Reinventing Collectivism:

The New Social Democracy 

Paper for The Third Way Conference

Centre for Applied Economic Research, the University of New South Wales 

Sydney, 12 July 2001

Mark Latham - Member for Werriwa

On every front, collectivism is in retreat.  With the fall of the Berlin Wall, the idea of state socialism is dead.  For many people, the triumph of the market economy has legitimised the ideals of economic self-interest.  Throughout the Western world, the traditional role of government is under question: the large, centralised bureaucracies of the welfare state appear to be out-of-step with an increasingly self-reliant electorate.  The public’s faith in the public sector is at an all-time low.

So too, we have entered an era of political disengagement.  The hierarchies of organised politics have generated enormous public distrust and dissatisfaction.  Indeed, it is difficult to think of a government policy that still fosters a strong sense of collective interest and collective responsibility.  We are losing the battle for public mutuality.

Not surprisingly, the foundations of community life are also weak.  Society is experiencing exclusion at the top as well as the bottom.  The trend towards walled housing estates and gated communities erodes social capital, no less than the exclusion of poor neighbourhoods.  There is a thing called society but unhappily, we are losing it.

This is the crisis of Left-of-Centre politics: the widespread decline in collective institutions and collective ideals.  Unless this crisis is addressed, our hopes for social democracy will hollow out.  We will become a cause for power, rather than a cause for a good society.  While from time to time we will still win elections, we will not know what to do with our electoral success.      

As a starting point, we need to face up to the uncomfortable truth.  Too often on our side of politics there is a tendency to pretend these problems away:

  • to pretend that the post-war welfare state is still a viable instrument for collective action

  • to pretend that economic markets can still be dragged into the orbit of government planning and control

  • to pretend that old industrial institutions, such as trade unionism and working class solidarity, are still in good shape

  • to pretend that the electorate still supports the concentration of political power at a parliamentary and party level.

Keynes famously remarked that when the evidence changed he was inclined to change his mind.  This is the challenge now confronting Left-of-Centre politics.  Globalisation and the information revolution are remaking our society and its economy.  A new politics is in motion, opening up new fault-lines and issues in the public arena.

We can either face up to this reality or be swept away by it.  Old agendas based on the politics of statism, unionism and class are fading away.  The challenge is to develop new strategies, to create the new policy tools by which we can reinvent collectivism. 

This does not require a loss of Labor values.  Our commitment to social cooperation and social justice is, in fact, timeless.  What is in dispute is the means by which these goals can be achieved.  This is an argument about policies and reform technique.  It is not a debate about Labor values and beliefs.   

Over the past decade, a group of social democrats have moved down the reinvention path. They have developed a distinctive political project, exploring the new institutions and forums of a collective society.  In the United States, Bill Clinton called it the Third Way. In Britain, Tony Blair has made it the work of New Labour.

Its ideas have been forged by think tanks such as the Progressive Policy Institute, the Institute for Public Policy Research and Demos.  Its thinking has been influenced by scholars such as Tony Giddens, Tom Bentley, Charlie Leadbeater, Amitai Etzioni and Robert Putnam.  I prefer to think of it as the new social democracy.

Unfortunately, a number of misconceptions have arisen concerning the nature and purpose of the project.  Some are likely to be aired at this conference.  It is often argued, for instance, that the Third Way is nothing more than a soft compromise between the role of government and the market.  This is, in fact, an old argument.  The notion that an open, competitive economy can coexist with the welfare state has been well accepted and practiced by social democratic parties for decades.

In this country, of course, it underpinned the reform program of the Hawke and Keating Governments and has now become part of our political orthodoxy.  Indeed, many of those voting for the first time at the Federal poll later this year were not even born when the Hawke Government was first elected.  They have grown up experiencing no other type of economic policy than free trade and deregulation.

The new social democracy involves much more than the management of an open, mixed economy.  It is an attempt to answer the core challenge of Information Age politics: is it still possible to practice the shared bonds and responsibilities of a good society?  Is collectivism still viable? 

The Third Way believes that it is.  It is a true believer in collective action.  But not through the centralised power of government bureaucracies.  Notions of economic planning, state control and class struggle are foreign to the new social democracy.  It aims to create a new type of collectivism, based on the following five principles:

1.     A new politics is required to meet the needs of an increasingly complex and fragmented society.  Political leaders need to foster partnerships and collaboration across economic and social boundaries, creating new communities of interest and common purpose.  We need to reconnect society.

2.     This is not likely to be achieved through the large bureaucracies of government.  There are now binding limits on the role of public sector, forcing social democrats to pursue new, non-state forms of collective action.  With the decline of state socialism, we need to embrace the virtues of civic socialism.

3.     The reconnection of society also needs to cross national boundaries.  This is why the Third Way sees globalisation as an opportunity, more than a threat.  Only by bringing people closer together, through the constant exchange of commodities, cultures and ideas, can we create a more cohesive and cooperative society.

4.     Economic change has other opportunities.  Capitalism has evolved into a mass system, with a wider spread of ownership, skills and entrepreneurship.  Social democrats need to take advantage of this process, creating a stakeholder society in which all citizens enjoy the benefits of financial capital, human capital and social capital.

5.     In the past, social democrats have relied on large, massified institutions (such as government departments, trade unions and political power) to achieve their goals.  In the Information Age, however, hierarchical institutions are losing support and relevance.  The new politics requires the dispersal of power: enabling citizens and communities to form new networks of mutual interest and mutual support.

The Politics of Reconnection

In a recent edition of the New Statesman magazine, Etzioni argued that:

The Third Way is not merely a potent recipe for gaining power; it is also a solid public philosophy.  True, it has a somewhat blurred margin – and thankfully it is far less detailed than a Soviet dogma or a Catholic doctrine.  But it has a clear core.  Part of that core is to make opponents who used to hobble each other into productive partners. (1)

This is a very perceptive point. The Third Way involves the politics of partnership and reconnection.  It offers social democrats a new way of thinking about political issues.  This is best demonstrated through a series of practical examples:

  • In schools policy, Left-wing politics has tried to achieve its goals through the creation of large education departments, while Right-wing politics has emphasised the need for individualised vouchers.  A Third Way solution is to encourage parents to run community or charter schools.

  • In the current school funding debate in Australia , the government sector has been pitted against the non-government sector, a situation in which schools are fighting schools.  A Third Way solution is to require the top non-government schools to assist struggling government schools – a mentoring plan that builds bridges and collaboration across the school sectors.

  • In the welfare debate, the Left has advocated large increases in government spending, while the Right has emphasised the need for personal motivation and responsibility.  A Third Way solution is to support the work of social entrepreneurs: innovative projects that create new social and economic partnerships in disadvantaged neighbourhoods. (2)

  • In the past, Left-wing politics has been hostile to the free market system, while the Right has strongly supported the profit motive.  The Third Way , by contrast, sees the reform of capitalism as an ethical question.  It wants the corporate sector to meet its proper social responsibilities, reconnecting global economics with local communities.

Finally, in the law and order debate, both sides of Australian politics have engaged in a bidding war for tougher sentencing laws.  Our State election campaigns have become a contest to build more prisons and to put more people in gaol.  A Third Way solution is to focus on rehabilitation and restorative justice programs, making offenders face up to the social consequences of their crimes. (3)

These diverse issues reflect a common Third Way methodology.  In each case, the objective is to create new connections and associations between people: to bring parents and teachers together in the management of neighbourhood schools; to create new networks of support between government and non-government schools; to foster new forms of collaboration and enterprise in disadvantaged communities; to close the gap between the corporate world and civil society; to give the justice system a social dimension, not just a legal framework.

This is what the Third Way is all about.  It aims to cross over institutional boundaries, to build relationships of trust and cooperation, to turn opponents into productive partners.  Throughout society, new information technologies are flattening hierarchies and opening up new partnership agendas.  People are now talking about the need for multi-disciplinary and cross-sectoral solutions.  The Information Age is an era for boundary crossing and networking. (4) Social democrats need to take advantage of this opportunity.  We need to become agents of reconnection.

The market economics of the Right and the government bureaucracies of the Left have weakened society’s connectedness.  They have not been effective forums for collective action.  For Right-wing politics, this is not much of an issue.  It has always believed in the supremacy of individual freedom and individual action.  For the Left, however, it is a huge problem. 

The post-war welfare state was a fine act of compassion, an attempt by governments to eliminate poverty and suffering.  For all its achievements, however, the welfare state has not been good at creating collectivism.  It has not fostered a feeling of mutual interest and support between people.  It has, in fact, delivered an individualised form of compassion.

Left-of-Centre politics has always regarded the state as a collective institution.  In practice, this has been a delusion.  Most of its work is directed at individuals, discharging rights and entitlements to citizens, rather than communities.  At the heart of the welfare state are transfer payments, paid directly from large departments to individuals.  In my experience, the relationship between Centrelink and its clients is one of open hostility, not mutuality.

Likewise, our health system is highly individualised.  Primary health care is discharged by doctors operating in isolation from each other.  Secondary care is based on the treatment of individual patients by large public hospitals.  The welfare state has wiped out the Friendly Societies and other mutual organisations that formed the basis of the Australian health system prior to World War II.

In education, it is difficult to find a practical expression of collectivism.  Our large State education departments have not been open to community involvement in the management of local schools. Through their lobby groups, schools are often positioned as fighting each other for public funding, rather than working together for public purposes.  This is the sickness of the State aid debate which unhappily, has now re-emerged as a poisonous force in Australian politics.

The same criticism can be made of the housing, transport and legal services of government.  In my electorate, I cannot find an example of government bureaucracies generating mutualism and social capital.  The welfare state has succeeded in the mass production of rights and entitlements.  It has failed, however, in its most important task: the creation of a collective society.  No less than the free market, it has practiced an ethos of individualism.

This is the curse of Left-of-Centre politics.  It has fostered social division instead of social cohesion.  Historically, the Left has followed the grand narrative of class struggle: the divisive politics of labour versus capital, workers versus bosses.  In recent decades, it has embraced a rights agenda, subdividing society into a collection of single identities based on the politics of race, gender and sexuality.  Far from creating social connectedness, this process has generated social resentment, especially among those groups excluded from positive discrimination programs.

The new social democracy deals with this problem by fundamentally reforming the role of government.  It positions the state as a facilitator of social partnerships.  In every area of public policy, the purpose of government must be to bring institutions and individuals closer together, to create the circumstances by which cooperation becomes possible.  We need to practice compassion of a collective kind.

The Third Way has adopted the following strategies to achieve this goal:

1.     Ensuring that the creation of social rights is accompanied by the exercise of social responsibilities.  Right-wing politics has used the responsibility agenda for punitive reasons, especially within the welfare system.  The Third Way , by contrast, emphasises the need for collective responsibility.  Rich people, poor people and everybody in between have a basic responsibility to assist each other and to put something back into the community.

2.     Using the allocation of government resources as a catalyst for partnership creation.  Only organisations that are willing to collaborate and draw in new partners should be eligible for public funding.  Society’s most entrenched problems require cross-sectoral solutions, harnessing the skills of the public, private and voluntary sectors.  The funding power of the state should be used to leverage organisations closer together.

3.     Fostering the collective effort of communities, whether defined by geography or shared interests.  In the past, government expected civil society to fit the bureaucratic mould of the welfare state.  Its new role is to identify and nurture successful community projects.  This is what we call the enabling state. (5)

The objective is to create a new kind of social solidarity, one that crosses economic and class boundaries, one that goes beyond personal identities and prejudices.  Piece by piece, we need to rebuild the values of a collective society.  Collectivism, of course, is a learned habit.  Unless people are given the space and opportunities to practice these habits – the habits of trust and cooperation – then our society will continue to fragment.  The new social democracy overcomes this problem through the politics of reconnection. 

The Limits of the State

The biggest story in late 20th century politics was the erosion of government power.  Each of the assumptions underpinning Left-of-Centre politics – Keynesian economics, central planning and mass welfare – was swept away by the pace of economic and social change.  On every front, the social democratic promise of interventionist government is under siege.  The state of the state is weak.

The increased mobility of capital has eroded the economic powers of the nation state, especially with respect to macroeconomic policy.  It is no longer possible for governments to spend and regulate their way to economic success.  Internationally, the need for economic competitiveness has weakened the public revenue base.  Footloose capital has forced governments to bid against each other for jobs and investment.  Whereas companies used to pay money to governments, the reverse is now true.

These fiscal limits have restricted the size of the public sector.  Policy makers now face the dilemma of overloaded government: so many funding demands on the welfare state, yet so few funding sources in the globalised economy. (6) At the next Federal election, for instance, the ALP is committed to spending less and taxing less than the Howard Government.  At the bottom line, we stand for a smaller public sector. (7) The era of tax and spend politics has ended.

For Labor Parties around the world, the biggest question is how we can reform the welfare state so that it can deliver social justice within the budgetary constraints imposed by membership of the global economy.  This requires a different approach to public policy.  Increasingly, our side of politics needs to look to non-state and even non-parliamentary means to satisfy its goals.  This is what the Third Way aims to achieve, to liberate Labor from the limits of the state.

The new social democracy is deeply sceptical about the traditional role of government.  It looks beyond the pillars of the old politics - state intervention and market forces - for new forms of collectivism and social justice.  This is what makes it such a radical notion: that Left-of-Centre politics can achieve its goals without following the statist road.

This approach uses civil society as the primary agent of social democratic reform.  It regards social capital as the number one issue in public life.  It sees social poverty, the loss of the fraternity between people, as no less important than financial poverty.  With the decline of traditional institutions, society has entered a period of moral confusion.  People are longing to belong, to rediscover the shared values and trust of a good society.  They want to focus on questions of community and morality, not just economic policy. 

The old ideologies positioned politics as a struggle for ownership, the historic battle between socialism and capitalism.  The Third Way , by contrast, sees politics as an exercise in communitarianism: rebuilding the relationships and social capital between people.  It aims to put the social back into social justice.  This is an important strategy for combating individualism and generating a sense of collective responsibility in society.  These things do not have to be done by government alone.  There is a public sector beyond the role of the state.  It lies in the collective work of communities.

Ultimately, the choice between government services and market forces is fundamentally flawed.  It neglects the space in the middle where people come together in voluntary and community action.  It ignores the mutual interests and associations that make up civil society.  The neglect of this vital middle ground has led to serious problems, such as youth alienation, street crime, family breakdown and social isolation.  Decades of celebrating personal freedom have weakened the bonds of community and the ideals of collective action.

The new social democracy aims to address these issues through a new form of governance.  It is not possible to create social capital unless people have things to do in common.  This means winding back the dominance of states and markets and creating the space within which civil society can thrive.  While, to some extent, this reflects a work in progress, a number of distinctive themes have emerged.  The Third Way relies on 10 strategies for community building:

1.     Instead of controlling and directing the delivery of services, government should play the role of a facilitator or enabler.  It needs to act as a junior partner to community effort.  

2.     Service provision needs to be devolved to a community level.  When we talk of the public sector we need to talk of charter schools, adult education programs, community housing associations and social cooperatives, rather than government departments.

3.     Public policy needs to prevent the incursion of market forces into civil society, especially within the domain of sport, voluntary associations and family life.  There is not a market solution for every social problem. (8)

4.     The corporate sector also needs to act with a stronger sense of social responsibility.  In the past, government pursued the financial regulation of capitalism.  It now needs to improve the ethics and morality of market behaviour.

5.     More generally, social rights need to be matched by social responsibilities.  So far, Australia has only dealt with a small part of this agenda.  Mutual responsibility needs to be extended into the education, health and housing sectors.

6.     As noted earlier, our serious social problems require a cross-sectoral approach – harnessing the creativity and resources of the public, private and third sectors.  Social partnerships are essential to the creation of social capital.

7.     Governments also need to harness the work of social entrepreneurs, the emerging band of community brokers who combine the best of social and business practice.  Social entrepreneurialism involves the use of social capital to generate human and financial capital.  It is finding fresh solutions to the curse of long-term poverty.

8.     The yearning to belong in society extends well into the domain of democratic governance.  Most people value the process of participation no less than the political outcomes it produces.  Politics needs to open up many more avenues for meaningful participation and moral dialogue.  In particular, it needs to develop new forums for deliberative and direct democracy. (9)

9.     Lifelong learning is also vital to the creation of social capital.  It teaches people the habits of tolerance and cooperation: how to understand the needs and interests of others, how to cross social boundaries and place their trust in strangers.  In short, a learning society is a good society. (10)

10. As part of their education investments, governments need to provide improved public access to information technology.  The Internet, for instance, allows housebound and other isolated people to create new social contacts and networks.  The information revolution needs to work for the benefit of society, not just its economy.

These strategies are crucial to the quality of our society.  They reposition Left-of-Centre politics as an exercise in civic socialism.  Most importantly, they offer fresh hope for winning the war against poverty, in both its old and new manifestations. 

Across all demographic, geographic and income groups, Australia is experiencing a new type of poverty, the poverty in human relationships.  This is one of the paradoxes of our time: the growing number of people who are materially well-off, yet socially poor.  No matter the size of someone’s bank account, if they cannot walk the streets with a sense of safety, enjoy public places and share community spaces then they lack the essence of social capital.  None of us can live by financial capital alone.

The Third Way is particularly important for poor neighbourhoods.  Part of the failure of the old politics lies in its disconnection from disadvantaged communities.  The chief demand in poor areas is not for more state intervention or market forces.  It is to normalise the neighbourhood – to give people a sense of security and common purpose, to build the connections of a trusting community.

All the evidence shows that when people have a high level of social capital and self-esteem they are more likely to make good use of the material gifts of government: training programs and social welfare. (11) The success of the welfare state relies heavily on the success of civil society.  Without trust and social cohesion there can be no end to the poverty cycle.

Traditionally poverty has been defined in terms of economic capital.  The first and most important step in dealing with financial deprivation, however, concerns the creation of social capital.  This reality must be at the core of all our efforts and strategies for ending exclusion.  Social justice has become synonymous with social capital.

The Growth of Globalisation

Internationalism was once an important theme for Left-of-Centre politics.  It was said that the working people of the world needed to work together to end the exploitation of labour.  The current campaign against globalisation, however, reflects a feeling of ultra-nationalism within elements of the Left.  The new social democracy aims to restore the primacy of internationalism to our economic and social policies.

Globalisation and the Information Age are tailor made for a new era of progressive politics.  The knowledge economy has freed the labour force from the heavy machines and degrading work of industrial capitalism.  Highly skilled workers have a strong economic bargaining position.  In effect, they now have ownership of their surplus value.  The purpose of social democracy must be to deliver these opportunities to all workers, to give everyone a stake in the new economy. 

Globalisation has also delivered benefits to the Third World .  Over the past 30 years, trade liberalisation has generated the greatest poverty reduction program in the history of humankind.  The embrace of economic openness and export production in East Asia has lifted 150 million men, women and children out of abject poverty. 

The social benefits of internationalism are also strong.  Only by bringing people closer together, through advanced communications and the crossing of cultural boundaries, can we create a more tolerant and cooperative society.  Imagine the good that comes from millions of school students from different countries communicating and working together on the Internet each day.  Globalisation of this kind is the natural enemy of bigotry.  It is the future for our side of politics.

The challenge for modern citizenship is to cross the boundaries of prejudice and parochialism.  Our loyalties to the local, the regional and the national now need to coexist with the ideals of good international citizenship.  So too, the identities of modern life – racial, gender and sexual characteristics – need to sit easily together, without prejudice.

The problem with economic nationalism is that it promotes a narrow, inward-looking kind of citizenship.  Tariffs and other forms of protection are the economic equivalent of racism.  They encourage Australians to think poorly of people from other countries and to believe that we would be better off isolated from the rest of the world.  If the Labor movement is willing to discriminate against other nations on economic grounds then what credibility do we have in arguing against social discrimination?     

Protectionism is not a viable option.  No nation has ever prospered by aiming at economic self-sufficiency.  No society has ever advanced its culture through an ethos of isolationism.  No community has ever become more capable by locking itself away from the new frontiers of technology.  Just as much, no political movement can succeed in the coming century by turning its back on the possibilities of internationalism.

This is not to suggest, of course, that globalisation is perfect or that the role of government is irrelevant.  Globalisation is not an outcome.  It is a process, full of threats as well as opportunities.  Its impact depends on how well nations respond to this reality.  In a world of constant change and uncertainty, the role of public policy is all-important.  New strategies and policies are needed to maximise the benefits of globalisation.

Our first priority must be to strengthen the role of international economic governance.  If nations are to successfully regulate global capital then they need to cooperate in global forums.  The European Union offers a good example of this process.  The integration of political power is a logical response to the global integration of economic power.  This is why the Third Way takes an internationalist stance.

At an inter-governmental level, the work of the WTO and the ILO needs to be more effectively linked.  It is absurd, for instance, that the WTO bans imports made by prison labour, but not those produced by slave labour or child labour.  The IMF and World Bank also have a role to play in lifting labour and social standards in developing nations.  It is possible for free trade to coexist with civilised corporate behaviour.

A second strategy involves the development of a learning society.  Whereas nations once relied on machine and muscle power to generate wealth and prosperity, they must now harness the brainpower of their people.  Across the economy, production is becoming less resource-intensive and more knowledge-intensive.  A small country like Australia can only succeed in the global chase for capital through the creation of a well-educated population and workforce.

This is also the best way of rebuilding social capital.  As a nation, we do not have to choose between the values of community and the economics of capitalism.  A highly skilled population can enjoy the benefits of both.  Education is a unique public investment.  It not only generates a more efficient economy, it creates a more cohesive and trusting society. (12) 

Talking about the benefits of education is one thing.  Knowing how to deliver lifelong learning is a different matter altogether.  It is tempting for Left-of-Centre parties to apply the old politics of statism to the needs of the new economy.  This is a recipe for failure.  A narrow reliance on public funding will not satisfy the resource demands of a learning society.  So too, traditional industry policies are ill-suited to the dynamic nature of the modern economy.

Lifelong learning is an expensive exercise, especially once it becomes universally available.  This task is beyond the financial limits of the state.  It can only be achieved through the development of learning partnerships across society - mobilising extra resources from households, communities and corporations, as well as governments.  Education needs to be the work of the nation, not just a handful of government departments.  This approach is set out in my book What Did You Learn Today (2001).  It is a Third Way program for Australia ’s transition to a learning society.  

New thinking is also needed in terms of economic policy.  In the past, social democrats tried to plan, regulate and subsidise the development of industry sectors.  In the new economy, this approach is likely to be counter-productive.  It is a barrier to inventiveness and the open transfer of knowledge and technology.  Public policy needs to shift to the supply side, to generating the right kind of economic inputs.  This approach places a heavy emphasis on skills development, research scholarships and competitive market structures. (13)

The problem with the “spaghetti and meatballs” in Barry Jones’s Knowledge Nation Report is not that the diagram is over-ambitious or silly.  Rather, it accurately reflects the complexity of the new economy: the dense interaction between a large number of public institutions, corporations, educators and researchers.  It is foolish, however, to think that government can control and plan for this kind of complexity.  The new economy has made industry policy redundant. (14)

Paul Keating once told the Labor Caucus a story from his early days in Canberra .  Over dinner a group of Labor Senators would sit around drawing up five-year plans for the Australian manufacturing sector.  Keating thought to himself, “these old blokes have enough trouble filling out their TA forms, how could they possibly know where the private sector is headed?”

If the task of industry planning and picking winners was difficult in the old economy, it has become insoluble in the new.  How can slow moving government bureaucracies make provision for technologies that have not yet been invented, for jobs that have not yet been conceived?  How can politicians second-guess the complex knowledge and decision making of a dynamic market economy?  Those who still believe in this approach are deluding themselves.

More than most, Jones should be aware this problem.  In his 1982 book, Sleepers Wake, he tried to pick the industries that would experience “future work expansion.” (15) He forecast how “the greatest hope for future employment opportunities lies in work which is not based on a new invention or technological form.”  On this basis, his predictions excluded the software sector, financial services and telecommunications – all areas of substantial employment growth over the past 20 years.

By today’s standards, most of the industries on Jones’s list are insignificant.  Others have actually experienced a loss of employment.  His list included public sector employment, solar energy, craftwork, subsistence farming, nature-related work, the development and care of footpath networks, the collection of antiques and the provision of drink, drugs and commercial sex.  Obviously, it is easier to Pick-A-Box than Pick-An-Industry-Winner.

The great challenge of globalisation is to make it work for all citizens, to disperse its benefits as widely as possible.  International economic governance and lifelong learning are essential to this task.  I am incredibly optimistic about the things that can be achieved on our side of politics, once we modernise our thinking and policies. 

I can never understand why so many on the Left are so pessimistic.  Their only purpose in public life is the promise of a better past.  They are more interested in the history of the 1980s than the possibilities of the Information Age.  Ultimately, this is why the Third Way matters.  It believes in a new era of progressive politics and most importantly, it knows how to get there.

The Rise of Mass Capitalism

Perhaps the greatest shortcoming of Left-of-Centre politics has been its failure to recognise the dynamic nature of the capitalist system.  Most Left economists write about the market as if nothing has changed for 200 years.  This is one of the reasons why social democracy has so many sacred cows.  Outdated economic theories have been used to justify outdated economic policies.

At one level, it is not difficult to understand this problem.  On our side of politics most of us grew up with the stereotype of "robber baron" capitalism: the image of greedy industrialists exploiting workers and consumers at every opportunity.  It was part of our social justice identikit.  This view of the market continues to inform the values and policies of many on the Left.  It is a feature, for instance, of the militant campaign against globalisation.

In reality, however, capitalism is in a constant state of evolution.  In Schumpeter's famous phrase, markets constitute a perpetual exercise in "creative destruction".  This not only involves the destruction of old products and industries, it involves the creation of new economic and social conditions.

Across two centuries, the capitalist system has passed through several stages of development: from its robber baron origins to the rise of the public company and more recently, the emergence of a knowledge-based economy.  This has been one of the great transformations of economic history.  It has produced what might be thought of as "mass capitalism" - a system in which ownership and economic capacity have been dispersed across a wider share of society.  This can be seen in the following trends:

  • the emergence of mass capital ownership, with a larger proportion of people owning shares and other market investments (over the past decade, for instance, share ownership in Australia has increased from 10 to 54 per cent)  

  • the growth of intellectual capitalists – the high skill, high wage workers of the new economy – who often have greater labour market bargaining power than the owners of investment capital

  • the extraordinary increase in the number of people going into business for themselves (the number of small businesses in Australia has increased from 180,000 to 950,000 over the past 30 years)

  • a significant increase in market competition, not just through the new economy but also, a growing number of market entrants and competitors in old industries (16)

  • the rise of mass consumerism, whereby a large section of society now enjoys the benefits of choice and consumer sovereignty

  • and finally, the increased exposure of corporations to public scrutiny, producing higher expectations for the social responsibilities and accountability of the private sector.

This transformation represents a huge challenge for social democratic thinking.  There was a time, of course, when Left-of-Centre politics was dedicated to the elimination of capital.  Now, with the emergence of mass capitalism, we have an opportunity to use the economic system for egalitarian purposes.  Just as capitalism has changed, our strategies for social justice must also change. 

Russell Long, a Democrat Senator from Louisiana , once declared that, “the only problem with capitalism is that there are not enough capitalists.”  This is the stance social democrats should adopt in relation to the new economy.  Our objective should be to democratise the market by further dispersing the ownership of assets.  The question is not whether to support economic markets, but to ensure that all citizens have the capacity to succeed within them.  We need to create a society of stakeholders.  

While up to 60 per cent of the population is participating in the benefits of mass capitalism, a large number of people remain outside the ownership tent.  Without a tangible stake in the new economy, they feel threatened by the prospect of economic restructuring and exclusion.  The purpose of welfare policy should be to increase the number of stakeholders.  Sixty per cent is not enough.  We need to aim at universal participation, giving all Australians access to a range of assets: financial capital, human capital and social capital.

Internationally, this approach is known as asset-based welfare reform.  It recognises the need to move from a system of recurrent income transfers to one based on asset accumulation.  Unfortunately, this new wave of welfare policy has not touched the Australian debate.  We have much to learn from asset-based programs in the United States and Western Europe . (17)

In the old system, social democrats tried to redistribute economic resources through tax and spend strategies.  As noted earlier, there are now clear limits to this approach.  In any case, recurrent transfers are not a good way of generating economic and social participation.  Instead of fostering self-reliance and economic security, they force people to rely on the benevolence of government. 

People need a tangible stake in society and its economy.  In effect, they need to be freed from the vagaries of the welfare state.  For those facing insecurity, assets are an essential buffer against the contingencies of change.  They allow people to smooth out their income capacity and economic circumstances.  In particular, they allow workers to bounce back from the impact of restructuring, thereby avoiding the poverty trap.

Asset accumulation is also vital for the long term poor.  One of the mistakes of the Left has been to under-estimate the capacity of disadvantaged people to save.  Programs overseas, for instance, have shown that the poor can save and invest, once they receive the right kind of incentives. (18) This process, in turn, creates spin-off benefits in terms of self-esteem, health care and employment.  Assets are essential to a common sense of belonging in society.

The only way to leave poverty on a permanent basis is to save and accumulate assets, whether in the form of financial, education or social resources.  Incredibly, the welfare state has emphasised recurrent income transfers rather than assets.  Rich people, of course, have no problem with the question of asset accumulation.  Family inheritances pass on the benefits of financial capital and a good education from one generation to the next.  The welfare state needs to provide a similar set of opportunities for the poor.

In the past, public policy has encouraged a limited range of financial assets, such as home ownership and superannuation.  These schemes, however, have been available to everyone bar the poor.  It seems surreal that the Left has tolerated such a massive inequity.  It has been happy to pay income support to the underclass and asset support to the middle class.  Indeed, means tested payments have actively discouraged asset accumulation: if welfare recipients save more than a small amount they become ineligible for income support.

Not surprisingly, these arrangements have made the poor welfare dependant and the rich asset dependant.  Inequality has been institutionalised in society.  The true Left-wing policy is to give low-income earners equal access to asset support.  The best type of welfare safety net is a trampoline.

The new role for government is to facilitate asset accumulation among the victims of poverty and economic insecurity.  It needs to develop a stakeholder welfare state, in which all citizens have access to the benefits of mass capitalism.  This is one of the basics of an inclusive society: common membership of the new economy and with it, a common sense of social membership. 

In summary, stakeholder welfare aims to:

  • Disperse the ownership of economic assets, especially through participation on the stock market. The Federal Government, for instance, should introduce a First Shareowners Scheme to strengthen Australia ’s credentials as a share-owning democracy, especially among low-income groups. (19)

  • Establish a network of welfare savings accounts, with strong incentives for poor people to put money aside and accumulate assets.  The accounts would be available for a range of purposes, such as education, home ownership and equity investment. (20)

  • Create a highly skilled and capable population.  This means ensuring that people have access to a bank of resources from which they can meet the costs of lifelong learning.  A proposal for Lifelong Learning Accounts is set out in What Did You Learn Today. (21)

  • Develop new and innovative ways of creating social capital in disadvantaged communities.  Governments need to back the work of social entrepreneurs and allow them to access new forms of finance, such as social venture capital. (22)

On balance, the rise of mass capitalism is an opportunity for social justice.  This is not to suggest, however, that the market economy is beyond question or critique.  The primary flaw in modern capitalism is its lack of social responsibility.  As investment continues to move to the global arena, it bears less allegiance to particular locations.  The connection between business interests and community interests has been stretched, sometimes to breaking point.  The process of economic restructuring has left many traditional institutions and communities confused about their relationship with the private sector.

The new social democracy aims to apply the principles of mutual responsibility to the market economy.  In recent decades, corporations have won many more rights, particularly the right to trade and invest on a global scale.  These rights need to be matched by the exercise of social responsibility.  The traditional emphasis on the economic regulation of capital needs to be supplemented by new forms of moral regulation.

The Productivity Commission, for instance, has reported that Australian governments outlay $18 billion each year in corporate welfare. (23) This financial assistance should only be paid to companies that comply with a Code of Corporate Citizenship, based on decent labour, environmental and social standards.  If the global economy is to work properly, it needs to be founded on the responsibilities of the privileged, not just the poor.  The reform of capitalism has become an ethical question.

The Dispersal of Power

In the Industrial Age, social democracy embraced the politics of bigness.  It was thought that large, centralised institutions were needed to stand between the public and the prospect of market failure.  Our side of politics became synonymous with big government departments, big trade unions and big protest groups.  We tried to create collectivism on a mass scale.

In retrospect, this was a mistake.  Bureaucratic organisations are more likely to destroy social capital than to create it.  The mass production of services inevitably leads to the depersonalisation of service delivery.  Big companies and big government share a common methodology.  They rely on standardised rules to deliver a standardised product to a large number of individual clients.  This process leaves little room for the development of personal relationships, the mutualism and cooperation upon which a good society relies.  It is not a good way of creating collectivism.

In practice, there is no such thing as a large scale community.  Every community is different, based on a unique set of relationships and experiences.  The social capital generated in one setting cannot be transferred to another.  While the private sector has mastered the art of franchising and the public sector is experienced in the mass delivery of income support, the same cannot be said for community life.  It can never be standardised. 

Questions of scale and organisation have produced a deep paradox within Left-wing politics.  It demonises global capital as distant and depersonalised yet it turns a blind eye to the failings of government bureaucracy.  It criticises McDonalds yet congratulates Centrelink.  In a world of rapid organisational change, the Left desperately needs a new organisational strategy.  The politics of bigness will no longer suffice.

One of the characteristics of Information Age politics is a growing sense of self-reliance.  With the spread of mass information and education, the public wants to make more of its own judgements, to take greater control of the decision making process.  Across society, institutions that tell people what to do are losing support.  This is true of all forms of hierarchy, whether expressed through government agencies, political parties, trade unions or churches.  We have entered an era of institutional rebellion.

Left-wing politics is the most prominent victim of this process.  Each of our major institutions is in crisis.  Trade union membership in Australia , for instance, has fallen to below 25 per cent of the workforce.  The union movement has been crippled by an organisational contradiction: while economic activity has become more decentralised, it has gone down the path of amalgamations and centralised super-unions.  This is one of the most ill-advised strategies in the history of Australian labour.

Likewise, the old politics of statism is in decline.  Contrary to the promise of the welfare state, there is not a government program for every social problem.  Indeed, it is difficult to find a section of society that remains enthusiastic about the work of government.  At one level, these shortcomings are entirely predictable.  The state has adopted the organisational principles of the Industrial Age: hierarchies, mass production and standardisation.  It is out of step with the demands of an increasingly diverse and self-reliant electorate. 

The concept of working class solidarity has also lost its significance.  In an open economy and diverse society, people are more mobile.  They want to share in the skills and enterprise of the new economy.  The fixed boundaries of class and social distinction are fading away.  Not surprisingly, this environment has created a new set of political values.  People are less willing to cut down tall poppies, as they see themselves as occupying this position one day.  Aspirational politics is here to stay.

This is a significant challenge for social democracy.  More than ever, when we talk about ripping down the rich and redistributing wealth, we are talking to ourselves.  The public has no time for the politics of envy.  It wants its political leaders to encourage opportunity and social mobility, while also building a stronger sense of common purpose and cooperation in society.  In summary, it supports a new politics of common aspiration.

While, to be certain, these changes are wiping out the old politics, they are also creating new opportunities.  Collectivism is not dead.  It has just changed its organisational structure and values.  Instead of supporting large, centralised institutions, the public is in search of meaningful participation, a chance to cut out the middleman and engage in acts of self-governance.  Instead of positioning public life as a divisive contest between Left and Right, the electorate wants a new politics of partnership and collaboration.

The Third Way hopes to make the most of these opportunities. Institutional power needs to be pushed downwards, so that a self-reliant public can make more of its own decisions at a community or neighbourhood level.  People are longing to belong to something more inclusive than markets and states.  Community schools, municipal libraries, health mutuals, sporting clubs and cooperatives have become the natural agents of collectivism. 

In the age of globalisation, the politics of neighbourhood matters more, not less.  If people are to cross boundaries and reconcile the conflicting loyalties of a complex world, they need to first learn the habits of community and self-governance.  It is in this civic realm that the foundations of social capital can be found.  Civic socialism is our best hope for accommodating the diversity of modern society while also recapturing the shared bonds of a collective society.  Etzioni calls it a “community of communities.” 

In the struggle to create the welfare state, Left-wing politics became obsessed with the size of government.  Statism was seen as an end in itself, rather than merely the means to a better society.  As a result, the processes of governance, the interactions between people and institutions, were overlooked.  Yet in practice, it is these relationships that define our society.  They tell us about the level of mutual trust and cooperation between people, about the way in which society is acting on its common aspirations.

The new social democracy is more interested in the processes of governance than the size of government.  This is why it seeks to empower the networks of civil society, rather than the hierarchies of the state.  There is, of course, no rulebook for this approach.  There is no set of bureaucratic guidelines for the creation of civic associations and interests.  Rather, this process relies on the dispersal of social power: opening up the relationships and forums in which civil society can flourish.   

Hierarchies and bureaucracies are the antithesis of community life.  The objective must be to weaken the influence of centralised organisations and small elites.  Effective power needs to shift to a network of small scale associations, each supported by the funding and regulatory role of government.  The enabling state is an active yet junior partner to communities.     

This approach is also essential for social justice.  Hierarchy allows power and privilege to be concentrated among the few.  A network society disperses economic, social and political power to the many.  The new political divide is between insiders and outsiders – those who occupy the centres of authority and influence in society and those who have been disenfranchised by the power elite. 

The Third Way is a political cause for outsiders.  It aims to democratise power and spread the benefits of ownership as widely as possible.  It is against centralisation of any kind, whether in the form of corporate power, super-unions, big government or an out-of-touch political system.  This approach is evident in all aspects of its work program:

  • the devolution of economic power through a system of stakeholder welfare

  • the importance of competition policy as a way of dispersing market power and economic privileges

  • the devolution of social power through a community-led approach to public policy

  • and the dispersal of political power through new forums of public participation and direct democracy.

The choice for Left-of-Centre politics is clear.  Across society and its economy, the Information Age is flattening hierarchies and weakening the established centres of power.  We need to replicate this process in the reform of public governance.  We need to swim with the tide of devolution. 

We also need to right an historic wrong.  We have called ourselves social democrats but, in many respects, we have failed to live up to this title.  In fact, post-war social democracy has been a misnomer.  It has not tried to democratise power and disperse the benefits of mass capitalism.  It has simply vested more control and influence in the hierarchies of the state.  This has fostered a culture of authoritarianism and even elitism among parties of the Left.

The Third Way , by contrast, is committed to a truly democratic society - not by concentrating power in states or markets but by creating social capital through the decentralisation of power.  It wants every citizen and community to be an active stakeholder in the assets of a good society.  It envisages a community of communities, held together by the most important asset of all: the shared habits of collective action.


In its current form, Left-of-Centre politics is insoluble.  It sees the state as an agent for collectivism yet, in practice, the delivery of government services has been individualised.  It talks about the need for more public investment yet, for electoral reasons, it is unwilling to broaden the public revenue base.  It hopes to intervene and develop industry plans yet, in the new economy, planning has become impossible.  In most countries, our side of politics feels somewhat empty.  The true believers have precious little to believe in.

We have set ourselves the task of varying by two or three per cent the way in which government works, when the real challenge is to change by 10 to 20 per cent the way in which society functions.  Social democracy needs to free itself from the limits of the state, to rediscover its ambition for social reform.  This is why there is so much debate about a Third Way .  Those who truly believe in the cause of Labor are not prepared to ignore its policy contradictions.  The project needs to be rethought from first principles.

During a time of rapid change, it is not unusual for organisations to define themselves in the negative – to know the things that they oppose but not the things that they favour.  This is how the Left now defines itself.  Ask a union leader or S11 protestor what they oppose and the list never ends: globalisation, workplace change, enterprise bargaining, share ownership, welfare reform, non-government schools, aspirational politics and so forth.  The strongest movement on our side of politics over the past decade has been the rise of Left conservatism.

The new social democracy is a direct response to this trend.  As it confronts change, it looks for opportunities rather than threats.  At its core, it is optimistic and iconoclastic.  It also has a distinctive technique.  The Third Way is willing to live on the edge of politics, to look beyond the orthodoxy for new paradigms of reform.  It has developed a radical pragmatism, a determination to learn from social practitioners in the search for new forms of collectivism.   

In the Information Age, the best approach to reform comes from the fringe of the system, rather than the hierarchies and power plays of conventional politics.  There is more to be learned from listening to social and business entrepreneurs than any number of parliamentary sessions, party meetings and interest groups.  Entrepreneurs talk a language of change, creativity and enablement.  Machine politics, by contrast, has narrowed its conversation to an exchange of slogans, spin and electoral manipulation.  This is why the old politics is dying. 

As Tom Bentley puts it: 

Today’s politicians are trapped in a contest between two inherently limited models of policy delivery.  The Left offers the promise of strong public services, developed and managed by a strong political centre, using new technology to individualise the services each citizen draws upon.  The Right, meanwhile, continues to offer the chimera of a minimal state, with social need met by private action.  The striking fact is that both models continue with the myth that government can deliver on behalf of the people it serves.  The truth, of course, is that politics cannot change society unless it can persuade people to change the way they themselves behave.  In other words, we must now move towards grown-up government - institutions which respect the intelligence and self-determination of individuals, but which expect people to take active responsibility for producing collective solutions. (24)

If this is the Third Way then it should be our way.


  1. Amitai Etzioni, “The Third Way is a Triumph”, New Statesman, 25 June 2001 , page 25.
  2. See Charles Leadbeater, The Rise of the Social Entrepreneur, (Demos, London, 1997), plus the Community Action Network website:
  3. Terry O’Connell and James Ritchie, “Restorative Justice and Civil Society”, Paper to the Reshaping Australian Institutions Conference, ANU, 16-18 February 1999.
  4. For further information on networking, see Mark Latham, What Did You Learn Today, (Allen and Unwin, Sydney , 2001), pages 62-71.
  5. Peter Botsman and Mark Latham (eds.), The Enabling State, (Pluto Press, Sydney , 2001).
  6. The size of government has grown substantially over the past 30 years.  The last budget of the Howard Government, for instance, was 50 percent larger than the last budget of the Whitlam Government (measured in real per capita terms).  Obviously, this rate of growth cannot continue indefinitely.  A globalised economy places binding limits on the state’s revenue base.  At the same time, however, the demand for government spending has increased.  Governments are now expected to fund everything from drought relief for farmers to child care for working families to tax relief for self-funded retirees.  This is the dilemma of overloaded government.  For further analysis, see Mark Latham, Civilising Global Capital, (Allen and Unwin, Sydney, 1998), pages 31-36 and 163-67.
  7. Interview with Shadow Treasurer Simon Crean in The Australian, 7 April 2001 , pages 1, 6 and 23.
  8. Mark Latham, “Hands off sport: it belongs to the people”, The Australian Financial Review, 13 December 1999 , page 17.
  9. See Amitai Etzioni, The New Golden Rule, (Basic Books, New York, 1996) and Dick Morris,, (Renaissance Books, Los Angeles, 1999).  Currently, I am running a direct democracy trial in the seat of Werriwa on the following website:
  10. Mark Latham, What Did You Learn Today.
  11. Amitai Etzioni, The Third Way to a Good Society, (Demos, London , 2000), pages 16-17.
  12. Mark Latham, What Did You Learn Today, pages 15-19.
  13. My thinking on industry policy has been strongly influenced by a meeting in 1999 with Paul Romer, the founder of new growth theory economics.  See Paul Romer, “Beyond Classical and Keynesian Macroeconomic Policy”, Policy Options, Volume 15, July-August 1994.
  14. For an excellent critique of industry policy, see David Uren, “Market demand, not science, drives innovation”, The Australian, 7 July 2001 , page 50.
  15. Barry Jones, Sleepers Wake, (Oxford University Press, Melbourne, 1982), pages 239-40.
  16. For an analysis of global market competition, see Pankaj Ghernawat and Fariborz Ghadar, “The Dubious Logic of Global Megamergers”, Harvard Business Review, July 2000, pages 65-74.
  17. The seminal text on asset-based welfare is Michael Sherraden, Assets and the Poor, (M.E. Sharpe, New York, 1991).
  18. Michael Sherraden and Robert Friedman, “Asset-based policy in the United States ”, in Sue Regan and Will Paxton (eds.), Asset-Based Welfare: International Experiences, (Institute for Public Policy Research, London , 2001), pages 6-34.
  19. Mark Latham, “Stakeholder Welfare”, Quadrant, March 2001, pages 14-21. 
  20. In the United States, these are known as matched savings accounts, whereby every dollar saved is matched by a savings bonus.  See Savings and Asset Accumulation in Individual Development Accounts, Report by the Centre for Social Development, St Louis , February 2001.
  21. Mark Latham, What Did You Learn Today, pages 28-32.
  22. A proposal for Social Venture Capital Funds is set out in Mark Latham, The Myths of the Welfare State, (Occasional Paper, Institute of Public Administration Australia , Melbourne , 2001).
  23. Draft Report of the Industry Commission, State, Territory and Local Government Assistance to Industry, AGPS, Canberra , July 1996.
  24. Tom Bentley, It’s Democracy, Stupid – An Agenda for Self-Government, (Demos, London , 2001), pages 6-7.