Grant Belchamber, Senior Research Officer at the ACTU, argues the ‘Third Way’ is no panacea for perceived public sector malaise.


The Third Way is simply a tag, a badge, an identifier.

It is spin, and its purpose is to differentiate one particular package of political offerings from others in the field, to mark it with a stand-out brand name, to make it distinct, easily recognizable, and ultimately marketable.

Creating a catchy new brand name is as legitimate in politics as it is in commerce.

All aspirants to political office need a strategy to gain recognition in a tired and congested market. Adopting a catchy new tag is a smart move.

But consumers are not mugs, and as time passes they will look beneath the brand name, just as over time voters will check out the substance of policies under various political banners.

Arguably, the ‘Third Way’ is already well past its use-by date as an attractive, attention grabbing moniker in this country (if it ever really had a shelf life at all).

Clinton and Blair latched onto the term to distinguish their respective offerings from their political allies as well as their political opponents – from the old guard nostrums of their own side of politics and also from the cold-war era Reaganomics and Thatcherism that preceded them.

So New Labor and the New Democrats were invented to demark the Clinton and Blair teams from, respectively, tax-and-spend liberals in the US and supporters of nationalization of industry in the UK.

But here Down Under we were already ahead of that game, electing a social democratic regime which had its own distinguishing tag – remember the Accord? – and cut public spending as a share of GDP, deregulated the foreign exchanges, privatized state owned airlines and banks and generally repudiated many of the tired old cold-war era nostrums of Labor in Australia.

In fact the aspiring opposition parties in the US and the UK took more than a fleeting glance down here for inspiration during the eighties, during those early Accord years.

As for distinguishing the product from that of political opponents in today’s Australia, John Howard is simply not in the same league as Ronald Ray-guns, and (like William Hague) is not within cooee of Maggie Thatcher. He preens and promotes himself as a conviction politician, but as our recent history shows he is no ideological oak, just a resilient political reed.

Blair and Clinton followed ideological warriors whose statures cut distinctive profiles against which they could define themselves and badge their policy alternatives . Both Blair and Clinton paid homage to their great predecessors and adopted substantial elements of their conservative policy packages.

John Howard followed a man of stature too, but his own policies define little except opportunism and his vision consists in a new tax and a retreat to the past.

Whoever follows Howard will not be intimidated by his shadow; and Australia’s aspirant third-wayers show no inclination to doff their caps in Howard’s policy direction nor to repudiate the policies of his predecessor.

A decade ago, the Third Way purported to offer public policy a rational path between discredited extremes, a way forward to a better world that was neither rampant free-market capitalist nor rigid centrally planned communist. Substantively however, the Third Way was premised on pursuit of market solutions to social and economic problems .

A decade on, it is relevant to ask whether the ‘Third Way’ can yet excite political interest in Australia, or whether time has already passed it by.

To be neither Capitalist nor Communist is simply to be a mixed market economy, which really is rather old hat. Indeed, for thirty-five years after World War Two it was the mainstream and standard description of the political economy of the world’s developed nations.

It is nearly 15 years since the Berlin wall fell. In practical terms, there is no longer a Communist Way abroad to be emulated here.

After a decade or two of ‘market-oriented’ solutions in this country and abroad, the public policy pendulum appears to be swinging back from the rationalist free market extremes of the eighties.

As it did half a century earlier under the Keynesian consensus of the post-war years.

The Washington Consensus and the neo-liberal orthodoxy may not yet have lost their policy hegemony in the English-speaking democracies, but are under heavy challenge from points across the political spectrum.

Indeed, and this is one I can’t resist, more than a century has passed since The Fourth Way was introduced to the West by G I Gurdjieff and his disciple P D Ouspensky !!!

So as I see it, the Third Way is not really new, and as a popular moniker will probably be as enduring as the Four Tops and the Fifth Dimension, though more so than communitarianism or incentivation.

But the distinctive substance of Third Way policies is likely to be more enduring than the name.

The difficulty here is in defining what is and is not included in the ‘Third Way’ policy box. Rather than attempt an exhaustive taxonomy of its contents, I want to focus briefly on what, as I see it, are a few important and distinctive ‘Third Way’ elements.

Minimum Wage Laws

Under Ronald Reagan, the US Federal Minimum Wage was frozen for 9 ¼ years, from 1 Jan 1981 to 1 April 1990. Under Margaret Thatcher, Britain denounced and withdrew from the ILO Minimum Wage convention and abolished the UK’s de facto minimum wage setting mechanism, the Wages Boards.

In both cases, the justification was labour market deregulation , in the belief that minimum wage laws price low paid / low skilled workers out of jobs. There is not a scintilla of evidence that the abolition or erosion of minimum wages in either country created any jobs, though in both countries the ranks of the low paid grew sharply.

Under Clinton, the US federal Minimum Wage was ‘hiked’ (as they say) sharply on several occasions. Under Blair, the UK Low Pay Commission was established, its recommendations have been implemented – Britain now has a National Minimum Wage and it has already been ‘uprated’ (as they say). There is barely a scintilla of evidence that establishing and repairing the minimum wage floor in either country has cost any jobs, though in both countries the incomes and living standards of low paid workers have risen substantially as a result .

Third Way advocate Mark Latham MP supports effective minimum wage standards in this country. The Labor governments here from 1983 to 1996 consistently supported regular increases in minimum award wages through the National Wage processes.

Unions will support Third Way policies that support maintenance and improvement of effective minimum standards in our labour markets.

Education and Health

Third Way advocates identify these policy areas as the pre-eminent fields for policy activism and intervention by national governments in a global world economy.

In part this reflects an acceptance by Third Wayers of the ‘New Growth Theories’ in orthodox economics. According to this view, governments can shift their nations onto a higher economic growth path by investing in the ‘human capital’ of their citizens and raising the nation’s competitive advantage in world trade and commerce. Public investment in education, and also in health, is believed to do this.

In part, singling out education and health as the key sectors for policy activism by national governments also reflects a view that in a globalised world, governments are constrained to fail if they intervene in other sectors. On this view:

  • real power lies with global capital such that governments will fail if they try to flout it
  • government failure is a more virulent and debilitating ailment than market failure and
  • as Dr Pangloss might have said, the fruits of globalisation are realized every day in the ordinary lives of ordinary people interacting through free market processes.


Unions will support policies to improve our public health and education systems. Blind Freddy knows we need to improve them. The main basis for that support is the direct improvement in the lives of ordinary people that flows from having better public schools and better public hospitals (whatever the veracity of the New Growth Theories).

Unions do not accept the quivering vision that education and health are the only areas remaining for public policy activism in the global world economy. To make the world a better and fairer place, a role for government in education and health is necessary, but not sufficient.


  • A cursory review of tax/GDP and public expenditure/GDP ratios across OECD countries provides prima facie evidence of the wide scope for policy activism by government in the modern nation state.
  • The inexorable rise of megacorps, burgeoning international capital flows, and the impact of human activity on the global environment, point to the inevitability of increased global regulation in tomorrow’s world – the current international debate over Tobin taxes and climate protocols is harbinger of things to come.


Atomistic Individuals or Social Systems?

The Classical Political Economists analysed rises and declines in the wealth of nations believing that the key features of interest – the centers of gravity in the economic system – could be discerned by considering the differing motivations of the broad classes which comprised the social order.

This analytical conception was jettisoned with the rise to prominence of supply and demand theory under the marginalist revolution in economics, from the 1870s. The starting point in this new analytical schema, which still holds sway today, is the abstracted atomistic individual seeking to maximize its own best interests.

From this point of departure, competition between economic agents and unfettered markets maximize welfare for all, in this the best of all possible worlds. [Margaret Thatcher encapsulated this vision in her epithet that ‘there is no such thing as society’.]

Flowing from this is the view that, unless market failure can be demonstrated and it can also be shown that regulatory intervention would not make matters worse, the best thing that governments can do is to get small (cut taxes and spending) and get out of the way (deregulate), so as to maximize the scope for free competition and the unfettered inter-play of market forces.

Much Third Way policy prescription seems to accept the veracity of this neo-classical economic conception of the world, resting on the presumption that market solutions are the best solutions unless a compelling case to the contrary can be established, and that ever more competition makes for an even better world.

Unions do not agree that real or synthetic market mechanisms are always and everywhere the best means to deliver better public policy or greater public investment in the education or health or other sectors.


  • Vouchers and shadow prices in contrived pseudo-markets are no cure-all, and bring their own problems.
  • Because governments can borrow long-term at lower rates of interest, and are not constrained to return a profit on public investments, national infrastructure can be provided by government at lower total cost to the community than private provision of identical facilities.
  • True capitalist competition in the sphere of production leads towards merger and monopoly at the commanding heights of real and financial economies, not to a fragmentation and proliferation of small competitive units of production.
  • The U-shaped long-run cost curve is, in general, bunk.


The nation state is a political and economic and social system, an interconnected network of interacting individuals. It is baloney to believe that all our systemic problems – from salinity to global warming to urban ghettos to family violence and intergenerational poverty – can be rectified by establishing the ‘right’ set of taxes and subsidies and letting the market rip.

The role of government in the modern world extends to all aspects of the nation’s infrastructure – physical, social, and environmental . Infrastructure binds the system together; its provision and maintenance determines the world we bequeath to our children. To fashion adequate policy here requires an analysis of the workings of the system as a dynamic system; conceiving it as the impersonal product of an aggregation of atomistic utility maximizing decisions will lead us up a blind alley.

It should be noted though, that there are contradictions and inconsistencies here within the Third Way camp. For example, the Blair government declined to adopt the EU ‘social clause’ in the name of free trade, but the Clinton administration accepted the legitimacy of including labour and environmental issues in trade agreements.

Unions will continue to agitate around the legitimacy of these issues, with governments of every hue.


A core tenet of Third Way policy prescriptions calls for reducing the dead hand of bureaucracy and devolving to local communities the authority and resources and responsibility to bootstrap their own way out of their own problems by improving their own social capital.

Unions accept that devolution can empower local communities, and that central bureaucracies are not omniscient. Unions also accept that systems of public administration and service delivery benefit from regular review and overhaul, that there are problems of inertia in public services (as in private enterprises), and that if things can be done better they should be.

However, devolution is no cure-all.

The problems besetting inner city housing estates in our major cities cannot simply be rectified by the government devolving all program responsibility to the local communities that live in them.


  • there are three levels of government involved in Australia – federal, state and local – each with a policy interest and a suite of policy initiatives on offer.
  • for each tier of government, the relevant policy has generally been devised to address a broader range of issues than those confined to a particular estate.
  • here, devolution fixes naught without policy coordination between governments.


One line budgets for public schools do not address systemic issues of curriculum consistency and development.


  • Coherent, consistent, and transparent national standards for literacy and numeracy are essential for public education to be able to deliver a decent education for all.
  • There are economies of scale and scope in researching, documenting and promulgating best practise methods of teaching and learning. These can readily be accessed by a public education system, but not by a fragmented collection of schools .
  • Schools exist in neighbourhoods, and socio-economic status differs across neighbourhoods. Imposition of one-line budgets shifts a heavy onus onto school neighbourhood communities, but there are immense differences in education and income (not to mention stocks of managerial and technical knowledge, nor special needs of students) across those neighbourhoods. It is wrong (and quite bizarre) to presume that public schools in Kew and Coburg, or Campbelltown and Kuringai, will manage equally well with imposition of one-line budgets.


It is always the case with expenditure of public monies, that devolution of expenditure responsibilities must proceed with care and caution with a clear eye on the need for accountability. There is no surer way to discredit programs intended to benefit a needy group than to have public resources wasted or misappropriated.

Inappropriately introduced, devolution can and does lead to widening inequality and worsening disadvantage in impoverished local communities.


In my view the Third Way is no panacea for perceived public sector malaise.

It is not political Viagra.

While some elements of the Third Way policy suite have considerable merit, the approach overall is overly and unnecessarily restrictive of the role of government in the modern nation state.

This speech was given at a conference on The Third Way at the University of NSW on 13 July 2001.