Clinton and Blair

Flavio Romano

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134182527
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

The former President of the United States, Bill Clinton and, at the time of publication, still current Prime Minister of the United Kingdom, Tony Blair have described their style of government as a 'Third Way'. In this important and timely book, Flavio Romano identifies and clarifies the economic implications of this particular approach to public governance.

Testing the validity of President Clinton's and Prime Minister Blair's claims of practising a Third Way Romano submits their economic policies to extensive theoretical and historical analysis. Through careful and detailed examination of their fiscal, monetary, education, employment and public and private investment policies, overwhelming evidence is presented to challenge these leaders' claim of practising what they preach.

This engaging book will be of great interest to students and practitioners of economics and politics and to those interested in world politics in general.

1 An introduction to the Third Way

President Bill Clinton and Prime Minister Tony Blair have described their practice of governing the United States and the United Kingdom respectively as a “Third Way” that is of neither the Right nor Left but new and different.

Use of the term “Third Way” to describe some style or philosophy of government is not new; it has in fact been used to describe quite an eclectic range of different governments since at least the end of the nineteenth century, when Pope Pius XII called for a third way between socialism and capitalism. It has also been used in more recent times to variously describe Sweden’s “social democratic middle ground between capitalism and communism” (Reich 1999: 1); some unspecified form of social democracy between free-market capitalism and centrally planned socialism; as well as by the dictators Franco and Tito to describe their own approaches to governing (Arestis and Sawyer 2001: 2). Since then it has also reappeared in other contexts; in fact the similarity to Harold Macmillan’s (1938) “Middle Way,” for instance, is notable.

Marxist political philosophers have also used the term. Ota Sik in his The Third Way: Marxist–Leninist Theory and Modern Industrial Society (1976), for example, used the term to describe a system where market forces are allowed to operate within the economy but where the government intervenes to redistribute wealth to ensure equality of outcomes. The term has also been applied to examples of attempts to combine a free-market economic policy with a socialist political environment such as China, Vietnam, and Laos (McDonnell 1999: 21).

In the 1980s, the term was adopted by the charitable sector in the United States to describe the development of “social capital,” that is, a system whereby communities work together to accrue wealth for philanthropic purposes and to also improve social bonds in the process (McDonnell 1999: 22).

In the 1990s, the United States Democratic Party adopted the term to once again point to an alternative philosophical route between neoclassical liberalism and social democracy:

We reject both the do-nothing [laissez-faire Republican] government of the last 12 years and the big government theory that says we can hamstring business and tax and spend our way to prosperity. Instead we offer a third way.

(Democratic Party 1992: 690, italics added)

Similarly, US President Bill Clinton announced to the Congress in his 1998 Report on the State of the Union that:

We have moved past the sterile debate between those who say Government is the enemy and those who say Government is the answer. My fellow Americans, we have found a Third Way. We have the smallest Government in 35 years, but a more progressive one. We have a smaller Government but a stronger nation.

(1998c, italics added)

Even more recently the term has been zealously adopted by the prime minister of the United Kingdom, Tony Blair, and his self-christened “New Labour” Government. Blair wrote in 1998:

The “Third Way” is to my mind the best label for the new politics which the progressive centre-left is forging. . . . The Third Way stands for a modernised social democracy, passionate in its commitment to social justice and the goals of the centre-left, but innovative and forward-looking in the means to achieve them. It is founded on the values that have guided progressive politics for more than a century – democracy, liberty, justice, mutual obligation and internationalism. But it is a third way because it moves decisively beyond an Old Left preoccupied by state control, high taxation and producer interests; and a New Right treating public investment, and often the very notions of ‘society’ and collective endeavour, as evils to be undone.

(1998d: 1)

It is with this last form of the Third Way – that of Clinton and Blair – that this work is concerned. In particular, it is concerned with exploring Clinton and Blair’s Third Way as an economic program, with the aim of determining whether it is in fact ‘new’ or whether it actually adheres to some existing economic theoretical tradition(s). Existing evaluations of the Clinton–Blair Third Way have focused on its philosophical and political nature. Economic assessments are lacking and it is therefore precisely the purpose of this study to analyze the Third Way’s coherence as an economic program. The importance of the study is that, by exploring the Third Way and its heritage, it seeks to improve our knowledge and understanding of the Third Way and thereby contribute to the quality of public discourse concerned with contemporary macroeconomic policy.

The Third Way as a public philosophy

As Pierson and Castles (2002: 687) point out, it is unclear from the literature exactly what the Third Way is and its proponents are clearest about what it is not – neither the “old” social democracy nor neoliberalism. One interpretation of the Third Way, associated with Anthony Giddens – the Third Way’s “chief ” philosopher and the person Scanlon (1999: 25) describes as “Tony Blair’s favourite intellectual” – seeks to explain it as an emerging public philosophy. Giddens has written very extensively (1994, 1998, 2000a,b,c, 2001) about the philosophy of the Third Way as an alternative public philosophy by reference to the two other “ways” of “classical social democracy” and neoliberalism:

Classical social democracy thought of wealth creation as almost incidental to its basic concerns with economic security and redistribution. The neoliberals placed competitiveness and the generating of wealth much more to the forefront. Third way politics also gives very strong emphasis to these qualities, which have an urgent importance given the nature of the global marketplace. They will not be developed, however, if individuals are abandoned to sink or swim in an economic whirlpool. Government has an essential role to play in investing in the human resources and infrastructure needed to develop an entrepreneurial culture.

(1998: 99)

Furthermore:

Traditional socialist ideas, radical and reformist, were based on the ideas of economic management and planning – a market economy is essentially irrational and refractory to social justice. Even most advocates of a “mixed economy” accepted markets only grudgingly. But as a theory of the managed economy, socialism barely exists any longer. The “Keynesian welfare compromise” has been largely dissolved in the West, while countries that retain a nominal attachment to communism . . . have abandoned the economic doctrines for which they once stood. The “second way” – neoliberalism, or market fundamentalism – has been discarded even by most of its rightist supporters . . . neoliberal policies . . . suggest it is up to individuals to fend for themselves in a world marked by high levels of technological change and insecurity.

(2001: 2)

According to Giddens (2001: 2), the Third Way project must begin with “modernising social democracy” in order to “adapt social democracy to a world which has fundamentally changed over the past two or three decades” due to globalization and the emergence of the “knowledge economy” (1998: 26). The Third Way project consists of a “series of endeavours, common to the majority of left parties and thinkers in Europe and elsewhere, to restructure leftist doctrines [because] there is a general recognition almost everywhere that the two ‘ways’ that have dominated political thinking since the Second World War have failed or lost their purchase” (2001: 2). The Third Way therefore, according to Giddens, is an alternative public philosophy because it transcends both social democracy’s concerns with economic redistribution and neoliberals’ concerns with competitiveness by uniting these values in developing a culture that addresses the nature of contemporary societal risks (1994, 2000b,c).

Hombach (2000: 1) similarly describes the Third Way as a public philosophy “that will steer a third course, a path between competing ideologies [which overcomes] the extremes of free market economics on the one hand and centralized welfare state on the other.”

The Third Way as a political strategy

An alternative interpretation – and one which enjoys widespread support – is that of the Third Way as a political strategy designed to reposition the Left within the political mainstream as a viable alternative to the Right, capable in itself of successfully governing capitalist economies in the age of global capitalism (Reich 1997; Burns and Sorenson 1999; Dionne 1999; Harris 1999; Hay 1999; King and Wickham Jones 1999; Morris 1999; Scanlon 1999; Baer 2000; Campbell and Rockman 2000). Political strategy in this context should simply be understood to mean an electoral tactic designed to win sufficient electoral support from voters for political parties to govern.

According to Dionne (1999, quoted in Temple, M. 2000: 303–4), voters clearly like and want capitalism so that in order to win elections “parties on the left . . . have to prove they’re comfortable with the market [economy] and accept its disciplines; however, voters want capitalism tempered by other values, such as community and compassion.” Therefore, New Labour felt it necessary to launch a Third Way which embraced capitalism but also addressed the need for “realism with a heart.”

Harris (1999: 52–61) too argues that the Third Way represents the Left’s response to the New Right and the “victory” of capitalism over socialism. That is, that the end of socialism as a genuine rival economic system to capitalism renders the debate over the merits of the two systems redundant. Also, the New Right, led by Conservative Prime Minister Thatcher and Republican President Reagan, tightened its grip on political power in the United Kingdom and the United States by developing a new political language to reflect the dominance of capitalism in the popular cultures of those countries. This political language includes expressions such as “privatization” and “the homeowner society,” which have since joined the mainstream political lexicon.

According to Harris, if the Left were to persist in the redundant argument of socialism versus capitalism, it would face certain political irrelevance. The Third Way therefore represents the Left’s reinvention to enter the mainstream political debate by, first, accepting capitalism as the given economic system and, second, inventing the language of a “New Left” paradigm for “administering” capitalism. Tony Blair succeeded in achieving the former by having Clause IV of the British Labour Party constitution (requiring the socialization of the means of production and distribution) removed and the latter through the language of the Third Way, with terms such as “stakeholder society,” “equality of opportunity,” and “new social contract.” In fact, Blair explicitly acknowledges that a stated political ambition for the Third Way project is as “an attempt to marginalise the free-market Right” (1996b: 13–15).

Hay (1999) too interprets the Third Way as a political strategy, by applying Anthony Downs’ framework. In An Economic Theory of Democracy (1957: 300), Downs posited that “political parties tend to maintain the ideological positions that are consistent over time unless they suffer drastic defeats, in which case they change their ideologies to resemble that of the party that defeated them.” Applying Downs’ theory, Hay (1999: 94) argues that Blair’s New Labour – having been kept out of office by the Conservative Party for the 18 years to 1997 – recrafted its agenda to more closely resemble that of its opposition, thereby reducing the difference and increasing its electoral appeal. Hay’s argument can easily be extended to apply to the US Democratic Party, which had been similarly kept out office for the 12 years to 1992 by its Republican opposition.

Kenneth Baer’s comprehensive study Reinventing Democrats: The Politics of Liberalism from Reagan to Clinton (2000) examines the modern history of the US Democratic Party and his findings concur with Hay (1999) and Downs (1957). Baer’s thesis is that the Third Way project was originally developed by the “New Democrat” faction of the Democratic Party and their most important organizational form, the Democratic Leadership Council (DLC), to reposition the Democratic Party to appeal to the electoral mainstream and thus win elections.

Baer (2000: 68) explains that “those instrumental in the founding of the DLC felt that . . . its [the Democratic Party’s] platform was an amalgam of special-interest concerns and was too far to the left of ‘mainstream’ America on many issues.” The DLC was formed in the aftermath of the 1984 election by a group of elected Democratic officials who believed that the Democratic Party was in danger of marginalization and even extinction unless the party could jettison its image as a party of profligate “tax-and-spenders” appealing only to sectional minority interests – namely labor unions and black Americans – and develop a mainstream public philosophy with wide electoral appeal. Specifically, the DLC thought that the Democratic Party was losing elections because it embraced a public philosophy that repelled “the working-class and middle-class voters,” especially “white Southern Democrats,” towards the Republican Party – the so-called Reagan Democrats (2000: 12, 32) who voted for and were considered instrumental in electing Republican President Ronald Reagan in 1980.

With the election of their former chairman Bill Clinton to the presidency, the New Democrats saw many of their ideas become national policy and some of their most prominent members enter the presidential cabinet and staff.

There is also consensus that Blair imported Clinton’s Third Way simply as a means to reposition the Labour Party to win elections, as it had done for Clinton and the Democratic Party in the US presidential election of 1992 (Adams 1998; Hay 1999; Claven 2000; Fairclough 2000; Foley 2000). Adams (1998: 43) has explained that in reshaping and repositioning New Labour, Blair was strongly influenced by Clinton’s performance with the Democratic Party. Secretary of the British Fabian Society, Michael Jacobs (2001a), has also noted that Blair and his Chancellor of the Exchequer, Gordon Brown, have explicitly styled themselves on the US Democrats rather than in the tradition of European social democrats. Foley (2000) goes so far as to speak of Blair’s as a “British presidency.”

King and Wickham Jones (1999) explain that the “New Democrat” victory in 1992 boosted the British Labour Party’s confidence that parties of the Left could win elections. Many leading modernizers and staff of the British Labour Party, most notably Tony Blair and Gordon Brown, spent time in Washington observing and learning from the Clinton Administration. A report on the 1992 Clinton campaign by British Labour Party operatives Patricia Hewett and Phil Gould recommended that in order to win, Labour would need to copy the Democratic campaign. The report was adopted.

Duncan (1999) attributes the political interpretation of the Third Way to Schumpeter’s argument, in Capitalism, Socialism and Democracy (1942), that if the Left were to govern a capitalist economy they would have to do so according to capitalist not socialist logic:

Socialists had to govern in an essentially capitalist world . . . a social and economic system that would not function except on capitalist lines. . . . If they were to run it, they would have to run it according to its own logic. They would have to “administer” capitalism.

(Duncan 1999: 32)

Morris (1999) argues for an even more explicitly political interpretation of the Third Way. According to Morris, a former political advisor to Clinton, the Third Way is the name he and the Clinton White House gave to the tactic of politically outmaneuvering congressional Republicans by adopting the most central ideological position on issues, in order to appeal to the political center (where the majority of voters are thought to be ideologically located) and in the process make the Republicans appear dogmatic, unreasonable, and therefore politically unappealing. Morris also refers to the Third Way as “triangulation,” a metaphor referring to the well-known land surveying technique in which a point in space is accurately located through reference to two other points on either side.

Quirk and Cunion instead refer to Morris’ triangulation as “opportunistic centrism” (Campbell and Rockman 2000: 204) and Burns and Sorenson (1999) concur by arguing that the Third Way should be understood as a cynical and manipulative ploy by Clinton and his Democratic Party to capture the political center on issues so as to maximize their voter appeal.

The Third Way as an economic program: a ‘New’ agenda for globalization

A third interpretation of the Third Way is that of a national economic program for addressing the contemporary demands of globalization. This interpretation is not mutually exclusive to the preceding two but is the one with which this study is concerned. The Third Way economic program begins with the analysis that the world is undergoing unprecedented change in the form of rapid economic and technological globalization. According to Clinton (1996: 37), “the future prospects of average Americans today are being driven by one central force: rapid economic change.” Similarly for Blair, the Third Way “is about addressing the concerns of people who [are] undergoing rapid change . . . in a world of ever more rapid globalisation” (Blair and Schröeder 1998: 163). The especially important characteristics of globalization for Blair (1998d: 6) are the instantaneous mobility of capital across national frontiers and the emergence of global networks of production and competition, both facilitated by developments in information technology.

The importance of international modes of production is that goods and services are no longer produced and consumed within one country but, facilitated by technology, can be designed in one or more countries, manufactured in others, and exported to yet others for consumption. Thus, competition between countries for employers, and hence for employment, has become as global as the competition between producers for sales.

The implications of the instantaneous mobility of capital across national frontiers are particularly significant for national economic policy. Most importantly, it is understood to mean that national governments that do not observe the economic policy preferences of the international capital markets risk capital flight (Friedman, T. 1999).

The New Economy: the Third Way as a program for economic growth

The Third Way argues that capitalism has entered a new stage of development – the New Economy – in which technological innovation and human capital have become especially important as the factors of economic growth:

The new economy – like the new politics [the Third Way] is radically different. . . . Its most valuable assets are knowledge and creativity. The successful economies of the future will excel at generating and disseminating knowledge, and commercially exploiting it. The main source of value and competitive advantage in the modern economy is human and intellectual capital.

(Blair 1998d: 8)

Indeed, for the Third Way, economic growth depends only on technological innovation (Clinton 1991, 1996; Clinton and Gore 1992; Blair 1998d). In turn, technological innovation, it argues, demands higher levels of skills and education, hence the premium it places on high educational standards. According to Blair (1998d: 6), “technological advance and the rise of skills and information as key drivers of employment and new industries . . . [are] placing an unprecedented premium on the need for high educational standards.” Income in the knowledge economy is dependent on education. As Clinton and Gore (1992: 16) put it: “what you earn depends on wh...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Preface
• Acknowledgments
• Abbreviations
• Introduction
• 1 An introduction to the Third Way
• 2 The Third Way and economic growth
• 3 The Third Way and public finance
• 4 The Third Way in the United States
• 5 The Third Way in the United Kingdom
• 6 A Third Way or no way at all?
• Notes
• Bibliography