The economy and the Third Way Netnexus/IPPR Debate July-Aug 1998
Comment
Dr Simon Szreter, St Johns College, Cambridge CB2 1TP
4th August 1998
email: SRSS@joh.cam.ac.uk
3,121 words
I have found the contributions to this debate extremely helpful and
informative. The dominant story about the Third Way and the economy which
I have absorbed from the various contributions is that, whatever else it
means, the Third Way symbolises an acceptance on the Left- and certainly
within the New Labour government- that left-wing, egalitarian values and
ends should be distinguished from pragmatic means; and that the latter can
include getting into bed with the market. As Mark Patton notes, this basic
point is summarised in Jack Straws pronouncement that The new clause 4 is
the Third Way.
1. Frank Vandenbroucke:
However, Frank Vandenbroucke has identified a significant potential
fallacy with this mode of thinking, which has the capacity to sap a social
democratic/left-wing programme of all its egalitarian energy. His point is
that the political choices facing left-wing politicians and
policy-formulators are not exhausted by the simple dichotomy of ends and
means. It must be borne in mind that, logically, a third separate category
of considerations, constraints, must be clearly identified. (It is only
because of the existence of this distinct category of constraints that
there is any difference in content between the ends and the means of
government policy.) Vandenbrouke argues, correctly I believe, that certain
influential thinkers, such as Giddens and Gray, have conflated constraints
with values and consequently have been led into unnecessarily pessimistic
and empirically-unfounded prognostications about the (lack of) scope which
left-wing governments may currently have for espousing egalitarian and
re-distributionist policies.
Giddens and Gray tend to see the significant constraints, such as
globalisation, or the supposedly inexorable rise of an international
culture of self-centredness (post-traditionalism), as external factors
beyond the reach of politicians. This would sanction passivity from Blair
and Brown in the face of the inevitability of rising inequality. However,
on a deeper and more discriminating analysis Vandenbroucke shows that
these constraints turn out to be related primarily to internal issues of
domestic moral culture and social awareness, employment and industrial
relations, and political will and leadership. This analysis is consistent
with the evidence that the governments of several of the worlds leading
economies have successfully maintained, with their citizens consent,
egalitarian social and economic policies in the face of globalisation.
Also Giddens is plain wrong about any sweeping cultural change rendering
the British people more tolerant of inequality. The British Social
Attitudes Survey indicates quite the opposite: that all citizens,
including even the rich, have been becoming steadily more and more
disenchanted with income inequality and its consequences over the last 10
years. The Tories finally lost power when this became a dominant opinion.
Vandenbrouckes important message is that the 3rd Way can and should be a
positive and constructive left-of-centre political project. It is
genuinely new because it works with and through the market and devolved
agency; but it does not accept- and does not need to accept- that the
endorsement of the market must mean supine acceptance of high or rising
levels of inequality; indeed, quite the opposite.
This sets out a clear, positive challenge for a 3rd Way economics. Can
there be a new political economy which in no way abrogates the normal and
efficient commercial functioning of the liberal market economy within the
prevailing internationally competitive context, while at the same time it
is harnessed to the promotion of the left-wing primary moral goal of
promoting equality and social justice? In the piece on social capital and
the economy, which is in the Library for this debate, I have argued that
this is not an impossible circle to square.
2. Social Capital
The social capital approach to market economics is distinctive because it
focuses on the social, economic and political implications of information
in the functioning of markets and the economy. Nobody can buy or sell in a
sensible way in a market without relevant information about costs and
prices and the available alternatives. But relevant information is not
uniformly distributed throughout society, nor is the capacity to process
and understand the commercial significance of the same piece information.
The social capital approach is associated with a growing body of research
which shows that the proliferation of high quality, trusting relationships
between different economic agents- for instance, government officials and
business people, managers and employees, different workers in a company-
facilitates the sharing and processing of information in the most
effective way and helps to explain many long-standing economic puzzles
concerning the economic efficiency and persistent productivity record of
individual companies (e.g. M&S), certain regions (e.g. Silicon Valley and
Silicon Fen) or whole economies (e.g. Japan).
The article in the Library argues that the social capital approach
entails the conclusion that those societies which strive for the maximum
of mutually-respectful trust among their citizens and which aim to endow
the maximum number of citizens with the capacity to process information
effectively will be those which, overall, have the maximum communicative
competence spread throughout their employers, workers and companies,
creating the most effective liberal market economies. This has thoroughly
egalitarian and re-distributive policy implications, both in general and
particularly with regard to educational policy.
3. Education
principally as a provider and creator of human capital- the skills and
aptitudes of individuals. But the nations education system is
simultaneously one of the most powerful influences upon the formation of
its social capital. Here the British system has a difficult heritage
because of the class-based cultural apartheid (as Adonis and Pollard have
put it in their A Class Act) that it promotes between the self-consciously
superior privately-educated minority and the self-consciously inferior
state-educated majority. In social capital terms this has resulted in an
information wall and a barrier of distrust running right through the
middle (in terms of the distribution of power, wealth and resources) of
British society, its economy and most of its companies. This is the real
root of the long-running British disease of poor industrial relations,
poor management, low productivity.
Given the power of those who patronise the private schools, it is not a
practical policy implication of the social capital perspective to suggest
that these institutions be abolished or somehow levelled-down. It is a
far, far better policy goal that the states schools be levelled up, so
that the parents sending their children to state schools and the children
themselves feel every bit as proud of their own- equally privileged-
education in well-resourced state schools taught by enthusiastic, creative
teachers. That will go a long way to restore the mutual respect and the
equality of communicative competence (the capacity to process and evaluate
valuable information with equal acumen) between these two sets of
citizens.
4. Politics
However, truly to restore state schools and their teaching staffs to
something like parity of prestige with the private sector will require a
real revolution in the resourcing of schools- in order to place state
pupils in a position approaching equality with the average private pupil
in terms of the equipment and facilities available to them and to give the
same conditions of work to their teaching staffs. As Walter Stanners
helpfully clarified in his contribution to this debate, the Chancellors
much-trumpeted 19 billion (over three years) for education is a PR triumph
only; and overall Labour will have spent little more in real terms
(percent of GDP) on state education throughout their first term of office
than did Majors last administration. The social capital perspective on the
economy predicts that this is a disastrous piece of self-delusion on the
part of the Cabinet, including the Prime Minister, who has repeatedly
asserted that education is his top priority. Something like five times the
extra annual amount for education announced by the Chancellor is required
to make any significant progress towards levelling-up the state sector.
Of course, the principal political reason why New Labour dont want to
address seriously this central issue of much greater investment in the
state education system is the implications it has for the public purse and
the consequent tax-raising and/or public sector borrowing implications.
Here it seems that the Prime Minister and the Chancellor and all their
aides are in a paralysis of agreement, after the pain of losing the last
two elections, that no electoral risks whatsoever can be taken with taxes
or public spending. The collective paranoia over taxes, although
psychologically understandable, is almost certainly a serious misjudgement
of political realities and a classic case of politicians, like generals,
fighting the last campaign not the next one. The relevant evidence for
this viewpoint is the landslide ditching of the party of low taxation,
inequality and public squalor at the last election and the consistent
results of social surveys showing the electorate willing to pay more taxes
provided it believes it is being spent on education, health and reducing
inequality. Vandenbroukes point is that New Labours inability to
contemplate a genuinely re-distributive economic and social policy, while
hiding behind the globalisation argument, is in fact a self-imposed
domestic constraint due to failure of political will and a fixation on
electoral past history.
Citing Grahame Thompson, Vandenbrouke agrees that the practical political
problem involved in developing the nations willingness to redistribute is
to forge a fair social settlement in which the middle 50% of the
population feel that they are getting something substantial back as well
as contributing to the collective good through their higher taxes. With
fully 93% of the population using the state education system, this would
seem to me to provide the golden policy opportunity for bringing about
precisely this strategy.
Just as the Tories encouraged a change in popular attitudes against taxes
during the 1980s, so, too, New Labour can encourage the current
disposition towards a more favourable attitude. An important part of this
would involve a vigorous policy of investing massively in schools,
talking-up the achievements of all teachers (not just learning), and the
value of education across the board, all skilfully presented through waves
of locally-focused advertising (on all the new resources and teachers
arriving in each towns schools at the beginning of each school year)- an
act of imaginative political leadership to rival the Tory privatisation
campaigns. If there is a lesson to be drawn from four successive Tory
election victories, it is this: that the key to staying in power for a
long time is that you lead from the front, using the governments authority
and powerful publicity machine to change the political culture of the
nation in line with your own partys core values, leaving the opposition
trailing in your wake and trying to catch up with what youre doing. There
is no sign yet that New Labour have found the self-confidence to
understand this. It should be what the Third Way is about.
5. Social capital and egalitarian policies
Reflecting on the other excellent contributions to the debate, I believe
that the social capital approach to the economy provides the appropriate
guides for policy at just the point where most of them appear to have
stopped short in their specification of an economics of the Third Way. For
instance, I would argue that Stuart Whites focus on asset-based
egalitarianism and the empowerment of individuals in the market and Ruth
Listers stress on primary redistribution through employment, both
presuppose crucially important roles for the overall form of the nations
education system to equip individuals with the necessary human and social
capital. Both White and Vandenbrouke emphasise that contemporary
egalitarian philosophy places the informed and choosing individual at the
centre of its analysis of distributional justice. I would argue that it is
only through taking social capital seriously, and its radical implications
for a more genuinely egalitarian education system, that we can talk of a
society or economy of informed individuals. I would also argue that giving
a high priority to the creation and maintenance of social capital will
play an integral role in David Donalds New political economy of
citizenship.
By way of concluding considerations, I would like to concur fully with
David Donalds warning shot: that if the Third Way represents explicit
endorsement of a distinction between egalitarian ends and pragmatic,
market-friendly means, then the values which individual policies promote
must be carefully assessed to ensure that they do not actually run counter
to the primary beliefs and goals of the Left. A critical starting-point
for any such assessment, is that left-centre thinkers, policy-makers and
politicians must form their own understanding of what the market and
competition consists in; and on no account take it on trust that certain
vulgar right-wing formulations of the last fifteen years are in any way a
helpful guide. Here is a general and a specific example.
The notion that competition in the market place is one thing only and that
it is primarily about prices and cost-cutting is a nonsense. Competition
is also about quality, teamwork and innovation, all of which can and do
militate against cost-cutting and competing on price alone in many, many
areas of the economy- including all the most important ones for the
future productivity of the nation: the innovation of new knowledge-based
products and services.
This can be specifically exemplified in the question of policies for
reform of the nations education system. Thinking in government appears to
be in a dreadfully impoverished and poorly-informed state in this crucial
area, after a whole generation has passed in which the relevant department
of state has increasingly openly behaved as the enemy of the nations
teachers, a preposterous situation which requires urgent remedy. Indeed, a
number of otherwise astute participants in this Nexus debate have almost
unthinkingly and routinely mentioned Performance Related Pay (PRP) as part
of a list of measures which they broadly approve of in relation to
education. I would argue that this is a clear-cut example of the problem
David Donald refers to: where too indiscriminate enthusiasm for pragmatic
market-friendly policies, can do incalculable damage.
The issue of incentives through ever wider pay differentials throughout
the economy is, of course, one of the Holy Cows of 1980s Thatcherite
thinking and was the supposed legitimation accompanying the widening
inequality that it promoted. It is therefore curious, in itself, to find
contributors to this debate decrying that national trend while advocating
it for the teaching profession. PRP needs to be seen for precisely what it
is; and absolutely rejected. It is a nasty and misconceived attempt at a
cheap fix for the frightening recruitment problem which the state teaching
sector faces. For some reason, in a ghastly ironic inversion, the DfEE
seems to be the last bastion of crude Thatcherite economics and management
practice, while the business world and MBA courses have long since moved
on. PRP transmits all the wrong values, promoting fractal inequality
within a profession, breeding internal conflict between the few winners
and the many losers, and leading to divisive relations, rather than
collegiality within the staff-rooms.
Stuart White at the end of his piece correctly but rather vaguely talks of
the importance of a culture of learning. PRP is directly antithetical to
this, except on the most simplistic notion of what learning and education
is about. In brute logic a culture of learning cannot possibly happen in a
society which does not have genuine and profound respect for teachers and
their autonomy in the classroom. Such a culture will take about a decade
to bed-in, given the current level of destruction of such respect. It
cannot begin to be engendered until Ministers and their highest-profile
policy advisors completely repudiate the massive, rolling publicity
own-goal of teacher-vilification. This was a disgraceful, lazy and
irresponsible policy begun by the Tories as a cynically successful
smoke-screen to hide their lack of investment in a state education system
which they didnt care about- except as an irksome part of their tax bills-
because they didnt use it. There is no place for this discredited Tory
approach: its values are completely contradictory to any left-wing goals.
The mad momentum of statistically-worthless league tables and aggressively
critical Ofsted inspections producing in every town around the country a
couple of winners and a legion of demoralised losers has simply got to be
stopped. It is not pragmatic market-wise policy but an insane and
inappropriate extension of the wrong lessons of the market.
If those on the left go back to the market to draw their own lessons about
pragmatic policies, in place of the crude competition and payment by
incentive philosophy, they will actually find some useful tips (which are
related to the importance of social capital). For instance, the most
successful companies, from M&S to Amersham International, spend an
inordinate amount of time and money (yes, money) on what they call
corporate image. That equates to making their clients feel good but also
making their employees feel good about working for them, not necessarily
through pay but through conditions of work. Secondly, and related to this,
virtually all successful companies in the knowledge-related sectors of the
economy actively foster teamwork and value highly collegiality among their
workers- giving them the space and time and facilities to interact
informally and creatively with each other.
Education is the knowledge sector par excellence. If you ask teachers what
they would like from government policy, and what would solve the
recruitment crisis, money-incentives come way down their priorities,
behind conditions of work, a good common-room which facilitates collegial
interaction, the freedom and autonomy to be creative in the classroom, and
enough time to prepare lessons. In hard policy terms this is undoubtedly
an expensive option but we should be clear that it is not because teachers
want more pay (though they certainly deserve it after two decades of
salary erosion). Their requirements equate to more teachers per student,
as in the private sector, where the ratio of teachers to pupils is a cool
100% better than in state schools. This is another relevant lesson of the
market which New Labour and the DfEE have missed. After twenty years of
neglect, parents urgently want better resourced and more highly staffed
schools. When they have the money they opt to pay for it personally.
Labour is looking an electoral gift-horse in the mouth in failing to
provide this and to take the credit for it from a grateful electorate.
6.Conclusion
The social capital perspective diagnoses an ambitious levelling-up
education policy as the absolutely central issue for a new left-wing
political economy, a genuinely constructive Third Way. This is because it
simultaneously holds the key both to sustaining a productive economy in
todays competitive global context, so providing the necessary financial
means to fund re-distributive political goals, and also because it
provides the necessary basis for the practical pursuit of labours core
egalitarian and social justice commitments. It is a matter of putting real
substance and drive into the Prime Ministers own expressed intuition, that
education, education, education holds the key to New Labours future under
the Third Way.
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