 |
Al-Ahram Weekly 13 - 19 May 1999 Issue No. 429 
|
||
Published in Cairo by AL-AHRAM established in 1875 |
 |
 |
|
|
Al-Ahram Weekly 13 - 19 May 1999 Issue No. 429
|
||
| Published in Cairo by AL-AHRAM established in 1875 |
|
|
|
Egypt Region International Economy Opinion Culture Profile Features Books Travel Living Sports People Time Out Chronicles Cartoons Letters The crisis of the third way
By Mahmoud Abdel-Fadil *The idea of the "third way" was first revived by French President Jacques Chirac in his opening address to the G-7 summit in 1996. Chirac's comparison between the Anglo-Saxon and European models of problem-solving provoked considerable debate at the conference. The model applied by the US and Great Britain, he said, was based on the deregulation of labour and capital markets, meant to generate higher employment levels. The French, however, believe that this model leads to job insecurity and social disintegration. The European model, on the other hand, is founded upon an array of legislative provisions intended to protect "the rights of labour". Legislation thus stipulates minimum wages, maximum working hours, social insurance provisions and job security. The European model, however, is not as efficient as the Anglo-Saxon model in job creation. The only way out of the dilemma of choosing between the lesser of two evils -- unemployment or job insecurity -- according to the French president, was to find a "third way".
At the time, Chirac's appeal fell upon deaf ears. There was no attempt in subsequent discussions in the conference to identify the features of the "third way". First, the US and the UK were adamant that the "Anglo-Saxon" model was superior and should be applied to all the countries of Western Europe. The spread of unemployment, they maintained, was "a European problem" rather than an issue facing the G-7 as a whole. While the average rate of unemployment in Europe in the mid-'90s stood at 11 per cent, it did not exceed 5.5 per cent in the US and 3.4 per cent in Japan.
The US further boasted that, in the first half of the '90s, it created more than nine million jobs, even if a large proportion of the "new employment opportunities" were "low paying" and concentrated in marginal and unskilled fields. Second, as the G-7 maintained in its closing statement, "there is no single solution that conforms with all our experiences, although each of us has learned, through the conference, from the experiences of others." As a result, the debate between the Anglo-Saxon and European models remained unresolved.
Nevertheless, certain contours of the "third way" did emerge in the conference. For example, Germany and Japan sided with France in their rejection of the American "hire and fire" policy. Opponents to the Anglo-Saxon model also stress that job insecurity jeopardises social cohesion and Chirac, in later discussions, expressed his fears of lowering wages. While lower wages might stimulate the demand for less skilled labour, and consequently reduce unemployment, it could also generate a level of poverty unacceptable for an industrialised nation. Other fears raised by the "hire and fire" policy include declining public health services, rising illiteracy rates, rising rates of juvenile crime and increasing numbers of homeless, all of which are much more severe in the US than in Europe.
Chirac's appeal for a third way is also essential to solve the long-term plights of both the Anglo-Saxon and European models. The heavy costs of financing the European social security system tend to so augment the national deficit as to threaten the government with insolvency. The social discrepancies generated by the American system, on the other hand, erode social cohesion, as recent examples like the Los Angeles riots so vividly illustrate.
Still, from the 1996 G-7 summit to Blair's accession to power in May 1997, the notion of a third way, at a theoretical level at least, heralded the new wave of "moderate social democratic" governments in western Europe. The Blair government arrived to power on the coat-tails of years of Thatcherism. Ironically, the resounding victory that swept Blair to power came at a time when the British economy had reached its highest level of performance in decades. The overwhelming fear that rights to health care, education, insurance and maintenance of public utilities would be eroded, however, compelled the British electorate to cast its vote in favor of the "social contract" advocated by proponents of the third way as the best guarantee for society's future. Temporary economic dynamism is too fragile a commodity to bank on.
The shift in the popular mood may have lasting historical significance. Guarantees against anxiety have become a major consideration for voters who insist that their governments must find some equilibrium between economic and social factors. Governments can no longer continue to ensure economic equilibrium at the expense of social welfare, a point driven home by noted British sociologist Anthony Giddens, who inspired much of Blair's thinking.
Blair succeeded in formulating a programme satisfactory to both the business community and the working classes. His victory in the UK was mirrored across Europe. In France, the victory of the Socialist Party in the parliamentary elections reflected the electorate's dissatisfaction with years of right-wing rule. In Germany, Schröder's victory conveyed a similar message with regard to the Kohl era.
It was when the social democrats took power in Western Europe, however, that the true test of their policies began. Certainly, the increasing influence of transnational corporations has posed a formidable challenge to the business of balancing the interests of capital and labour. Perhaps the clearest manifestation of the difficulties of this task has been the controversy over taxation policies intended to secure a more equitable distribution of the tax burden. Equally indicative has been the trend to promote an updated form of Keynesian theories as an alternative to absolute laissez-faire economics, particular as regards public expenditure and unemployment.
The threats made by influential members of the business community to transfer their activities abroad in the event of tax restructuring has forced many governments to make several strategic concessions. In Germany, such concessions prompted German Minister of Finance and leader of the Democratic Socialist Party Oskar Lafontaine to tender his resignation. In France, Philippe Segal, one of the more radical Gaullist figures, withdrew from the race to the forthcoming elections because he felt the government had backed down on too many Keynesian principles in its management of national economic affairs.
The repackaging of economic policies by which governments seek to reduce unemployment and curb inflationary pressures while keeping the national deficit at acceptable levels is off to a shaky start. Still, we should continue to monitor current attempts to strike a balance between economic and social considerations. It will be useful to see if they succeed in developing the "third way" or merely result in a slightly modified version of the "first way".
*The writer is a professor of economics at Cairo University.
