The "Third Way"
("Cut to the chase!"? - OK, our Third Way [and worse case plan] is worktime economics alias Timesizing.)
This is a concept that traces at least as far back as Stuart Cloete's book, The Third Way (1947) - unless you want to go for broke and count Hegel's "thesis, antithesis, synthesis" (early 1800s). More recently, in the wake of guru Anthony Giddens and the London School of Economics, UK PM Blair and German Chancellor Schröder talked about this concept (see their joint 1999 paper Europe: The Third Way; also Ralf Dahrendorf's "Third Way and Liberty" in Foreign Affairs, Sep-Oct/99, p.13; and "University of Downing Street" in Economist, 9/04/99, p.56). It's their confused attempt to find something "somewhere between capitalism and socialism." And we're not talking about the good but apparently induplicable cooperativism of Mondragon in the Basque Pyrennees.
But there is a clear and duplicable Third Way in government and economics and it was successfully practiced for 100-150 years in all the developed nations: the avoidance of consumer-base-killing labor surplus by following up on new technology with workweek reduction in addition to or instead of downsizing. (Labor surplus slowly kills the consumer base because supply&demand lowers the prices of surpluses, and when labor is in surplus its prices, "wages," go down, giving employees and their dependents less spending money to buy consumer goods and services.) This technique involves that most difficult dimension to focus on, time, and it involves unpopular limitation, not easily understood expansion. One way to characterize this approach is in terms of government regulation (recapped on our small gov't page):
Old liberals strain to identify it. Christopher Jencks says, "Political scientists have been churning out papers on this question for more than a decade [try 'century'], and...tell a broadly similar story. ...Differences in income distribution seem to be traceable to differences in constitutional arrangements, electoral systems and economic institutions.... Economic inequality [alias work and income concentration] is less pronounced in countries where the constitutional system has few veto points, allowing the government of the day to make fundamental changes. Rules that favor a multiparty system rather than a two-party one also produce more equal [less concentrated] economic outcomes. So does proportional representation." See "Low-Wage Puzzle, p.35, American Prospect, Jan/2004. Jencks focuses on the usual chaotic liberal grocery-list of palliatives including creating more good jobs regardless of artificiality, raising the minimum wage regardless of job-market entry difficulty, and expanding the welfare state regardless of parasitism on both top and bottom.
Meanwhile, we unconsciously identified and practiced the real Third Way for the first century-and-a-half of American history as we cut the workweek in half to compensate for incoming work-saving technology. By thus avoiding wage&market-depressing labor surplus, we simultaneously, counter-intuitively, doubled&tripled wages&markets. The Third Way stops straining for job creation - which guarantees we will never get technology's promise of more free time - and just shares the vanishing work. We may actually call it worksharing or timesizing. Now that Americans have forgotten this approach on the federal level (we did it briefly and successfully five years after rejecting it in 1933), it gets independently reinvented at thousands of companies and organizations in every recession. It may also be called worktime economics (click for bibliography).
So there is a real, duplicable Third Way, but Blair and Schröder are pretty unclear on the concept (incumbent politicians don't have time to get clear on concepts). Both preside over economies that are still called capitalist but have gone pretty far over to the socialist welfare state. Margaret Thatcher moved Britain back to the right a bit with mixed results - the north of England, like rural America, is in ongoing depression - but Germany, which is further along with the real solution, has no particular awareness of what it's doing right. So it gets left to France to try programs that are much more national and targeted, and when we say 'targeted' we mean focused on capping and cutting down worktime per person in order to spread the vanishing free-market employment as work-saving technology pours into the global economy.
So Britain and Germany are talking about the Third Way, and France is doing it - cutting the national workweek down to 35 hours a week as of January 1, 2000 (the Aubry Bill of the French Left), having several years before (1996-97) offered generous taxbreaks to companies willing to cut hours to create jobs (the Robien Law of the French Right).
Of course, mainstream economists are clueless about this, yelling and screaming against the strawman "Lump of Labor Fallacy" and other figments of their limited imaginations (how much economic sci fi can you name?), but they have managed to keep the politicians pretty confused about the way ahead just the same.
Basically, incentive-damping socialism is characterized by 3 problems: (1) many stifling detailed regulations, (2) government handouts, and (3) lack of any effective upper limit on "share per person" - despite plenty of lower limits such as minimum wages, minimum workweek for unemployment insurance, federal poverty line, minimum age to escape child-labor ban....
However, socialism did make two big advances in human evolution: (A) it got government beyond defining share per person solely in the political realm with "one-person one-vote", and got it going in the more meaningful, bread-and-butter economic realm. And (B) it established the principle that we could equalize not only on a point (as in one-person one-vote) but also on a range (with an upper and lower limit to be defined) - despite the fact that socialism in practice (except in France) actually chickened out of any effective and well-designed upper limit and paid for it by getting dragged into defining endless futile lower limits, including, in addition to those mentioned in the previous paragraph, block grants, enterprise zones, workfare programs, CETA, Peace Corps, taxbreaks to firms if only they please won't downsize or move to another state, damage-control programs in the wake of free trade agreements such as NAFTA.... Practically everything done by governments in the no-cap mixed-economies of the 'developed world' is directly or indirectly a government makework campaign or a government handout, all quite ineffectual except as bandaids and crutches for incumbent politicians to pass around and boast about.
The 'Third Way' raises the question: how do we find the Holy Grail of economic design - the single all-sufficient control?
Answer: the big clue is given by G. K. Chesterton's pan-utopian flaw, which criticizes virtually all utopias, including and especially socialism and communism ("from each according to his ability, to each according to his need") for the naive assumption that no one will want more than his share - begging the question: how do we know what our fair share is in the first place? After all, we live in a media world where Greed is a popular quiz show and "I want my share" means "I want as much as I can get". Business uses lots of sports metaphors (like teamwork, gameplan, etc etc), but no sports team in the world goes year after year without reverting to zero games won at the start of every season. If sports teams did accumulate scores year after year, pretty soon there'd be no league, because some teams would be too far ahead to ever make a game with them interesting (let alone "fair").
But near-sighted, short-sighted business wants no upper limits, so we get freaks like Bill Gates with his $100 billion, more than most individual nations in the UN. Plus we get a split stock market, as well as our familiar split consumer base (vanishing middle class etc). And we get a burgeoning horde of ineffectual government-wheelspinning lower limits. We have listed some of them in the 5th and 6th paragraphs (above). Why ineffectual? Because setting the lower limit without the upper just makes the whole still-unlimited range ratchet upward, for example, via inflation. And because we always have a close default lower limit anyway, namely, zero per person. Contrary to popular belief, the bottom of society is not really the problem, because there IS a bottom. It's the top of society that's the problem, because there is NO TOP, and the ongoing unlimited motion toward Black Hole levels of wealth compaction just grows and increases the bottom. The thing we don't have is a near- or even mid-range upper limit. We do have a remote upper limit that engages when, say (we need to research the exact threshold), 1% of the population concentrates 99% of the wealth. Then the whole system crashes because there isn't enough consumer base in the luxury markets alone to sustain investment in the massive technology-driven productivity. And when the remote, default upper limit engages, it hurts the whole population at once, and not just one starving homeless person at a time, as when the close, default lower limit engages.
So focusing on lower limits is a way for government and society to put a maximum of investment into points of minimum return. We can keep trying so many different lower limits - without solving anything. Eternally "curing symptoms, not the disease," etc. This is called "liberalism." Ted Kennedy had the guts to admit he was a "liberal" when no one else did, but it's still a lame, outdated approach.
And legions of lower limits do not satisfy our Third Way, 'Holy Grail" criterion of a single control, let alone the criterion of an all-sufficient control in the sense that it has to be effectual. So what's the next intelligent step if we don't want to just keep spinning our wheels? What's the "minimum necessary departure from status quo" when the status quo is "range equalization - lower limit only"?
It doesn't take a rocket scientist to come up with "range equalization - upper limit only". As many people have pointed out, the low end is not the problem because zero is always so close. The U.S. federal budget for welfare is a tiny fraction of its budget for corporate welfare and its revenues foregone due to taxbreaks for the wealthy. In short, the wealthy cost taxpayers a LOT more money than the poor, and though they don't complain any less, they complain so much more effectively!
So where do we define this upper limit? Or where can we define it at this point in human evolution? We can't define it on wealth or income, because transferring money without exchanging it for work just creates dependency. But there's our clue - we can define an upper limit on work. In fact, we did define upper limits on work for the first 150 years of the American economy, by gradually dropping the workweek from the 72-84 hour levels of the late 1700s to the 40-hour level in 1940. And that roughly kept people employed and things roughly in balance (very roughly) in the face of inpouring technological work-savings and immigrants for 150 years. Then the economists started yelling against worktime reduction with eyebrow raisers like "technology creates more jobs than it destroys" and "Lump of Labor Fallacy," trying ever more desperately to make "Say's Law of Markets" work by erecting a Gospel of Consumption and going for ever shriller advertising and junkmail and spam. So the workweek stuck at 40 for the last 60 years, despite wave after wave of more efficient and productive technology.
This whole stressful game is going to blocked sooner or later by ecological constraints. It's happening in spots already, as long ago as Easter Island in the 1200-1300s, as recent as the nuclear power industry's mounting problem with radioactive waste disposal and sprawling Los Angeles' increasingly desperate and aggressive quest for water. Why wait till we're all at each other's throats? Let's get moving toward a long-term Third Way now - Timesizing - the Holy Grail of economic designers.
Comments, questions, suggestions? E-mail us or phone 617-623-8080 (Boston).