Clinton and Blair: The Economics of the Third Way

Former United States President Bill Clinton and the current Prime Minister of the United Kingdom Tony Blair have both described their approach to public governance as a 'Third Way' that is neither of the Right nor Left but new and different. Clinton and Blair have claimed that their Third Way is a social democratic response to the demands posed by globalization, composed of increased public investment on the one hand and ' sound' public finance on the other. The concept of a Third Way has also gained currency in Australian political circles, especially amongst the Australian Labor Party, and is particularly associated with politicians such as Mark Latham (1998) and Lindsay Tanner (1999). The Third Way has also been invoked by Liberal politicians such as Tony Abbott as well as popular economic and social commentators such as Clive Hamilton (2003). Current interpretations of Clinton and Blair's Third Way are brief and limited to the philosophical and political. The purpose of this paper is to analyse the Third Way as an economic policy programme and its analysis finds that conflict between public investment and ' sound' public finance emerged and was resolved in favour of the latter, locating Clinton and Blair's Third Way within standard neoclassical theory. Their Third Way is thus, contrary to Clinton and Blair's claims, neither ' new' nor social democratic.