Just carry on being new

<em>The 2nd Term</em> - Anthony Giddens, the guru of the Third Way, argues that Blair, in his second

Just after the last election, Tony Blair said: "We ran for office as new Labour, and we will govern as new Labour." I hope he says something similar this time. New Labour in government has been attacked from all sides, but by and large it has done a good job. Critics argue that the party has moved too far from its social-democratic roots, but I would say that it is closer today to the mainstream of social democracy than ever before. All Continental social-democratic parties have introduced similar policy changes in recent years. And that is not surprising. The world has changed enormously over the past two or three decades. Socialism is no longer a viable economic doctrine; Keynesianism has become inoperative; globalisation has intensified; and the economic system has been transformed by information technology. A left-of-centre party today must concern itself with competitiveness as well as social justice, and must indeed reconcile the two.

In four particular areas, new Labour has taken the proper course and should continue down the same road. First, the state. The role of a Labour government - any and every Labour government - should be to defend and enhance the role of public institutions. But public institutions are not the same as the state - and this is where the old left went wrong. The state can often diminish the public sphere rather than strengthen it. Where they function poorly, where they are overly bureaucratic or represent sectional interests, state agencies can undermine the public purpose.

New Labour is therefore justified in placing reform of the state at the core of its programme. The drive to create joined-up government, for example, is not a stunt; it is a vital reform. It is closely related to breaking the hold of what David Marquand has called "the Tory state" - the centralised, secretive and unaccountable nature of decision-making in Whitehall.

It is in this context that we should understand Labour's pragmatic approach to privatisation. Privatisation can often serve public purposes better than state ownership. But neither is cut of a single cloth. There are good and bad privatisations, just as there are more and less effective forms of state-run enterprise. Privatisation runs counter to the public interest where assets are sold off too cheaply, where the wider social consequences are not properly thought through, or where regulation is inadequate. Privatisation usually works best where there is not a natural monopoly. But globalisation and technological change have reduced the range of natural monopolies; telephony is one example and, for this industry, most countries have followed the UK road of privatisation.

Second, tax. New Labour's leftist critics argue that UK public services are poorer than in most other EU countries because taxation as a proportion of GDP is too low. This is only partly true. The low quality of British public services also stems from the relative lack of economic progress from the 1950s to the 1980s, and from the managerial weaknesses that underlay this stagnation.

New Labour has rightly distanced itself from traditional tax-and-spend policies. Like other contemporary social-democratic parties, it now emphasises fiscal discipline and balanced budgets. In the old days, "tax and spend" was really a misnomer - it usually meant "tax and overspend". Leftist parties found that no matter how heavily they taxed, it was never enough. Most spent well beyond their true revenue, thus storing up major problems for themselves. At one point, in some EU countries, such as Belgium in the late 1980s, the state was paying out as much as 10 per cent of GDP each year on interest accumulated through such profligacy.

Labour is also correct to ditch the idea that progressive income tax is the only way to achieve greater equality. The size of the tax take is what counts most, and high tax rates sometimes yield only a low tax take. Moreover, if used judiciously, tax cuts can further social justice as well as promote economic efficiency. Cutting business taxes runs counter to the instincts of the traditional left, but makes sense where, for instance, a tax cut promotes job creation and hence generates a higher tax take.

The debate over tax in this country has concentrated too much on income tax. Taxation should be diverse and, wherever possible, should concentrate on the "bads" rather than the "goods", as is generally the case with green taxes. Consumption taxes are not necessarily regressive. Sometimes, they can be directly progressive, such as stamp duty on housing sales that rises proportionately to the size of the purchase. But whether or not such taxes have a progressive effect depends even more upon how the revenue is spent.

Redistribution, in other words, tends to take place more at the spending end than on the taxation side. In their recent pamphlet The Future of American Progressivism, Roberto Unger and Cornel West point out that, on the face of it, the US has one of the most progressive tax systems of any industrial country. Yet it also has one of the highest levels of economic inequality.

Third, new Labour has emphasised the centrality of work - "work for those who can, security for those who cannot". Again, it has been taken to task for so doing, notably over the reduction in benefits for single mothers. Yet this reduction was accompanied by the offer of increased opportunities for education and job training via the New Deal. It is in countries such as Denmark, where 90 per cent of them are in work, that single mothers fare best.

Again, Labour is in tune with modernising social democrats elsewhere. The slogan of the Dutch social democrats is "work, work, and work again". There is a very sound reason for such an orientation, one that relates to the points made about tax. A society that has a high employment ratio - a high proportion of the available labour force in work (with a decent minimum wage) - is not spending vast sums on social benefits. It can, therefore, devote revenue to other spending areas. The UK is also now well placed in this respect, with an employment ratio of roughly 75 per cent in 1999 (compared to 61 per cent in the EU as a whole).

The fourth area is probably the most controversial: crime. In the past, the left saw crime as largely an artefact of poverty and inequality. Conquer those and crime would disappear. It is true that many types of crime are linked to deprivation. But crime has to be tackled in the here and now; and the right to be free from the fear of it is as important as other rights of citizenship. Being "tough on crime" and "tough on the causes of crime" does make sense. Strong policing can help reduce crime directly, especially in deprived neighbourhoods. It thereby not only aids social inclusion, but also encourages responsible behaviour by penalising those who act without thought for others. Labour has made reducing "the causes of crime" a basic part of the brief of the Social Exclusion Unit.

Labour's policies on crime are part of a wider strategy. This is to leave no issues to the Tories to "own". Crime used to be just one such issue, on which voters trusted Labour much less than the Tories. The point is not, or shouldn't be, to adopt policies similar to those of the right, but to devise leftist solutions to "right-wing problems". Politically, the strategy has been successful. If the Tories, for so long seemingly the natural party of government, have been marginalised, it isn't only because of their travails over Europe or the limitations of their leadership. It is because new Labour has successfully invaded political territory that used to be the Tories' preserve, while maintaining its lead on Labour's "own" issues, such as health, education and pensions.

None of this is to deny that Labour in government has made many mistakes. One of its prime errors was originally thought to be its great strength: "creative" media management. The government has a serious communications problem. Its policy agenda has been comprehensive and effective; yet the view persists that this has been a government empty of content, driven only by media spin.

Nor do I mean to say that the second term should follow the same pattern as the first. As Tony Blair has stressed, the first term established a platform for further development. Some innovations will only make their full impact over the next few years, such as the working families and children's tax credits. The same applies to the party's policies in health and education. But there are also core issues about Labour's outlook and policies that need to be either clarified or developed much further.

The transition from Labour to new Labour was never a matter of succumbing to the vagaries of the markets. It was a question of creating a party that would sustain most of the classic concerns of the left, but bring these into line with the demands of a new world. Labour should at this point put its hand on the table. As a left-of-centre party, it stands above all for the mobilising of public power, necessary for both economic prosperity and social solidarity. Public power is a means to secure individual as well as social objectives. That is why egalitarianism is so important to the left: every member of society should have the resources needed to develop his or her talents and capacities to the full.

In this context, Labour should articulate a clearer vision of what sort of country it wants Britain to become. Constitutional reform so far has been partial and inadequate. The limited extent of devolution is likely to threaten the integrity of the UK rather than help sustain it. Britain should become a more decentralised, explicitly pluralistic society, with further devolution to the English regions and also to cities. The government would not have got into such a mess over the Tube if it had given the London mayor tax-raising powers and if it had not tried to manipulate the London elections.

Blair has said he wants a more meritocratic society. By definition, however, not everyone can rise up the social ladder. Aspiration has to be tempered with social protection for those who do not make it. And even a highly meritocratic society presumes that inequality of outcome will be tackled. If those who become prosperous are allowed to grow into a privileged class, meritocracy becomes subverted. That was the point made by George Soros and others in the US, when they protested against the proposal to abolish inheritance tax.

But policies designed to improve the lot of the underprivileged are not enough. Labour must also try to ensure that elites maintain their social and civic responsibilities. The left's traditional response is to call for higher taxes on the rich. Surveys show that many voters are against such a tax rise, because it penalises success. And, as I have emphasised earlier, what counts most for the pursuit of social justice is the size of the tax take and how it is spent.

If the top rate of income tax were raised for those earning more than £100,000 a year, about £3bn extra annual revenue would be generated - not much in the overall scheme of things. Other policies could be more effective. The rich in the UK, for example, give a far smaller proportion of their assets to charities and educational institutions than do their counterparts in the US. A recent study has estimated that tax breaks and other measures, used to persuade the affluent to give more freely, could generate an extra £10bn a year. And again, Labour's capacity to revitalise public services is vital, because elites will become more and more disengaged if public institutions fail.

Labour has been criticised, too, for being over-friendly to business. Any effective government has to be business-friendly because business, after all, is the source of economic prosperity. But that is not the same as cravenly following whatever business interests may dictate. Corporate power should not be allowed to invade all aspects of our lives. Citizenship rights are not the same as the right to roam the aisles of a supermarket. Corporate responsibility should be fostered by a mix of incentives and regulations, and these must operate on an international as well as a national level. We should not accept that gigantic salaries in the corporate sector are the inevitable outcome of market competition. Rather, they are a form of price-fixing, with the rewards often bearing little relation to corporate performance.

One of new Labour's most basic failures had been on ecological issues. That weakness has come back to haunt it in transport and farming. Blair admitted that, because the government initially had to concentrate on so many other questions, "environmental issues slid back down the political agenda". They have been placed much higher now, but without being properly connected to other areas of policy. High taxes on fuel, for instance, were only belatedly, and then rather unconvincingly, de-fended on environmental grounds.

Finally, the new government should give special attention to formulating a model for the future of Europe. Blair made a beginning in his Warsaw speech in October 2000. There has never before been a coherent UK view of the EU worked out by those who favour it rather than by those who oppose it. It is important to have an approach that goes well beyond the issue of the euro, since it is far from clear that a referendum held within the next two or three years can be won.

The new Labour "project" was about producing a lasting realignment of the electorate, by developing a wider coalition of voting support than the party had ever before enjoyed. Analysis of the election results this time will show whether the 1997 election marked a turning point in British politics. Was 1997 what the political scientists call a "critical election" - one that changed the landscape of electoral support? "Critical elections" in the past have shown common features. A phase of "dealignment" from previous voting habits is followed by a "realigning" election, with a subsequent period of consolidation. If such a transition has occurred - and by the time you read this, you should have an idea of the answer - new Labour's talk of making the 21st century a progressive century in Britain will not seem wholly fanciful.

Anthony Giddens is director of the London School of Economics and editor of The Global Third Way Debate (Polity, 2001)