How to be a capitalist and stay fairly civil

Robert Sugden travels the 'third way' with a faithful yet uneasy guide.

Anthony Giddens has been one of the most prominent participants in recent debates about the future of social democracy; his ideas have provided intellectual support for the new Labour project. This book is a collection of contributions to the debate about the "third way". Giddens has chosen papers that are broadly supportive of third-way ideas, policy directed, non-technical and short. Geographically, the authors are representative of the social-democratic world: there are contributions from Britain, continental Europe, Australia, New Zealand and from left-leaning American liberals. The authors are mostly academics, but their papers are addressed to a general audience interested in (as the blurb puts it) "the future of progressive politics".

Very little scepticism has survived Giddens's filter, but in a moment of candour, Hugh Collins notes the attractions of "the third way" as a political slogan: "it is brief and unspecific, yet it implies that it is at once new, radical, but centrist". A cynical reader will find examples of the superficial restyling of old policies. For example, Paul Dalziel manages to build the closed shop and a "strong industrial relations framework (to) protect civilised wages" into his version of the third way. Michael Jacobs of the Fabian Society rejects the outmoded industrial policy of "picking winners", but then recommends government support for the biotechnology industry "based on an analysis of trends in the global economy". In the middle of some sensible proposals for environmental policy, Jacobs slips in the argument that public investment in environmental technology should be directed not, as one might have thought, towards the improvement of the environment, but towards the creation of jobs in the United Kingdom. Passages such as these raise doubts as to whether the proponents of the third way really have accepted the logic of the market.

So what is the third way? Giddens defines it as "the renewal of social democracy in contemporary social conditions". The first way is that of traditional social democracy in its various forms - British-style labourism, the social markets of continental Europe, and the Nordic welfare states. Giddens thinks these models are unsustainable against the forces of globalisation and individualism. The second way is that of neoliberalism. According to Giddens, "neoliberalism is not a viable political philosophy", because it offers no means of generating social cohesion; the Thatcherite combination of market liberalism with social conservatism is fundamentally unstable, because the traditions to which conservatism appeals are being eroded by global markets. For Giddens, the timeless values of social democracy are equality, social solidarity and care for the most vulnerable. The problem is to find institutional structures that uphold these values in the world as it now is.

Read together, these papers convey a clear impression of the nature and extent of this problem. In the decades following the second world war, social democracy was supported by an economy that offered secure employment to poorly skilled male workers, at wages that allowed them to support families; the prevailing family structure ensured that children were supported from labour income. Thus, the postwar welfare state was in essence a system of social insurance. But technological advances are now wiping out the jobs that once paid relatively high wages for low-skilled labour. And in a globalised economy, the wages paid for given levels of skill across the world must converge. The market can still create low-skill jobs, but only at low wages and with little security. At the same time, the traditional family structure is eroding. A gap is opening up between childless people in full-time employment, who are enjoying the fruits of economic growth, and the increasing number of single-parent households. The costs of child rearing are being concentrated on fewer and - as more middle-class women opt out of child-bearing - poorer people.

We are left in no doubt that the traditional, continental European model of social democracy is unsustainable. By tying social benefits to employment through contributory insurance schemes, and by trying to maintain secure, high-wage employment, this model has benefited insiders (those already in employment, or enjoying generous pensions and early-retirement schemes) at the expense of outsiders, who cannot get a foothold in the labour market. The difficulties this creates for younger people, especially women, is one factor in explaining the low birth rates in many continental countries, which further undermine the long-run viability of these systems.

The contributors are uneasily aware that the United States offers an alternative model, in which flexible labour markets generate high rates of employment at the cost of low wages and insecure contracts for low-skilled workers, and in which public welfare programmes serve only as a basic safety net. Reading between the lines, I sense an unspoken concern that the US model, while inconsistent with social-democratic values, might turn out to be better adapted to the trends of globalisation and individualism identified by Giddens. Several contributors fear that the new Labour version of the third way will lead to an American-style future. In a sobering paper on penal policy, David Downes details the mass incarceration of young men that provides social control in the US, and points to developments that suggest that Britain may be moving in the same direction.

Two of the best papers in the volume face up to these problems clear-sightedly and try to find a genuinely social-democratic way forward. Gøsta Esping-Anderson argues convincingly that the emphasis of social policy should not be on income maintenance for the unemployed and elderly, but on eliminating child poverty by supporting working parents, through subsidised childcare services, child benefits, and family-friendly employment practices, and on the supply of practical home-help and day-care services for the very old. She bravely suggests that many European social insurance schemes are too generous to retired people. Maurizio Ferrera, Anton Hemmerijck and Martin Rhodes advocate a model of "flexicurity", exemplified by developments in Denmark and the Netherlands. The idea is to accept the flexibility of modern labour markets (part-time work, short-term contracts, little protection against dismissal) while maintaining relatively high hourly wages and full social security benefits. Employment is effectively subsidised by exempting low-skilled workers from social insurance contributions.

Perhaps the deepest problem for social democracy is the trend towards individualism and the danger that it may erode the sense of social solidarity that underpins redistributive policies. Even public expenditure on schools - crucial when young people's employment prospects are so dependent on their skills - can come to be seen as unfairly redistributive as the proportion of adults living with children falls. This concern about individualism surfaces in Giddens's veiled appeals to "responsibility". The suggestion is that, just as recipients of welfare benefits should accept the responsibility to find work, so the well-off should give political support to the taxes that social solidarity requires. But what if they do not? In this context, Giddens's slogan "no rights without responsibilities" sounds like a desperate attempt to repackage social solidarity to appeal to individualistic tastes.

Several contributors voice the concern that we are seeing a decline in civil society and in social engagement; but there are few convincing suggestions about how these trends might be reversed. Giddens's pronouncements that "the state both needs to draw sustenance from civil society and also to play an active part in regulating it" and "government should contribute directly to the modernisation of civil society while maintaining its boundaries from it" are the academic equivalents of politicians' soundbites.

Benjamin Barber's proposals for a "legislative action in support of civil society", including the installation of speakers' corners in shopping malls, the introduction of national-service schemes and the cultivation of the arts and humanities, may reveal some of the preoccupations of American liberals but they hardly comprise an effective political programme. The one theoretically sharp paper on civil society, by Simon Szreter, focuses on the role of social capital in promoting economic efficiency. Szreter concludes that the most effective way for governments to support the formation of social capital is by reducing inequalities in income, wealth and education. But if the erosion of political support for redistribution is part of the problem, we are no nearer a solution. It seems that social democracy has yet to find a way to tap into the prevailing public mood of vague regret and unease about declining social engagement and to direct it towards support for social programmes.

Taken together, The Global Third Way Debate is a mixture of clear-sighted analysis and lazy thinking, of radical reappraisal of old ideas and self-serving window-dressing. But then so too is the third-way debate itself. Whether one is sympathetic or sceptical, this book provides an excellent starting point for understanding current developments in social-democratic thinking.

Robert Sugden is professor of economics, University of East Anglia.