In its review of 1998 a few weeks ago, Newsweek chose, as "European of the Year", not an individual but a movement: the Third Way. The term has come to stand for the revival of social democracy. For the first time, the centre left holds power simultaneously in the four major European societies - the UK, Germany, France and Italy - as well as in nine of the other 11 European Union countries.
Yet the first current political leader to talk about a "Third Way" wasn't a European, but President Bill Clinton. In his 1996 State of the Union address, Clinton claimed to have found a new way in politics. Further, the Third Way has become a subject of global interest. One of its most prominent expositors is the Brazilian president and former sociologist, Fernando Enrique Cardoso. The notion has also attracted the attention of political leaders in Mexico, Argentina and Colombia. I recently lectured at the Chinese Academy of Social Sciences. I was surprised by the informed nature of the discussion, and by the consensus that the Third Way might be relevant to China. A similar lecture provoked even more interest in Korea.
Yet many European social democrats remain suspicious of the Third Way. They associate the term with Clinton and Tony Blair, whom they see as too closely connected with neo-liberal policies. For such critics, the Third Way is little more than Thatcherism with a human face. It is a betrayal of social democratic ideals of collective provision for the poor and the needy. The theme has become commonplace among Blair's opponents in the UK. Stuart Hall and Martin Jacques pursued it stridently in the one-off reissue of Marxism Today, entitled simply "Wrong!" Roy Hattersley has produced a string of eloquent articles along the same lines, the latest of which appeared in the NS (22 January 1999).
Right-wing authors, on the other hand, see the concept of the Third Way as an empty one. A recent article in the Economist, for example, called it "goldilocks politics", offering the voters warmed-over porridge, a vague mish-mash of ideas and policies without anything substantial to chew on. Changing his imagery, the author argued that trying to give an exact meaning to the Third Way is like wrestling with an inflatable man. If you get a grip on one limb, all the hot air rushes to another.
I don't believe either of these criticisms is accurate. Third Way politics, as I understand it, stands in the traditions of social democracy. Indeed, it is social democracy, revived and modernised. And it is far from an empty notion. On the contrary, the Third Way is a serious attempt to confront some of the main political dilemmas of the age. The Third Way seeks to go beyond the two hitherto dominant political philosophies of the postwar period. One is old-style social democracy, which held prime place for a quarter of a century or so after the war. It was rooted in Keynesian demand-management, interventionist government, the welfare state and egalitarianism.
The other is neo-liberalism or market fundamentalism. The neo-liberals believe that markets are always cleverer than governments, and that therefore the scope of government and the state should be reduced to a bare minimum. Neo-liberals are hostile to the welfare state, which they see as crippling productivity through stifling individual initiative.
Each of these positions - corresponding to the old left on the one hand and the new right on the other - still has its adherents. Yet it is plain that each is out of touch with the demands of the moment. Few people - certainly not the bulk of the electorate in the developed countries - want to go back to top-down, bureaucratic government. But it has become equally obvious that society cannot be run as if it were a gigantic marketplace. People have voted for centre-left parties in such large numbers in Europe, and have continued to support President Clinton in the US, because they want something different from either of these alternatives.
The Third Way is that something. It is not yet a fully-fledged political philosophy, but it is well on its way to becoming one. The old left would like to cling to the policies that seemed to work so well during the early postwar years. It isn't possible. The changes that have intervened since then have been far too thoroughgoing. The most important are those involved with globalisation, which has gathered pace since the collapse of Soviet communism.
Reactions to, and interpretations of, globalisation mark some of the new fault-lines in politics. Those on the more traditional left usually take one of two views. The first - represented, for example, by Paul Hirst and Grahame Thompson in their Globalisation in Question - denies that much has actually changed in the world over the past 30 years. The second - represented by Hans-Peter Martin's The Global Trap and Viviane Forrester's The Economic Horror, which made the best-seller lists in Germany and France respectively - treats globalisation as a destructive force which must be resisted by all means possible.
Third Way politics, by contrast, accepts the reality of globalisation and recognises that it brings benefits as well as problems. To put it differently, the Third Way is a positive social democratic response to globalisation. In contrast to neo-liberals, Third Way thinkers argue that globalisation needs collective management. It calls for active government on all levels - global, national and local.
It has become commonplace to argue that, as globalisation advances, government becomes increasingly redundant. The Japanese business guru Kenichi Ohmae is one among many who argue that political power has become exhausted. Politicians, he argues, strut on an empty stage. The nation state has become a mere "fiction".
The Third Way, however, sees a greater role for government in a globalising world rather than a diminished one. But "government" is no longer to be identified only with national government. This is not to say that the nation state becomes obsolete - indeed, a prime goal of Third Way politics is to reassert national identity and national purpose against a global backdrop. Globalisation, however, does push us, on the one hand, towards decentralisation and devolution of power and, on the other, towards the emergence of transnational forms of governance.
That is one reason why discussion of Third Way politics is so developed in Europe, where we have the European Union. The EU is not a nation state writ large, nor is it an international association, like the UN. In the EU, nations have voluntarily given up some of their sovereignty, pooling their resources so that all can gain.
Third Way politics looks for dynamic government rather than big government. It places a strong emphasis upon reviving public institutions, but no longer equates the "public" with the sphere of the state. Public institutions are often best defended, or reconstructed, by a combination of agencies, of which the state is only one. For example, in regions where external competition or technological change have destroyed local industries, old-fashioned government interventionism is of little use. But acting in combination with business and local community organisations, government can help kick-start renewed economic development.
Rosabeth Moss Kanter, of Harvard Business School, has documented how effective some of these endeavours have been in the US. Her work helps to dispel the myth that the high levels of employment in the US have been achieved only through the creation of poorly paid jobs in deregulated labour markets. One of the many examples she gives is of industrial regeneration in the greater Denver area. In the late 1980s, the petroleum-dependent Denver economy was in recession. A new regional coalition, the Greater Denver Co-operation, successfully led a drive to restructure the local economy. One of Moss Kanter's points is that not-for-profit and community groups were vital to this achievement - and that they acted in conjunction with business and government.
That still leaves the question of the modernising left's attitudes towards the welfare state and, more broadly, social justice. We should be sceptical of the idea that there was a golden age for the welfare state. Old left writers and politicians like to look back to a time when all was well with the world - when the welfare state protected citizens from cradle to grave and full employment was the order of the day. The reality was a lot more mixed. Welfare systems have often been bureaucratic and inefficient; they have often failed those whose needs have been greatest. Full employment was only achieved against the backdrop of the traditional family, in which many women were excluded from the labour market.
Third Way thinkers insist that the welfare state stands in need of radical reform, but they don't want to reduce it to a safety net. Rather, as with other aspects of the Third Way programme, the key concern is modernisation. A modernised welfare state would be one that is both internally reformed and brought into line with the demands of the global marketplace. It would, among other things, emphasise education, employability, the dissolution of poverty traps and the creation of pensions systems that take account of increased worker mobility and the decline of traditional corporate employment.
So does the Third Way mean that we should abandon the classic concern of social democracy: with social justice and the battle against inequality? It does not and must not. But here we see the beginnings of a possible division between Third Way politicians, prefigured in disagreements between the French premier, Lionel Jospin, and Tony Blair. Blair's version of Third Way politics seems to see inequality mainly as a question of barriers to individual opportunity. Many other social democrats, like Jospin, believe that social justice involves reducing inequality of outcome, too. I think they are right. If it is to live up to its billing as modernised social democracy, Third Way politics needs to sustain this classic concern. But it must also recognise that existing welfare systems have not actually been very effective in redistributing income and wealth between rich and poor. We have to look for other solutions. Third Way politics must embody a redistributional programme, but one compatible with individual initiative and freedom.
I don't think this aspiration should be confined to affluent countries. As with other aspects of Third Way politics, it applies much more generally. It is an essential component of the global dialogue now under way. Whatever the eventual outcome, Third Way thinking is likely to be at the core of political debates over the next decade or two, just as neo-liberalism was for the previous 20 years and old-style social democracy the 20 years before that.
The writer is director of the London School of Economics. His book "The Third Way" was published by Polity Press last year and is available to "NS" readers for the discounted price of £5.95, p&p free. Please telephone 0800 731 7496 to order