Is the Third Way at a Dead End?

Socialist Luiz Inacio “Lula” da Silva’s election as Brazil’s next president is another nail in the coffin of the Third Way, the decade‐​long attempt by some leftist politicians to occupy the allegedly middle ground between socialism and capitalism. This political movement recently held sway in the United States and abroad but, as the following survey demonstrates, today many proponents are playing electoral defense. It’s also apparent that those Third Way politicians who are prospering owe their electoral survival more to astute political marketing than to successful policy performance.

During the 1990s, Third Way candidates proved electorally attractive throughout Latin America. After a decade of free market gains, respective national elections saw relatively moderate center‐​left candidates triumph over more conservative opponents.

But, on Oct. 27, the world’s fourth‐​largest democracy experienced the after‐​effects of a failed Third Way government. Outgoing Brazilian President Fernando Henrique Cardoso was a leading Third Way spokesman. But neither conquering inflation nor privatizing some state‐​owned utilities compensated politically for the anemic economy, rising unemployment, falling real incomes, and high interest rates that stemmed from insufficient deregulation, tax cutting and trade liberalization.

So, Cardoso was unable to provide a boost to his party’s chosen successor, Jose Serra. This compounded the problem of the Third Way’s grudging acceptance of globalization, as reflected in support for greater global economic governance, including capital controls. Such an outlook gave succor to Lula’s more robust economic populism.

In Europe, British Prime Minister Tony Blair was reelected in July 2001. But this prominent Third Way leader’s electoral success reflected the inadequacies of his conservative opponents rather than a stellar record of policy accomplishment.

Although Blair has withstood the pressure from his party’s socialist base to raise income taxes, such fiscal parsimony doesn’t tell the whole story. After all, various sources of indirect taxation have increased significantly. Frequent microeconomic meddling, including the introduction of a minimum wage, has balanced Blair’s relative inactivity on the macroeconomic front. Regrettably, Blair brought a somewhat illiberal streak to criminal justice and social regulation issues that emphasizes social conformity over the pursuit of individual preferences.

German Chancellor Gerhard Schroeder, continental Europe’s leading Third Wayer, has had a far rougher political ride. Given the poor economy, symbolized by significant joblessness, Schroeder’s September reelection was surprising. Early on, his government did introduce minor tax and spending reductions and proposed a market‐​oriented reform of the government‐​funded social security retirement program.

But Schroeder quickly lost his reformist way. He did little to change an overly regulated labor market, the principal source of high unemployment. Fiscal policy was reversed and the government provided taxpayer‐​funded corporate bailouts. Schroeder’s political fortunes were rescued by two fateful events during the campaign: his adroit handling of a flooding crisis (he promised to throw lots of money at the problem) and his vociferous opposition to a U.S.-led invasion of Iraq.

Dutch Prime Minister Wim Kok was also a pillar of the Third Way movement. But in May Dutch voters threw out Kok’s eight‐​year‐​old center‐​left coalition government and replaced it with the right‐​wing opposition. Such was the extent of popular discontent that the parties comprising the center‐​left coalition were relegated to third and fourth place, respectively.

During the 1990s, Prime Ministers Romano Prodi and Massimo D’Alema expounded the promise of an Italian Third Way. However, the governing center‐​left coalition’s unwillingness to address the structural problems handicapping the Italian economy (e.g., high taxes and government spending combined with heavy state ownership) inadvertently produced a political climate ripe for change. In last year’s election, the incumbent Third Wayers were deposed by Silvio Berlusconi’s right‐​wing Freedom Alliance.

Back here, President Clinton’s own brand of Third Wayism reflected a timid, government‐​knows‐​best inclination. Clinton raised taxes and attempted to micromanage individuals’ financial decision‐​making through tax credits. Some Clinton policies resembled fuzzy versions of social conservatism. His extension of the failed War on Drugs is an obvious example. Revealingly, neither Clinton nor Vice President Al Gore could definitively decide whether they were pragmatic, “New Democrat” centrists or economic populists. As a result, Gore wasn’t elected president in 2000.

But how will the Third Way fare in the midterm elections?

It’s helpful, if dispiriting, to look at California. The Third Way’s New Democrat strand has an important adherent in Gov. Gray Davis. But since his 1998 election, Davis has placed particular emphasis upon appeals to labor unions and racial minorities, hence his opposition to school vouchers and support of immoderate affirmative action. The Cato Institute recently awarded Davis an “F” for his fiscal performance.

Consequently, Davis’s expected reelection reflects two realities: first, the political limitations of his conservative opponent, rather than an endorsement of Davis’s flawed performance; and, second, a political ruthlessness on Davis’s part that enthusiastically embraces cutting‐​edge political marketing techniques.

Davis may be the poster boy for the successful Third Way politician. Although he’s more rhetorically pleasing than the old‐​school liberal‐​socialist, in practice he’s equally disposed to limiting our freedom.