The Third Way is a position akin to centrism that tries to reconcile right-wing and left-wing politics by advocating a varying synthesis of centre-right and centrist economic platforms with some centre-left social policies. The Third Way was created as a re-evaluation of political policies within various centre-left progressive movements in response to doubt regarding the economic viability of the state and the overuse of economic interventionist policies that had previously been popularised by Keynesianism, but which at that time contrasted with the rise of popularity for neoliberalism and the New Right starting in the late 1970s and throughout the 1980s.  The Third Way is promoted by social liberals and some social democratic parties.
Major Third Way social democratic proponent Tony Blair claimed that the socialism he advocated was different from traditional conceptions of socialism and said: "My kind of socialism is a set of values based around notions of social justice. [...] Socialism as a rigid form of economic determinism has ended, and rightly". Blair referred to it as a "social-ism" involving politics that recognised individuals as socially interdependent and advocated social justice, social cohesion, equal worth of each citizen and equal opportunity. Third Way social democratic theorist Anthony Giddens has said that the Third Way rejects the traditional conception of socialism and instead accepts the conception of socialism as conceived of by Anthony Crosland as an ethical doctrine that views social democratic governments as having achieved a viable ethical socialism by removing the unjust elements of capitalism by providing social welfare and other policies and that contemporary socialism has outgrown the Marxist claim for the need of the abolition of capitalism. In 2009, Blair publicly declared support for a "new capitalism".
The Third Way supports the pursuit of greater egalitarianism in society through action to increase the distribution of skills, capacities and productive endowments while rejecting income redistribution as the means to achieve this. It emphasises commitment to balanced budgets, providing equal opportunity which is combined with an emphasis on personal responsibility, the decentralisation of government power to the lowest level possible, encouragement and promotion of public–private partnerships, improving labour supply, investment in human development, preserving of social capital and protection of the environment. However, specific definitions of Third Way policies may differ between Europe and the United States. The Third Way has been criticised by certain conservatives, liberals and libertarians who advocate laissez-faire capitalism. It has also been heavily criticised by other social democrats and in particular democratic socialists, anarchists and communists as a betrayal of left-wing values, with some analysts characterising the Third Way as an effectively neoliberal movement.
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The term third way has been used to explain a variety of political courses and ideologies in the last few centuries. These ideas were implemented by progressives in the early 20th century.
The term was picked up again in the 1950s by German ordoliberal economists such as Wilhelm Röpke, resulting in the development of the concept of the social market economy. Röpke later distanced himself from the term and located the social market economy as first way in the sense of an advancement of the free-market economy.
Subsequently, Enrico Berlinguer, General Secretary of the Italian Communist Party in the 1970s and 1980s, used the term third way to advocate a vision of a socialist society that was more pluralist than the real socialism which was typically advocated by official communist parties whilst being more economically egalitarian than social democracy. This was part of the wider trend of Eurocommunism in the official communist movement and provided a theoretical basis for Berlinguer's pursuit of the Historic Compromise with the Christian Democrats.
The Third Way has been defined as such:
[S]omething different and distinct from liberal capitalism with its unswerving belief in the merits of the free market and democratic socialism with its demand management and obsession with the state. The Third Way is in favour of growth, entrepreneurship, enterprise and wealth creation but it is also in favour of greater social justice and it sees the state playing a major role in bringing this about. So in the words of [...] Anthony Giddens of the LSE the Third Way rejects top down socialism as it rejects traditional neo liberalism.— 1999 report from the BBC
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A social democratic variant of the Third Way which approaches the centre from a social democratic perspective has been advocated by its proponents as an alternative to both capitalism and what it regards as the traditional forms of socialism, including Marxian and state socialism, that Third Way social democrats reject. It advocates ethical socialism, reformism and gradualism that includes advocating the humanisation of capitalism, a mixed economy, political pluralism and liberal democracy.
The Third Way has been advocated by proponents as competition socialism, an ideology in between traditional socialism and capitalism. Anthony Giddens, a prominent proponent of the Third Way, has publicly supported a modernised form of socialism within the social democracy movement, but he claims that traditional socialist ideology (referring to state socialism) that involves economic management and planning are flawed and states that as a theory of the managed economy it barely exists any longer. In defining the Third Way, Tony Blair once wrote: "The Third Way stands for a modernized social democracy, passionate in its commitment to social justice".
Under the nominally centre-left Australian Labor Party (ALP) from 1983 to 1996, the Bob Hawke and Paul Keating governments pursued many economic policies associated with economic rationalism such as floating the Australian Dollar in 1983, reductions in trade tariffs, taxation reforms, changing from centralised wage-fixing to enterprise bargaining, heavy restrictions on trade union activities including on strike action and pattern bargaining, the privatisation of government-run services and enterprises such as Qantas and the Commonwealth Bank and wholesale deregulation of the banking system. Keating also proposed a Goods and Services Tax (GST) in 1985, but this was scrapped due to its unpopularity amongst both ALP and electorate. The party also desisted from other reforms such as wholesale labour market deregulation (e.g. WorkChoices), the eventual GST, the privatisation of Telstra and welfare reform, including Work for the Dole which John Howard and the Liberal Party of Australia were to initiate after winning office in 1996.
Various ideological beliefs were factionalised under reforms to the ALP under Gough Whitlam, resulting in what is now known as the Labor Left, who tend to favour a more interventionist economic policy, more authoritative top-down controls and some socially progressive ideals; and Labor Right, the now dominant faction that is pro-business, more economically liberal and focuses to a lesser extent on social issues. The Whitlam government was first to use the term economic rationalism. The Whitlam government from 1972 to 1975 changed from a democratic socialism platform to social democracy, their precursor to the party's Third Way policies. Under the Whitlam government, tariffs across the board were cut by 25 per cent after twenty-three years of Labor being in opposition.
Former Labor Prime Minister Kevin Rudd's first speech to parliament in 1998 stated:
Competitive markets are massive and generally efficient generators of economic wealth. They must therefore have a central place in the management of the economy. But markets sometimes fail, requiring direct government intervention through instruments such as industry policy. There are also areas where the public good dictates that there should be no market at all. We are not afraid of a vision in the Labor Party, but nor are we afraid of doing the hard policy yards necessary to turn that vision into reality. Parties of the Centre Left around the world are wrestling with a similar challenge—the creation of a competitive economy while advancing the overriding imperative of a just society. Some call this the "third way". The nomenclature is unimportant. What is important is that it is a repudiation of Thatcherism and its Australian derivatives represented opposite. It is in fact a new formulation of the nation's economic and social imperatives.
While critical of economists such as Friedrich Hayek, Rudd described himself as "basically a conservative when it comes to questions of public financial management", pointing to his slashing of public service jobs as a Queensland governmental advisor.
The Italian Democratic Party is a plural social democratic party including several distinct ideologic trends. Politicians such as former Prime Ministers Romano Prodi and Matteo Renzi are proponents of the Third Way.
It is not an easy task to find the exact political trend represented by Renzi and his supporters, who have been known as Renziani. The nature of Renzi's progressivism is a matter of debate and has been linked both to liberalism and populism. According to Maria Teresa Meli of Corriere della Sera, Renzi "pursues a precise model, borrowed from the Labour Party and Bill Clinton's Democratic Party", comprising "a strange mix (for Italy) of liberal policy in the economic sphere and populism. This means that on one side he will attack the privileges of trade unions, especially of the CGIL, which defends only the already protected, while on the other he will sharply attack the vested powers, bankers, Confindustria and a certain type of capitalism".
Renzi has occasionally been compared to former British Prime Minister Tony Blair for his political views. Renzi himself has previously claimed to be as supporter of Blair's ideology of the Third Way, regarding an objective to synthesize liberal economics and left-wing social policies.
Former Prime Minister Tony Blair is cited as a Third Way politician. According to a former member of Blair's staff, Blair and the Labour Party learnt from and owes a debt to Bob Hawke's government in Australia in the 1980s on how to govern as a Third Way party. Blair wrote in a Fabian pamphlet in 1994 of the existence of two prominent variants of socialism, namely one based on a Marxist–Leninist economic determinist and collectivist tradition and the other being an ethical socialism based on values of "social justice, the equal worth of each citizen, equality of opportunity, community". Blair is a particular follower of the ideas and writings of Giddens as was his successor Gordon Brown.
The Third Way stands for a modernised social democracy, passionate in its commitment to social justice and the goals of the centre-left. [...] But it is a third way because it moves decisively beyond an Old Left preoccupied by state control, high taxation and producer interests; and a New Right treating public investment, and often the very notions of "society" and collective endeavour, as evils to be undone.
In 2002, Anthony Giddens listed problems facing the New Labour government, naming spin as the biggest failure because its damage to the party's image was difficult to rebound from. He also challenged the failure of the Millennium Dome project and Labour's inability to deal with irresponsible businesses. Giddens saw Labour's ability to marginalise the Conservative Party as a success as well its economic policy, welfare reform and certain aspects of education. Giddens criticised what he called Labour's "half-way houses", including the National Health Service and environmental and constitutional reform.
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In the United States, Third Way adherents embrace fiscal conservatism to a greater extent than traditional economic liberals, advocate some replacement of welfare with workfare and sometimes have a stronger preference for market solutions to traditional problems (as in pollution markets) while rejecting pure laissez-faire economics and other libertarian positions. The Third Way style of governing was firmly adopted and partly redefined during the administration of President Bill Clinton. The term Third Way was introduced by political scientist Stephen Skowronek. Third Way Presidents "undermine the opposition by borrowing policies from it in an effort to seize the middle and with it to achieve political dominance". Examples of this are Richard Nixon's economic policies which were a continuation of Lyndon B. Johnson's Great Society as well as Clinton's welfare reform later.
Clinton along with Blair, Prodi, Gerhard Schröder and other leading Third Way adherents organized conferences to promote the Third Way philosophy in 1997 at Chequers in England. The Third Way think tank and the Democratic Leadership Council are adherents of Third Way politics.
Other leaders who have adopted elements of the Third Way style of governance include Gerhard Schröder of Germany, Wim Kok of the Netherlands, António Guterres and José Sócrates of Portugal, Ehud Barak, Ehud Olmert and Tzipi Livni in Israel, David Lange, Roger Douglas and Helen Clark in New Zealand, François Hollande, Dominique Strauss-Kahn, Manuel Valls and Emmanuel Macron in France, Costas Simitis in Greece, Viktor Klima and Alfred Gusenbauer in Austria, Ingvar Carlsson and Göran Persson in Sweden, Paavo Lipponen in Finland, Helle Thorning-Schmidt in Denmark, Kim Dae-jung and Roh Moo-hyun in South Korea, Jean Chrétien and Paul Martin in Canada, Ferenc Gyurcsány in Hungary, Victor Ponta in Romania, Leszek Miller and Marek Belka in Poland, Luiz Inácio Lula da Silva in Brazil, Alan Garcia and Alejandro Toledo in Peru, Thabo Mbeki in South Africa, Muammar Gaddafi in Libya and Ricardo Lagos and Michelle Bachelet in Chile.
After the dismantling of his country's Marxist–Leninist government, Czechoslovakia's conservative finance minister Václav Klaus declared in 1990: "We want a market economy without any adjectives. Any compromises with that will only fuzzy up the problems we have. To pursue a so-called 'third way' is foolish. We had our experience with this in the 1960s when we looked for a socialism with a human face. It did not work, and we must be explicit that we are not aiming for a more efficient version of a system that has failed. The market is indivisible; it cannot be an instrument in the hands of central planners". In historical context, such proposals were better described as liberalised centrally-planned socialism rather than the socially-sensitive capitalism that Third Way policies tend to have been identified with in the West.
Left-wing opponents of the Third Way argue that it represents social democrats who responded to the New Right by accepting capitalism. The Third Way most commonly uses market mechanics and private ownership of the means of production and in that sense it is fundamentally capitalistic. In addition to opponents who have noticed this, other reviews have claimed that Third Way social democrats adjusted to the political climate since the 1980s that favoured capitalism by recognising that outspoken opposition to capitalism in these circumstances was politically nonviable and that accepting capitalism as the current powers that be and seeking to administer it to challenge laissez-faire capitalists was a more pressing immediate concern. With the rise of neoliberalism in the late 1970s and early 1980s and the Third Way between the 1990s and 2000s, social democracy became synonymous with it. As a result, the section of social democracy that remained committed to the gradual abolition of capitalism and anti-Third Way social democrats merged into democratic socialism. Many anti-Third Way social democrats overalp with democratic socialists in their committiment to an alternative to capitalism and a post-capitalist economy and have not only criticised the Third Way as anti-socialist and neoliberal, but also as anti-social democratic in practice.
Democratic and market socialists argue that the major reason for the economic shortcomings of command economies was their authoritarian nature rather than socialism itself, that it was a failure of a specific model and that therefore socialists should support democratic models rather than abandon it. Economists Pranab Bardhan and John Roemer argue that Soviet-type economies and Marxist–Leninist states failed because they did not create rules and operational criteria for the efficient operation of state enterprises in their administrative, command allocation of resources and commodities and the lack of democracy in the political systems that the Soviet-type economies were combined with. According to them, a form of competitive socialism that rejects dictatorship and authoritarian allocation in favor of democracy could work and prove superior to the market economy.
Although close to New Labour and a key figure in the development of the Third Way, sociologist Anthony Giddens dissociated himself from many of the interpretations of the Third Way made in the sphere of day-to-day politics. For him, it was not a succumbing to neoliberalism or the dominance of capitalist markets. The point was to get beyond both market fundamentalism and traditional top-down socialism—to make the values of the centre-left count in a globalising world. He argued that "the regulation of financial markets is the single most pressing issue in the world economy" and that "global commitment to free trade depends upon effective regulation rather than dispenses with the need for it".
In 2008, Charles Clarke, a former United Kingdom Home Secretary and the first senior Blairite to attack Prime Minister Gordon Brown openly and in print, stated: "We should discard the techniques of 'triangulation' and 'dividing lines' with the Conservatives, which lead to the not entirely unjustified charge that we simply follow proposals from the Conservatives or the right-wing media, to minimize differences and remove lines of attack against us".
In 2013, American lawyer and former bank regulator William K. Black wrote that "Third Way is this group that pretends sometimes to be center-left but is actually completely a creation of Wall Street—it's run by Wall Street for Wall Street with this false flag operation as if it were a center-left group. It's nothing of the sort".
The shift towards a political discourse heavily influenced by social capital is observable comparing the 1979 and 1997 Labour Party manifestos. In 1979, the Labour Party professed a complete adherence to social democratic ideals and rejected the choice between a "prosperous and efficient Britain" and a "caring and compassionate Britain". Coherent with this position, the main commitment of the party was the reduction of economic inequality via the introduction of a wealth tax. In the 1990s, this agenda drastically changed with the progressive dismissal of traditional social democratic ideology. In particular, New Labour de-emphasised the need to tackle economic inequality and instead focused its political strategy on the expansion of opportunities for all, keeping public intervention in the market to a minimum. In this context, the aim to foster social capital creation by holding together the modernisation of the state and the creation of stronger social ties became the flagship of New Labour.
This change of political orientation was based on a profound revision of social democratic principles. These principles were considered by New Labour to be an obstacle to the activation of evidence-based policy-making. In this context, the prevention of market failures which is targeting child poverty and educational disadvantage was preferred over the redistributive approach endorsed by the Labour Party during the 1970s. The new vision implied the full acceptance of market principles and pushed traditional social democratic values even further away. This ideological shift took place despite the fact that the period between 1979 and 1995 was characterised by the sharpest increase in economic inequality since World War II. The importance attributed to the creation of social capital is symptomatic of New Labour's interest in civil society. This interest can be explained by the effect of growing individual freedom, fostered by economic and technological modernisation, in a context where traditional forms of solidarity and interdependence are needed to prevent social disintegration, a social paradox already identified by the founding fathers of sociology. For this reason, New Labour considered the creation of social capital as a good antidote to the tension between traditional and modern values.
Tony Blair proposed to manage social change by unifying moral values, represented by the Tocquevillian quest for community and scientific evidence, used to inform evidence-based policy-making. According to Blair, the fusion of these two elements in the Third Way was the only remedy for the social paradox illustrated above. One could say as Émile Durkheim that during an age of modernisation and transformation the values cultivated in secondary groups need to be universally accepted because they confer a human face to a society dominated by competition and the pursuit of efficiency. In this vision, the creation of social capital balances growing individualism with the need for interdependence, serving as a sort of glue to prevent modernisation from heading towards societal disintegration. After merging social capital's argument and the Third Way discourse. New Labour also bridged theory and practice through policy making at various levels, namely in education, health and neighbourhoods; and attempting to measure the direct impact of these reforms on social capital. In this context, the objective of creating social capital through the empowerment of families and communities and the decentralisation of social services became one of the leading driving forces of New Labour's political action.
According to one article submitted in 2017 to open-contribution website Market Mogul, the Third Way movement was at its peak in the 1990s and 2000s, but it has since been on the decline and by 2017 it became clear that the ideology is not as popular as it used to be outside of established Third Way circles. Third Way economic policies began to be challenged following the Great Recession. The rise of right-wing populism has put the ideology into question. Many on the left have become more vocal in opposition to the Third Way, with the most prominent example in the United Kingdom being the rise of self-identified democratic socialist Labour Party Leader Jeremy Corbyn as well as Alexandria Ocasio-Cortez and Bernie Sanders in the United States. A large number of Third Way politicians have been either voted out of office or forced to change their positions due to the ideology's weakening base. The election of Emmanuel Macron as President of France in 2017 gave some hope to Third Way proponents. However, Macron has become largely unpopular and his presidency has been marked by the formation of the yellow vests movement.
Obama resembles such Presidents as Nixon and Clinton in the following respect. They are what the political scientist Stephen Skowronek calls practitioners of "third way" politics (Tony Blair was another), who undermine the opposition by borrowing policies from it in an effort to seize the middle and with it to achieve political dominance. Think of Nixon's economic policies, which were a continuation of Johnson's "Great Society"; Clinton's welfare reform and support of capital punishment; and Obama's pragmatic centrism, reflected in his embrace, albeit very recent, of entitlements reform.
The stories and reality increased the pressure on the government to make investments to relieve poverty, but Barak was self-consciously committed to 'Third Way' economic policies of lower spending, inflation, and interest rates that produced such growth in the United States and Britain.
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