’. Four commonalities characterize this movement.

The first is a new-found appreciation for the profitability of business. For over a century, the ideology of social democracy emphasized the conflicts of interest between capital and labour. The tension between the interest of workers in wages and of capital in profits was seen as central to this conflict, and social democrats long defined themselves as the defenders of labour. Accordingly, social democratic parties rarely presented themselves as the defenders of business interests, expressed frequent suspicion about the level of profits, and usually gave greater priority to increasing wages than profits.

The late twentieth century brought a sea-change in such views. After three years in which it had raised wages and substituted public for private investment, the socialist government of France made an abrupt turn in 1983. It expressed concern for the low levels of profitability of French business, began to reduce corporate taxes, and put new limits on wage increases in order to enhance the rate of return to French firms. Subsequent socialist governments followed suit, using a variety of measures to improve profit levels in France (cf. Hall, 1987, 1990, 2001). Some of the first steps taken by the German social democrats after their election in 1999 were to reduce the basic rate of tax on corporations and to eliminate capital gains tax on sales of corporate shareholdings. In each case, the object was to improve the profitability of German business. Even before its election in 1997, the British Labour party began to court the business community. Once in office, Blair appointed a leading industrialist as his minister for European affairs, and several initiatives to secure the profitability of British firms. Across Europe, social democratic governments have begun to evince real concern for corporate profitability.

After years of hostility, the social democratic governments of Europe have also begun to embrace market mechanisms. Inspired by Marx’s biting critique of the ‘cash nexus’ and the alienating effects of market relations, social democratic parties have often seen their mission as one of limiting the role of markets in the allocation of resources and the impact of market relations on labour. Many of their social policies were designed to ‘decommodify’ labour, and their economic policies have sought to rectify the inefficiencies of market mechanisms by expanding the role of the state in the economy (cf. Esping-Andersen, 1990; Foote, 1986).

By the end of the 1980s, however, most of the social democratic parties of Europe were celebrating the value of market mechanisms for allocating resources. This was one of the central themes of the joint declaration that Blair and Schröder (1999, p.3) issued to promote the Third Way, announcing that ‘the essential function of markets must be complemented and improved by political action, not hampered by it’. Shortly thereafter, Schröder endorsed the deregulation of shop hours in Germany, took measures to sharpen commercial competition, and expressed sympathy for deregulatory measures in several spheres of the economy. The socialist government of France made even greater efforts during the 1980s to deregulate financial markets, to increase the influence of public enterprises to market forces, and to expose the French economy to more extensive competition in a single European market (cf. Streeck, 1996). In Britain, the Blair government accepted most of the measures taken by its Conservative predecessors to enhance market competition in the economy; and it has embraced the use of market mechanisms inside the public sector itself with a view to improving the efficiency with which education, health and social services are delivered. A new ‘welfare to work’ scheme undercuts the capacity of individuals to use social benefits as a means of reducing their dependence on the labour market.

The social democratic governments of Europe have also significantly softened their emphasis on the value of addressing socioeconomic problems by expanding public spending in favour of a new emphasis on policies that are essentially regulatory in character, seeking improvements in social life without corresponding increases in social spending. Again, this represents a significant break with the past. For years, social democratic parties were associated with higher levels of public spending. They have been the most prominent proponents of large welfare states and industrial spending.

During the 1990s, however, the social democratic governments of Britain and Germany, and to a lesser extent France, all put strict limits on the growth of public expenditure. They balanced additions to spending in some spheres with cuts in others; and all have made a point of reducing various kinds of taxation. None made public spending the centrepiece of their programmes. Instead, the social democratic governments of the 1990s put increasing emphasis on what might be termed ‘moral issues’ of the sort associated with civil liberties, citizenship, and crime. It is surely far from coincidental that such issues can be addressed without spending large sums of money. The Jospin government liberalized the regulations governing civil marriage to improve the position of gay couples and others living together and took well-publicized measures to improve the rights of immigrants. The German government has implemented major reforms allowing immigrants freer access to German citizenship. In Britain, the government committed itself to a major series of constitutional reforms, including reform of the House of Lords, the establishment of regional assemblies for Scotland and Wales, and liberalizing access to government information, all in the name of improving the quality of British democracy. In each of these cases, a social democratic government sought to retain its mantle as the defender of ‘social justice’ without committing itself to extensive new spending, by redefining social justice in terms that emphasize regulatory reform rather than social benefits. Emblematic of this movement is the new attention Blair devoted to fighting crime, a dimension of social protection long seen as the preserve of the right.

Finally, all of these governments have reversed their traditional stance toward unemployment, moving away from Keynesian approaches in which deficit spending is used to stimulate demand toward ones that see unemployment as a supply-side problem to be addressed by manpower policy and changes in labour-market arrangements. The British Labour party was one of the first to adopt a Keynesian approach to unemployment during the 1950s, but reflation was also central to the initiatives of the German social democrats during the 1960s and of the French socialists in the early 1980s. One by one, these parties have backed away from such positions toward ones that stress the importance of active manpower policies and of improving the qualifications of the workforce.

During the 1980s, the French socialists embarked on a successful programme to provide all workers with at least two years of schooling beyond the baccalauréat. In the 1990s, the Jospin government implemented supply-side measures based on the creation of new kinds of positions in the public sector and extensive subsidies for hiring or training the unemployed, as well as a legislated movement to the 35-hour work week. The Blair government adopted a ‘New Deal’ for labour designed partly to strengthen vocational training by offering access to new forms of formal education. Although German initiatives have remained more tentative, they too concentrate on the supply-side of the economy. Schröder used tax reductions and the renegotiation of skill categories in vocational training schemes to address unemployment and called on business and labour organizations to negotiate more far-reaching supply-side solutions. All these governments moved away from activist macroeconomic management, pledging reductions in public sector deficits and accepting central banks that are independent from the political authorities.

In sum, the social democratic parties of Britain, France and Germany have all moved away from some of the positions long considered most central to social democracy. And, despite some differences in national paths, there are substantial enough similarities in them to support the contention that there is a transnational movement in European social democracy toward something like a ‘Third Way’.

The Genesis of the Third Way

Behind this ideological transformation, of course, lies a struggle for electoral advantage. In democratic polities, most shifts in a major party’s programme will be based on a calculation about how it can secure office, given the attitudes of the electorate and the placement of other parties vis-à-vis those attitudes (cf. Kitschelt, 1994). In this respect, the turn toward neoliberalism, taken to varying degrees by mainstream parties of the right during the 1980s, was an important precondition for these movements by their socialist competitors. By pushing the views of the electorate toward the right on some issues, neoliberal politicians helped push social democratic parties in that direction as well. It is implausible that the British Labour party would be taking many of its current positions if it had not been forced to react to the neoliberalism of Margaret Thatcher (Notermans, 1993).

However, there are good reasons for looking beyond electoral currents to explain these shifts in the platforms of social democratic parties. They occurred in France and Germany where neoliberal ideology was never as popular as it was in Britain during the 1980s. Even there, the views of the electorate did not shift as far to the right as did those of the Thatcher government: if the Labour party were simply chasing the attitudes of the electorate, it need not have moved so far on many issues (cf. Norris, 1999). Moreover, neoliberal ideology itself was partly a response to international economic developments, and it is notable that social democratic leaders have tended to justify their new positions by reference to such developments. In short, the recent transformation of European social democracy has some roots in fundamental shifts in the political economy, to which governments have believed they must respond. Three such developments are of prime importance.

The most prominent of these developments are increasing levels of international interdependence associated with the process of ‘globalization’ (cf. Giddens, 1998). Trade integration has been increasing since the 1950s; but the exponential increase in international financial transactions during the 1980s, the removal of exchange controls, the creation of a single European market, and the availability of new foreign markets created when Communism collapsed and liberal regulatory regimes were adopted in many nations fundamentally altered the set of opportunities and constraints facing the developed economies. There are many respects in which these developments militate against traditional socialist policies.

In more open economies, it is difficult for governments to reduce unemployment by increasing public spending, as the Mitterrand government discovered in 1982–83, because a significant portion of the consumer demand that is created leaks into imports, and the deficit spending that such policies entail puts downward pressure on exchange rates and can accelerate inflation. Movements toward floating exchange rates and higher levels of capital mobility of the sort that occurred in the 1970s and 1980s exacerbate such constraints. If they cannot limit flows of funds out of their economies, governments must adopt deflationary monetary policies if they want to defend their exchange rate; and interventionist industrial policies that depend on a government’s capacity to ration domestic capital become less powerful once domestic firms have access to international capital markets (cf. Hall, 1987; Frieden, 1991; Notermans, 1993). The liberalization of international regimes for trade and finance rendered the activist macroeconomic and interventionist industrial policies on which...

Table of contents

• Cover
• Half Title
• Dedication
• Title Page
• Copyright Page
• Table of Contents
• List of Contributors
• Acknowledgements
• Introduction
• Part I: Organizing the Economy in the Age of Globalization – The Insurmountable Challenge for the Social Democratic Left?
• Part II: What Is the Third Way? The Role of Social Democratic Regimes in Comparative Perspectives
• Part III: Culture, Ideas and Political Space – Where Does the Third Way Come from and Where Will It Go?
• Part IV: Third Way Politics in Practice – New Political Spaces for Democratic Renewal?
• Index