		Al-Ahram Weekly On-line 15 - 21 October 1998 Issue No.399
Published in Cairo by AL-AHRAM established in 1875		Current issue \| Previous issue \| Site map

The Third Way

By Mohamed Sid-Ahmed

The 23rd of September was a critical day for the global banking system. In a bid to rescue a sinking investment fund whose collapse would have set off a chain reaction of bankruptcies with disastrous effects on an already jittery global financial market, the US Federal Reserve Board persuaded 14 of the world's largest banks and financial institutions to invest close on $4 billion to bail out the stricken fund. The Federal Board's unprecedented decision to use its enormous clout to rescue a private firm is not only controversial but risky. Moreover, its vigorous intervention cannot be said to have averted the crisis altogether. Indeed, on 1 October, just one week later, the turmoil in world stock markets reached a peak, casting doubt on the ability of political leaders and economic experts to successfully tackle an economic crisis that threatens to engulf the whole globe.

Until 20 July, the global economy appeared to be extremely healthy. The US was able to sustain its high development rates and the European Union was moving steadily forward towards its unified currency. Only two months later, the picture had changed dramatically. The crisis appeared first among the Asian Tigers, which had until then been held up as a model to be followed by all Third World countries, then spread to Russia, which stopped paying its debts in August. Next came the crisis in Brazil, which threatened to spill over into the rest of Latin America. Attention was then focused on Japan and the threat that the insolvency of any of its major banks could trigger a succession of bankruptcies. An American expert compared the situation to the predicament of the Titanic, which struck an iceberg and sank. He added, however, that so far one compartment, Japan, has been hit and is being submerged, while the other two compartments, the US and the EU, are still afloat.

As the sole remaining superpower, and one which, moreover, continues to enjoy a vibrant economy, the United States has a major role to play in any efforts to overcome the crisis. But with Monicagate eroding Clinton's stature and turning him into a lame duck president, Washington's effectiveness at this particularly critical juncture has been seriously undermined. Clinton has emphatically asserted that "we don't have to have a recession", that there is no inevitability in it and has called for funds to fight the world crises. Experts representing the G-7, the World Bank and the IMF have held uninterrupted meetings throughout the last two weeks to find a way out. One of the proposals they came up with was an anti-contagion mechanism involving the injection into the global economy of some $90 billion in commitments that were promised to the IMF more than a year ago. But calling in commitments is one thing, getting them is more problematic.

Can Europe intervene to avoid a worst-case scenario? In this connection, the rise of Social-Democracy as the main force on the European scene since the SDP's victory in the recent German elections brought to 11 the number of states in the 15-member EU run by centre-left governments is a development worth taking seriously. Indeed, Social-Democratic ideology can eventually replace liberal ideology as the dominant school of thought in economic affairs. Tony Blair has coined the term "the Third Way" to describe an ideology that upholds the principle of a market economy but which also puts forward the need for a 'social dimension' that would restrict market mechanisms whenever they trigger destabilising social effects. The combination of these two ideological precepts (the market economy and the social dimension) could eventually develop into a totally different socio-political build-up.

This ideological setting, however, comes up against practices in the relationships between the European powers where, under the need to compromise in the aim of building a unified Europe, issues of ideology were occasionally subordinated to considerations of real politick. For example, Mitterrand sided with Kohl against the German Socialists, Greens and other leftists during the Perching crisis in the early eighties. Despite the fact that Mitterrand, the French Socialist, sympathised with the views of his German counterparts on not allowing American Perching missiles with nuclear warheads on German soil, Mitterrand the statesman aligned himself with the German chancellor on the grounds that consolidating German-French friendship should take priority over all other considerations. If Europe's Social-Democratic ideology is to become its main guiding force, such practices will have to be modified. Can the Social-Democratic governments of Europe take such a step which could possibly back-fire if ever these governments were ousted in future elections?

So to what extent can ideology affect the principles governing Europe's present economic policies? Only a few years ago, French Prime Minister Jospin failed to get a European endorsement for his proposal to give the fight against unemployment top priority. Since he came to power, and throughout his presidency of the European Union, Tony Blair has succeeded in persuading the states of the EU to accept the idea that combating unemployment should be at the very top of Europe's agenda. With Kohl's defeat at the polls, the last obstacle in the way of the full implementation of that principle has been removed.

British sociologist Anthony Giddens has described the Third Way as a modernist trend led by the forces of the Centre, which adopts the socialist principle of social justice, but which, because it seeks adherents in all social classes, does not endorse the principle of class struggle. It is against authoritarianism and fanaticism, and proceeds from the assumption that individual freedom depends on the resources of the community and therefore on social justice. The state, contrary to what the liberals believe, is not against freedom but is its necessary prerequisite. Giddens' views do not differ much from those of Jospin, for whom modernity should not conflict with either economic efficiency or social justice. Both should constitute its foundations.

Obviously, liberalism proved ineffective in coping with the current global economic crises. It remains to be seen whether the Social-Democratic alternative can be more successful in containing and overcoming it.