After the Third Way: the return of the state

The intellectual influences of the modern left

Keynesian economics, de-growth, critiques of meritocracy, green industrial planning - the ideas informing left politics today are quite an amalgam. But one central thread seems to be connecting them all: state power has the solutions. As Labour’ conference comes to a close, former Tony Blair speechwriter Philip Collins reflects on the intellectual shifts on the left.

Has the left run out of ideas? Since the marriage of free market economics with social liberalism collapsed, first under the weight of governing and then in the 2008 crash, parties of the left have struggled. The share of the vote taken by social democratic parties fell from 30% in 2008 to just above 20% in 2023. There are some notable exceptions. Joe Biden defeated Donald Trump in the United States’ 2020 presidential election. A year later, Olaf Scholz became Chancellor of Germany. In 2021, Anthony Albanese’s Labor Party triumphed in Australia. Next year, Keir Starmer’s Labour Party looks certain to win the UK’s general election. Together, these parties may be the source of electoral renewal for the centre-left. But where are their ideas coming from?


While not a full return to the demand-side approach of Keynesian economics, this new interventionist approach does include a bigger role for the state.


Joe Biden’s victory in 2020 might have heralded the return of an old consensus. But the consensus his advisers turn to for inspiration is very old indeed. Today in Washington, the new is old. Joe Biden’s economic advisors speak of “moving the pendulum back” before Reagan. Jared Bernstein, chair of Biden’s Council of Economic Advisers, has long envisioned building an economy from the “bottom up and the middle out”, a rejoinder to the trickle-down approach of the post-Reagan years.[1] Brian Deese, another (now former) Biden insider is more explicit, citing the “importance of Keynes” to what has become dubbed “Bidenomics”.[2] While not a full return to the demand-side approach of Keynesian economics, this new interventionist approach does include a bigger role for the state, with investments in infrastructure, social security and healthcare. It’s a sort of Keynes plus Eisenhower.

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In the summer, Labour’s Shadow Chancellor Rachel Reeves was in Washington to outline what she calls “securonomics”, her own answer to the Biden plan[3] In a speech, Reeves said we “now live in an age of insecurity where tensions are rising between the two world powers, America and China”. Her focus on global insecurity owes something to the work of British political scientist Mark Leonard, who in his book The Age of Unpeace, suggests increased connectivity forged by economic globalisation has become a source of world conflict.[4] Such a world demands, in Reeves’ view, a “more active state” and greater “care about where things are made and who owns them”.

In Australia, Anthony Albanese’s Labor Government is pursuing a similar line of thinking. In the 1980s and 1990s, the Labor governments of Bob Hawke and Paul Keating, forerunners to Clinton and Blair, took a third way approach to the Australian economy, overseeing a programme of privatisation and reductions in trade union activity. Today, however, Australian Treasurer Jim Chalmers, a disciple of Keating, expresses a desire to break away from this old ideology. Appointed in 2021, Chalmers outlined his political philosophy in The Monthly magazine.[5] It begins, somewhat surprisingly, with a dictum from pre-socratic philosopher Heraclitus (“no man ever steps in the same river twice”). The quote is instructive. Chalmers believes today’s crises cannot be solved by returning to familiar economic waters. He calls his new approach “values-based capitalism”: a partnership between business, labour and government.


One of the centre-left’s principal problems electorally is the defection of its working-class base to right-wing and populist parties.


Here he cites the work of American-Italian-British economist Mariana Mazzucato, who has written extensively on public-private partnerships and the importance of state investment to technological innovation. Her ideas gained currency on the centre-left during the pandemic when state and industry mobilised their resources to create the vaccine. In The Entrepreneurial State, she argues that the United States’ economic success is the result of public investment in technology.[6] In The Mission Economy, she turns this idea into a programme of action, which calls on governments to mobilise resources towards national moonshot-style missions.[7] In May 2023, Keir Starmer copied the idea. vowing to make the next Labour government “mission-driven”, outlining five national missions that will shape its priorities.[8]

One of the centre-left’s principal problems electorally is the defection of its working-class base to right-wing and populist parties. This problem has haunted Germany’s now-Chancellor Olaf Scholz ever since his Social Democratic Party (SDP) was defeated in Germany’s 2017 federal elections. Four years later, the SDP under Scholz recorded its best result since 2005 and emerged as the biggest party for the first time since 2002. Scholz formed a coalition government and became Chancellor. His triumphant election plan, which he believed could revive the centre-left across Europe, focused on the concept of “respect”.[9] On the campaign trail, he contrasted the “meritocratic exuberance” of those who believed they were “self-made” with those “who actually keep the show on the road”. Scholz argued that the latter - referred to as “key workers” during the pandemic - did not get the “respect” they deserved.

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Following his 2017 defeat, Scholz read widely, including Didier Eribon’s Returning to Reims [10]and JD Vance’s Hillbilly Elegy,[11] first-hand accounts of the politically deserted working-class heartlands of France and America respectively. He also read the Serbian-American economist Branko Milanović, whose work demonstrates how income inequality is widening.[12] Most of all, though, Scholz’s campaign rhetoric owes itself to the thinking of Harvard political philosopher Michael Sandel. In The Tyranny of Merit Sandel argues the populist backlash that kept the centre left out of power was sparked by a revolt against the prevailing meritocratic order.[13] Sandel believes that meritocracy, which began as the idea that everyone should be able to fulfil their potential, has become a justification for inequality. The term itself began life as satire, coined by the British sociologist Michael Young in his dystopian work The Rise of the Meritocracy.[14] But it was unironically embraced by centre-left parties like the SDP during the 1990s and early 2000s. Scholz said he was “left shaken” after reading Young’s book.

In power, Scholz began turning his slogan into a policy platform, raising the minimum wage to €12 an hour, and pledging to build 400,000 homes a year and to re-introduce a wealth tax. Social democratic parties throughout Europe have followed suit. In 2021, for instance, the Norwegian Labour Party returned to power with its election slogan “It’s the ordinary people’s turn now”. Its manifesto included pledges to boost employment rights and union membership.

There are times when this shift tips over into a suspicion of economic growth. First coined by Austrian-French social philosopher André Gorz, “degrowth” is defined as a planned reduction in energy and resource use in rich nations to bring the economy back into balance with the natural world.[17] Jason Hickel, who served as an advisor to Jeremy Corbyn’s Labour Party, released one of the movement’s most influential books Less is More[18], in which he sets out his vision of a post-capitalist economy. British economist Kate Raworth’s book Doughnut Economics[19], meanwhile, is also associated with the degrowth movement (though Raworth has distanced herself from the politically divisive term). In April 2020, the city government of Amsterdam became the first to embrace the concept as a programme for governance.


The Third Way of the Blair and Clinton years was always rather apologetic about the use of state power.


Rejecting the idea net-zero cannot be achieved without shrinking the economy, Keir Starmer said in a speech that he would not be “distracted by siren calls - from the right or the left - that say economic growth and net-zero do not go together”. In government, he would make Britain a “growth superpower”. In Germany, meanwhile, Olaf Scholz has vowed to boost growth by removing the “mildew of bureaucracy”. In Australia, Albanese accused the country’s opposition Green Party of being “maoist” for blocking a $10bn investment in public housing. “They are the blockers”, he said, “we are the builders”.

The one thread we can see is the return of the state. The Third Way of the Blair and Clinton years was always rather apologetic about the use of state power. After the two great state rescue plans – the financial crash and the pandemic – parties of the left are more confident about asserting the capacity of the state. Industrial policy, associated with failure and sclerosis in the 1960s, is back in vogue. The terminology remains the same – back during the Third Way years the state was always described, as it is now, as “enabling” – but the mood is different. In the USA, Germany, Australia and probably in the UK we shall see if that confidence is justified and if the state does indeed turn out to enable meaningful answers to the troubling questions those governments will inherit.  























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