THERE’S NO WAY LIKE THE THIRD WAY

Next week the Third Way will wind its way to New York. Political leaders who profess to have found the road that runs between capitalism and socialism will gather at New York University to trade ideas and plans that they are convinced will produce a better world and, not incidentally, ensure their continuation in power.

Barring resignation, our president will be there, asserting that compassion is a key ingredient in this allegedly new political confection. British prime minister Tony Blair, perhaps the most serious and coherent proponent of the Third Way, will be there too. And so will Italian prime minister Romano Prodi, fresh from his success in fudging his nation’s budget sufficiently to make Italy eligible for inclusion among the 11 European nations who will soon abandon their national currencies in favor of the Euro. Finally, Brazil’s Fernando Henrique Cardoso is scheduled to attend, to represent Latin American countries that are struggling to maintain democratic institutions and reform their economies, while narrowing the wide gap that separates rich from poor in that part of the world.

Only Germany’s Gerhard Schroder will be absent, his attention drawn to the more practical problem of unseating Chancellor Helmut Kohl in upcoming elections. Schroder, who prefers the phrase “new middle” to the Third Way, is nevertheless a full-fledged, dues-paying member of the Clinton-Blair-Prodi-Cardoso club. He has hired Clinton adviser Hank Sheinkopf to do research on the opposition and goes to great lengths to liken himself to Blair — the youthful can-do enthusiast available to replace a distinguished but aging leader who is out of touch with the people. He will be missed at the NYU gathering.

But not sufficiently to dampen the triumphalist rhetoric of the leaders who will attend. And they have reason for satisfaction. As Tony Blair has pointed out, “The center-left is in office, not only in Britain, but throughout Europe, in a dozen EU countries.” And, he might have added, it controls the executive branch of the U.S. government, Bill Clinton having made it clear in his last State of the Union message that his way is, indeed, the Third Way. More important, contends Blair, “It is the center-left which holds the intellectual advantage; it is our agenda which will reshape people’s lives.”

To understand the Third Way, start with the proposition that the traditional “ways,” left and right, no longer lead to a better life. David Miliband, who heads Blair’s Policy Unit, is clear on this point: “Important issues seem ill-served by the traditional definitions of Left and Right.” The certainties of the Right “strain the credulity even of true believers. . . . Schumpeter, Keynes and Polanyi all argued fifty years ago that unfettered market rule will corrode precisely the values and institutions on which the social order rests.” As for the Left, “the model of directive control that characterized not just communism, but also various forms of top-down Fabianism, have little purchase today. . . . The traditional definitions of Left and Right — set by counterpositions of market and state, individual and collective, public and private sphere — are superseded.” Conclusion: “Beyond doubt . . . we need a new model of political change.”

It is, of course, easier to consign both Left and Right to the dustbin of history than to devise a Third Way. Advancing from slogan to concept is particularly difficult here in America, where Third Wayer-in-Chief Bill Clinton is known for using precise language only under legal duress. After all, Clinton has found this new route broad enough to encompass his 1996 announcement that the era of big government has ended and his 1998 call for an expansion of government to include subsidization of child care, extension of government-funded health care from the elderly to the merely middle-aged, and the use of federal funds for the until-now local functions of hiring teachers and building schools. The Third Way, at least in Clinton’s hands, is a many-splendored thing, or at minimum an extremely elastic one. “We have moved past the sterile debate between those who say government is the enemy and those who say government is the answer,” the president told the nation in the State of the Union this year. “My fellow Americans, we have found a third way.”

He’s not the first to find it. Third Way adherents’ claim to novelty reflects either ignorance of the fact that their search for a path different both from capitalism and from state socialism is merely the latest in many such attempts, or a cynical attempt to put a new label on a product that, to put it mildly, has not met with much success.

It was fashionable after World War II for liberal academics to hail Sweden’s “Middle Way” as the answer to their prayers. Opposed to American capitalism for its failure to accord them the rewards they felt were their due, and dimly aware that Stalin’s communism contained unattractive features, they fastened on Sweden’s expansive and expanding welfare state as the via media. Alas, Sweden is bankrupt, or close to it, having found it impossible to maintain incentives to work in the face of government provision of the necessities and many of the luxuries of life.

Then there was France — cultured, sophisticated, producer of the movies that American intellectuals stormed the art houses to see. France provided a different flavor of the Third Way — indicative planning. As an alternative to raucous, unplanned markets, the French elite — business executives, trade-union leaders and government bureaucrats — imposed on the country their view of what should be produced, in what quantities, and directed investment so as to confer on their nation technological leadership. Alas, planning by a central elite has neither brought France technological leadership, nor made it sufficiently competitive to give up its protectionism for the hurly-burly of international competition. France’s unemployment rate hovers at three times the American level, and enormous transfers of income from those who work to the unemployed have proved insufficient to prevent the latter from rioting for a year-end bonus. The trade unions periodically shut the country down, and the voice of disaffected anti-immigrant, anti-Semitic, anti-everything crazies is heard in the land. So much for the notion that, unlike capitalism, France’s Third Way can be counted on to produce social harmony.

The next Third Way to make its appearance was Germany’s — an effort to find a path between capitalism and socialism that appealed to both corpocrats and trade-union bosses. German workers are included on corporate boards and participate in decision concerning plant location, work rules, and the other stuff of industrial life. Corporate executives are shielded from the need to deliver wealth to shareholders by the fact that understanding and very conservative banks control their boards. Hostile takeovers are unthinkable (a feature particularly attractive to under-performing American executives). Top all of this off with a welfare state that rewards absence from work at the same rate as work, provides state-paid vacations to spas, limits shop hours, and makes firing so difficult as to deter hiring, and you have a Third Way that gives something to everyone — the poor consumer, of course, excepted. Alas, this German variant of the Third Way, like those of Sweden and France, has proved unable to cope with its predictable consequences: the highest worker absentee rate in Europe, labor costs some 50 percent higher than those in the United States, a sclerotic engineering industry whose largest export now seems to be investment and jobs, and a welfare system that an aging population simply can no longer pay for.

Never mind. Herr Schroder has still another Third Way on offer. Not for him the market capitalism of America. Indeed, not for him any major reform of the welfare state: He has promised to restore to 100 percent the sick pay that Helmut Kohl reluctantly reduced to 80 percent of ordinary wages. Like Blair and Clinton, Schroder professes to understand that the age of big government is over — “The welfare state has reached its limits,” is the way he puts it. But unlike Clinton, who finally grasped the nettle of welfare reform, even if reluctantly, and Blair, who seems about to do so, Schroder proposes to continue funding a system that has produced persistent double-digit unemployment and a flight of Mercedes-making to America. He will, he says, get the necessary funds by closing tax loopholes — at least that is his position while running for office.

Then, of course, there is Japan’s Third Way, a combination of state direction of corporate activity, mercantilism, and crony capitalism. This alternative to Thatcher-Reagan free markets seemed for a while likely to propel Japan to the first rank of industrial nations. No one noticed that Japanese protectionism was impoverishing its consumers, that silly planning had driven the price of land up to the point where a rice paddy near Tokyo was as expensive as a great swath of midtown Manhattan, or that a combination of government pressure and cronyism had forced the banks to make loans that have since proved wildly imprudent. Result: Japan’s Third Way led only to prolonged recession.

So the hunt for the Third Way is hardly new. It has long been the goal of those who simply cannot accept the fact that free-market capitalism is the only system that has brought material benefits to all — unequally, but to all who chose to participate in its labor markets.

The faces, though, have changed. It’s a new generation of Third Way leaders meeting at NYU, and they have personal as well as political traits in common. Blair, Clinton, and Schroder all tout their youthfulness and vigor. Blair ran against the image of a tired Tory government that had been in power too long and was run by men who had stayed too long at the ball. Clinton ran as a sort of New Age opposite of stuck-in-the-mud and out-of-touch George Bush (and then proceeded to make stuck-in-the-mud, old-fashioned, some would say Victorian values, a virtue not to be lightly dismissed). Schroder acknowledges Kohl’s contributions to the unification of his country and to the shaping of postwar Europe, but argues that new problems require new leaders in the mold of Blair and Clinton. All three have mastered the use of television; all three have forgone the outward trappings of office. Blair tells everyone to “call me Tony”; Clinton uses a television appearance to discuss the type of underwear he favors; Schroder eschews the security retinues that surround modern-day politicians. All in pursuit of having, or at least seeming to have, a common touch, unlike, say, the regal Thatcher or the remote Bush.

With so much in common, the Third Way politicians should make a congenial group. But if they want to have more than a self-congratulatory good time — and Blair, at least, is in serious pursuit of a coherent path between “the free market individualism of the Right in the Eighties . . . [and] the statism that had gone before” — they will have to give serious thought to some of the new learning about the efficacy, or lack of it, of state action and confront the charge that there is a contradiction at the heart of their enterprise.

The Third Way often defines itself by what it opposes, making it difficult to discover what it favors. As best one can tell, it seeks to preserve the benefits of market capitalism — Blair speaks highly of many of the reforms introduced by Thatcher — while at the same time replacing or at least supplementing Adam Smith’s invisible hand with the long arm of government.

Now, there is some merit to some of this. After all, conservatives concede that there are certain goods that only government can provide, and that it needs the resources to do so. But Third Way advocates have yet to come to grips with powerful arguments that many of the functions once thought reserved to government — from education to trash collection to road building — can better be provided by the private sector. Or with new studies that suggest churches and other private, voluntary institutions are more efficient and successful providers of various social services than are governments, and that the latter can do the most good for the truly needy and deserving by devolving many of its welfare functions to these voluntary institutions.

Surely, this is a topic worthy of their consideration when they convene at NYU. As is the even more important question of whether their Third Way, rather than the capitalist system they can’t quite bring themselves to accept, suffers from a debilitating inherent contradiction.

The inherent contradiction is this: Fairness, to a Third Way disciple, requires that the excluded be included in the mainstream of the economy and of society. This entails expanded job-training programs, increased spending on education, especially for those from “disadvantaged” environments, increasing expenditures on health care, hiring more teachers and a host of other measures that have proved to be costly but, unfortunately, of uncertain value. To pay for these measures, Third Way politicians will inevitably have to raise taxes. Eventually these tax increases will stifle growth, drive jobs offshore, and otherwise deny Third Way politicians the means to create the fairer society that is their stated goal.

So far, neither Blair nor Clinton nor any of the politicians who will join them at NYU has faced up to this criticism. And with reason. As a practical matter, their political opponents have not forced them to do so. In America, notably, Republicans have either gone along with Clinton’s expansion of the welfare state, and refused to attempt to cut taxes so as to force its shrinkage, or felt that his political weakness permitted them to ignore his proposals without actually responding to them.

Not being pressed for coherence, Third Way politicians can be expected to rely on platitudes and on a parading of their good intentions and compassion. Fortunately, a combination of circumstances makes the Third Way they espouse less dangerous to the future well-being of their citizens than might otherwise be the case. Margaret Thatcher has said that “the Third Way leads only to the Third World,” and she may well prove right in the case of some European countries. But not in the case of America, which is peculiarly well situated to resist and survive Third Way nostrums. This country’s electorate has blessed it with divided government, and a Republican Congress is unlikely to let a Democratic president take an unimpeded stroll down the Third Way. Besides, the American economy is an enormous machine, run by millions of consumers and entrepreneurs, flexible and resilient. Adam Smith long ago noted, “There is a great deal of ruin in a nation,” an observation especially applicable to the United States. Third Way policies may drive up business costs and taxes enough to shave a bit off the long-term growth of the American economy. But that’s about all.

The unlikelihood that the Third Way can do much harm is not its only defense. When all is said and done, there is a possibility that its proponents may be onto something, although not necessarily the something they think they are onto. Start with Britain. It remains a class-ridden society, one in which equal opportunity is not even an ideal for many of those who oppose Blair. It is a society in which rewards are not distributed in even rough proportion to effort and achievement, although Margaret Thatcher did much to improve the upward mobility of those disadvantageously accented.

Neither is America exactly a meritocracy. True, the Left has distorted income distribution with quotas and special privileges for any group that can muster enough votes to be heard. But the Right is hardly in a position to dismiss the Third Way as an interference with a perfectly functioning allocation of rewards in proportion to merit. Republicans propose to lower inheritance taxes, to give the sons and daughters of the wealthy an even bigger head start in life; they are unoffended by universities that grant preferential admission to the offspring of alumni; and they systematically refuse to recognize that when markets fail to function — as is the case in the presence of monopoly power or environmental degradation — government has a corrective role to play.

That the NYU talking shop will produce some new solution to these problems, some programs that will increase the efficiency with which capitalism distributes the material rewards it is so good at creating, is unlikely. But before conservatives take too much delight in the failure of the Third Way, they might well acknowledge that their own way is not without its share of contradictions and quandaries.

Irwin M. Stelzer is a frequent contributor to THE WEEKLY STANDARD.