New labour favours greater equality. It wants to create a society less unequal than that which it inherited from the Conservatives. But there is confusion both about how equality should be defined and about the kinds of inequality which can feasibly be reduced in a world characterised by global capitalism and rapid technological change. An open and honest debate about the nature of social justice and equality has become unavoidable if New Labour is to have any prospect of devising a "third way" which transcends the limitations of both old-style social democracy and market liberalism.
Politicians and thinkers on the centre left are beginning to recognise the need for constructive thinking about equality. In his speech to the Labour party conference in September, Tony Blair tried hard to appear progressive on the issue. He said that his goal for Britain was nothing short of "true equality," which he defined as the creation of a society in which every individual is recognised as being of "equal worth." He did not spell out what this might mean, but it seemed to imply not just equal rights and responsibilities, but also an equal chance of fulfilment. And he denied that his notion of "true equality" represents any kind of betrayal of Labour party values, even though it appears to sidestep traditional concerns about the distribution of income and wealth. He was, he claimed, simply advocating a different means of achieving the aspirations of the founding fathers: a means adapted to present circumstances.
In the New Statesman a few weeks later, Anthony Giddens, the director of the London School of Economics and guru of the third way, laid out his latest thoughts on equality. On the cover, his article is billed as an answer to the problem of "How to tame the fat cats." But you do not have to read far to discover the editor's irony. Giddens is not interested in taming fat cats; he believes that the very idea is a discredited socialist dogma. His article continues the campaign he began in his book, The Third Way, to persuade social democrats of the need to adapt to the realities of global capitalism. This requires a revision of the left's concept of equality, he argues. Social democrats must learn to stop worrying about economic inequality and take pride in the fact that other kinds of inequalities-such as that between men and women-are diminishing. Differences in wealth are inevitable in a society committed to economic dynamism and diversity of lifestyles; they do not matter much so long as we meet as equals in public spaces.
To provide a context for a discussion of the ideas of Blair, Giddens and others, I want first to set out what might be called the "market liberal" approach to equality. I will then discuss two versions of a third way on equality: a weak version, which seems implicit in the Blair government's current policies; and a stronger version, to which it might perhaps aspire in a second term. But first it is necessary to be clear about the meaning of the term "market liberal." Many on the centre left prefer the term "neo-liberal" and they use it primarily as a term of abuse. They equate neo-liberalism with the policies of Margaret Thatcher and Ronald Reagan. In The Third Way, for example, Giddens describes neo-liberals as favouring unfettered market forces and yet as also having reactionary views on the family and being prone to xenophobia. Having constructed such a straw man, it is not difficult for him to present his third way on equality-and much else-as an advance on both neo-liberalism and old-style social democracy.
Yet the important point is that Thatcher and Reagan drew their ideas from a variety of sources, including the old right. What was new and important in their approach to public policy was their partial embrace of the ideas of thinkers such as Friedrich Hayek and Milton Friedman, who are best described as market or economic liberals. It is easy to devise policies which represent an advance on Thatcherism or Reaganism when this is taken to include "old right" elements. The more difficult challenge is to move beyond the purer form of market liberalism which Hayek and Friedman represent-and which has been the true driving force behind countless changes in the social and economic landscape in the past two decades.
So let us start by examining the Hayek/Friedman philosophy. The first point to stress is that, outside the economic sphere, they tend to be strong proponents of equality. They believe that everyone should be regarded as having equal inner worth and dignity. They believe that individuals, regardless of gender, sexual orientation or ethnicity, should have equal political, legal and civil rights. As liberals, they thus share many of the aspirations for equality which are characteristic of the left. Where they broke with social democrats was primarily on the issue of economic equality and the role of government. But even here their position is often misunderstood. Hayek and Friedman were not against the state per se, nor were they indifferent to the economic needs of the poor. Friedman put forward an ambitious plan for a negative income tax designed to guarantee a poor person a basic income as of right; Hayek also argued for a basic minimum which would rise as the community as a whole grew wealthier. Both also saw a case for many other forms of government spending. In The Constitution of Liberty (1960), Hayek acknowledges "common needs that can be satisfied only by collective action and which can thus be provided for without restricting individual liberty." And he argues that the growth of wealth made possible by a market system "will constantly suggest new ways in which government might render services to its citizens and bring such possibilities within the range of the practicable." In other words, Hayek had no rigid desire to limit the role of government as a service provider.
Friedman's Capitalism and Freedom (1962) is remarkable in its anticipation of the market-oriented policies that are now conventional wisdom, even on the centre left. He was one of the first to stress that the case for state financing of activities is often stronger than that for state provision. This is because competition between many private sector providers of services often results in greater efficiency and offers more scope for individual choice than monolithic state provision, regardless of who pays the bills. Friedman was also alive to the possibility of "market failure." He worries, for example, that the free market leads to "underinvestment in human capital" and identifies the root problem as an imperfection in capital markets: the fact that banks are happier to lend against the security of a fixed asset than against the higher future earnings which vocational training or education make possible. To remedy this defect and prevent access to training and higher education remaining dependent on family wealth, Friedman outlines a bold scheme whereby government would make loans to individuals with repayments calculated as a percentage of their future earnings-in other words, government would take an equity stake in them.
Apart from a desire to make use of market mechanisms wherever feasible, the main difference between market liberals and social democrats lies in their approach to economic inequality. Hayek and Friedman both argued against progressive taxation. They backed action to raise incomes and extend opportunities at the bottom end, but beyond this they believed the state should not interfere with outcomes thrown up by the market. Above all, it should not attempt to impose its own target distribution of income or wealth. Such social engineering, they argued, represented an unjustified curb on the personal liberties of individuals. Freedom should include the freedom to become rich and the freedom to stay rich. Behind this opposition to redistribution lay a vision of society as a collection of sovereign individuals, each trying to maximise his or her "utility" or happiness. Such individuals engage in voluntary transactions with each other by accepting employment, investing in companies or buying consumer goods. These transactions result in an ever-changing distribution of income and wealth. But since the transactions are voluntary, they are seen as mostly increasing the happiness of all involved. The state should thus interfere only when a market imperfection has been identified, or to meet an essential public need, such as poverty relief.
let us now consider a weak version of a third way, the kind which the Blair government seems currently to favour, and for which Giddens is trying to make a case. I should mention one complication. It is often difficult to know whether centre-left thinkers are expressing their real opinions, or only the opinions which they judge to be both politically acceptable and consistent with the realities of the global market. In order to be elected, New Labour felt compelled to adopt many market liberal positions. This is clearest in the fiscal field, where it strove to neutralise the Tories' strongest electoral card: taxation. New Labour took the relatively extreme position both of ruling out any significant change to the tax structure which Nigel Lawson had laid down in the late 1980s (other than to cut tax rates further), and of condemning and ridiculing the Major government for raising taxes-even though these tax hikes were needed to pay for real increases in spending on health and education which New Labour favoured. New Labour's position on tax helped it to win an impressive victory in 1997, but has since sharply constrained its freedom of manoeuvre.
On the other hand, perhaps it is not a constraint, because some on the centre left seem genuinely converted to the Tory position on tax. Giddens, for example, uses market liberal (if not conservative) arguments to defend the status quo. He argues in the New Statesman that poverty and wealth should increasingly be seen as transitory phenomena. We do not need to worry as much about poverty as we once did, because many of the poor do not stay poor for long. Similarly, we should not regard the wealthy as crude targets for redistribution, because their good fortune may prove equally short-lived. He adds, for good measure, that those on the left should understand that the state is often a source of inequalities-for example, through poorly designed welfare policies. The market, on the other hand, can sometimes help alleviate them, by virtue of the opportunities for wealth creation which it offers. Giddens even argues that equality and inequality should be redefined to mean social inclusion and exclusion respectively. Economic inequality henceforth must be taken to refer not to gradations in income and wealth, as everyone previously supposed, but to situations in which the poor are cut off from social and economic opportunities, and in which the rich shun public services. Blair, too, in his conference speech, implies that his concept of "true equality" is consistent with large differences in material living standards. In Hayekian fashion, he stresses that he has no desire to clip anyone's wings or to curb material aspirations. All this is consistent with the celebration of wealth creation and millionaires by New Labour ministers such as Stephen Byers and Peter Mandelson.
So how does the weak third way differ from market liberalism? New Labour would stress that it favours an active rather than a passive state, a state which intervenes aggressively to equalise life chances and to improve the functioning of markets. Markets for New Labour are a means, not an end in themselves. Blairites are willing to accept much of the inequality resulting from market interaction, but only on condition that the state works much harder to reduce differences in individuals' starting positions. Hence New Labour's emphasis on improving education, training and welfare (and the ambitious target of "abolishing" child poverty). It does still care about economic inequality, but it is trying to tackle the root causes of inequality through institutional reform. This, it believes, is a more intelligent and effective strategy than old Labour's approach, which was to try to equalise economic outcomes through steeply progressive income taxes, penal estate duties, and so on.
In welfare, New Labour has gone beyond market liberalism in arguing that an element of coercion is necessary. People cannot simply be given cash benefits, but must sometimes be pushed into employment for their own good. The right to benefits must be balanced by a responsibility to accept offers of employment. This reflects Blair's view that we are our brother's keeper as well as his trading partner.
New Labour also lays greater emphasis on equality of opportunity than some market liberals would, partly as a way of compensating for its fiscal conservatism. In his 1996 John Smith Memorial lecture, Gordon Brown described equality of opportunity as "the essence of equality" and spoke movingly of the state's need to give individuals not just a single opportunity to succeed at the age of 16, but "lifetime, recurrent, permanent opportunities." The following year, in his Anthony Crosland lecture, he began to talk of "equal worth," claiming that this required everybody to be given an equal chance in life in order to fulfil the potential with which they are born. That same theme returned in Blair's conference speech, when he described the very different prospects of a baby born to affluent parents and one born to the disadvantaged.
And even though New Labour is reluctant to argue openly for redistribution, it has done some redistribution by stealth, both through higher spending on the poor and through tax changes for the better off. But the sums involved are not large relative to the size of the economy. They do not appear substantial enough to counter the trends leading to greater income inequality, and they are consistent with the kind of policies humane neo-liberals would support. Andrew Dilnot of the Institute for Fiscal Studies reckons that income inequality has increased since 1996, partly because of higher returns to skills in compe-titive markets, and partly because social benefits tied mostly to prices continue to lag behind private sector earnings. Despite its efforts to redistribute, New Labour may not be doing enough even to hold to the pattern of inequality it inherited from the Tories.
So it is difficult to present Blair's policies as a decisive move beyond market liberalism. In fact, you could argue that Friedman's plan for promoting greater investment in human capital represents a more aggressive attempt to equalise opportunities than New Labour's still tentative steps, such as the creation of individual learning accounts, or the University for Industry. And all the rhetoric about equalising opportunities is somewhat hollow so long as New Labour remains reluctant to tackle the public/private divide in secondary education. At present, wealth earned meritocratically can be quickly turned into long-term unearned privilege, because the rich can buy a better education for their children and hence greatly improve their children's life chances.
It is also significant that although New Labour aspires to a third way, it mostly runs public policy according to the maxims of market liberals. With the possible exception of health care, where the internal market has been reined back, Blairites are keen to use market mechanisms in the public sector. Their enthusiasm for private finance for public projects, even when it is more expensive, is a testament to this. New Labour also speaks the language of market liberals. Much of the Schr?der/Blair joint declaration on the future of social democracy-with its references to entrepreneurial spirit, lower taxes and other policies which offer Europe "a chance to catch up with the US"-reads as if penned by an American economist.
so let us now explore the possibility of a stronger version of the third way, recognising that if such ideas have any practical relevance, it will be for a second (or third) Blair term. The present policy on inequality might be described as "high floor, don't mind the gap." In other words, New Labour will do what it can to improve prospects at the bottom end, but beyond that, it broadly accepts market outcomes. By implication this means that it is more interested in absolute concepts of poverty and less concerned with the relative measurement-half of average earnings-which is usually taken as the poverty threshold in social policy debate.
Some will say that this is the only practical option, given the vigour of global capitalism, even if it does deviate from the values of Labour's founders to which Blair has pledged himself. New Labour could not pursue policies on taxation, or anything else, which are seriously out of line with international norms (the argument runs) without sparking a crisis of confidence in financial markets. In that sense the bond, equity and foreign exchange markets tie its hands, just as they have tied the hands of the New Democrats in the US. In eight years, Clinton has not been able to change the underlying character of American society (although the long economic boom, plus tax benefits for poor working families, has raised incomes at the bottom). So, if British policies are to change substantially, it will be either as a result of a global crisis-something akin to the Great Depression, which seems unlikely-or because of a global conversion to some philosophy other than the now-dominant creed of market liberalism. As things stand, a Blairite third way, like Schr?der's Neue Mitte, has to be largely a rhetorical device for making market liberal policies acceptable to those on the left.
To some degree this is undeniable. But the current form taken by global capitalism should not necessarily be seen as a fact of nature. Its runaway quality, and its tendency to create economic insecurity as fast as it creates wealth, is partly a consequence of deliberate policies to deregulate markets in the past two decades. Those policy decisions in turn reflected the fact that market liberals won the intellectual argument and brought about a remarkable change in public opinion, not just in Britain but around the world. If politicians were slaves to Keynes for many decades, they are now slaves to Hayek and Friedman. For example, before 1979 relatively few people were demanding cuts in very high top tax rates, or privatisation. But now that the market liberal philosophy has become part of the public consciousness, the idea of raising tax rates seems somehow unthinkable, and the public sector has become equated with slackness and inefficiency. Public opinion, too, appears to have become less egalitarian-according to the British Social Attitudes Survey, in the mid-1980s almost half the population thought it proper for government to reduce the gap between rich and poor; by 1996 this had fallen to little more than one third. This indicates that if New Labour is serious about reducing inequality, it must try to create a climate of opinion that is more favourable to its basic values. Recent history shows that opinion can shift in quite fundamental ways.
The key to a shift lies in a development of themes about community and solidarity which are central to Blair's political philosophy, but which do not yet seem to have been translated into practical policies. Blair has a concept of community which differs from both the individualism of liberals and the collectivism of socialists. Some would call it "communitarian," but that term tends to generate more heat than light. "I start from a simple belief," he declared in his Faith in the City speech in 1996, "that people are not separate economic actors competing in the marketplace of life. They are citizens of a community. We are social beings, nurtured in families and communities and human only because we develop the moral power of personal responsibility for ourselves and each other." He went on to argue that our relationships with and commitments to others "are not just add-ons to our personalities: they make us who we are. Notions of mutuality and interdependence are not abstract ideals: they are facts of life."
We are hearing, here, the authentic voice of Blair. It is not the voice of an economist or market liberal. It is the voice of a man inspired by his Christian beliefs and, through the Scottish moral philosopher John Macmurray, by strands of idealist political thought which have nothing in common with the utilitarian and libertarian ideas behind contemporary market capitalism. Blair's notion of community, his view that as individuals we are not isolated atoms but are somehow fused together, and his belief that we are linked primarily by moral obligations rather than by a calculus of self-interest, could provide the foundations for an approach to public policy very different from that of market liberals. Provided it is made clear that this is not socialism of the Marxist variety but what Blair calls "social-ism"-in other words, a recognition of the linkages and interdependencies between individuals-it surely could also inspire the electorate. But such inchoate thoughts do not yet find much of an intellectual echo. Although Gordon Brown is said to have more egalitarian instincts than Blair, he seems to have a conception of the individual's relation to society-drawn, apparently, from his reading of progressive American political economy-that is more conventionally liberal, and hence individualistic, than the prime minister's. Giddens, meanwhile, fails to capture Blair's notion of community in his technocratic rendering of the third way. Even though he is a sociologist by training, he seems today to prefer the language of economists.
The relevance of Blair's notion of community, and of individuals as somehow bound into a social whole, is that it provides the beginnings of an intellectual framework from which market liberal prescriptions can be challenged. For example, although many on the centre left have given up the idea of returning to higher levels of redistribution, they do want to promote what is often called "civic equality." The argument runs roughly like this. There is no way we can prevent big differences in income and wealth because these are inherent to a market economy, and high incomes are often a just reward for effort and risk-taking. What we can do instead is try to ensure that individuals meet in public spaces as equals and use many of the same public services. An effort should be made to designate certain spheres-perhaps those of education, healthcare and cultural activities-as non-market spheres in which differences in incomes would not be allowed to count, or at least not for much. The rich and the poor would then use the same schools and hospitals, and have equal access to the arts (which would mean very heavy subsidies). A related aspect of this policy of civic equality would be to encourage the integration of housing, to prevent the wealthy and poor being segregated into different neighbourhoods, and to raise the quality of public transport, so that it is used by rich and poor alike.
But, given a market liberal mindset, there are severe problems with this idea. It is not obvious how civic equality can be brought about. And it is not obvious why it should be favoured. At present, liberalised markets produce greater inequality. This is leading to a further fracturing of public space and the undermining of the universality of public services. The affluent continue to withdraw their children from state schools, especially in the critical A-level years. Greater use is also being made of private health insurance. Matthew Taylor, of the Institute for Public Policy Research, argues that such trends could be countered by a policy of exhortation. The government should argue that individuals have a moral obligation to use public services and spaces, and try to make the affluent feel guilty for opting out. Such a strategy might have some impact: green lobbies have successfully encouraged behavioural changes by appealing to people's sense of what is right. But it is unlikely to carry much conviction unless the philosophical foundations are carefully laid.
Market liberals will say that individuals have every right to spend their money as they see fit, and that the government has no business making people feel guilty. Given market liberal premises, there is no way of challenging this argument. If individuals really are sovereign maximisers of their personal utility, then it makes no sense to worry about the fracturing of public space. Public space does not exist. This is why it is so crucial to develop Blair's arguments about community. If people learn to see themselves as tied to each other by more than the cash nexus, they may accept the rationality of promoting non-market domains in which inequalities in purchasing power are not allowed to count. The argument is that everyone, even the affluent, will ultimately benefit from greater social cohesion and harmony, and that this can be achieved only by some restraint on the personal profit motive.
It may be that a policy of promoting civic equality cannot work unless further steps are taken to reduce economic inequality or, at the very least, to limit its rate of increase. If some people have much more wealth than others, how can they be expected voluntarily to use public services which must inevitably be geared to what the average person can afford to pay in tax? And is it really credible to argue that people of very different material means can ever meet as equals? Wasn't Marx right to argue that our economic circumstances are in some deep sense fundamental, and that they condition all our choices and attitudes? But if this is so, then Blair's goal for Britain as a society in which each is genuinely treated as of "equal worth" will not be achievable unless the debate on income and wealth distribution, which was closed in the 1980s, is reopened. Even intense efforts to promote equality of opportunity and to encourage the use of public services and spaces will fail to create what he calls "true equality." Blair would have to accept that a contradiction runs through the entire New Labour project-and perhaps through his own mind. He is committed to a vision of community and equality that is unrealisable so long as New Labour also accepts the economic inequality which is the inescapable consequence of market liberalism.
At this point there are two options. One is to retreat back into current orthodoxy and regard the third way mainly as a rhetorical device. On this view, market liberalism with a special emphasis on raising minimum standards for the poor is accepted as the best of all politically possible worlds. We must simply forget about economic equality. The other course is to hold to Blair's notion of community and moral obligation and argue that it is the capitalist order which, ultimately, will have to be amended to make it compatible with this deeper truth. The argument here would be that global capitalism in its current form makes us pay too heavy a price for its dynamism. The rules of the game encourage us to be selfish and acquisitive, and this prevents us living harmoniously in social groups. The solution lies in deliberately taming capitalism, as was done at the end of the 19th century through the adoption of progressive income tax and various controls on market activity. Today, different methods might have to be adopted, but the principle would be the same. Measures that curb economic opportunities would be adopted on social grounds, on quality of life considerations which go beyond the merely economic. The idea would be to regain some leverage over an economic machine which seems to many to be spinning out of control.
so long as the market liberal premises are granted, it is difficult to make a coherent case for greater economic equality. The winners in the capitalist game seem to have a perfect right to their takings. Chief executives and investment bankers will say that their wealth is purely a reflection of personal talent and hard work. Yet this is not true. They owe their wealth not only to talent and hard work, but also to the set of social institutions, laws and customs which make the market capitalist system possible. They owe it, ultimately, to the communal understandings which must always underlie markets. There is an irreducible social component to wealth which is generated by private market action. In a democracy, these social rules and institutions must be acceptable to the people as a whole. So people are right to worry about their economic position and life-style relative to others (poverty is partly a relative phenomenon), and are justified in objecting if inequalities become too great, because the system which makes these inequalities possible rests on their consent. And what matters is not only the gap between those in the middle and those at the bottom, but the gap between ordinary citizens and elites at the top. Both gaps can impair a sense of community. Fears that frenzied markets are a distorting influence because they accentuate the egoistic side of our nature are also far from groundless.
The question, in the era of global capitalism, is whether New Labour either wants or is able to move towards Blair's concept of community, which surely requires limits on economic inequality that would be unacceptable to market liberals. The first step on this path would be a more open debate on the form of social justice and equality that is desirable. A true third way, if it proved possible, would require the use of rhetorical devices to convince the right of the merits of some of the ideas the left has traditionally held dear. Today, the movement is still mostly in the other direction.
